TIDMALFA
RNS Number : 6438Z
Alfa Financial Software Hldgs PLC
04 September 2018
4 September 2018
Alfa Financial Software Holdings PLC
H1 2018 INTERIM RESULTS
Alfa Financial Software Holdings PLC ("Alfa" or the "Company"),
a leading developer of mission critical software for the asset
finance industry, today publishes its unaudited results for the six
months ended 30 June 2018.
Financial Highlights:
H1 2018 H1 2017 Movement
GBPmillion GBPmillion
unless otherwise unless otherwise
Statutory Results stated stated %
---------------------------- ------------------ ------------------ ---------
Revenue 32.9 45.1 (27)
Operating profit 8.6 14.0 (39)
Profit for the period 6.7 10.1 (34)
Earnings per share - basic 2.4 pence 3.6 pence (34)
H1 2018 H1 2017 Movement
GBPmillion GBPmillion
unless otherwise unless otherwise
Financial Highlights (1) stated stated %
----------------------------------- ------------------ ------------------ ---------
Revenue - constant currency 33.0 41.8 (21)
Adjusted EBIT 8.6 21.4 (60)
Adjusted EBIT - constant currency 8.7 18.7 (53)
Adjusted earnings per share
- diluted 2.2 pence 5.7 pence (60)
(1) See definitions section for further information of
calculation of measures not specifically defined by IFRS
KEY HIGHLIGHTS:
-- Trading in line with revised expectations, with revenues
declining primarily due to a smaller number of software
implementation projects
-- Signed multi-year upgrade and expansion agreement with a
leading retail bank to support a relaunch of its asset finance
offering
-- Pipeline remains healthy, by number and value of
opportunities, albeit the pace of conversion has not materially
increased
-- Resources being deployed to accelerate the ongoing transition
of Alfa to a platform solution, reflecting evolving market and
customer requirements
Andrew Denton, Chief Executive Officer
"As we said at the time, we were very disappointed by the delays
in contracts announced in early June. However, we remain confident
in the long term prospects of Alfa. We continue to have a strong
market position with a proven track record in project execution and
a blue-chip client list. We were very pleased to have signed an
upgrade and expansion agreement with a leading retail bank to
support their exciting plans in the UK B2B asset finance market and
we look forward to building on this with further sales in all of
our key markets.
The pipeline for Alfa is healthy, both in terms of geographic
and market segment mix, and in terms of number of opportunities. We
approach the remainder of the year focused on conversion of these
opportunities. We also continue to make incremental cost savings
across the business with the aim of achieving immediate operational
efficiencies whilst ensuring that we have the right platform in
place to return to growth."
Enquiries
Alfa Financial Software Holdings
PLC +44 (0)20 7588 1800
Andrew Denton, Chief Executive
Officer
Viv Maclachlan, Chief Financial
Officer
Andrew Page, Executive Chairman
Tulchan Communications LLP +44 (0)20 7353 4200
James Macey White
Matt Low
Deborah Roney
Barclays +44 (0)20 7623 2323
Robert Mayhew
Edward Hill
Numis +44 (0)20 7260 1000
James Taylor
Simon Willis
Tom Ballard
Investor and analyst webcast
The Company will host a conference call today at 9:00 a.m. To
obtain details for the conference call, please email
alfa@tulchangroup.com.
Please dial in at least 10 minutes prior to the start time. An
archived webcast of the call will be available on the Investors
page of the Company's website,
https://investors.alfasystems.com/.
Notes to Editors
Alfa has been delivering systems and consultancy services to the
global asset and automotive finance industry since 1990. Our best
practice methodologies and specialised knowledge of asset finance
mean that we deliver the largest software implementations and most
complex business change projects. With an excellent delivery
history over nearly three decades in the industry, Alfa's track
record is unrivalled.
Alfa Systems, our class-leading technology platform, is at the
heart of some of the world's largest asset finance companies. Key
to the business case for each implementation is Alfa Systems'
ability to replace multiple client systems on a single platform.
Alfa Systems supports both retail and corporate business for auto,
equipment, wholesale and dealer finance on a multijurisdictional
basis, including leases/loans, originations and servicing. An
end-to-end solution with integrated workflow and automated
processing using business rules, the opportunities that Alfa
Systems presents to asset finance companies are clear and
compelling.
With 30 customers utilising Alfa in 26 countries, Alfa has
offices in Europe, Asia-Pacific and the United States. For more
information, visit alfasystems.com.
Forward-looking statements
This report contains certain forward-looking statements with
respect to the financial condition, results of operations, and
businesses of Alfa. These statements and forecasts involve risk,
uncertainty and assumptions because they relate to events and
depend upon circumstances that will occur in the future. There are
a number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements. These forward-looking statements are
made only as at the date of this announcement. Nothing in this
announcement should be construed as a profit forecast. Except as
required by law, Alfa has no obligation to update the
forward-looking statements or to correct any inaccuracies
therein.
BUSINESS REVIEW
Introduction
Results for the half year and the full year 2018 have been and
will be impacted by a number of customer developments which were
announced as part of our trading update in June 2018.
We were informed by one of our major customers that it had
decided to delay its implementation project for internal reasons
with our understanding from the customer being that a restart is
expected in early 2019. This understanding has not changed and we
remain in active dialogue with them. In addition to this, a
potential new customer delayed a decision on its implementation
project because it is considering increasing its geographical and
functional scope, and one of our larger existing customers extended
its decision point for the expansion of its Alfa footprint.
Implementation start dates for these were projected to be later in
2018, or into 2019. We continue to progress discussions in respect
of both of these projects.
Financial Summary
Revenues decreased by GBP12.3 million, or 27%, to GBP32.9
million (H1 2017: GBP45.1 million). The weakened US dollar in the
first six months of 2018 has contributed to this decline and,
excluding this impact, revenues at constant currency decreased by
21%.
Overall the majority of the top line contraction is due to a
decline in revenues generated by our software implementation
segment. In H1 2018 we have five ongoing implementations, although
this includes one project which was paused in the second quarter.
This compares to seven ongoing implementation projects in 2017
which was a historic year for delivery. Our Ongoing Development and
Services ("ODS") segment performed well, generating GBP11.7 million
of revenues (H1 2017: GBP10.4 million).
Operating profit decreased to GBP8.6 million (H1 2017: GBP21.4
million Adjusted EBIT) and operating profit margin decreased to 26%
(H1 2017: 47% Adjusted EBIT margin) reflecting the decrease in
total revenues. Operating Free Cash Flow Conversion for the half
year increased to 109%, with cash of GBP36.3 million at 30 June
2018.
Outlook
The pipeline for Alfa is healthy, both in terms of geographic
and market segment mix, and in terms of number of opportunities.
The total contract value of the pipeline opportunities is in line
with this time last year and significantly ahead of where we were
at this point in 2016. The sales process can often be lengthy for
what are large, long-term, mission critical contracts.
We approach the remainder of the year focused on conversion of
these opportunities and we are confident in the long-term prospects
for Alfa. We also continue to make incremental cost savings across
the business with the aim of achieving immediate operational
efficiencies whilst ensuring that we have the right platform in
place to return to growth.
Operational review and priorities
Alfa is focused on four key operational priorities going
forward, which are summarised below.
1 Delivering consistent quality
This is the bedrock of our leading market position and I am
pleased to report that our four ongoing implementation projects are
progressing in line with expectations. One of these, which started
in March 2018, is our first project to use an agile, platform-based
deployment approach.
We announced our Cloud First sales approach last year and we
have seen this generating interest from our pipeline of potential
customers as well as our existing customer base. Three out of four
of our customer wins in 2017 and 2018 are deploying on Public Cloud
with one being hosted by Alfa. Public Cloud deployment further
compresses the time taken to deploy Alfa systems making us more
competitive in the sales environment.
2 Focused investment and innovation
Internal investment will be designed to produce new
functionality and will continue the journey of moving the core
product to a more granular modular structure. As part of Alfa's
digital strategy, we will continue to invest in our API catalogue,
our Digital Gateway software and reusable user experience
components. Through building leading-edge mobile sales and customer
self-service functionality, we will create new intellectual
property that can be sold and demonstrate the maturity of Alfa's
catalogue of APIs and the sophistication of our API strategy
encapsulated in the Digital Gateway product.
We will direct most of our product investment towards digital
and focus on our plans to position our core package at the heart of
a platform with flexible implementation and integration options
through Digital Gateway.
In line with other financial services companies, the asset
finance sector is moving towards Platform as a Service. So the
future of enterprise software will favour those able to deploy a
platform that is able to solve a wide variety of business problems
through specific deployments in combination with other services and
technologies.
Moving from a pure product to a platform solution will reduce
the time and cost to develop and deploy Alfa, making the user
experience simpler and more focused for each deployment scenario
and integrating new technologies and other services faster. At the
same time, it will allow us to retain the functionality advantages
and upgrade opportunities of the core product and underpin faster
integration of leading-edge technology.
3 Sharpening our sales proposition through product evolution
We have assessed our sales strategy and route to market and
while we have concluded that it is still valid in the current
marketplace, we need to sharpen our sales execution as we focus on
converting our pipeline.
Focusing on the transition to a platform will act as an
accelerator to sales, assist in our competitive positioning, allow
us to focus the power of Alfa Systems to solve specific business
problems and position it during the sales process in a more
relevant and understandable way. This needs to be achieved whilst
retaining the competitive advantage we retain from keeping Alfa as
a single core product across all markets.
We have also retained our focus on other growth accelerators -
and I have already mentioned the traction we are achieving with
Public Cloud.
In addition to this, increased growth through partnerships
continues to be a significant opportunity. Having a relatively
small ecosystem of partners will give us more influence in the
sales process as well as a flexible pool of resources to support
our growth. We have signed a master services agreement with a
global system implementer with whom we are co-bidding for a late
stage pipeline opportunity and we have ongoing partnership dialogue
with three more potential partners.
Our pre-configured version of the software for the US automotive
finance sector is being used to compress implementation time in one
of our ongoing projects and is greatly assisting our sales efforts
in that part of the market.
Finally, our digital strategy is generating market interest,
sales differentiation and the prospect of incremental sales with
existing customers.
4 Controlling our cost base
With a reduced software implementation customer base, we have
reviewed our cost base from the bottom up and revised our
recruitment plans for the rest of 2018. We have taken steps to
minimise or manage expenses where possible as we navigate this
current phase of lower chargeability whilst keeping in mind the
importance of retaining capability in all areas of the business to
support a return to growth as the pipeline converts.
FINANCIAL REVIEW
Introduction
In line with revised expectations, revenues decreased by GBP12.3
million to GBP32.9 million in the six months ended 30 June 2018 (H1
2017: GBP45.1 million) primarily due to the number of ongoing
software implementation projects, which decreased from seven during
2017 to five in 2018. As a result, software implementation revenues
declined by GBP12.0 million to GBP13.2 million. This was partially
offset by an increase of GBP1.4 million in ODS revenues as
customers transitioned into our ODS segment post go-live.
Operating profit has decreased by GBP5.4 million to GBP8.6
million, and by GBP12.8 million excluding the impact of 2017
IPO-related expenses and pre-IPO share based payment expenses.
Operating Profit has been directly impacted by the decrease in
revenues, with cost base increasing marginally in the first six
months of the year. There has been minimal opportunity to curtail
costs following the trading update on 1 June 2018 although savings
are expected in the second half of the year following a reduced
recruitment programme and other rationalisation projects.
Total contracted value ("TCV") at 1 July 2018, excluding the
paused software implementation project, is GBP106 million (1
January 2018: GBP111 million), which consists of GBP38 million of
software implementation revenue, GBP14 million of ODS revenues and
GBP54 million of maintenance revenues. TCV has decreased due to
revenues earned in the period, but this has been offset by the
increase in scope of an ongoing software implementation project and
the recent win of an upgrade and expansion at a leading retail
bank. While the timing of these revenues is to some degree subject
to customer requirements, based on our current projections the
GBP106 million of TCV substantially underpins the lower end of our
revenue guidance for 2018 and we currently expect that
approximately GBP55 million of revenues from current customers,
excluding the paused project, will be delivered during 2019.
Continuing operations H1 2018 H1 2017 Movement
Unaudited GBP'000s GBP'000s %
----------------------- --------- --------- ---------
Revenue (1) 32,884 45,137 (27)
Operating expenses
- net (24,290) (31,134) (22)
----------------------- --------- --------- ---------
Operating profit 8,594 14,003 (39)
Finance income 24 20 (20)
Taxation (1,896) (3,875) (51)
----------------------- --------- --------- ---------
Profit for the period 6,722 10,148 (34)
----------------------- --------- --------- ---------
(1) Revenue includes GBP0.1 million of loss on derivative
instruments in H1 2018 (H1 2017: gain of GBP1.2 million)
Revenues
Revenues decreased by GBP12.3 million, or by 27%, to GBP32.9
million in H1 2018 (H1 2017: GBP45.1 million), predominantly due to
the decrease in software implementation revenues as projects
completed in 2017 and customers transitioned into ODS. At 30 June
2018 the Group had 30 customers in comparison to 32 and 29
customers at 31 December 2017 and 30 June 2017. 45% of the Group's
revenues is generated from US-based customers (H1 2017: 45%), and
therefore Group revenues have been adversely impacted by the
weakening of the US Dollar in the six months ended 30 June 2018.
Excluding this impact and gains and losses on derivative
instruments, revenues on a constant currency basis decreased by
21%.
Revenue - by type H1 2018 H1 2017 Movement
Unaudited GBP'000s GBP'000s %
------------------------- --------- --------- ---------
Software implementation 13,196 25,237 (48)
ODS 11,726 10,364 13
Maintenance 7,962 9,536 (17)
------------------------- --------- --------- ---------
Total revenue 32,884 45,137 (27)
------------------------- --------- --------- ---------
Software implementation revenues
Software implementation revenues decreased by GBP12.0 million,
or by 48%, to GBP13.2 million in H1 2018 (H1 2017: GBP25.2 million)
reflecting lower overall activity. During H1 2018 we generated
revenues from four ongoing software implementation projects and
from a fifth project which was paused in the second quarter of
2018. This is compared to seven ongoing implementation projects
during 2017. Average revenue per customer declined to GBP2.7
million (H1 2017: GBP3.5 million) reflecting the relatively lower
total contract value of new software implementation customers in
comparison to implementations which were undertaken in 2017.
Excluding the impacts of unrealised gains or losses on
derivatives, underlying software implementation revenues decreased
by 42% on a constant currency basis. Of the five software
implementations in the period, four or 83% are denominated in US
dollars (H1 2017: 58%).
Software implementation projects which completed in 2017
contributed GBP11.8 million to the 2018 decrease. Two ongoing
software implementation projects also decreased their contribution
by GBP6.5 million, as one customer has currently put their
implementation project on pause as they focus on other internal
systems and the other has recently re-planned the final phases of
their implementation project. While the re-plan has resulted in a
significant increase in work effort required by us in the second
half of 2018 and into 2019, this has led to a change in the
percentage of completion estimate at 30 June 2018, which has
contributed to a GBP1.7 million reduction in license recognised in
H1 2018.
These decreases were offset by new customer revenues of GBP7.2
million from three customers, two of which were announced in June
2017 and one in March 2018.
Ongoing development and services ("ODS") revenues
ODS revenues increased by GBP1.4 million to GBP11.7 million in
H1 2018 (H1 2017: GBP10.4 million). Excluding the GBP2.0 million
non-recurring release of contract liabilities in H1 2017,
underlying ODS revenue increased by GBP3.4 million, or 40%,
primarily reflecting software implementation customers
transitioning into ODS post go-live. Four new ODS customers
contributed GBP4.7 million of revenues during the first six months
of 2018 (H1 2017: GBP4.1 million).
New ODS customer revenues were offset by a GBP0.9 million
decline in revenues from continuing ODS customers as ongoing
support and additional development activities naturally rebased as
the period of time post implementation increased.
The number of ODS customers generating more than GBP100,000 of
revenue increased to 15 (H1 2017: 11) with revenue per customer,
excluding the H1 2017 GBP2.0 million release of contract
liabilities, increasing to GBP0.8 million (H1 2017: GBP0.7
million).
Maintenance
Maintenance revenues decreased by GBP1.6 million, or by 17%,
primarily due to GBP1.7 million of non-recurring settlement payment
recognised in the prior period and GBP0.8 million of lost
maintenance revenues from four customers who have all exited the
asset finance market. Such declines were partially offset by a
GBP0.7 million increase in maintenance revenues from existing
customers, being an 11% increase against H1 2017 on ongoing
maintenance contracts, and GBP0.2 million of new maintenance
revenues.
As at 30 June 2018, there are 28 maintenance customers, with 26
expected to generate maintenance revenues in the second half of
2018. This compares to 26 at 30 June 2017 and 30 at 31 December
2017.
Operating profit
The Group's operating profit decreased by GBP5.4 million, or
39%, to GBP8.6 million in H1 2018 (H1 2017: GBP14.0 million)
primarily reflecting the GBP12.3 million decrease in revenues,
offset by GBP4.4 million and GBP3.0 million reduction in pre-IPO
share based payment expense and IPO-related expenses.
Expenses - net H1 2018 H1 2017 Movement
Unaudited GBP'000s GBP'000s %
-------------------------- --------- --------- ---------
Implementation and
support expenses 8,661 10,698 (19)
Research and product
development expenses 9,180 7,954 15
Sales, general and
administrative expenses 6,497 12,526 (48)
Other income (48) (44) 9
-------------------------- --------- --------- ---------
Total expenses - net 24,290 31,134 (22)
-------------------------- --------- --------- ---------
Implementation and Support ("I&S") expenses decreased by
GBP2.0 million, or by 19%, to GBP8.7 million (H1 2017: GBP10.7
million). I&S expenses predominantly comprise personnel costs.
In the six months ended 30 June 2018, average software
implementation headcount decreased by 12, to 100 FTEs (H1 2017: 112
FTEs). The cost per employee also decreased by 9%, reflecting a
more beneficial personnel mix and a weakening in the US dollar.
Research and product development ("R&PD") expenses increased
by GBP1.2 million, or 15%, to GBP9.2 million (H1 2017: GBP8.0
million). 86% of R&PD expenses are personnel costs and although
the average number of developers increased in the six months ended
30 June 2018 by 41 to 164 FTEs (H1 2017: 123 FTEs), the average
cost per person decreased due to personnel mix and lower training
costs. As in prior periods, our development efforts centred
primarily on customer project development, with no amounts
capitalised.
Sales, general and administrative ("SG&A") expenses
decreased by GBP6.0 million, or by 48%, to GBP6.5 million (H1 2017:
GBP12.5 million) which primarily reflected a decrease in pre-IPO
share based payment expense of GBP4.4 million and IPO fees of
GBP3.0 million in the current period. Excluding these exceptional
items, SG&A expenses increased by GBP1.4 million, or 26%, to
GBP6.5 million (H1 2017: GBP5.1 million). This increase partially
reflects an increase in salary costs of GBP0.7 million as the
average number of employees increased to 70 FTEs (H1 2017: 51 FTEs)
as more team members being assigned to the Alfa sales and marketing
team. Additionally depreciation and amortisation increased by
GBP0.2 million from the new HR and finance system and increased
computer hardware investment. Also, other professional fees
increased as a result of being a public company.
Adjusted EBIT
Adjusted EBIT, defined as operating profit excluding pre-IPO
share based payment expenses and IPO-related costs, decreased by
GBP12.8 million, or 60%, to GBP8.6 million in H1 2018 (H1 2017:
GBP21.4 million) which reflects the GBP12.3 million decrease in
revenues coupled with a GBP0.5 million increase in operating costs
(excluding pre-IPO share based payment expenses and IPO-related
costs).
Excluding the impact of unrealised gains or losses on
derivatives, Adjusted EBIT on a constant currency basis decreased
by 53%. Adjusted EBIT margin in H1 2018 decreased to 26% (H1 2017:
45% on a constant currency basis), reflecting decreased
revenues.
Adjusted EBIT H1 2018 H1 2017
Unaudited GBP'000s GBP'000s
------------------------------ --------- ---------
Profit for the period 6,722 10,148
Adjusted for:
Taxation 1,896 3,875
Finance income (24) (20)
Share based compensation (1) - 4,400
IPO-related expenses (2) - 2,989
------------------------------ --------- ---------
Adjusted EBIT 8,594 21,392
------------------------------ --------- ---------
(1) Relates to pre-IPO share schemes, expensed in full by 30
June 2017.
(2) Relates to non-recurring expenses incurred in relation to
the listing of shares that took place on 1 June 2017.
Profit for the period
Profit after taxation decreased by GBP3.4 million, or 34%, to
GBP6.7 million in H1 2018, (H1 2017: GBP10.1 million), with the
effective tax rate decreasing to 22% in H1 2018 (H1 2017: 28%, FY
2017: 24%) due to non-deductible expenses such as the pre-IPO share
based payment expenses in the six months ended 30 June 2017.
Earnings per share
Basic Earnings per share decreased to 2.37 pence in H1 2018 (H1
2017: 3.58 pence). Adjusted earnings per share, diluted decreased
to 2.24 pence (H1 2017: 5.65 pence).
Adjusted Earnings and Earnings per share
Adjusted Earnings H1 2018 H1 2017
Unaudited GBP'000s GBP'000s
------------------------------------ --------- ---------
Profit for the period attributable
to equity holders of the Company 6,722 10,148
Adjusted for:
Pre-IPO Share based compensation - 4,400
IPO-related expenses - 2,989
Tax effect of adjustments - (584)
------------------------------------ --------- ---------
Adjusted Earnings 6,722 16,953
------------------------------------ --------- ---------
Earnings per share H1 2018 H1 2017
Unaudited pence pence
--------------------------------------- -------- --------
Earnings per share - basic 2.37 3.58
Earnings per share - diluted 2.24 3.38
Adjusted Earnings per share - diluted 2.24 5.65
--------------------------------------- -------- --------
Cash flow
Cash flow H1 2018 H1 2017
Unaudited GBP'000s GBP'000s
--------------------------------------- --------- ---------
Operating profit 8,594 14,003
Depreciation and amortisation 440 227
Share based payment charge 53 4,400
Loss on disposal of property, plant 2 -
and equipment
Unrealised loss/(gain) on derivative
financial instruments 103 (1,213)
Movement in working capital 756 (3,671)
Cash generated from operations 9,948 13,746
Settlement of derivative financial
instruments and margin calls 21 (2,118)
Income taxes paid (4,145) (3,471)
--------------------------------------- --------- ---------
Net cash generated from operating
activities 5,824 8,157
Net cash generated (used in)/from
investing activities (567) 26,791
Net cash used in financing activities - (60,743)
Effect of exchange rate changes (192) 26
--------------------------------------- --------- ---------
Net increase/(decrease) in cash 5,065 (25,769)
Cash and cash equivalents at end
of the period 36,332 20,497
--------------------------------------- --------- ---------
Net cash increased by GBP5.1 million to GBP36.3 million as at 30
June 2018, from GBP31.3 million at 31 December 2017. This increase
has been driven by the operating cash flow generation, primarily
from maintenance payments received in the period, offset by capital
expenditure of GBP0.6 million. The company has no borrowings.
Net cash generated from operating activities decreased by GBP2.3
million to GBP5.8 million in H1 2018 (H1 2017: GBP8.2 million).
This decrease was primarily due to a decrease in operating profit
excluding share based payments, depreciation and amortisation and
unrealised gains and losses on derivative instruments of GBP8.2
million coupled with a GBP0.7 million increase in taxation paid.
Such outflows were offset by GBP4.4 million cash inflows from
movements in working capital and a GBP2.1 million decrease in cash
outflows for settlement of derivatives as the Group continued to
unwind its historical USD forward programme.
The movement in working capital reflected an increase in trade
and other receivables of GBP2.8 million, a decrease in trade and
other payables of GBP3.0 million offset by an increase in contract
liabilities from license and maintenance collected in advance of
GBP6.5 million. The increase in trade and other receivables offset
in contract liabilities is due to a GBP3.7 million license invoiced
in June 2018 and subsequently collected in July. Excluding this,
trade and other receivables decreased to a cash inflow of GBP0.9
million due to an increased focus on cash collection, coupled with
a decrease in activity as software implementation slowed during the
summer months. Trade payables decreased as the 31 December 2017
outstanding balance included bonus accrual for the year which was
subsequently paid in April 2018.
Net cash out flows used in investing activities of GBP0.6
million in the six months ended 30 June 2018 related to capital
expenditure in relation to externally acquired software and
computer equipment. In the prior period GBP27.0 million was
received from the parent company as settlement of a loan, as part
of the restructuring prior to the IPO.
In the six months ended 30 June 2018 there were no financing
activities, whereas in the prior period, GBP60.7 million of pre-IPO
dividends were paid to the parent company. No dividends have been
paid or proposed in the six months ended 30 June 2018.
Related party transactions
CHP Software and Consulting Limited is the ultimate parent of
the Group and during the period there was no trading between the
parent and the Group.
In the six months ended 30 June 2018 there were no transactions
(H1 2017: settlement of parent company loan of GBP27.0 million) and
at 30 June 2018 there were no balances outstanding from or to the
Parent (30 June 2017: nil).
Additionally, an arms-length transaction with Classic Technology
Limited, a company in which the Chairman holds an interest, was
undertaken for the rental of property. These transactions amount to
GBP0.02 million (H1 2017: GBP0.02 million) with no outstanding
receivable balances at the end of each reporting period.
Subsequent events
There have been no subsequent events.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties which could have a
material impact on the long-term performance of Alfa Financial
Software Holdings PLC and its subsidiaries are set out in the Alfa
Financial Software Holdings PLC Annual Report for the year ended 31
December 2017, dated 8 March 2018, and remain valid at the date of
this report.
These risks and uncertainties (in no specific order) are:
-- Talent recruitment and retention - our business is dependent
on our people and failure to attract and retain high quality people
may impact our ability to deliver our implementations, maintain
product quality and deliver on our strategic plan;
-- Project delivery and support - failure to deliver and support
could harm our reputation and lead to loss of customers;
-- Product management - regulation and customer needs are
constantly evolving and if Alfa Systems is not developed to meet
these needs, this may lead to loss of customers;
-- Economic, political and social environment - all our revenues
are derived from providers of finance in the asset finance sector
and changes in economic conditions or external events may put
pressure on profitability of the players in the market, which may
in turn lead to a decrease on spend on systems;
-- IT security and cyber risks - a targeted attack could
adversely affect our customers or future customers perception of
Alfa Systems and could impact our ability to operate our business;
and
-- Business interruption and continuity - risk of disruption to
our day to day operations if there is a disaster incident.
In addition to the disclosure in the Annual Report, included
with Project delivery and support risk is the risk that external
factors such as lack of appropriate customer resource, other
business issues or system challenges in our customer's businesses
may lead to a slowing of implementation or development and services
efforts, which may decrease revenues in the short term as efforts
are turned to other challenges outside the Alfa Systems software
implementation.
Following the 2016 decision by the UK population to exit from
the European Union ("Brexit") by April 2019, the Directors continue
to consider whether or not Brexit is an additional risk to the
Group. On the basis that the Group's revenue is sourced from a
number of sources, such as the US, European countries, Australia
and New Zealand, reflecting the relative global diversity of the
Group's operations, that the Group has minimal Euro exposure and
with recruitment targets for FY18 substantially met and
significantly reduced, this does not constitute a principal risk to
the business over and above the risks mentioned above.
UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
COMPREHENSIVE INCOME FOR THE SIX MONTHSED 30 JUNE 2018
2018 2017
GBP'000s Note Unaudited Unaudited
------------------------------------- ----- ------------ ------------
Continuing operations
Revenue 3 32,884 45,137
Implementation and support expenses (8,661) (10,698)
Research and product development
expenses (9,180) (7,954)
Sales, general and administrative
expenses (6,497) (12,526)
Other operating income 48 44
------------------------------------- ----- ------------ ------------
Operating profit 8,594 14,003
Finance income 24 20
Profit before taxation 8,618 14,023
Taxation 6 (1,896) (3,875)
------------------------------------- ----- ------------ ------------
Profit for the period attributable
to owners of the Parent 6,722 10,148
------------------------------------- ----- ------------ ------------
Other comprehensive income
Items that may be subsequently
reclassified to profit or loss
Currency translation differences 156 -
------------------------------------- ----- ------------ ------------
Total comprehensive income, net
of tax 156 -
------------------------------------- ----- ------------ ------------
Total comprehensive income for
the period attributable to owners
of the Parent 6,878 10,148
------------------------------------- ----- ------------ ------------
Earnings per share (in pence)
Basic 7 2.37 3.58
Diluted 7 2.24 3.38
Weighted average no. of shares
- basic 7 283,766,785 283,145,649
Weighted average no. of shares
- diluted 7 300,000,000 300,000,000
Adjusted Earnings per share (in
pence)
Diluted 7 2.24 5.65
------------------------------------- ----- ------------ ------------
The above consolidated statement of profit or loss and
comprehensive income should be read in conjunction with the
accompanying notes.
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30
JUNE 2018
30 June 31 December
2018 2017
GBP'000s Note Unaudited Audited
---------------------------------- ----- ----------- ------------
Assets
Non-current assets
Goodwill 24,737 24,737
Intangible assets 8 827 -
Property, plant and equipment 1,559 1,463
Total non-current assets 27,123 26,200
---------------------------------- ----- ----------- ------------
Current assets
Trade and other receivables 9 9,163 6,887
Contract assets 9 7,053 5,505
Prepayments 9 1,044 1,731
Other receivables 9 378 602
Derivative financial assets 9 - 108
Cash and cash equivalents 10 36,332 31,267
---------------------------------- ----- ----------- ------------
Total current assets 53,970 46,100
---------------------------------- ----- ----------- ------------
Total assets 81,093 72,300
---------------------------------- ----- ----------- ------------
Liabilities and equity
Current liabilities
Trade and other payables 11 4,592 7,417
Corporation tax 11 1,704 3,956
Contract liabilities - software
implementation 11 3,923 1,673
Contract liabilities - deferred
maintenance 11 9,315 5,046
Derivative financial liabilities 11 69 -
---------------------------------- ----- ----------- ------------
Total current liabilities 19,603 18,092
---------------------------------- ----- ----------- ------------
Non-current liabilities
Provisions for other liabilities 11 438 87
Total non-current liabilities 438 87
---------------------------------- ----- ----------- ------------
Total liabilities 20,041 18,179
---------------------------------- ----- ----------- ------------
Capital and reserves
Ordinary shares 300 300
Translation reserve 156 -
Retained earnings 60,596 53,821
---------------------------------- ----- ----------- ------------
Total equity 61,052 54,121
---------------------------------- ----- ----------- ------------
Total liabilities and equity 81,093 72,300
---------------------------------- ----- ----------- ------------
The above consolidated statement of financial position should be
read in conjunction with the accompanying notes.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE
SIX MONTHSED 30 JUNE 2018
Share Share Translation Retained Equity
GBP'000s Notes capital premium reserve earnings attributable
-------------------------- ------ --------- --------- ------------ ---------- --------------
Balance as at 1 January
2017 27 11,123 - 73,448 84,598
Profit for the financial
period - - - 10,148 10,148
-------------------------- ------ --------- --------- ------------ ---------- --------------
Total comprehensive
income for the period - - - 10,148 10,148
-------------------------- ------ --------- --------- ------------ ---------- --------------
Capital reduction (27) (11,123) - 11,150 -
Reorganisation of
share capital 300 - - (300) -
Dividends paid to
parent - - - (60,743) (60,743)
Share based payment - - - 4,400 4,400
-------------------------- ------ --------- --------- ------------ ---------- --------------
Balance as at 30 June
2017 300 - - 38,103 38,403
-------------------------- ------ --------- --------- ------------ ---------- --------------
Balance as at 1 January
2018 300 - - 53,821 54,121
Profit for the financial
period - - - 6,722 6,722
Other comprehensive
income - - 156 - 156
-------------------------- ------ --------- --------- ------------ ---------- --------------
Total comprehensive
income for the period - - 156 6,722 6,878
-------------------------- ------ --------- --------- ------------ ---------- --------------
Share based payment 13 - - - 53 53
-------------------------- ------ --------- --------- ------------ ---------- --------------
Balance as at 30 June
2018 300 - 156 60,596 61,052
-------------------------- ------ --------- --------- ------------ ---------- --------------
The above consolidated statement of changes in equity should be
read in conjunction with the accompanying notes
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX
MONTHSED 30 JUNE 2018
2018 2017
GBP'000s Note Unaudited Unaudited
----------------------------------------- ----- ------------ -----------
Cash flows from operations
Operating profit 8,594 14,003
Adjustments:
Depreciation and amortisation 4 440 227
Share based payment charge 13 53 4,400
Loss on disposal of property, plant 2 -
and equipment
Unrealised loss/(gain) on derivative
financial instruments 103 (1,213)
Movement in working capital:
Movement in trade and other receivables (2,799) (6,685)
Movement in trade and other payables
and provisions (excluding derivative
financial instruments and contract
liabilities) (2,955) 2,156
Movement in contract liabilities 6,510 858
----------------------------------------- ----- ------------ -----------
Cash generated from operations 9,948 13,746
Settlement of derivative financial
instruments and margin calls 21 (2,118)
Income taxes paid (4,145) (3,471)
----------------------------------------- ----- ------------ -----------
Net cash generated from operating
activities 5,824 8,157
----------------------------------------- ----- ------------ -----------
Cash flows from investing activities
Purchases of property, plant and
equipment (325) (272)
Purchase of software 8 (266) -
Amounts received as settlement
of loan to parent company - 27,043
Interest received 24 20
Net cash (used in)/generated from
investing activities (567) 26,791
----------------------------------------- ----- ------------ -----------
Cash flows from financing activities
Dividends paid to parent - (60,743)
----------------------------------------- ----- ------------ -----------
Cash used in financing activities - (60,743)
----------------------------------------- ----- ------------ -----------
Effect of exchange rate changes (192) 26
----------------------------------------- ----- ------------ -----------
Net increase/(decrease) in cash 5,065 (25,769)
----------------------------------------- ----- ------------ -----------
Cash and cash equivalents at the
beginning of the period 31,267 46,266
----------------------------------------- ----- ------------ -----------
Cash and cash equivalents at the
end of the period 36,332 20,497
----------------------------------------- ----- ------------ -----------
The above consolidated cash flow statement should be read in
conjunction with the accompanying notes.
Notes to the Condensed Consolidated Interim Financial Statements
for the six months ended 30 June 2018
1 General information
Alfa Financial Software Holdings PLC ("Alfa" or the "Company")
and its subsidiaries (together the "Group") is a public company
limited by shares and is incorporated and domiciled in England. The
address of its registered office is Moor Place, 1 Fore Street
Avenue, London, EC2Y 9DT, United Kingdom. Alfa's registration no.
is 10713517.
The principal activity of the Group is to provide software
solutions and consultancy services to the asset finance industry in
the United Kingdom, United States of America, Europe and Asia
Pacific.
These unaudited Interim Financial Statements have been approved
for issue by the Board of Directors on 4 September 2018. These
Interim Financial Statements have been reviewed but not
audited.
2 Accounting policies
The Interim Financial Statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting" as adopted by
the European Union and the Disclosure and Transparency Rules of the
Financial Conduct Authority.
These Interim Financial Statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act
2006. The interim financial report does not include all the notes
of the type normally included in an annual financial report.
Accordingly this report should be read in conjunction with the
annual report for the year ended 31 December 2017 (the "Annual
Financial Statements"), which has been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS"), and any public announcements made by Alfa
during the interim reporting period. The report of the auditors on
those accounts was unmodified, did not contain an emphasis of
matter paragraph and did not contain any statement on other matters
prescribed by the Companies Act 2006.
The accounting policies adopted in preparation of the Interim
Financial Statements are consistent with those used to prepare
Alfa's consolidated financial statements for the year ended 31
December 2017 and the corresponding interim reporting period,
except for the estimation of income tax (see note 6) and the
adoption of new and amended standards as set out below.
The preparation of the Interim Financial Statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates. In preparing these Interim
Financial Statements, the significant judgements made by management
in applying the Group's accounting policies and other than set out
in 2.1 (b) below, the key sources of estimation uncertainty were
the same as those that applied to the consolidated Annual Financial
Statements described above.
The Interim Financial Statements have been prepared on a going
concern basis, under the historical cost convention, as modified to
include the fair value of certain financial instruments. The
directors are satisfied that the Group has sufficient resources to
continue in operation for the foreseeable future, a period of not
less than 12 months from the date of this report, and therefore
they continue to adopt the going concern basis of accounting in
preparing these Interim Financial Statements.
2.1 New and amended standards adopted
A number of new or amended standards became applicable for the
current reporting period and the group has updated its accounting
policies as a result of adopting IFRS 15 "Revenue from Contracts
with Customers". The Group has applied IFRS 15 using the modified
retrospective method of adoption and there have been no resultant
changes to the quantum of revenues recognised on application of
IFRS 15. No other changes are required from the adoption of other
new standards applied.
The impact of the adoption of these standards and the new
accounting policies are disclosed below.
a) Accounting policy for software implementation contracts
The Group provides software development, core implementation
services and ongoing support of its product, Alfa Systems. Revenue
from providing services is recognised in the accounting period in
which the services are rendered. As these contracts contain
multiple deliverables or performance obligations, such as the
development of software to the customer's requirements and
implementation services such as migration of data and testing and
some project management services, Alfa assesses whether there are
distinct performance obligations at the start of each contract and
throughout the performance of the implementation, development and
services projects and maintenance period. These performance
obligations are laid out below.
(i) Implementation services - Where implementation services are
considered to be relatively straightforward, do not require
additional development services and could be performed by an
external third party, the implementation services are accounted for
as a separate performance obligation from any development services.
The transaction price is allocated to each performance obligation
based on the stand-alone selling prices, derived from day rates and
the effort incurred, limited to the amount to which Alfa has a
right to invoice. Customers are invoiced on a monthly basis and
consideration is payable when invoiced. Where these selling prices
are not directly observable, they are estimated based on the
expected cost plus margin.
(ii) Development services - The second performance obligation is
the delivery of customised development services, and the related
software license. The total revenues attributable to this
performance obligation are estimated at the outset of the software
implementation project and recognised as the effort is expended, on
a percentage of completion basis, limited to the amount to which
Alfa has the right to invoice.
(iii) Option over the right to use Alfa Systems - In certain
circumstances the license granted by Alfa is considered to renew in
future periods. There may be a material right in respect of
discounts in future periods. In order to ascribe a value to this
option management initially determine the value of the development
services during the software implementation period and the first
year after delivery. This value is then annualised and compared to
the right to use component of the maintenance payable over the
remaining expected customer life.
(iv) Maintenance and right to use Alfa Systems - Other
performance obligations are the ongoing support or maintenance of
Alfa Systems and the option to renew the right to use Alfa Systems.
After an analysis of the right of clawback of the maintenance
amount, such amounts are recognised throughout the annual period as
the services are delivered, limited to the amount to which Alfa has
a right to invoice.
The software implementation services, maintenance services and
the right to use Alfa Systems have stand-alone selling prices and
therefore such transaction prices are observable. Development
services are valued using the residual value method. The Group does
not expect to have any contracts where the period between the
transfer of promised services to the customer and payment by the
customer exceeds one year. As a consequence, the Group does not
adjust any of the transaction prices for the time value of
money.
The Group's Chief Operating Decision Maker ("CODM") reviews
revenue segmentation as disclosed in note 3 to these Interim
Financial Statements. Software implementation services include
performance obligations (i) through (iii), ODS includes performance
obligations (i) and (ii) and maintenance services include (iii) and
(iv). Generally the contract duration of software implementations
is more than 12 months, with ODS being less than six months.
Maintenance contracts are valid for one year.
b) Update to the Group's revenue recognition critical estimates and judgements
The Group assesses the value of the development services
delivered during the software implementation period and the first
year following the go-live date by determining how much of the
historical and future efforts are attributable to customised
development services. In making this judgement the Group bases its
estimate on the original project plan, updated for days worked and
any changes in efforts as the project processes. If the development
days increased on all of our current software implementation
projects by 5%, this could lead to a GBP0.9 million deferred
revenue.
Other than set out above, no updates to the Group's critical
estimates and judgements are required following the application of
IFRS 15 and there has been no adjustment to retained earnings as at
1 January 2018.
c) Presentation of assets and liabilities related to contracts with customers
Alfa has also voluntarily changed the presentation of certain
amounts in the statement of financial position to reflect the
terminology of IFRS 15. Contract assets recognised in relation to
software implementation contracts were previously presented as part
of trade and other receivables. Contract liabilities such as
license amounts collected ahead of implementation completions were
previously presented as deferred license amounts.
The other standards, including the application of IFRS 9
"Financial Instruments" on 1 January 2018, did not have any impact
on the Group's accounting policies and did not impact the six
months 30 June 2018 or require retrospective adjustment to prior
periods presented.
2.2 Impact of standards issued but not yet applied by the entity
IFRS 16 "Leases" was issued in January 2017 and will result in
almost all leases being recognised on the statement of financial
position as the distinction between operating and finance leases is
removed. Under the new standard an asset and a financial liability
to pay rentals is recognised with an exception for short-term or
low-value leases.
The standard will affect the accounting for the Group's
operating leases for its headquarters in the United Kingdom.
As at the reporting date, the Group has non-cancellable
operating lease commitments of GBP22.6 million. Although the Group
continues to evaluate the impact of this new standard, it is
expected that it will result in the recognition of some of its
operating lease commitments as "right to use" asset and a
corresponding liability. Most of the Group's lease commitments will
be covered by the exception for short-term and low-value leases.
The standard is mandatory for first interim periods within annual
reporting periods beginning on or after 1 January 2019. The Group
does not intend to adopt the standard before the effective
date.
2.3 Seasonality
The Group is not significantly influenced by seasonality or
cyclical fluctuation throughout the year as the Group recognises
revenue from maintenance fees, implementation and ODS fees
relatively consistently throughout the year as a result of the
Group's relevant revenue recognition policies. Instead the Group is
influenced by the number of software implementations which are
ongoing during the period and the maturity of those software
implementation projects. Separately, the Group's cash flows are
subject to seasonal fluctuations as (i) the Group invoices a large
proportion of its customers for maintenance annually in advance in
the first six months of each year, resulting in a higher inflow of
cash receipts in the first half of the Group's financial year in
respect of maintenance revenues and (ii) cash flows are impacted by
the invoicing of up-front licence fees at the commencement of an
implementation.
2.4 Foreign currency
The average rate for the six month period ended 30 June 2018 for
the US Dollar was 1.3760 (H1 2017: 1.2586). The closing rate for
the US Dollar used was 1.3207 as of 30 June 2018 (31 December 2017:
1.3493).
3 Segment information
Revenue by type
The Group assesses revenue by type of project, being software
implementations, ongoing development and services ("ODS") and
maintenance, as summarised below:
2018 2017
GBP'000s Unaudited Unaudited
------------------------- ----------- -----------
Software implementation 13,196 25,237
ODS 11,726 10,364
Maintenance 7,962 9,536
------------------------- ----------- -----------
Total revenue 32,884 45,137
------------------------- ----------- -----------
Unrealised losses on derivative financial instruments recognised
as revenue in the six months ended 30 June 2018 was GBP0.1 million
(H1 2017: gain of GBP1.2 million).
Geographical information
Revenues attributable to each geographical market based on where
the licence is sold or the service is provided:
2018 2017
GBP'000s Unaudited Unaudited
--------------- ----------- -----------
UK 10,154 16,602
US 14,632 20,518
Rest of world 8,098 8,017
--------------- ----------- -----------
Total revenue 32,884 45,137
--------------- ----------- -----------
Adjusted EBIT and Adjusted Earnings
The CODM analyses the financial performance of the business on
two adjusted profit measures, being adjusted earnings before
interest and tax ("Adjusted EBIT") and adjusted earnings ("Adjusted
Earnings"). Adjusted EBIT and Adjusted Earnings are not measures
defined by IFRS. The most directly comparable IFRS measure to both
Adjusted EBIT and Adjusted Earnings is profit for the relevant
period.
Adjusted EBIT is defined as profit from continuing operations
before income taxes, finance income, pre-IPO share based payments
and IPO-related expense. Management utilises this measure to
monitor performance as it illustrates the underlying performance of
the business by excluding items considered by management not to be
reflective of the underlying trading operations of the Group or
adding items which are reflective of the overall trading
operations.
The following table reconciles profit for the period from
continuing operations to Adjusted EBIT for the periods
presented:
2018 2017
GBP'000s Unaudited Unaudited
-------------------------------------- ----------- -----------
Profit for the period 6,722 10,148
Adjusted for:
Taxation 1,896 3,875
Finance income (24) (20)
Pre-IPO share based compensation (1) - 4,400
IPO-related expenses (2) - 2,989
-------------------------------------- ----------- -----------
Adjusted EBIT 8,594 21,392
-------------------------------------- ----------- -----------
1) Relates to pre-IPO share based payment expense.
2) Relates to costs related to the IPO.
Additionally, in considering the financial performance of the
business, management and the CODM analyse the performance measure
of Adjusted Earnings. Adjusted Earnings is defined as profit for
the period from continuing operations attributable to equity
holders of the Company, before IPO-related expenses and pre-IPO
share based compensation, less the tax effect of these
adjustments.
Adjusted Earnings is used by the CODM in measuring profitability
because it represents a Group measure of performance which excludes
the impact of certain non-cash charges and other charges not
associated with the underlying operating performance of the
business, while including the effect of items that management
believe affect shareholder value and in-year return, such as income
tax expense and net finance costs. Management use Adjusted Earnings
to (i) provide senior management with a monthly report of operating
results that is prepared on an adjusted earnings basis and (ii)
prepare strategic plans and annual budgets on an adjusted earnings
basis. Senior management's annual compensation may also be
reviewed, in part, using adjusted performance measures.
In addition Adjusted Earnings is used for the purposes of
calculating diluted Adjusted Earnings per share. Management uses
diluted Adjusted Earnings per share to assess total Company
performance on a consistent basis at a per share level. See note
7.
The following table reconciles profit for the period
attributable to equity holders of the Company to Adjusted Earnings
for the periods presented:
2018 2017
GBP'000s Unaudited Unaudited
---------------------------------------------- ----------- -----------
Profit for the period attributable to equity
holders of the Company 6,722 10,148
Adjusted for:
Pre-IPO share based compensation - 4,400
IPO-related expenses - 2,989
Tax effect adjustments (1) - (584)
---------------------------------------------- ----------- -----------
Adjusted Earnings 6,722 16,953
---------------------------------------------- ----------- -----------
1) Professional fees tax effected based on the applicable rate
in the UK in the period in which incurred. Share based compensation
is not deductible for tax purposes, and therefore not tax
effected.
4 Operating profit
The following items have been included in arriving at operating
profit:
2018 2017
GBP'000s Unaudited Unaudited
------------------------------------------- ----------- -----------
Personnel, external consultants, training
and recruitment expenses 16,971 17,131
Other personnel related expenses 1,095 1,077
Advertising, sponsorship and marketing
costs 454 435
Depreciation 312 227
Amortisation 128 -
Property costs 1,189 939
Travel costs 2,052 2,029
IT costs 600 717
Professional advisor costs 1,041 3,438
Insurance 263 123
Foreign currency differences (197) 353
Share based compensation 53 4,400
Other 378 309
------------------------------------------- ----------- -----------
5 Employees and Directors
Average monthly number of people employed 2018 2017
(including Directors) Unaudited Unaudited
------------------------------------------------- ----------- -----------
UK 245 209
US 75 69
RoW 14 8
------------------------------------------------- ----------- -----------
Total average monthly number of people employed 334 286
------------------------------------------------- ----------- -----------
Average monthly number of people employed 2018 2017
(including Directors) Unaudited Unaudited
------------------------------------------------- ----------- -----------
Software implementation 100 112
Research and product development 164 123
Sales, general and administrative 70 51
------------------------------------------------- ----------- -----------
Total average monthly number of people employed 334 286
------------------------------------------------- ----------- -----------
At 30 June 2018 the Group had 337 employees (31 December 2017:
329).
6 Income tax expense
Income tax expense is calculated on management's best estimate
of the full financial year expected tax rate which is then adjusted
for discrete items occurring in the reporting period. The income
tax expense for the six month period ended 30 June 2018 was GBP1.9
million (H1 2017: GBP3.9 million) representing an effective tax
rate of 22% (H1 2017: 28%, FY 2017: 24%).
7 Earnings per share
2018 2017
Unaudited Unaudited
----------------------------------------------- ------------ ------------
Profit attributable to equity holders of
AFSGL (GBP'000s) 6,722 10,148
Weighted average number of shares outstanding
during the period 283,766,785 283,145,649
Basic earnings per share (pence per share) 2.37 3.58
Weighted average number of shares outstanding
including potentially dilutive shares 300,000,000 300,000,000
Diluted earnings per share (pence per share) 2.24 3.38
----------------------------------------------- ------------ ------------
On 12 June 2018, the first tranche of the 2014 and 2015 share
options granted to employees vested with a total number of shares
of 4,867,716 being released. The weighted average number of shares
for the six months ended 30 June 2018 has increased to
283,766,785.
Diluted - For the periods presented, the ordinary shares which
are held in an employee trust on behalf of employees are treated as
having a potentially dilutive effect as these shares have service
conditions attaching to them. Should the service conditions not be
met, the shares will be forfeited. The shares have no right to
voting or to dividends while held in trust.
Adjusted Earnings per share, diluted, is defined as Adjusted
Earnings divided by the weighted average number of shares issued
and outstanding, diluted.
2018 2017
Unaudited Unaudited
-------------------------------------------- ----------- -----------
Adjusted Earnings attributable to equity
holders of the Company (GBP'000s) 6,722 16,953
Diluted adjusted earnings per share (pence
per share) 2.24 5.65
-------------------------------------------- ----------- -----------
8 Intangible assets
Computer
GBP'000s software
--------------------- ----------
Cost
At 1 January 2018 -
Additions 955
At 30 June 2018 955
Amortisation
At 1 January 2018 -
Charge for the year 128
At 30 June 2018 128
Net book value
--------------------- ----------
At 30 June 2018 827
--------------------- ----------
During the six months ended 30 June 2018, Alfa implemented a new
HR and finance system at a cost of GBP1.0 million. The externally
acquired computer software will be amortised over either the
license period or 10 years, as applicable.
9 Trade and other receivables
31 December
2018 2017
GBP'000s Unaudited Audited
----------------------------------------- ----------- ------------
Trade receivables 9,163 6,887
Provision for impairment - -
----------------------------------------- ----------- ------------
Trade receivables - net 9,163 6,887
Contract assets 7,053 5,505
Prepayments 1,044 1,731
Other receivables 378 602
Derivative financial instruments - 108
----------------------------------------- ----------- ------------
Total trade receivables, accrued income
and other receivables 17,638 14,833
----------------------------------------- ----------- ------------
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivable mentioned above. The
credit qualities of these receivables are periodically assessed by
reference to external credit ratings (if available) or to
historical information about their default rates. The Group does
not hold any collateral as security.
31 December
2018 2017
Ageing of net trade receivables GBP'000s Unaudited Audited
------------------------------------------ ----------- ------------
Less than 30 days 8,279 5,596
Past due 31-90 days 884 1,291
------------------------------------------ ----------- ------------
Trade receivables - net 9,163 6,887
------------------------------------------ ----------- ------------
The Group believes that the unimpaired amounts that are past due
are fully recoverable as there are no indicators of future
delinquency or potential litigation. At the date of this report,
GBP0.9 million of the GBP0.9 million past due has been
collected.
10 Cash and cash equivalents
Cash and cash equivalents includes amounts held in short-term
deposits with counterparties to derivative financial instruments of
GBP0.1million (31 December 2017: GBP1.0 million).
11 Trade and other payables
31 December
2018 2017
GBP'000s Unaudited Audited
------------------------------------------------ ----------- ------------
Trade payables 4,592 7,417
Corporation tax 1,704 3,956
Contract liabilities - software implementation 3,923 1,673
Contract liabilities - deferred maintenance 9,315 5,046
Provisions for other liabilities 438 87
Derivative financial liabilities 69 -
Total trade and other payables 20,041 18,179
Less non-current portion (438) (87)
------------------------------------------------ ----------- ------------
Total current trade and other payables 19,603 18,092
------------------------------------------------ ----------- ------------
During the six months ended 30 June 2018 GBP4.0 million of
license fees (H1 2017: GBP0.8 million) and GBP11.5 million of
maintenance fees were invoiced (H1 2017: GBP12.4 million).
Non-current liabilities include GBP0.4 million of future
software license fees in respect of the new HR and finance system
that are payable in 2018 and 2019.
12 Financial and liquidity risk management
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk and price risk), credit
risk and liquidity risk. The Interim Financial Statements do not
include all financial risk management information and disclosures
required in the Annual Financial Statements; they should be read in
conjunction with the Annual Financial Statements. There have been
no changes in the personnel responsible for risk management or in
any risk management policies since the year end. Compared to year
end, there was no material change in the contractual undiscounted
cash outflows for financial liabilities.
Fair values of financial instruments
For the following financial assets and liabilities: trade and
other payables excluding tax and social security, trade and other
receivables excluding prepayments and accrued income, short-term
bank deposits, cash at bank and in hand and other financial
liabilities, the carrying value amount approximates the fair value
of the instrument.
The Group have GBP0.1 million of foreign currency financial
instruments liabilities outstanding at 30 June 2018 (31 December
2017: GBP0.1 million foreign currency financial instrument assets).
The Group uses Level 2 inputs for determining and disclosing the
fair value of financial instruments. The Group uses forward
exchange rates at the relevant balance sheet date for determining
the fair value of foreign currency financial instruments. There
were no transfers between levels during the six months to 30 June
2018 (2017: none).
There were no changes in valuation techniques during the
periods. The fair values of each category of the Group's financial
instruments are approximate to their carrying values in the Group's
statement of financial position as the impact of discounting is not
significant.
13 Share based compensation
On 31 May 2018, Alfa awarded share options to a selected number
of employees throughout the Group. The options are conditional on
the employees completing three years' service (the vesting period).
Therefore these share options are exercisable starting three years
from the grant date and there are no other performance conditions
pertaining to the options other than the continuous employment
referred to above. The Group has no legal or constructive
obligation to repurchase or settle the options and therefore these
awards are treated as equity settled. The grant date was determined
to be the date the employees were informed of the monetary value of
the award, following Board approval. The options will be granted in
the second half of 2018 based on the share price at that time. The
total value of the awards granted on 31 May 2018 was GBP2.7 million
and the share based compensation charge in the six month period to
30 June 2018, based on the amounts granted was GBP0.1 million.
The input assumptions are as follows: an expected option life of
three years and an employee attrition rate of 30% over the three
year period.
14 Related party
The ultimate parent undertaking is CHP Software and Consulting
Limited, which is the Parent undertaking of the smallest and
largest group in relation to these Interim Financial Statements.
There was no trading between the Group and the Parent.
In the six months ended 30 June 2018 there were no transactions
(H1 2017: settlement of parent company loan of GBP27.0 million) and
at 30 June 2018 there were no balances outstanding from or to the
Parent (30 June 2017: nil).
Additionally, an arms-length transaction with Classic Technology
Limited, a company in which the Chairman holds an interest, was
undertaken for the rental of property. These transactions amount to
GBP0.02 million (H1 2017: GBP0.02 million) with no outstanding
receivable balances at the end of each reporting period.
15 Subsequent events
There have been no subsequent events.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors' confirm that these condensed consolidated interim
financial statements (the "Interim Financial Statements") have been
prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
that the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed Interim
Financial Statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last annual report.
A list of the current directors of Alfa Financial Software
Holdings PLC are listed in the Alfa Financial Software Holdings PLC
Annual Report for the year ended 31 December 2017, a copy of which
can be found on the Alfa Financial Software Holdings PLC
website.
By order of the Board
Andrew Denton
Chief Executive Officer
4 September 2018
Independent review report to Alfa Financial Software Holdings
plc
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the consolidated
statement of profit or loss and comprehensive income, the
consolidated statement of financial position, the consolidated
statement of changes in equity, the consolidated statement of cash
flows and related notes 1 to 15. We have read the other information
contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
4 September 2018
DEFINITIONS
Adjusted Earnings - Adjusted Earnings is defined as profit for
the period from continuing operations attributable to equity
holders of the Company, before IPO-related expenses and pre-IPO
share based compensation, less the tax effect of these adjustments.
Adjusted Earnings is used in measuring profitability because it
represents a Group measure of performance which excludes the impact
of certain non-cash charges and other charges not associated with
the underlying operating performance of the business, while
including the effect of items that management believes affect
shareholder value and in-year return, such as income tax expense
and net finance costs.
Adjusted EBIT - Adjusted EBIT is defined as profit from
continuing operations before income taxes, finance income, IPO
related expenses and pre-IPO share based payments. Management
utilises this measure to monitor performance as it illustrates the
underlying performance of the business by excluding items
considered by management not to be reflective of the underlying
trading operations of the Group or adding items which are
reflective of the overall trading operations.
Adjusted EPS, diluted - Adjusted Earnings is used for the
purposes of calculating Adjusted Earnings per share, diluted.
Management uses Adjusted Earnings per share, diluted to assess
total Company performance on a consistent basis at a per share
level.
Constant Currency - When the Company believes it would be
helpful for understanding trends in its business, the Company
provides percentage increases or decreases in its revenues or
Adjusted EBIT to eliminate the effect of changes in currency
values. When trend information is expressed herein "in constant
currencies", the comparative results are derived by re-calculating
non GBP denominated revenues and/or expenses using the average
exchange rates of the comparable period in the current year,
excluding gains or losses on derivative financial instruments . The
material applicable rates are as follows:
Average exchange rates for the period H1 2018 H1 2017
--------------------------------------- -------- --------
USD 1.3760 1.2586
Euro 1.1366 1.1626
ODS - Ongoing development and services, which is one of the Alfa
revenue segments.
Operating Free Cash Flow Conversion - Operating Free Cash Flow
Conversion is calculated as cash from operations less gains and
losses on settlement of derivative instruments and margin calls,
less capital expenditures, as a percentage of Adjusted EBIT.
Operating Free Cash Flow is calculated as follows:
H1 2018 H1 2017
Unaudited GBP'000s GBP'000s
------------------------------------- --------- ---------
Cash generated from operations 9,948 13,746
Settlement of derivative financial
instruments and margin calls 21 (2,118)
Capital expenditure (591) (272)
------------------------------------- --------- ---------
Operating Free Cash Flow generated 9,378 11,356
Operating Free Cash Flow Conversion 109% 53%
Total contracted value ("TCV") - TCV is calculated by analysing
future contracted revenue based on the following components: (i) an
assumption of three years of maintenance payments (actual
maintenance contracted length varies by customer); (ii) the
estimated remaining time to complete any software implementations,
expenses and deferred licence amounts; and (iii) ODS work which is
contracted under a statement of work.
Underlying Revenue - revenue excluding unrealised gains or
losses on derivative instruments.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FXLLBVKFFBBE
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