REG - Alpha Group Intl PLC - Trading Update

Alpha InternationalAnnouncement

25/07/2023 07:00

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RNS Number : 0225H  Alpha Group International PLC  25 July 2023

25 July 2023

Alpha Group International plc

 

("Alpha" or the "Group")

 

Trading Update

 

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 six-month period
ended 30 June 2023.

 

Key Highlights for H1 2023

 

 -          Group revenue increased by 20% to £55m (H1 2022: £46m).
 -          FX Risk Management revenue increased by circa 21% to £39m (H1 2022: £32m).
 -          Alternative Banking revenue increased by 17% to £16m (H1 2022: £14m), and
            increased 32% when including the net increase in deferred revenue from account
            fees (£4.9m to £7m).
 -          Delivered strong operating margins whilst continuing with accelerated
            investment programme.
 -          Other operating income from interest on client balances of £33m in H1,
            driving exceptional profit growth, with average Alternative Banking client
            balances in Q2 2023 of £1.9bn and blended average interest rates of 3.8% (Q1
            2023: £1.6bn and 2.8%).
 -          Strong cash and liquidity position with adjusted net cash increasing 26% in
            six months to over £142m.(1)
 -          New fund finance offering launched
            (https://polaris.brighterir.com/public/alpha_group/news/rns/story/ryeo13w) and
            already generating revenue.
 -          Recent trading encouraging; on track to deliver our 2023 expectations.

 

(1) 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.  'Adjusted net cash'
therefore excludes these items.

 

Overview

 

Despite a challenging economic backdrop in H1, the Group has continued to grow
strongly whilst delivering on its accelerated investment programme and
maintaining strong underlying profit margins. We were pleased that the
underlying operating performance was in line with expectations which, when
combined with exceptional interest income from client cash balances, delivered
an outstanding Group performance. Group revenues increased by 20% to £55m (H1
2022: £46m) with strong performances from both our businesses. When taking
into account the net increase in deferred revenue from Alternative Banking
account fees (which is invoiced, but not yet recognised as revenue) the Group
delivered 24% growth (deferred revenue grew from £4.9m to £7m). In addition,
we generated a further £33m in other operating income, as interest rates and
the adoption of our alternative banking solution, both continued to increase.

 

Outlook

 

June was a record month for the Group and our pipeline of activity for H2
continues to grow. We are therefore confident that the Group is on track to
deliver another strong year of revenue and underlying profit growth in line
with expectations. Given the momentum in our Alternative Banking business and
the interest rate outlook, we also expect Other Operating Income to remain
very strong, which will help drive substantial cash flows over the year.

 

FX Risk Management ("FXRM")

 

When faced with supply chain shortages in 2022, many corporates overstocked
and therefore entered H1 2023 with excess inventory. In H1 2023 however,
supply chain pressures have fallen to record lows, and this, combined with the
increased cost of borrowing and macro uncertainty, means we saw companies in
H1 taking a more short-term and conservative approach to their sales
forecasts, the amount of stock they hold, and consequently their future
orders.(2) Even for companies that don't hold inventory (such as those in the
services sector) the macro uncertainty has resulted in a noticeably more
conservative approach to forecasting, and thus hedging.

 

As a division that helps clients hedge their orders and forecasts, the
combination of the above factors has been to temporarily reduce our corporate
clients' appetite for FX hedging contracts. Despite this, our Corporate FXRM
revenues continued to grow; revenue from forwards was broadly flat and revenue
from spot contracts (which are inherently shorter term in nature and therefore
lower-margin) increased by almost 50%, demonstrating the strength and
relevance of our service throughout different economic cycles.

 

Our Institutional FXRM offering has continued to show particularly strong
growth in both spot and hedging over the period, and is benefitting from the
team's growing reach as well as cross-selling opportunities through the
Group's alternative banking solution.

 

Collectively our FXRM division delivered revenue growth of 21% in H1, with
client numbers increasing from 1,047 to 1,089 in the period. These divergent
growth rates reflect a continued focus on larger, higher revenue potential
businesses, as well as an evolution of our credit appetite in response to the
macro environment, resulting in a number of clients having hedging facilities
reduced or removed over the past 18 months. Consequently, average revenue per
client has increased by 6% in the last twelve months. Encouragingly, FXRM saw
a record month in June for both total revenue and Portfolio Managers achieving
their new business quotas.

 

All of our overseas offices have delivered strong year-on-year revenue growth,
with the exception of Toronto, which was expected. We are however pleased to
report that Toronto has resumed its growth trajectory, with revenues
increasing in H1 2023 against H2 2022.

 

(2) Federal Reserve Bank of New York, Global Supply Chain Pressure Index
(https://www.newyorkfed.org/research/policy/gscpi#/interactive)

 

Alternative Banking

 

Across the alternative investment market globally, the decline in deal
activity in the second half of 2022 has continued into 2023, with Preqin
reporting that both deal volumes and flows were significantly down in Q1
against the same period last year, across all of the key asset classes we
serve. This backdrop has meant fewer accounts needed to be opened and less
payments or FX spot transactions made. Despite the significant decline in the
market, we continued to deliver two record quarters, with revenues increasing
17% against the same period last year.  In addition, deferred revenues from
account fees grew from £4.9m to £7m, which provides further confidence and
visibility going forward. When taking into account the net increase in
deferred revenue, growth would be 32%.  We also increased our account numbers
by over 1,150 during H1, taking our total to 5,350 to date. Our investments in
compliance, client services and technological automation have also continued
in earnest, and we are already seeing the significant benefits of this on
operational gearing.

 

The operational progress we have made to date means our market-leading
offering is even stronger than it was at the start of the year, and we
continue to deepen our relationships with fund managers, service providers and
fund administrators. As adverse market conditions and activity levels improve,
we will be well placed to capitalise on this.

 

Balance sheet

 

Average Alternative Banking client balances in Q2 of £1.9bn and a blended
average interest rate of 3.8% resulted in over £33m of other operating income
(Q1 2023: £1.6bn and 2.8%), helping to grow our adjusted net cash by 26% to
over £142m at the period end. With more clients adopting our alternative
banking solution, and interest rates at current levels, this is expected to
remain a significant tailwind for the Group, creating opportunities for new
and accelerated strategic investments.  We look forward to updating
shareholders further on our progress in this regard in our interim report.

 

Morgan Tillbrook, Chief Executive Officer said:

 

"It is testament to our strategy, offering, and most importantly, our team,
that we have continued to grow strongly in spite of some challenging
macro-economic headwinds. I am proud that the operational progress and
investments that we have continued to make during this period remain very much
long-term focused. I am therefore confident that our prospects remain
excellent, and that as macro-economic conditions improve, we remain in a great
position to capitalise on the sizeable market opportunity in front of us."

 

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
 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 - over 350 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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