REG - Alpha Group Intl PLC - Full Year Results
22/03/2023 07:15
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RNS Number : 7816T Alpha Group International PLC 22 March 2023
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
· Strong financial performance delivered alongside a significant year of
investment
· Group revenue up 27% to £98.3m (2021: £77.5m)
· FX Risk Management revenue up 22% to £69.5m (2021: £57.1m)
· Alternative Banking Solutions revenue up 41% to £28.8m (2021: £20.4m)
· Profit before tax including other operating income up 42% to £47.2m (2021:
£33.2m)
· Underlying(1) profit before tax up 16% to £38.6m (2021: £33.4m)
· FX Risk Management underlying operating margin of c. 39%
· Alternative Banking Solutions underlying operating margin of c. 39%
· Basic earnings per share, including interest income, up 50% to 86.8p (2021:
57.7p) and on an underlying(1) basis up 20% to 70.1p (2021: 58.3p)
· Final dividend of 11 pence per share, payable on 12 May 2023 to shareholders
on the register as at 14 April 2023, making a total dividend for 2022 of 14.4p
(2021: 11.0p)
· Strong cash generation and debt free with £144m net assets, and £114m in
adjusted net cash(2)
· Deferred revenue from account fees, which will be recognised over the next 12
months, increased to £4.9m (2021: £2.2m)
Operational Highlights
· 19% increase in FX Risk Management client numbers, to 1,047 (2021: 881)(3)
· Average revenue per FX Risk Management client continued to increase
· 141% increase in accounts invoiced(4) within Alternative Banking Solutions, to
4,200 (2021: 1,746)
· Employee headcount increased from 214 to 357 at the year end
· 52% increase in FX Risk Management Front Office headcount to 102 (2021: 67)
· Three new international offices launched in Luxembourg, Sydney and Milan, with
a further office launching in Madrid in Q2 2023
· Launch of new employee growth share schemes, taking the total number of
colleagues with a long-term equity interest in the Group to 110(5)
· Name changed to Alpha Group International plc (previously Alpha FX Group plc)
· Listing on the Premium Segment of the Main Market intended for 2024
(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:
Alpha Group International plc via Alma PR
Morgan Tillbrook, Founder and CEO
Tim Powell, CFO
Liberum Capital Limited Tel: +44 (0) 20 3100 2000
(Nominated Adviser and Sole Broker)
Max Jones
Ben Cryer
Kate Bannatyne
Kane Collings
Alma PR (Financial Public Relations) Tel: +44 (0) 20 3405 0205
Josh Royston
Andy Bryant
Kieran Breheny
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
(https://www.alphagroup.com/download/10162/)
- Introduction to Alternative Banking Solutions
(https://www.alphagroup.com/download/10163/)
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 (https://www.alphagroup.com/download/10162/)
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
(https://polaris.brighterir.com/public/alpha_group/news/rns/story/xl8q47w) ).
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;
- Bristol(1) (trading since January 2022) delivered revenues in
excess of £2m; and
- Milan (trading since March 2022) delivered revenues of £2m.
(1)For 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
(https://polaris.brighterir.com/public/alpha_group/news/rns/story/xoo2lmx) .
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
(https://www.alphagroup.com/investors/corporate-governance/) .
Alternative Banking Solutions ("ABS")
Read introduction here (https://www.alphagroup.com/download/10163/)
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
(https://www.ey.com/en_gl/wealth-asset-management/global-alternative-fund-survey)
). 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 (https://www.bbc.co.uk/sport/formula1/48911849) ).
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
(https://polaris.brighterir.com/public/alpha_group/news/rns/story/xoo2lmx) .
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 (https://www.alphagroup.com/download/10162/) and
here (https://www.alphagroup.com/download/10163/) . 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.
£'000 £'000
Net cash and cash equivalents 136,799 108,044
Variation margin paid to banking counterparties 44,876 8,380
181,675 116,424
Margin received from clients* (70,204) (34,363)
Net MTM timing loss from client drawdowns and extensions within trade 2,912 6,129
receivables
Adjusted net cash** 114,383 88,190
* 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
Year ended Year ended
31 December 2022 31 December 2021
Note £'000 £'000
Revenue 3 98,332 77,471
Other operating income 3 9,278 -
Operating expenses (60,722) (44,143)
Operating profit 4 46,888 33,328
Underlying operating profit 38,274 33,588
Other operating income 9,278 -
Share-based payments expense (664) (260)
Finance income 5 784 536
Finance expenses 5 (458) (681)
Profit before taxation 47,214 33,183
Underlying profit before taxation 38,600 33,443
Other operating income 9,278 -
Share-based payments expense (664) (260)
Taxation 6 (8,164) (7,140)
Profit for the year 39,050 26,043
Attributable to:
Equity holders of the parent 36,372 23,531
Non-controlling interests 2,678 2,512
Profit for the year 39,050 26,043
Other comprehensive income:
Items that may be reclassified to the profit or loss:
Exchange gain/(loss) on translation of foreign operations 1,382 (148)
Loss recognised on hedging instruments (639) -
Tax relating to items that may be reclassified 160 -
Total comprehensive income for the year 39,953 25,895
Attributable to:
Equity holders of the parent 37,275 23,383
Non-controlling interests 2,678 2,512
Total comprehensive income for the year 39,953 25,895
Earnings per share attributable to equity owners of the Parent (pence per
share)
- basic 7 86.8p 57.7p
- diluted 7 83.8p 55.1p
- underlying basic 7 70.1p 58.3p
- underlying diluted 7 67.7p 55.7p
Consolidated Statement of Financial Position
As at 31 December 2022
Company number: 07262416
As at As at
31 December 31 December 2021
2022
Note £'000 £'000
Non-current assets
Intangible assets 4,814 2,995
Property, plant and equipment 3,248 2,323
Right-of-use assets 9 11,848 6,136
Derivative financial assets 10 27,819 17,335
Total non-current assets 47,729 28,789
Current assets
Cash and cash equivalents 12 136,799 108,044
Derivative financial assets 10 99,119 58,551
Other receivables 11 6,821 9,807
Fixed collateral 12 4,726 3,506
Total current assets 247,465 179,908
Total assets 295,194 208,697
Equity
Share capital 13 84 82
Share premium account 53,513 50,783
Capital redemption reserve 4 4
Merger reserve 667 667
Retained earnings 84,220 54,189
Translation reserve 1,258 (124)
Equity attributable to equity holders of the parent 139,746 105,601
Non-controlling interests 4,707 4,193
Total equity 144,453 109,794
Current liabilities
Derivative financial liabilities 10 42,764 36,697
Other payables 14 77,272 39,998
Deferred income 4,924 2,193
Lease liability 9 1,407 450
Current tax liability 3,781 3,847
Total current liabilities 130,148 83,185
Non-current liabilities
Derivative financial liabilities 10 7,317 7,745
Other payables 14 222 -
Deferred tax liability 1,387 1,061
Lease liability 9 11,667 6,912
Total non-current liabilities 20,593 15,718
Total liabilities 150,741 98,903
Total equity and liabilities 295,194 208,697
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
Year ended 31 December 2022 Year ended 31 December 2021
Note £'000 £'000
Cash flows from operating activities
Profit before taxation 47,214 33,183
Other operating income (9,278) -
Finance income (784) (536)
Finance expense 458 681
Amortisation of intangible assets 1,573 950
Intangible assets written off 43 121
Depreciation of property, plant and equipment 764 589
Depreciation of right-of-use assets 1,154 809
Property, plant and equipment written off 50 -
Share-based payment expense 664 260
(Increase)/decrease in other receivables (1,547) 127
Increase/(decrease) in other payables 40,006 (14,235)
(Increase) in derivative financial assets (51,052) (21,894)
Decrease in financial assets at amortised cost 5,803 11,778
Increase in derivative financial liabilities 5,000 26,851
(Increase)/decrease in fixed collateral (1,220) 519
Cash inflows from operating activities 38,848 39,203
Other operating income received 7,490 -
Tax paid (7,486) (4,666)
Net cash inflows from operating activities 38,852 34,537
Cash flows from investing activities
Payments to acquire property, plant and equipment (1,739) (661)
Payments to acquire right-of-use assets (46) -
Expenditure on intangible assets (3,435) (1,992)
Net cash outflows from investing activities (5,220) (2,653)
Cash flows from financing activities
Issue of ordinary shares by Parent Company 996 26
Issue of shares to non-controlling interests in subsidiary undertakings 46 327
Dividends paid to equity owners of the Parent Company (4,810) (4,505)
Dividends paid to non-controlling interests (1,877) (1,739)
Payment of lease liabilities - principal (891) (121)
Payment of lease liabilities - interest (452) (344)
Net interest received/(paid) 729 (308)
Net cash (outflows) from financing activities (6,259) (6,664)
Increase in net cash and cash equivalents in the year 27,373 25,220
Net cash and cash equivalents at beginning of year 108,044 82,972
Net exchange gains/(loss) 1,382 (148)
Net cash and cash equivalents at end of year 12 136,799 108,044
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Attributable to the owners of the Parent
Share premium account Capital redemption reserve Non-controlling interests
Share capital Merger reserve Retained earnings Translation reserve
Total Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 80 50,582 4 667 35,631 24 86,988 3,653 90,641
Profit for the year - - - - 23,531 - 23,531 2,512 26,043
Other comprehensive income - - - - - (148) (148) - (148)
Transactions with owners
Shares issued on vesting of share option scheme 2 175 - - (164) - 13 (13) -
Issue of shares to non-controlling interests in subsidiary undertakings - - - - - - - 107 107
Shares repurchased from non-controlling interests - - - - 56 - 56 (162) (106)
Shares issued in relation to SAYE share scheme - 26 - - - - 26 - 26
Forfeiture of shares in subsidiary - - - - (620) - (620) (165) (785)
Share-based payments - - - - 260 - 260 - 260
Dividends paid - - - - (4,505) - (4,505) (1,739) (6,244)
Balance at 31 December 2021 82 50,783 4 667 54,189 (124) 105,601 4,193 109,794
Profit for the year - - - - 36,372 - 36,372 2,678 39,050
Other comprehensive income
- - - - (479) 1,382 903 - 903
Transactions with owners
Shares issued on vesting of share option scheme 2 - - - (2) - - - -
Issue of shares to non-controlling interests in subsidiary undertakings - - - - - - - 46 46
Issue of shares in relation to subsidiary earnout - 1,906 - - (1,801) - 105 (105) -
Forfeiture of shares in subsidiary - - - - 87 - 87 (228) (141)
Shares issued in relation to SAYE share scheme - 824 - - - - 824 - 824
Share-based payments - - - - 664 - 664 - 664
Dividends paid - - - - (4,810) - (4,810) (1,877) (6,687)
Balance at 31 December 2022 84 53,513 4 667 84,220 1,258 139,746 4,707 144,453
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:
· Corporate London represents revenue generated by Alpha FX Limited's Corporate
clients serviced from the London head office.
· Institutional represents revenue from Alpha FX Institutional Limited, which
primarily services funds.
· Corporate Toronto represents revenue generated by Alpha Foreign Exchange
(Canada) Limited, serviced from Toronto, Canada.
· Corporate Amsterdam represents revenue generated by Alpha FX Netherlands
Limited, which services corporate clients from Amsterdam, The Netherlands.
· Alpha Pay, a division of Alpha FX Limited which services clients who require
international payments and accounts. The offering is distributed via our
European Corporate offices and Alpha FX Institutional Limited as well as Alpha
Pay's own sales team.
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.
2022
Corporate London Corporate Toronto Corporate
Institutional Amsterdam Alpha Pay Total
£'000 £'000 £'000 £'000 £'000 £'000
FX Risk Management* 43,332 15,133 4,698 5,500 846 69,509
Alternative Banking Solutions** 581 4,703 - 888 22,651 28,823
Total revenue 43,913 19,836 4,698 6,388 23,497 98,332
Underlying operating profit 18,457 7,325 536 3,095 8,861 38,274
Finance income 779 - - - 5 784
Finance costs (146) (83) (31) (68) (130) (458)
Underlying profit before taxation 19,090 7,242 505 3,027 8,736 38,600
Other operating income 468 4,412 - - 4,398 9,278
Share-based payments (632) (32) - - - (664)
Profit before taxation 18,926 11,622 505 3,027 13,134 47,214
2021
Corporate London Corporate Toronto Corporate
Institutional Amsterdam Alpha Pay Total
£'000 £'000 £'000 £'000 £'000 £'000
FX Risk Management* 34,166 11,069 5,497 2,935 3,369 57,036
Alternative Banking Solutions** 61 4,565 - 848 14,961 20,435
Total revenue 34,227 15,634 5,497 3,783 18,330 77,471
Underlying operating profit 15,955 6,485 1,745 1,627 7,776 33,588
Finance income 536 - - - - 536
Finance costs (526) (57) - - (98) (681)
Underlying profit before taxation 15,965 6,428 1,745 1,627 7,678 33,443
Share-based payments (228) (32) - - - (260)
Profit before taxation 15,737 6,396 1,745 1,627 7,678 33,183
*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.
31 December 2022 31 December 2021
£'000 £'000
Revenue by product
Foreign exchange forward transactions 41,073 31,945
Foreign exchange spot transactions 29,027 26,053
Option contracts 9,046 8,779
Payments, collections and account fees 19,186 10,694
Total 98,332 77,471
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):
31 December 2022 31 December 2021
£'000 £'000
Depreciation of owned property, plant and equipment 764 589
Amortisation of internally generated intangible assets 1,573 950
Depreciation of right-of-use assets 1,154 809
Rental costs for short-term leases 787 179
Property, plant and equipment written off 50 -
Impairment of intangible assets 43 121
Staff costs 31,713 21,680
Estimated probability of default in relation to Norwegian client (27) (243)
Bad debt expense 235 2,869
Net foreign exchange (gains)/losses (274) 118
Audit fees
Audit fees in respect of the Group, Company and subsidiary financial 550 335
statements
Non Audit fees
Fees in respect of CASS Limited Assurance 7 7
5. Finance income and expenses
31 December 2022 31 December 2021
£'000 £'000
Finance income
Interest on bank deposits 622 -
Finance income to reverse the discount relating to the Norwegian client* 55 507
Other interest receivable 107 29
Total 784 536
Finance costs
Interest on bank deposits - (337)
Finance cost on dilapidation provision (6) -
Finance cost on lease liabilities (452) (344)
Total (458) (681)
*During 2022 the remaining provision balance of £55,533 relating to the
Norwegian client was reversed in finance income.
6. Taxation
Tax charge
31 December 2022 31 December 2021
£'000 £'000
Current tax:
UK Corporation tax on the profit for the year 8,056 5,816
UK Corporation tax on the internal transfer of clients* - 892
Adjustments relating to prior years (591) (282)
Overseas Corporation tax on the profit for the year 216 279
Total current tax 7,681 6,705
Deferred tax
Origination and reversal of temporary differences 483 237
Adjustments relating to change in rate - 198
Total deferred tax 483 435
Total tax expense 8,164 7,140
Factors affecting tax charge for the year
31 December 2022 31 December 2021
£'000 £'000
Profit on ordinary activities before tax 47,214 33,183
Profit on ordinary activities multiplied by the effective standard rate of UK 8,971 6,305
corporation tax of 19%
Effects of:
Expenses not deductible for tax purposes 499 392
Additional R&D deduction (837) -
Adjustments relating to prior years (591) (282)
Adjust closing deferred tax in respect of change in future rate of taxation - 198
Different tax rates applied in overseas jurisdictions 292 (365)
Trading losses brought forward (170) -
UK corporation tax on internal transfer of clients* - 892
Total tax charge for the year 8,164 7,140
*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:
31 December 2022 31 December 2021
£'000 £'000
Liabilities
At 1 January 1,061 626
UK tax charge relating to current year 483 237
UK tax charge relating to change in future tax rates - 198
Tax charge relating to foreign exchange rate movements 3 -
Tax charge on other comprehensive income (160) -
Total deferred tax liability 1,387 1,061
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:
31 December 2022 31 December 2021
Before tax Tax After tax Before tax Tax After tax
£'000 £'000 £'000 £'000 £'000 £'000
Cash flow hedges
Losses recognised on hedging instruments (639) 160 (479) - - -
Exchange differences arising on translation of foreign operations 1,382 - 1,382 (148) - (148)
Total tax charge on other comprehensive income 743 160 903 (148) - (148)
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.
31 December 2022 31 December 2021
pence pence
Basic earnings per share 86.8p 57.7p
Diluted earnings per share 83.8p 55.1p
Underlying - basic 70.1p 58.3p
Underlying - diluted 67.7p 55.7p
The calculation of basic and diluted earnings per share is based on the
following number of shares:
31 December 2022 31 December 2021
No. No.
Basic weighted average shares 41,923,407 40,773,748
Contingently issuable shares 1,482,706 1,925,202
Diluted weighted average shares 43,406,113 42,698,950
The earnings used in the calculation of basic, diluted and underlying earnings
per share are set out below:
31 December 2022 31 December 2021
£'000 £'000
Profit after tax for the year 39,050 26,043
Non-controlling interests (2,678) (2,512)
Earnings - basic and diluted 36,372 23,531
Other operating income (9,278) -
Share-based payments 664 260
Taxation impact of the above 1,637 -
Earnings - underlying 29,395 23,791
8. Dividends
31 December 2022 31 December 2021
£'000 £'000
Final dividend for the year ended 31 December 2020 of 8.0p per share
- 3,276
Interim dividend for the year ended 31 December 2021 of 3.0p per share - 1,229
Final dividend for the year ended 31 December 2021 of 8.0p per share 3,375 -
Interim dividend for the year ended 31 December 2022 of 3.4p per share 1,435 -
4,810 4,505
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
31 December 2022 31 December 2021
£'000 £'000
At 1 January 6,136 6,945
Additions 6,866 -
Depreciation charge for the year (1,154) (809)
At 31 December 11,848 6,136
Lease liabilities
31 December 2022 31 December 2021
£'000 £'000
At 1 January 7,362 7,483
Additions 6,603 -
Finance cost (note 5) 452 344
Payments in the year (1,343) (465)
At 31 December 13,074 7,362
Analysis:
Current 1,407 450
Non-current 11,667 6,912
Total lease liabilities 13,074 7,362
10. Derivative financial assets and financial liabilities
31 December 2022 31 December 2021
Derivative financial assets not designated as hedging instruments Notional principal Notional principal
Fair value Fair value
£'000 £'000 £'000 £'000
Foreign currency forward and option contracts with customers 116,515 16,521,973 69,634 10,625,685
Foreign currency forward and option contracts with banking counterparties 10,194 4,787,695 5,738 5,892,363
Other foreign exchange forward contracts 229 16,592 514 17,570
126,938 21,326,260 75,886 16,535,618
31 December 2022 31 December 2021
Analysis: £'000 £'000
Current 99,119 58,551
Non-current 27,819 17,335
Total derivative financial assets 126,938 75,886
31 December 2022 31 December 2021
Derivative financial liabilities not designated as hedging instruments Notional Notional principal
Fair value Principal Fair value
£'000 £'000 £'000 £'000
Foreign currency forward and option contracts with customers 47,706 6,164,718 42,720 8,467,787
Foreign currency forward and option contracts with banking counterparties 1,736 5,711,465 1,722 7,950,554
49,442 11,876,183 44,442 16,418,341
31 December 2022 31 December 2021
Derivative financial liabilities designated as hedging instruments Notional Notional principal
Fair value Principal Fair value
£'000 £'000 £'000 £'000
Foreign currency forward contracts 286 21,648 - -
Interest rate swap contracts 353 205,000 - -
639 226,648 - -
31 December 2022 31 December 2021
Total Derivative financial liabilities Notional Notional principal
Fair value Principal Fair value
£'000 £'000 £'000 £'000
50,081 12,102,831 44,442 16,418,341
31 December 2022 31 December 2021
Analysis: £'000 £'000
Current 42,764 36,697
Non-current 7,317 7,745
Total derivative financial liabilities 50,081 44,442
Items that will be reclassified to the Consolidated Statement of Comprehensive
Income:
31 December 31 December
2022 2021
Movement in year £'000 £'000
Cash flow hedges
Losses recognised on hedging instruments (639) -
Exchange differences arising on translation of foreign operations 1,382 (148)
Tax relating to items that may be reclassified 160 -
903 (148)
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.
Net gains/(losses) on financial assets at fair value through profit or loss
31 December 31 December 2021
2022
£'000 £'000
Foreign exchange derivatives 274 (118)
274 (118)
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
31 December 2022 31 December 2021
£'000 £'000
Financial assets at amortised cost - 5,803
Other receivables 4,384 2,542
Prepayments 2,437 1,462
6,821 9,807
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.
31 December 2022 31 December 2021
£'000 £'000
Cash and cash equivalents 136,799 108,044
Variation margin called by counterparties 44,876 8,380
Fixed collateral 4,726 3,506
Total cash 186,401 119,930
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
At 31 December At 31 December
2022 2021
No. £'000 No. £'000
Authorised, issued and fully paid
Ordinary shares of £0.002 each 42,196,554 84 40,964,225 82
Ordinary shares
Number of shares
At 1 January 2021 40,123,568
Shares issued on vesting of share option schemes 840,657
At 31 December 2021 40,964,225
Shares issued on vesting of share option schemes 1,232,329
At 31 December 2022 42,196,554
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
31 December 2022 31 December 2021
Current: £'000 £'000
Other payables 70,204 34,363
Other taxation and social security 1,369 1,018
Accruals 5,699 4,617
77,272 39,998
Non-current:
Dilapidation provision 222 -
222 -
Total other payables 77,494 39,998
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.
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