REG - Alfa Financial Soft - 2021 Half-year Report
22 September 2021
Alfa Financial Software Holdings PLC
2021 Half Year Report
Stepping into our opportunity
Alfa Financial Software Holdings PLC ("Alfa" or the "Company"), a leading developer of software for the asset finance industry, today publishes its unaudited results for the six months ended 30 June 2021.
Financial highlights:
Results
H1 2021
H1 2020
Movement
£m, unless otherwise stated
Unaudited
Unaudited
%
Revenue
41.1
38.2
8%
Operating profit
11.4
10.4
9%
Profit before tax
11.0
10.1
9%
Earnings per share - basic (pence)
2.98
2.68
11%
Earnings per share - diluted (pence)
2.93
2.62
12%
Special Dividend declared per share (pence)
10.0
15.0
(33)%
£m, unless otherwise stated
H1 2021 Unaudited
31 Dec 2020 Audited
Movement %
Cash
50.0
37.0
35%
Key measures (1)
H1 2021
H1 2020
Movement
£m, unless otherwise stated
Unaudited
Unaudited
%
Revenue - constant currency
41.1
36.7
12%
Operating profit - constant currency
11.4
9.3
22%
Operating free cash flow conversion (%)
138%
108%
28%
Total Contract Value (TCV)
125.2
96.4
30%
(1) See definitions section for further information regarding calculation of measures not defined by IFRS.
Overview/Summary:
· Revenue ahead of expectations and up 8% versus H1 2020 despite currency headwinds
· Operating profit 9% up on H1 2020
· Subscription revenues up 46% from same period last year
· Increasing diversification of customer base; Top five customers 43% of revenues in H1 2021 (H1 2020: 55%)
· Two new customer wins in recent weeks, making five in total this year
· Strong delivery and Cloud Hosting performance
· Continuing to invest in people and product for future growth
· High employee engagement
· Robust balance sheet position with £50m of cash and no debt
· Special Dividend of 10 pence per share (£30m) declared taking total dividends over 12 months to 26 pence and £77m
· Encouraging progress in converting late stage pipeline with TCV up by 30% since H1 2020 to £125m supported by our strategic accelerators
· ISS ESG Prime status awarded
Andrew Denton, Chief Executive Officer
"I am really pleased with the way that we have performed in the first half of 2021. We have continued to make progress across the Company, further developing our software, delivering for our customers and continuing to attract, retain, develop and support the smart, diverse people who underpin all we do. Our success at converting the late stage pipeline and our strong delivery performance have led us to increase further our expectations for 2021, and we now expect to exceed previous market revenue estimates by circa 4%. An encouraging early stage pipeline and strong growth in subscription revenues give us increased confidence in next year's performance. Looking more strategically, we have made excellent progress in the key areas of subscription, Alfa Start and partnership as well as ensuring a continued focus on those technologies that have the potential to create step change for our customers."
Enquiries
Alfa Financial Software Holdings PLC
+44 (0)20 7588 1800
Andrew Denton, Chief Executive Officer
Duncan Magrath, Chief Financial Officer
Andrew Page, Executive Chairman
Tulchan Communications LLP
+44 (0)20 7353 4200
James Macey White
Matt Low
Barclays
+44 (0)20 7623 2323
Robert Mayhew
Edward Hill
Investec
+44 (0)20 7597 4000
Patrick Robb
Sebastian Lawrence
Investor and analyst webcast
The Company will host a conference call today at 09:30am. To obtain details for the conference call, please email alfa@tulchangroup.com. Please dial in at least 10 minutes prior to the start time.
An archived webcast of the call will be available on the Investors page of the Company's website, https://investors.alfasystems.com/.
Notes to Editors
Alfa has been delivering software systems and consultancy services to the global asset and automotive finance industry since 1990. Our best practice methodologies and specialised knowledge of asset finance facilitates delivery of large software implementations and highly complex business change projects. With an excellent delivery track record spanning three decades, Alfa's experience and performance is unrivalled in the industry.
Alfa Systems, our class-leading technology platform, is at the heart of some of the world's largest asset finance companies. Key to the business case for each implementation is Alfa Systems' ability to replace multiple customer systems with our single platform. Alfa Systems supports both retail and corporate business for auto, equipment, wholesale and dealer finance on a multijurisdictional basis, including leases/loans, originations and servicing. An end-to-end solution with integrated workflow and automated processing using business rules, Alfa Systems provides compelling solutions to asset finance companies.
Alfa Systems is currently used by customers or has live implementations in 26 countries and Alfa has offices in Europe, Australasia and North America. For more information, visit www.alfasystems.com.
Forward-looking statements
This Half Year Report (HYR) has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The HYR should not be relied on by any other party or for any other purpose. This report contains certain forward-looking statements. All statements other than statements of historical fact are forward-looking statements. These include statements regarding Alfa's intentions, beliefs or current expectations, and those of our officers, directors and employees, concerning (without limitation), with respect to the financial condition, results of operations, liquidity, prospects, growth, strategies and businesses of Alfa. These statements and forecasts involve known and unknown risks, uncertainty and assumptions because they relate to events and depend upon circumstances that will or may occur in the future and should therefore be treated with caution. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by applicable law, Alfa disclaims any obligation or undertaking to update the forward-looking statements or to correct any inaccuracies therein, or to keep current any other information contained in the HYR. Accordingly, reliance should not be placed on any forward-looking statements.
BUSINESS REVIEW
Strong first half performance
The first half of 2021 has seen good progress across all parts of our business. We have continued to deliver successful implementations with increased usage of our scalable and reliable cloud hosting solution, at the same time as releasing significant enhancements to our software. We have seen good growth in our contracted orders with Total Contracted Value ("TCV") up 11% since FY 2020 and we have also replenished and grown our pipeline which gives us good visibility of prospective work for 2022. Importantly we have grown our headcount despite a tight labour market, and our strong pipeline has enabled us to remain fully utilised. Importantly for the future we have kept attrition rates low and improved our employee engagement, which is now at 73%.
Financial performance in the first half has also been strong. Revenue of £41.1m (2020 H1: £38.2m) was up 8% on last year. We have continued to reduce our dependency on key customers, with our top 5 customers representing 43% of our revenues in H1 2021, compared with 55% in H1 2020 and 64% in H1 2019. We had thirteen customers contributing revenues of more than £1m in the period, up from ten in H1 2020 and seven in H1 2019. Average headcount in the period was 375 (2020 H1: 322) a 16% increase, which drove higher salary costs. Hosting costs also grew as that business increased over the same period last year. Both of these were partially offset by a full six months of reduced travel and office costs compared with H1 2020. The overall revenue increase of £2.9m was partially offset by increased costs of £1.9m resulting in Operating Profit up £1.0m to £11.4m (2020 H1: £10.4m). Cash conversion was strong at 138% and we finished the period with net cash of £50.0m (31 Dec 2020: £37.0m).
We were also delighted on 28 June 2021, to achieve an ISS ESG "Prime" rating. ISS ESG takes an absolute best-in-class approach by industry, so companies are categorized as "Prime" if they achieve/exceed the sustainability performance requirements (the "Prime threshold") defined by ISS ESG for each specific industry in the ESG Corporate Rating.
Subscription
Subscription is the fastest growing element of our revenues and comprises any revenues that are recurring including monthly or annual maintenance billing, cloud hosting services and bundled licence, maintenance and hosting contracts. We now have a Cloud First approach to our sales approach as we see real benefits in the speed of implementation for customers and the reliability of the service and built-in tools, including automated monitoring, patching and scheduling, that our hosting service provides. We anticipate that the majority of new customers will take a hosted service and all of the current v4 to v5 upgrades are moving into a hosted v5 environment. In addition we expect that new customers will increasingly take bundled licence, hosting and maintenance contracts. We now have five customers taking Cloud Hosting services for live production environments and have eight customers taking hosting services during design and implementation, most of which will become live production customers, to give a total of thirteen customers taking hosting services up from ten at the end of 2020.
The number of customers with ongoing maintenance contracts has increased to twenty-eight from twenty-two at the end of 2020.
Software
Our strategy is to continue to develop our software, to ensure that we meet customer needs as they evolve and as the regulatory environment changes. We release a new update of Alfa every 4 weeks, each one of which makes available to customers enhancements that maintain our edge as a leading provider of asset finance software.
During 2021 we have significantly advanced our ability to service wholesale customers which is a new market for Alfa. These enhancements allow support for all asset types, speedier access to funds for wholesale customers while tracking and managing contracts through the early stages, and allowing for bulk changes to wholesale contract curtailment schedules. We now have two customers using our wholesale functionality and one of our major contract wins in the first half was for a wholesale only customer.
We have also delivered improvements in the areas of credit decisioning, business rule creation and regulatory support for European markets.
The new user interface (UI) that we launched last year is now in production with eight customers and these new UI approaches have been used to develop collections and curtailments functionality.
Overall software revenue reduced compared with last year due to the reduction in brand new Alfa implementations and consequently a reduction in licence income, although this was partially offset by increased development days for existing customers, including those upgrading from Alfa Systems v4 to v5.
Services
Services revenues are derived from all of the work on implementations and other services but excludes development days on new and existing customers (which is shown in Software). We have continued to deliver a very high level of service to customers, whilst operating 100% remotely during the period. In the first six months of 2021 we saw go-lives on a UK Alfa Start project, a UK v4 to v5 upgrade, the continuation of a multi-country implementation across a further four European countries, implementing for new business following the acquisition of a company and the launch of three new modules for an existing customer.
We have grown our customer-serving team, however a greater proportion of their time was spent on software development which shows in Software and so the Services days remained relatively constant. Within services there was a reduction in new implementation work, offset by the implementation of v4 to v5 upgrades.
We have also grown our access to partner resources and in the first half of the year we had partners operating with us for seven customers, which is up from four customers for the same period last year. Overall days were down, although if we exclude the Systems Integration work done by a partner on one large pre-implementation project last year which did not move to the implementation stage, total partner days were up circa 15%.
Alfa iQ - putting theory into practice
We have made good progress in demonstrating the potential of Alfa iQ and the improvements that can be made to customers' return on capital while building the processes and structures to support live projects. We have also produced three white papers challenging traditional thinking in the industry. Up until now Alfa iQ has relied on using resources from Alfa and Bitfount, the joint venture partners, however we have now recruited our first two external new hires. In the period Alfa iQ achieved ISO 27001 certification. We remain on track to start generating revenue from the business in 2022.
Strong engagement with our people
We made a decision at the start of the year to give a degree of certainty to our people in uncertain times, and so stated that we would not be asking anyone to return to our offices before September. We have however recognised that for some people it was important for them to be able to work away from their home environment, and so as soon as it was safe to do so we opened our offices for those who wanted to work there. Over the next few months we will encourage people to try working back in the office for at least some of the week, and intend to implement "Smart Working" from January 2022. This will not be a one-size fits all approach, but will combine hybrid office/home working along with some remote working to provide the best working environment to retain and attract the best people. We have continued to arrange remote events to keep engagement high ranging from short presentations on work and life topics through to Company-wide hackathons, innovation days and conferences.
Engagement and retention has remained high, and we continue to be able to attract high quality diverse people to Alfa, however we recognise that the market remains tight for quality software engineers and so we work hard to ensure that we are the employer of choice. With this in mind, we have a very full agenda in our global HR function, where activity has included updating our approach to onboarding and to learning and development as well as an ongoing review of rewards and benefits. Employee share ownership has always been important to Alfa and we're introducing a Save as You Earn (SAYE) share scheme in the UK and an Employee Stock Purchase Plan (ESPP) share scheme in the US in the coming months.
Capital return
We remain a strongly cash generative business and our cash balances continued to grow during the period. We continuously review our strategy and assess the funds needed to pursue that strategy and then review the options for any excess funds. When presenting our 2020 results we committed to starting a program of regular dividends, and we remain committed to doing this through the declaration of a single ordinary dividend each year alongside our full year results. Despite the payment of a regular dividend, we expect to continue to generate excess cash and so from time to time will also look to return any excess cash. Having made an assessment of our potential investment needs and reviewing our internal forecasts for the next 12-18 months we have declared a Special Dividend of 10 pence per share, for a total payment of £30m. This will still leave Alfa with a strong balance sheet position, but will have generated total dividends for shareholders over the last 12 months to 26 pence per share or £77m.
Favourable market conditions
While the underlying asset finance market did initially see a dip in activity following widespread Covid-19 lockdowns, it has broadly been recovering during H2 2020 and continued to do so through H1 2021 and we now see favourable market conditions. Regarding the asset finance software market, since the initial disruption of the uncertainty caused by Covid-19 in H1 2020, we have seen no adverse impact on our market. Indeed, the remote working that companies have been forced to adopt, and are increasingly looking to be standard practice going forwards, has accelerated moves towards a digital strategy, alongside increasing regulatory push factors, both of which Alfa is well positioned to benefit from.
Good conversion of late stage pipeline
When we announced our 2020 results we had a strong late-stage pipeline, but highlighted the importance of converting this into signed contracts and that converting prospects into signed contracts was taking longer than normal. We announced in July that we had converted three of these prospects into wins, and in recent weeks we have converted two more. We still have not lost any customers out of the late stage pipeline and this strong conversion demonstrates that we have a compelling proposition. This of course is backed up by our very strong delivery record. We do however still see that getting to signed licence contracts is taking longer than a few years ago, although this is offset by the increasing trend towards Minimum Viable Product (MVP) solutions, which have the advantage of getting us on the ground faster, although long term security takes longer to achieve.
Early stage pipeline looking promising
As we noted above we believe the pandemic has accelerated companies' thinking about the risks they take in running legacy software platforms. We see many situations where companies are running old on-premise equipment and there is a clear opportunity for them to adopt more resilient and reliable cloud-based systems with greater functionality. Other trends in the industry include moves towards banking as a service, direct and hybrid sales, and an emphasis on the importance of the customer journey. We have developed a powerful and compelling proposition to make the most of these industry trends. We now have visibility of a number of prospects that, whilst at a very early stage, show how we can replenish and continue to grow our pipeline.
Outlook
Total revenues in 2020 were £78.9m, with underlying revenues of £73.3m once £5.6m of one-off licence income is removed. Our success at converting the late stage pipeline and our strong delivery performance have led us to further increase our expectations for 2021, and we now expect to exceed previous market revenue estimates by circa 4%, which would represent healthy growth over 2020 underlying revenues, despite the adverse impact of currency.
FINANCIAL REVIEW
Financial Results
H1 2021
H1 2020
Movement
£'000s
Unaudited
Unaudited
%
Revenue
41,096
38,174
8%
Operating expenses - net
(29,728)
(27,787)
7%
Operating profit
11,368
10,387
9%
Share of results of associates and joint ventures
(24)
(1)
n/a
Finance income
28
75
(62%)
Finance expense
(369)
(408)
(9%)
Profit before tax
11,003
10,053
9%
Taxation
(2,195)
(2,222)
(1%)
Profit for the period
8,808
7,831
12%
Revenues increased by 8% or £2.9m to £41.1m in the six months ended 30 June 2021 (H1 2020: £38.2m). Growth at constant currency was 12%.
Operating profit increased by £1.0m to £11.4m (H1 2020: £10.4m), due to the £2.9m increase in revenues, partially offset by £1.9m increase in expenses, principally due to a £2.2m increase in salary costs from pay rises and increased headcount.
Net finance costs which relate to leases expense of £0.3m (H1 2020: £0.3m) resulted in profit before tax of £11.0m (H1 2020: £10.1m). The Effective Tax Rate ("ETR") for the 2021 half year is 19.9% (H1 2020: 22.1%). For the full year 2021 we expect the ETR to be around 18% (2020: 12.4%), with this increase reflecting that the prior year benefited from R&D tax relief for the two years 2018 and 2019, whereas the current year will reflect the R&D tax relief for 2020 only, the resulting profit for the period was £8.8m (H1 2020: £7.8m).
Revenue
Revenue - by type
H1 2021
H1 2020
Movement
£'000s
Unaudited
Unaudited
(*restated)
%
Subscription*
11,353
7,752
46%
Software*
6,413
7,937
(19%)
Services*
23,330
22,485
4%
Total revenue
41,096
38,174
8%
*To better reflect the nature and type of revenue, changes have been made to the classification and allocation of revenue line items. The comparative disclosures for the June 2020 reporting period have also been amended to reflect a fair base for comparability. These changes have had no impact on the total revenue or the profit before tax that were disclosed at the end of June 2020. Software revenues include revenues from recognition of customised licence revenue, one-off licence fees and any development revenues. Subscription revenues include recurring revenues paid on a monthly or annual basis, including subscription licence revenues, maintenance and cloud hosting. Services revenues are revenues from any work done for customers including pre-implementation, implementation work, and ongoing services, but excludes any revenue from development work.
Subscription revenues
Overall subscription revenues increased 46% to £11.4m (2020 H1: £7.8m). The increase was driven by a 14% increase in maintenance revenues up from £7.0m to £8.0m, along with a five-fold increase in hosting and bundled subscription revenues over the same period last year. In total 13 customers are now taking bundled or hosting only contracts. We anticipate that the majority of new customers will take a hosted service and all of the current v4 to v5 upgrades are moving into a hosted v5 environment.
The number of customers with ongoing maintenance contracts has increased to 28 from 22 at the end of 2020.
Software revenues
Software revenues of £6.4m were down £1.5m or 19% on last year (H1 2020: £7.9m). As previously discussed more of our implementation work this year has been for v4 to v5 upgrades, which generally do not attract additional licence payments, except where customers take on additional modules and so the income from customised licences was lower. This was partially offset by income from increased development work for new customers, including those going through v4 to v5 upgrades.
Services revenues
Total Services revenue increased by 4% to £23.3m (H1 2020: £22.5m) at actual exchange rates. There was a reduction in pre-implementation revenues, where last year we had two large customers requiring detailed pre-implementation work. Overall implementation revenues were largely unchanged, although as previously described a lot of the activity was for upgrades as opposed to new implementations. There was however an increase in ongoing services work for existing customers.
Total Contracted Value (TCV)
TCV - by type (unaudited)
2021
2020
£'m
H1
FY
Subscription
77.2
69.1
Software
18.8
12.8
Services
29.2
31.0
Total TCV
125.2
112.9
Definition of TCV is included in the definition section of this Half Year Report
Total contracted value (TCV) increased over the first six months of the year by 11% to £125.2m as at 30 June 2021 (31 December 2020: £112.9m, 30 June 2020: £96.4m). As expected the Subscription TCV has increased 12% as the number of customers has increased, and there was also an increase in Software, from secured development work and licences from the contracts that were won in the period. Of the TCV at 30 June 2021, £55.7m (H2 2020: £52.3m) is anticipated to convert into revenue within the next 12 months, assuming contracts continue as expected and are not cancelled or delayed. This includes £10.2m (H2 2020: £6.1m) of Software revenues, £24.0m (H2 2020: £22.4m) of Subscription revenues and £21.5m (H2 2020: £23.8m) of Services revenues.
Operating profit
The Group's operating profit increased by £1.0m, or 9%, to £11.4m in H1 2021 (H1 2020: £10.4m) primarily reflecting the £2.9m increase in revenues, partially offset by an increase in the Group's cost base as we continued to invest in the business, through increased headcount although this was partially offset by reduced partners costs which were high in H1 2020 due to one large pre-implementation project. The Group's operating profit on a constant currency basis increased by 22%.
Headcount numbers were up 14% at 30 June 2021 at 389 (H1 2020: 340), and our staff retention rate has been 94% over the 12 months up to that date.
Expenses - net
H1 2021
H1 2020
Movement
£'000s
Unaudited
Unaudited
(restated)
%
Cost of sales*
14,981
14,138
6%
Sales, general and administrative expenses*
14,995
13,914
8%
Other income
(248)
(265)
(7%)
Total expenses - net
29,728
27,787
7%
*To better reflect the nature and function of certain expenses, changes have been made to the classification and allocation of expense line items. The comparative disclosures for the June 2020 reporting period have also been amended to reflect a fair base for comparability. The main expense items affected by this reclassification were salary costs and computer costs. These changes have had no impact on the total expenses or the profit before tax that were disclosed at the end of June 2020.
Cost of sales increased by £0.9m to £15.0m (2020: £14.1m) due to higher salary costs from the increase in customer facing headcount along with increased hosting costs.
Sales, general and administrative (SG&A) expenses increased by £1.1m to £15.0m in the six month period to 30 June 2021 (H1 2020: £13.9m). This included increased salary costs through higher headcount although this was somewhat offset by the reduction in contractor costs. In addition Profit Share Pay increased to £1.3m (2020 H1: £0.9m) along with increases in the share-based payment charges in H1 2021 to £0.7m (H1 2020: £0.5m), there has also been an increase in foreign currency differences of £0.7m, which moved from a gain of £0.4m in H1 2020 to a loss of £0.3m in H1 2021. The above factors were offset by a further reduction on travel and conference costs, as there was almost no travel for the whole six month period.
Finance costs
Net finance costs which relate to leases of £0.3m (H1 2020: £0.3m) remained relatively unchanged. Income on cash balances remained low given the current low interest rate environment.
Profit for the period
Profit after taxation increased by £1.0m, or 12%, to £8.8m in H1 2021 (H1 2020: £7.8m). The Effective Tax Rate ("ETR") for the 2021 half year is 19.9% (H1 2020: 22.1%). For the full year 2021 we expect the ETR to be around 18% (2020: 12.4%), with this increase reflecting that the prior year benefited from R&D tax relief for the two years 2018 and 2019, whereas the current year will reflect the R&D tax relief for 2020 only.
Earnings per share
Basic earnings per share increased by 11% to 2.98 pence in H1 2021 (H1 2020: 2.68 pence). Diluted earnings per share increased by 12% to 2.93 pence (H1 2020: 2.62 pence).
Cash flow
Net cash (including the effect of exchange rate changes) increased by £13.0m to £50.0m at 30 June 2021, from £37.0m at 31 December 2020. This increase has been driven by cash generated from operations, annual maintenance payments received in the period, and continued focus on cash management by the Group. Taken together, this resulted in the Group's Operating Free Cash Flow Conversion (FCF) of 138% (H1 2020: 108%). This is a very strong result and higher than our ongoing trend which will be closer to 100% conversion.
In addition to an increase in cash generated from operations of £17.2m, the Group incurred £0.6m on capital expenditure (H1 2020: £0.6m) and received net tax repayments of £0.3m (H1 2020: paid £1.4m) including the research and development tax credit claim during the period, which was why there was an unusually low effective tax rate for FY 2020. The Group has no external bank borrowings.
In the six months ended 30 June 2021, net cash outflows of £3.5m (H1 2020: £0.8m) from financing activities related to the principal element of lease payments and funding the Employment Benefit Trust for the purchase of shares to satisfy current and future LTIP vestings, avoiding potential dilution.
No ordinary dividends have been paid in the six months ended 30 June 2021 (the 2020 final dividend of £3.0m had a record date of 11 June 2021 and was paid on 2 July 2021). The Board have declared a 10 pence per share Special dividend, amounting to £30m, payable on 5 November 2021 with a record date of 8 October 2021 and an ex-dividend date of 7 October 2021.
Balance sheet
The significant movements in the Group's balance sheet, aside from the cash balance which is described above, from 31 December 2020 to 30 June 2021 are detailed below.
The trade and other receivables balance increased by £5.3m to £19.0m at 30 June 2021 (31 December 2020: £13.7m) as a result of higher billings due to the overall increased revenue during H1 2021 including the impact of the annual maintenance billing in May.
The trade and other payables balance increased by £4.4m to £12.5m at 30 June 2021 (31 December 2020: £8.1m) principally due to the dividend payable of £3.0m on 2 July 2021 and an increase in the holiday pay accrual of £0.7m reflecting the seasonality of fewer holidays being taken in the first half of the year.
Contract liabilities increased by £7.9m to £14.9m at 30 June 2021 (31 December 2020: £7.0m) reflecting the fact that the majority of annual maintenance contracts run on a 1 May - 30 April period and as such a larger proportion of the annual amount is deferred at 30 June compared with 31 December.
Subsequent events
In the period since 30 June 2021, there have been no material subsequent events.
Related parties
Details about related party transactions are disclosed in note 16.
PRINCIPAL RISKS AND UNCERTAINTIES
Principal risks and uncertainties which could have a material impact on the long-term performance of Alfa Financial Software Holdings PLC and its subsidiaries were set out in the Alfa Financial Software Holdings PLC Annual Report for the year ended 31 December 2020, dated 22 March 2021, and remain valid at the date of this report.
Those risks and uncertainties at the date of this report where the impact continues to be assessed as "Major" and where the probability of the event is assessed as at least "Possible" were:
· Socio-economic and geo-political risk - the potential impacts from Covid-19 on the macro-economic environment leading to global and local recessions. The previously identified potential impacts following the end of the Brexit transition period have reduced;
· IT security and cyber risks - a targeted attack could adversely affect our customers' or potential customers' perception of Alfa Systems and could impact our ability to operate our business;
· High customer concentration - we have significant customer concentration risk due to the size and duration of our software implementation projects.
In addition and in light of the Covid-19 pandemic, the following risk is highlighted. This was included in the 2020 Annual Report with the impact being assessed as "Moderate" and where the probability of the event as being assessed as "Likely". Since the Annual Report, the likelihood of this risk's identified impacts has been reduced and reassessed as "Possible":
· Pandemic outbreak in Alfa and/or customer geographies - may impact the health of our people, may continue to cause economic disruption, and hinder the movement of our people to our offices or those of the customer.
In addition, the following risk has been reassessed to have an increased probability, moving from "Unlikely" to "Possible", still with an impact of "Major":
· Risk to people, skills, location and working environment - we are seeing increased competition for talent, and there is an increased risk that this will impact our recruitment and retention.
UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2021
£'000s
Note
H1 2021
Unaudited
H1 2020
Unaudited
(restated)
Revenue
3
41,096
38,174
Cost of sales*
(14,981)
(14,138)
Gross profit
26,115
24,036
Sales, general and administrative expenses*
(14,995)
(13,914)
Other operating income
248
265
Operating profit
4
11,368
10,387
Share of results of associates and joint ventures
(24)
(1)
Profit before net finance costs and tax
11,344
10,386
Finance income
28
75
Finance costs
(369)
(408)
Profit before tax
11,003
10,053
Tax expense
6
(2,195)
(2,222)
Profit for the period attributable to owners of the parent
8,808
7,831
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation of foreign operations
(84)
810
Total comprehensive income, net of tax
(84)
810
Total comprehensive income for the period attributable to owners of the parent
8,724
8,641
Earnings per share (in pence)
Basic
2.98
2.68
Diluted
2.93
2.62
*To better reflect the nature and function of certain expenses, changes have been made to the classification and allocation of expense line items. The comparative disclosures for the June 2020 reporting period have also been amended to reflect a fair base for comparability. The main expense items affected by this reclassification were salary costs and computer costs. These changes have had no impact on the total expenses or the profit before tax that were disclosed at the end of June 2020.
The consolidated statement of profit or loss and comprehensive income should be read in conjunction with the accompanying notes.
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021
£'000s
Note
30 June
2021Unaudited
31 Dec 2020
Audited
Assets
Non-current assets
Goodwill
7
24,737
24,737
Other intangible assets
8
2,218
2,153
Property, plant and equipment
9
803
885
Right-of-use assets
10
14,097
14,841
Deferred tax assets
848
1,794
Interests in joint ventures
377
394
Total non-current assets
43,080
44,804
Current assets
Trade and other receivables
11
19,006
13,668
Cash and cash equivalents
49,986
37,020
Total current assets
68,992
50,688
Total assets
112,072
95,492
Liabilities and equity
Current liabilities
Trade and other payables
12
12,466
8,120
Corporation tax
12
3,175
1,266
Lease liabilities
13
1,770
1,701
Contract liabilities
3d
14,863
6,994
Total current liabilities
32,274
18,081
Non-current liabilities
Lease liabilities
13
14,980
15,790
Provisions for other liabilities
1,191
1,392
Total non-current liabilities
16,171
17,182
Total liabilities
48,445
35,263
Capital and reserves
Share capital
300
300
Translation reserve
7
91
Own shares
14
(1,450)
-
Retained earnings
64,770
59,838
Total equity
63,627
60,229
Total liabilities and equity
112,072
95,492
The consolidated statement of financial position should be read in conjunction with the accompanying notes.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2021
£'000s
Notes
Share
capital
Own shares
Translation reserve
Retained
earningsEquity
attributable to owners of the parent
Balance as at 1 January 2020
300
-
26
82,017
82,343
Profit for the financial period
-
-
-
7,831
7,831
Other comprehensive income
-
-
810
-
810
Total comprehensive income for the period
-
-
810
7,831
8,641
Equity settled share-based payment schemes
-
-
-
539
539
Balance as at 30 June 2020
300
-
836
90,387
91,523
Balance as at 1 January 2021
300
-
91
59,838
60,229
Profit for the financial period
-
-
-
8,808
8,808
Other comprehensive income
-
-
(84)
-
(84)
Total comprehensive income for the period
-
-
(84)
8,808
8,724
Equity settled share-based payment schemes
-
-
-
670
670
Equity settled share-based payment schemes - deferred tax impact
-
-
-
(369)
(369)
Dividend payable
(2,986)
(2,986)
Own shares distributed
14
-
1,191
-
(1,191)
-
Own shares purchased
14
-
(2,641)
-
-
(2,641)
Balance as at 30 June 2021
300
(1,450)
7
64,770
63,627
The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2021
£'000s
Note
H1 2021
Unaudited
H1 2020
Unaudited
Operating profit
11,368
10,387
Adjustments:
Depreciation
1,079
1,153
Amortisation
374
384
Share-based payment charge
670
539
Movement in provisions
(201)
(309)
Movement in contract liabilities
7,869
3,505
Movement in working capital:
Movement in trade and other receivables
(5,347)
(6,219)
Movement in trade and other payables
(excluding contract liabilities)
1,357
3,232
Cash generated from operations
17,169
12,672
Interest paid
-
(6)
Interest element on lease payments
(369)
(402)
Income taxes received / (paid)
295
(1,431)
Net cash generated from operating activities
17,095
10,833
Cash flows from investing activities
Purchases of property, plant and equipment
9
(124)
(173)
Purchase of computer software
8
(2)
(29)
Payments for internally developed software
8
(437)
(399)
Loss on disposal of computer software and property, plant and equipment
9
2
38
Interest received
28
75
Investment in joint venture
-
(401)
Net cash (used in) investing activities
(533)
(889)
Cash flows from financing activities
Principal element of lease payments
13
(881)
(846)
Purchase of own shares
14
(2,641)
-
Net cash (used in) financing activities
(3,522)
(846)
Net increase in cash and cash equivalents
13,040
9,098
Cash and cash equivalents at the beginning of the period
37,020
58,839
Effect of foreign exchange rate changes on cash
and cash equivalents
(74)
697
Cash and cash equivalents at the end of the period
49,986
68,634
The consolidated cash flow statement should be read in conjunction with the accompanying notes.
Notes to the Condensed Consolidated Half Year Financial Statements for the six months ended 30 June 2021
1. General information
Alfa Financial Software Holdings PLC ("Alfa" or the "Company") is a public company limited by shares and is incorporated and domiciled in England. Its registered office is at Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, United Kingdom. Alfa's registration number is 10713517.
The principal activity of the Company and its subsidiaries (the "Group") is to provide software solutions and consultancy services to the asset finance industry in the United Kingdom, United States of America, Europe and Asia Pacific.
These unaudited Half Year Financial Statements have been approved for issue by the Board of Directors on 21 September 2021. These Half Year Financial Statements have been reviewed but not audited.
2. Accounting policies
2(a) Basis of preparation
The Half Year Financial Statements have been prepared in accordance with IAS 34 "Half Year Financial Reporting" as contained in UK-adopted International Accounting Standards and the Disclosure and Transparency Rules of the Financial Conduct Authority.
These Half Year Financial Statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Accordingly this report should be read in conjunction with the annual report for the year ended 31 December 2020 (the "Annual Financial Statements") which was prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and any public announcements made by Alfa during the Half Year reporting period. The Annual Financial Statements constitute statutory accounts as defined in section 434 of the Companies Act 2006 and a copy these statutory accounts has been delivered to the Registrar of Companies. The auditor's report on the Annual Financial Statements was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
The accounting policies adopted in the preparation of the Half Year Financial Statements are consistent with those used to prepare Alfa's consolidated financial statements for the year ended 31 December 2020 and the corresponding Half Year reporting period, with the exception of Own Shares refer to note 2(d).
The preparation of the Half Year Financial Statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these Half Year Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated Annual Financial Statements described above.
The Half Year Financial Statements have been prepared on a going concern basis, under the historical cost convention.
2(b) Going concern
The financial statements are prepared on the going concern basis. The Group continues to be cash-generative and the Directors believe that the Group has a resilient business model. The Group meets its day-to-day working capital requirements through its cash reserves generated from operating activities. The Group's forecasts and projections, taking account of planned dividend payments and reasonably possible changes in trading performance including the possible impacts of Covid-19, show that the Group has sufficient cash reserves to operate for a period of not less than 12 months.
The going concern assessment performed also includes downside stress testing in line with FRC guidance which demonstrates that even in the most extreme downside conditions considered reasonably possible, given the existing level of cash held, the Group would continue to be able to meet its obligations as they fall due, without the need for substantive mitigating actions and taking account of planned dividend payments.
2(c) Changes in accounting policies
The Group has not adopted any new accounting standards in the period. Other changes to accounting standards in the year had no material impact.
2(d) Own shares accounting policy
The Group has adopted an Accounting Policy with respect to Own shares which are shares held by Alfa and are disclosed as Own shares and deducted from equity.
Shares issued by the trust to employees are purchased on the market prior to issue. Shares held by the trust and not yet issued to employees at the end of the reporting period are shown as Own shares in the financial statements. See Note 14.
2(e) Seasonality
The Group is not normally significantly influenced by seasonality or cyclical fluctuation because the Group's revenues are relatively consistent throughout the year. The Group's revenue is also influenced by the number and maturity of software implementations during the period. Separately, the Group's cash flows are subject to seasonal fluctuations because (i) the Group invoices a large proportion of its customers for maintenance annually in advance in the first six months of each year, resulting in a higher inflow of cash receipts in the first half of the Group's financial year in respect of maintenance revenues and (ii) cash flows are impacted by the invoicing of up-front customer licence fees at the commencement of an implementation.
2(f) Foreign currency
The following exchange rates were used in the financial statements:
USD
Euro
AUD
NZD
Average rate 6 months to:
30 June 2021
1.39
1.15
1.80
1.94
30 June 2020
1.26
1.14
1.92
2.01
Closing rate:
30 June 2021
1.38
1.16
1.84
1.98
31 Dec 2020
1.37
1.11
1.77
1.89
3. Segment information and revenue from contracts with customers
Operating and reporting segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker ("CODM") and the 31 December 2020 annual report. The CODM considers the business from a product perspective and, therefore, recognises one operating and reporting segment, being the sale of software and related services. The Group therefore presents revenue segmentation by type of project and consolidated earnings, as presented to the CODM, along with the required entity wide disclosure.
3(a) Revenue by stream
The Group assesses revenue project streams, being Subscription, Software and Services, as summarised below:
£'000s
H1 2021
Unaudited
H1 2020
Unaudited
(restated*)
Subscription*
11,353
7,752
Software*
6,413
7,937
Services*
23,330
22,485
Total revenue
41,096
38,174
*To better reflect the nature and type of revenue, changes have been made to the classification and allocation of revenue line items. The comparative disclosures for the June 2020 reporting period have also been amended to reflect a fair base for comparability. These changes have had no impact on the total revenue or the profit before tax that were disclosed at the end of June 2020. Software revenues include revenues from recognition of customised licence revenue, one-off licence fees and any development revenues. Subscription revenues include recurring revenues paid on a monthly or annual basis, including subscription licence revenues, maintenance and cloud hosting. Services revenues are revenues from any work done for customers including pre-implementation, implementation work, and ongoing services, but excludes any revenue from development work.
3(b) Revenue by geography
Revenue attributable to each geographical market based on where the customer mainly utilises its instance of Alfa, or where the service is rendered, is as follows:
£'000s
H1 2021
Unaudited
H1 2020
Unaudited
UK
14,911
8,658
US
15,016
15,763
Rest of EMEA (excl UK)
8,940
12,637
Rest of the World
2,229
1,116
Total revenue
41,096
38,174
3(c) Revenue by currency
Revenue by contractual currency is as follows:
£'000s
H1 2021
Unaudited
H1 2020
Unaudited
GBP
18,657
12,607
USD
15,431
16,364
EUR
4,779
8,087
Other
2,229
1,116
Total revenue
41,096
38,174
3(d) Liabilities from contracts with customers
£'000s
H1 2021
Unaudited
H1 2020
Unaudited
Contract liabilities - deferred licence
5,539
3,115
Contract liabilities - deferred maintenance
9,324
8,943
Total contract liabilities
14,863
12,058
3(e) Timing of revenue
Timing of revenue - the Group derives revenue from the transfer of goods and services as follows over time and at a point in time in the following revenue segments:
H1 2021 - £'000s
Subscription
Software
Services
Total revenue
At a point in time - time and materials
-
3,269
12,506
15,775
At a point in time - fixed price
2,808
769
-
3,277
Over time - time and materials
-
1,486
9,825
11,311
Over time - fixed price
8,545
889
999
10,733
Total revenue
11,353
6,413
23,330
41,096
H1 2020 - £'000s
(restated)
Subscription
Software
Services
Total revenue
At a point in time - time and materials
-
2,324
9,302
11,626
At a point in time - fixed price
936
-
233
1,169
Over time - time and materials
-
5,047
10,686
15,733
Over time - fixed price
6,816
566
2,264
9,646
Total revenue
7,752
7,937
22,485
38,174
4. Operating profit
The following items have been included in arriving at operating profit in the table below:
£'000s
H1 2021
Unaudited
H1 2020
Unaudited
(restated)
Research and development costs*
726
709
Depreciation of property, plant and equipment
200
276
Depreciation of right-of-use lease assets
879
877
Amortisation of intangible assets
374
384
Share-based payments
670
539
*To better reflect the nature of research and development expenditure and align with capitalised development costs, changes have been made to the classification of expense line items. The comparative disclosures for the June 2020 reporting period have also been amended to reflect a fair base for comparability.
5. Employee costs
£'000s
H1 2021
Unaudited
H1 2020
Unaudited
Salaries, wages and social security contributions
17,828
16,456
Pension costs
1,977
1,726
Profit share pay
1,320
890
Share-based payments
670
539
Total employment costs
21,795
19,611
Average monthly number of people employed (including Directors)
H1 2021
Unaudited
H1 2020
Unaudited
UK
277
239
US
71
63
Rest of the World
27
20
Total average monthly number of people employed
375
322
At 30 June 2021 the Group had 389 employees (30 June 2020: 340).
6. Income tax expense
Income tax expense is calculated on management's best estimate of the full financial year expected tax rate, which is then adjusted for discrete items occurring in the reporting period. The income tax expense for the six-month period ended 30 June 2021 was £2.2m (H1 2020: £2.2m). The Effective Tax Rate ("ETR") for the 2021 half year is 19.9% (H1 2020: 22.1%). For the full year 2021 we expect the ETR to be around 18% (2020: 12.4%), with this increase reflecting that the prior year benefited from R&D tax relief for the two years 2018 and 2019, whereas the current year will reflect the R&D tax relief for 2020 only.
7. Goodwill
Goodwill arose on the acquisition of subsidiaries in 2012 as part of a group reorganisation and represents the excess of the consideration transferred and the amount of any non-controlling interest in the investment over the fair value of the identifiable assets acquired and the liabilities and contingent liabilities assumed.
We have assessed whether there are any indicators of possible impairment of goodwill. Considering, in particular the fact that we have experienced strong trading performance during the six month period along with the carrying value of the assets for the Company remaining significantly below the market capitalisation of the Company, we found no indicators of possible impairment of goodwill. As a consequence no formal goodwill impairment test has been carried out.
8. Other intangible assets
£'000s
Computer software
Internally generated software
Total
Cost
At 1 January 2020
1,394
1,542
2,936
Additions
29
399
428
Disposals
(57)
-
(57)
At 30 June 2020
1,366
1,941
3,307
Depreciation
At 1 January 2020
528
153
681
Charge for the period
173
211
384
Elimination on disposals
(29)
-
(29)
At 30 June 2020
672
364
1,036
Net book value
At 30 June 2020
694
1,577
2,271
Cost
At 1 January 2021
1,455
2,192
3,647
Additions
2
437
439
Disposals
-
-
-
At 30 June 2021
1,457
2,629
4,086
Depreciation
At 1 January 2021
820
674
1,494
Charge for the period
41
333
374
Elimination on disposals
-
-
-
At 30 June 2021
861
1,007
1,868
Net book value
At 30 June 2021
596
1,622
2,218
9. Property, plant and equipment
£'000s
Fixtures and fittings
IT equipment
Motor vehicles
Total
Cost
At 1 January 2020
1,218
3,177
40
4,435
Additions
37
136
-
173
Disposals
(1)
(40)
(40)
(81)
Foreign exchange
10
37
-
47
At 30 June 2020
1,264
3,310
-
4,574
Depreciation
At 1 January 2020
654
2,575
40
3,269
Charge for the period
55
221
-
276
Eliminated on disposal
-
(31)
(40)
(71)
Foreign exchange
10
31
-
41
At 30 June 2020
719
2,796
-
3,515
Net book value
At 30 June 2020
545
514
-
1,059
Cost
At 1 January 2021
1,202
3,282
-
4,484
Additions
3
121
-
124
Disposals
-
(29)
-
(29)
Foreign exchange
4
(116)
-
(112)
At 30 June 2021
1,209
3,258
-
4,467
Depreciation
At 1 January 2021
719
2,880
-
3,599
Charge for the period
58
142
-
200
Eliminated on disposal
-
(27)
-
(27)
Foreign exchange
4
(112)
-
(108)
At 30 June 2021
781
2,883
-
3,664
Net book value
At 30 June 2021
428
375
-
803
10. Right-of-use lease assets
£'000s
Motor Vehicles
Property
Total
Cost
At 1 January 2020
212
17,905
18,117
Additions
78
-
78
Foreign exchange
10
5
15
At 30 June 2020
300
17,910
18,210
Depreciation
At 1 January 2020
67
1,648
1,715
Charge for the period
51
826
877
Foreign exchange
5
6
11
At 30 June 2020
123
2,480
2,603
Net book value
At 30 June 2020
177
15,430
15,607
Cost
At 1 January 2021
273
17,925
18,198
Additions
86
53
139
Foreign exchange
-
(6)
(6)
At 30 June 2021
359
17,972
18,331
Depreciation
At 1 January 2021
111
3,246
3,357
Charge for the period
55
824
879
Foreign exchange
-
(2)
(2)
At 30 June 2021
166
4,068
4,234
Net book value
At 30 June 2021
193
13,904
14,097
11 Trade and other receivables
The Group holds the following trade and other receivables:
£'000s
H1 2021
Unaudited
FY 2020
Audited
Trade receivables
8,707
5,812
Other receivables
10,299
7,856
Total trade and other receivables
19,006
13,668
During the six months ended 30 June 2021, the provision for losses was £nil (H1 2020: £nil).
11 (a) Trade receivables ageing
Ageing of net trade receivables £'000s
H1 2021
Unaudited
FY 2020
Audited
Within agreed terms
7,248
5,592
Past due 1-30 days
1,204
86
Past due 31-90 days
-
-
Past due 91+ days
255
134
Trade receivables - net
8,707
5,812
The Group believes that the unimpaired amounts that are past due are fully recoverable as there are no indicators of future delinquency or potential litigation. At 31 August 2021, of the £0.3m trade receivables past due 91+days at 30 June 2021, the total related to a single invoice that remains outstanding.
11 (b) Other receivables
£'000s
H1 2021
Unaudited
FY 2020
Audited
Accrued income
8,296
4,992
Prepayments
1,861
2,065
Other receivables
142
799
Total other receivables
10,299
7,856
Accrued income represents fees earned, but not invoiced, at the reporting date, which have no right of offset with contract liabilities - deferred licence amounts. Accrued income increased by £3.3m since last year-end due to higher accrued income on Subscription revenue of £1.3m and Services revenue of £1.5m.
12 Current liabilities
£'000s
H1 2021
Unaudited
FY 2020
Audited
Trade payables
555
858
Dividend payable
2,986
-
Other payables
8,925
7,262
Corporation tax
3,175
1,266
Contract liabilities - software implementation
5,539
1,947
Contract liabilities - deferred maintenance
9,324
5,047
Lease liabilities
16,750
17,491
Provisions for other liabilities
1,191
1,392
Total trade and other payables
48,445
35,263
Less: non-current portion
(16,171)
(17,182)
Total current liabilities
32,274
18,081
During the six months ended 30 June 2021, £3.5m licence fees (H1 2020: £3.8m) and £13.1m of annual maintenance fees were invoiced (H1 2020: £13.7m). The annual maintenance invoicing during H1 2021 resulted in an increase of £4.3m of the deferred maintenance contracts liabilities compared to 31 December 2020.
13 Lease liability
The following table sets out the reconciliation of the lease liabilities from the 1 January 2020 to the amount disclosed at 30 June 2021:
£'000s
Total
Lease liabilities recognised at 1 January 2020
19,002
Additions
203
Disposals
(17)
Interest charge
787
Payments made on lease liabilities
(2,487)
Foreign exchange
3
At 31 December 2020
17,491
Additions
140
Interest charge
369
Payments made on lease liabilities
(1,250)
At 30 June 2021
16,750
£'000s
H1 2021
Unaudited
FY 2020
Audited
Non-current liability
14,980
15,790
Current liability
1,770
1,701
16,750
17,491
Maturity analysis:
H1 2021
Unaudited
FY 2020
Audited
No later than 1 year
2,449
2,419
Between one year and 5 years
9,249
9,253
Later than 5 years
8,271
9,409
Total future lease payments
19,969
21,081
Total future interest payments
(3,219)
(3,590)
16,750
17,491
14 Own shares
£'000s
Total
Own shares at 1 January 2020
-
At 31 December 2020
-
Own shares distributed
1,191
Own shares purchased
(2,641)
At 30 June 2021
(1,450)
Shares issued by the trust to employees are acquired on the market prior to issue. Shares held by the trust and not yet issued to employees at the end of the reporting period are shown as Own shares in the financial statements.
15 Financial and liquidity risk management
The Group's activities expose it to a variety of financial risks: market risk (including currency risk and price risk), credit risk and liquidity risk. The Half Year Financial Statements do not include all financial risk management information and disclosures required in the Annual Financial Statements; they should be read in conjunction with the Annual Financial Statements. The responsibility for risk management has remained with the Board and there has been no changes to risk management policies since year-end.
16 Controlling party and related party transactions
The immediate and ultimate parent undertaking is CHP Software and Consulting Limited, which is the parent undertaking of the smallest and largest group in relation to these Half Year consolidated financial statements. The ultimate controlling party is Andrew Page. There was no trading between the Group and the Parent.
In the six months ended 30 June 2021 the company entered into a rental agreement with CHP Software and Consulting Limited for rental of a meeting room on the 9th Floor of Moor Place for £34,800 per annum (H1 2020: £nil) and at 30 June 2021 there was £nil balances outstanding from, or to, the parent (30 June 2020: nil).
17 Subsequent events
In the period since 30 June 2021 there have been no material subsequent events.
18 Dividends
The Board have declared a 10 pence per share Special dividend, amounting to £30m, payable on 5 November 2021 with a record date of 8 October 2021 and an ex-dividend date of 7 October 2021. A special dividend of 15 pence per share was paid on 6 November 2020 equating to a total cash payment of £44.2m. An ordinary dividend of 1 pence per share for the year ended 31 December 2020 equating to £3m was paid on 2 July 2021.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that these condensed consolidated Half Year financial statements (the 'Half Year Financial Statements') have been prepared in accordance with International Accounting Standard 34, 'Half Year Financial Reporting', as contained in UK-adopted international accounting standards and that the Half Year management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
• an indication of important events that have occurred during the first six months and their impact on the condensed Half Year Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
• material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The current directors are listed below all of whom were directors during the whole of the period:
Andrew Page
Andrew Denton
Duncan Magrath
Matthew White
Steve Breach
Adrian Chamberlain
Charlotte de Metz
Chris Sullivan
By order of the Board
Duncan Magrath
Chief Financial Officer
21 September 2021
INDEPENDENT REVIEW REPORT TO ALFA FINANCIAL SOFTWARE HOLDINGS PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 which comprises the consolidated statement of profit or loss and comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and related notes 1 to 18. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing and presenting the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the Group will be prepared in accordance with UK-adopted International Accounting Standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as contained in UK-adopted International Accounting Standards.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting" as contained in UK-adopted International Accounting Standards, and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
Use of our report
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board and for the purpose of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. Our review work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
RSM UK Audit LLP
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB
21 September 2021
DEFINITIONS
Constant currency
When the Company believes it would be helpful for understanding trends in its business, the Company provides percentage increases or decreases in its revenues or operating profit to eliminate the effect of changes in currency values. When trend information is expressed herein "in constant currencies", the comparative results are derived by re-calculating comparative non-GBP denominated revenues and/or expenses using the average exchange rates of the comparable months in the current reporting period.
Operating free cash flow (FCF) conversion
Operating FCF conversion is calculated as cash from operations, less capital expenditures and the principal element of lease payments, as a percentage of operating profit. Operating FCF is calculated as follows:
H1 2021
H1 2020
Unaudited
£'000s
£'000s
Cash generated from operations
17,169
12,672
Capital expenditure
(563)
(601)
Principal element of lease payments
(881)
(846)
Operating FCF generated
15,725
11,225
Operating FCF Conversion
138%
108%
Total contracted value (TCV)
Total contracted value ("TCV") - TCV is calculated by analysing future contracted revenue based on the following components:
(i) an assumption of three years of Subscription payments (including maintenance, Cloud Hosting and subscription licence) assuming these services continued as planned (actual contract length varies by customer);
(ii) the estimated remaining time to complete Services and Software deliverables within contracted software implementations, and recognise deferred licence amounts (which may not all be under a signed statement of work).
(iii) Pre-implementation and ongoing Services and Software work which is contracted under a statement of work. As TCV is a reflection of future revenues, forward looking exchange rates are used for the conversion into GBP. The exchange rates used for the TCV calculation are as follows:
Exchange rates used for TCV
H1 2021
H2 2020
USD
1.38
1.29
Euro
1.17
1.11
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