REG - Alpha Group Intl PLC - Trading Update

Alpha InternationalAnnouncement

18/01/2023 07:00

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RNS Number : 0433N  Alpha Group International PLC  18 January 2023

18 January 2023

Alpha Group International plc

("Alpha" or the "Group")

Trading Update

Overview

Alpha Group International plc (AIM: ALPH), a high-tech, high-touch provider of
financial solutions dedicated to corporates and institutions operating
internationally, today announces a trading update for the financial year ended
31 December 2022.

Following our update in October 2022, trading has remained strong: we expect
revenue for the full year to increase 27% to approximately £98m (2021:
£77.5m), operating profit to be in-line with expectations and profit before
tax (including interest) to be ahead. These results have been achieved
alongside increased investment in our people, infrastructure, and technology,
in particular within our Alternative Banking Solutions division, where client
demand continues to exceed our expectations.

Since our inception, Alpha has carefully balanced its investment programme,
delivering thirteen consecutive years of strong revenue growth and attractive
profit margins. Moving into 2023, we find ourselves in the fortunate position
of expecting exceptional growth in absolute earnings and cash generation,
driven by a combination of expected strong revenue growth and interest income.

 

In light of this, we believe it would be a missed opportunity to not 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. Furthermore, in the event our Operating Profit (which excludes
interest) exceeds current market expectations for 2023, we will look to make
additional investments in discretionary initiatives (e.g. marketing
campaigns), designed to further accelerate growth, without becoming embedded
into our cost base. From a presentational point of view, because of our
decision in October 2022 not to classify interest income as revenue, any
accelerated investment (whether ongoing or discretionary) which is charged to
profit will be reflected in the operating margin in the short-term, but Group
profit before tax margins and the absolute level of EPS will be significantly
enhanced by the expected increase in interest income received.

 

We have adopted this strategy in the belief that it will lead to an exciting
step change in our long-term growth prospects. We feel privileged that at a
time when many companies are looking to cut back investment, our track record,
strategy, and strong balance sheet allow us to act differently and accelerate
our growth ambitions.

 

FX Risk Management ("FXRM")

Trading within our FXRM division has produced strong results, with revenues
increasing to approximately £69m (2021: £57m) and client numbers increasing
to 1,050. Underpinning this growth were some solid dynamics: a reduction in
overall client concentration, a continued increase in average revenue per
client, and further increases in the average revenue generated by our Front
Office sales team in their first, second and third years - something we call
the "learning curve". The increase in average revenue per client reflects our
ability to grow wallet share with existing clients together with our ability
to win increasingly larger clients as we build on our reputation and balance
sheet.

We also look forward to launching our sixth FXRM office in Madrid later in the
year. 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 2017, and therefore have already built up a sizeable 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.

Attracting and retaining high-quality sales talent remains key to our
long-term growth strategy in this division and our internal recruitment team
has made excellent progress in the year across all our offices. As a result,
global Front Office headcount increased to 111 (December 2021: 74) and we have
a strong pipeline of candidates going into Q1. Importantly, with significant
capacity within our existing Front Office team, and an ever-improving learning
curve, the hires made in the year are not needed to deliver on short-term
targets but are instead paving the way for sustainable growth in the years to
come. This has always been Alpha's strategy and we will continue to recruit
ahead of capacity to cement our future growth prospects and extend our runway.

Alternative Banking Solutions ("ABS")

Our Alternative Banking Solutions division continues to grow from strength to
strength, with live accounts invoiced increasing to 4,200 and revenues
increasing to approximately £29m (2021: £20m). Our ABS 2022 performance
included a record month in December for both new accounts and revenue. This
encouraging performance continued into 2023 with a very strong start to
January. Importantly, there remains significant demand for our ABS services
which we are yet to capitalise on, including increasing demand from corporate
service providers and fund administrators. Such service providers typically
open and manage many thousands of accounts on behalf of alternative investment
funds and, in a number of instances, now wish to move from an informal trading
relationship of new accounts to a formal partnership with Alpha.

These partnerships represent an exciting step change in our ABS growth
opportunities. However, in order to scale with high levels of control, client
service and healthy operating margins, it is imperative we ensure the right
foundations are in place. Achieving this requires carefully managing our rate
of growth, in line with our levels of investment in the scalability of our
teams and technology. Many of the ABS partners only place a portion of their
accounts with Alpha, and importantly, fully support our decision to take a
measured and controlled approach to the growth of our capacity.

With the benefit of the additional interest income, a strong pipeline of
client demand, and a clear line of sight from our decentralisation, we are now
fortunate to be in a position where we can accelerate our investment with high
levels of confidence in onboarding significant increases in accounts and
generating significant increases in revenues in the coming years.

Whilst we remain vigilant to the potential for new entrants in this
marketplace, we take confidence from significant barriers to entry and our
strong competitive advantage. Accelerated investment in this division should
cement this further. ABS today employs circa 170 people focused on the
alternative investment market, underpinned by purpose-built processes and
technology, as well as global blue-chip banking relationships. It has taken us
many years to build a solution that can effectively and sustainably service
this marketplace. Client appetite is also dependent on a balance sheet and
track record that most new entrants simply do not have, whilst incumbent banks
continue to retrench - a trend that speaks to the deep levels of
specialisation required to service this marketplace effectively and
profitably.

Income from interest

As outlined in our October trading update, the current increased 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 our client balances growing, we now expect this
to contribute circa £9m of interest income in the last four months of 2022,
and for this benefit to continue into 2023 if the current interest rate
environment remains. As outlined above, this increased interest income stream
enables us to grow profits, whilst also producing the means to accelerate our
investments in our ABS division. Additionally, it also allows us to help
support our high-quality client base with more attractive hedging facilities.

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 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.

Morgan Tillbrook, Founder & Chief Executive Officer of Alpha said:

"2022 continued Alpha's thirteen consecutive years of strong organic and
profitable revenue growth. Whilst there is no doubt the world has moved into a
more challenging macro-environment, we have proven our resilience, even when
faced with unprecedented challenges. Importantly, whether it's exchanging
currency, holding accounts, or making payments, businesses will always need to
carry out these activities. Indeed, managing them efficiently and effectively
often becomes even more important in a challenging environment. As well as our
business model benefitting from being largely non-discretionary, we also
benefit from being highly diversified across two decentralised divisions, each
with their own product lines and client bases that are sector agnostic and
span over 50 countries. Meanwhile our service offering continues to grow from
strength to strength in response to our continued and prudent investment, and
is led by a team who, through carefully structured growth equity schemes and a
client-centric culture, are deeply invested in delivering sustainable returns.
As a business, we are in the strongest position we have ever been in, and with
our growing number of products and geographies still barely scratching the
surface of our addressable market. Moving into 2023 and beyond, we have all
the foundations in place to deliver predictable, defensible, long-term growth
and I am therefore looking forward to the year ahead with confidence."

Market Abuse Regulation

This announcement is released by Alpha Group International plc and contains
inside information for the purposes of Article 7 of the Market Abuse
Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of
the European Union (Withdrawal) Act 2018 ("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.

 

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)
 Neil Patel
 Cameron Duncan
 Kate Bannatyne
 Kane Collings

 Alma PR (Financial Public Relations)    Tel: +44 (0) 20 3405 0205
 Josh Royston
 Andy Bryant
 Kieran Breheny

 

Notes to Editors

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

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

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

 

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