TIDMALFA
RNS Number : 7075N
Alfa Financial Software Hldgs PLC
26 September 2019
26 September 2019
Alfa Financial Software Holdings PLC
H1 2019 Interim Results
Alfa Financial Software Holdings PLC ("Alfa" or the "Company"),
a leading developer of software for the asset finance industry,
today publishes its unaudited results for the six months ended 30
June 2019.
Financial highlights:
Results H1 2019 H1 2018 Movement
GBPmillion, unless otherwise Unaudited Unaudited
stated %
------------------------------ ---------- ---------- ---------
Revenue 30.9 32.9 (6) %
Operating profit 5.4 8.6 (37) %
Profit for the period 4.0 6.7 (40) %
Earnings per share - basic
(pence) 1.4 2.4 (41) %
H1 2019 31 Dec 2018 Movement
GBPmillion Unaudited Audited %
------------ ---------- ------------ ---------
Cash 53.3 44.9 19 %
Key measures (1) H1 2019 H1 2018 Movement
GBPmillion, unless otherwise Unaudited Unaudited
stated %
------------------------------ ---------- ---------- ---------
Revenue - constant currency 30.9 33.9 (9) %
Operating profit - constant
currency 5.4 9.2 (41) %
Earnings per share - diluted
(pence) 1.4 2.2 (39) %
Free cash flow conversion 205% 109% 88%
(1) See definitions section for further information regarding
calculation of measures not defined by IFRS.
Overview/Summary:
-- Revenue and operating profit in line with 16 September 2019 guidance.
-- Revenue decline due to delays in implementation projects and
reduced discretionary spend by customers, despite strong
implementation delivery across five customer implementations.
-- Strong free cash flow conversion performance.
-- Robust balance sheet position with GBP53m of cash and no debt.
-- Cost pressures are expected to increase due to competitive
market for high-skilled delivery teams.
-- Current macro-economic and political uncertainty leading to
changes in customer buying behaviour.
-- Notwithstanding near-term pressures, fundamental market drivers remain strong.
-- Refreshed sales and business development approach growing new
business pipeline, but time to convert opportunities is
increasing.
-- Sustained investment in Alfa Systems' functionality and expansion of partner ecosystem.
-- Current market conditions expected to continue through 2020.
Andrew Denton, Chief Executive Officer
"Results for the period have fallen short of our plans. As we
explained in our Trading Update, earlier this month, we have been
disappointed that our revenues have fallen back due to delays in
anticipated implementation projects, as well as reductions in
discretionary spend by customers.
Nevertheless, there were some solid achievements in H1 as we
increased the number of implementation customers and successfully
delivered the initial phase of implementation for a global OEM in
Europe.
The medium-term prospects for Alfa remain compelling with a
number of pipeline opportunities across existing and new
geographies. Those opportunities extend beyond our existing market
segments and there is increasing interest in our pre-configured
Alfa Start offering for the UK equipment finance market. We remain
committed to enhancing the performance and functionality of Alfa
Systems to maintain our market-leading position.
The exceptional quality of our staff, software and customer base
gives me every confidence that we have the fundamentals in place to
benefit as market conditions improve."
Enquiries
Alfa Financial Software Holdings
PLC +44 (0)20 7588 1800
Andrew Denton, Chief Executive
Officer
John Miller, Interim Chief Financial
Officer
Andrew Page, Executive Chairman
Tulchan Communications LLP +44 (0)20 7353 4200
James Macey White
Matt Low
Barclays +44 (0)20 7623 2323
Robert Mayhew
Edward Hill
Numis +44 (0)20 7260 1000
Simon Willis
Jonathan Abbott
Tom Ballard
Investor and analyst webcast
The Company will host a conference call today at 11:30 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
facilitates our delivery of large software implementations and
complex business change projects. With an excellent delivery
history over nearly three decades in the industry, Alfa's
experience and performance 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 customer 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, Alfa Systems provides compelling
solutions to asset finance companies.
Alfa Systems is in live operation in 17 countries and Alfa has
offices in Europe, Asia-Pacific and North America. For more
information, visit www.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
Overview
Key customer demand has been influenced by macro-economic and
political uncertainties, which have depressed capital expenditure
in our end markets. In line with our revised expectations, as set
out in our Trading Update, issued on 16 September 2019, the Group
had total revenues for the six months ended 30 June 2019 of GBP30.9
million (2018 GBP32.9 million) and operating profit of GBP5.4
million (2018 GBP8.6 million).
Revenue has decreased due to delays in the implementation of
certain projects and a reduction in customer spend on optional
upgrades and non-critical work. Notwithstanding these delays, Alfa
has continued delivery across five major implementation
projects.
Amongst our major projects in the year to date, we have
successfully gone live with the initial phase for a global Original
Equipment Manufacturer (OEM), in Spain. Additionally, we carried
out work under successive letters of engagement, for a new
implementation customer in Europe; and pre-implementation, design
work for a new customer in sub-Saharan Africa. These works are
being performed in advance of the finalisation of the related
software licence and maintenance agreements.
Following the half year, an additional global OEM successfully
went live with an initial phase of their software implementation
project in Europe; and we have gone live in Germany for the global
OEM referred to in the previous paragraph.
During the period under review, the Group has invested in and
developed the functionality and digital capability of our
technology platform, Alfa Systems. Digital continues to be an
important differentiator in the Alfa customer proposition.
The Alfa partnership programme is developing well. We are
training our growing network of partners and we have a number of
co-bids underway. At the end of H1 2019, we had three employees of
partners working with us on projects to supplement the Alfa team.
Additionally, we are in discussions with two implementation
partners and anticipate working with them to identify further joint
opportunities in the second half of the year.
The broader macro-economic and political uncertainty has
resulted in challenging conditions in our operating markets. In
particular, optional spend on upgrades and non-critical work has
been deferred and this is reflected in the slowdown of Ongoing
Development and Services (ODS) revenues in H1 2019. We anticipate
this continuing in the second half of the year and into 2020.
Despite the short-term challenges, the long-term fundamentals of
the asset finance market remain positive. Alfa's world-class
technology platform, market leadership, strong balance sheet and
investment capacity ensure it is well placed to capitalise on
existing and emerging opportunities.
Implementation and ODS
Overall, Alfa had five software implementation projects
throughout H1 2019. In addition, during the period, we started
pre-implementation design work for a new customer. As this work is
still in the design phase, the revenue associated is classified
within our ODS segment. We anticipate this project moving into the
implementation phase in the final quarter of 2019.
Alfa's long-term relationships with its customers arise from our
project implementation track record. We are pleased to have
successfully gone live with a software implementation project in
Spain, in H1, and Germany in H2, with one further country expected
to go live later this year.
In addition, early in H2, another large software implementation
customer went live on the first phase of their project. This phase
was based in the Netherlands and related to a contract management
system of a global OEM. We anticipate that this will be the first
of several countries where this important customer installs
Alfa.
Alongside our implementation work, we have also successfully
completed a number of upgrades, during H1 2019, to ensure that our
customers are able to benefit from the continued evolution of Alfa
Systems. The revenue related to these upgrades is included within
our ODS segment.
Partnerships
Our partnership programme is an important part of Alfa's
long-term growth strategy. In the period, we made good progress
with regards to training and co-bidding for new projects with our
current partners.
In the first half of the year, we delivered induction training
to an initial group of eight partner team members, and have trained
a further ten partner staff, in H2. At the half year, the late
stage pipeline contained three co-bids with implementation
partners, including two bids that were already underway at the end
of 2018. We will continue to build our partner capability as these
co-bids progress and as our partnership programme develops.
Our total partner ecosystem now includes agreements with three
resource augmentation partners (Genpact, Teamwill Consulting and
Tellox Finansservice) and we are in discussions with further
potential implementation partners.
Product development and innovation
Investment in the Alfa platform will always be at the heart of
our corporate strategy. During H1, the principal advances were in
respect of our digital investment and the performance and
scalability of the system.
The company is generating returns on 2018's digital investment,
with go-lives in Spain and Germany (the latter in H2) of a
React-based point of sale solution for a major multinational OEM.
This implementation was also the first deployment of a POSkit based
point of sale. POSkit is a toolkit of point of sale software
components that allows customised applications to be built quickly
and efficiently. This approach has proven to work well, and further
POSkit projects are in the planning stages. Alfa's digital
capability continues to generate good customer engagement and we
expect digitalisation to remain an important factor in customer
purchasing decisions.
Continued development has brought about further maturity of
Alfa's library of APIs (including exposing them as JSON over HTTP),
as well as the development of mobile application functionality to
support the full asset finance customer journey, where we have
partnered with best-of-breed specialist suppliers for functionality
like customer identity verification, e-signing and direct payments.
We believe that this development is an important part of ensuring
the Alfa platform maintains its position and is a key
differentiator for us.
Alongside these functional improvements, Alfa has invested
heavily in the performance and scalability of the system to meet
the needs of a large US finance organisation, with 4.5 million
active vehicle contracts. The improvements from this project, now
in the late stages of implementation, will deliver substantial
benefits to all current and future customers.
Beyond these principal developments, a number of additional
enhancements to the platform were made including:
-- Measurable improvements to all users' experience;
-- Development of Cash Accounts functionality;
-- Further development of Cloud hosting tooling and automation; and
-- PostgreSQL support.
We have also invested in research in artificial intelligence,
with an accompanying thought leadership campaign for H2 2019 and
added support for usage-based billing; a key enabler for the
industry trend towards servitisation.
Alfa Start ('Business in a box') was released to the US
automotive finance sector in 2018. Since then it has improved the
efficiency of our US implementation projects and been of
significant interest to sales prospects. Building on this, in July
2019 we started small-scale development work to adapt Alfa Start to
meet the requirements of the UK equipment finance market. This will
give Alfa a ready-to-deploy repeatable solution based on a
subscription-licensing model for smaller customers in our home
market. We started marketing this in the UK in the second half of
this year.
Board evolution and governance
Alfa's transition from private to public company status has led
to challenges as the Company's corporate governance structures were
tested by the impact of personnel changes during the period. The
Board is grateful to have received the support and guidance of an
experienced team of Non-Executive Directors (NEDs) during that
time. The impact of these challenges is described further, below.
The Board has sought to address these matters and work programmes
are ongoing to ensure that the Board has the information, time and
resources it needs in order to function more effectively.
Viv Maclachlan stepped down as CFO on 26 April 2019 and we would
like to thank Viv for her contribution. John Miller has been
serving as Interim CFO since 7 May 2019. A search process has
commenced to appoint a permanent CFO to the Board as soon as
possible.
The Board constitution has changed as Alfa moves towards the
next stage of its development. Having joined Alfa as a NED to
support management through the IPO two years ago, Richard Longdon
stood down from the Board on 26 April. The Company has previously
announced that Karen Slatford and Robin Taylor will leave the Board
at the date of this report.
The outgoing NEDs considered it inappropriate to play a
substantive role in the recruitment of their successors. As a
result, Andrew Page (as the only other member of the Nominations
Committee), supported by Andrew Denton, with input and assistance
from the outgoing NEDs, led the NED search process. An external
search consultant, Norman Broadbent Executive Search Limited, was
engaged to compile a list of candidates, to which was added a
number of other candidates who had been recommended to the Company
separately. Chris Sullivan was appointed, to the Board and then
chaired the Nominations Committee, subsequently obtaining Board
approval for the appointment of Steve Breach and David Stead. Chris
now assumes the role of Senior Independent Director. In selecting
the new Board members, the Company has sought to bring together
asset finance and enterprise software sector expertise alongside
strong financial management and rigorous corporate governance
experience to help us continue our journey as a public company. We
are very grateful to Richard, Karen and Robin for their
contributions and look forward to working with Chris, Steve and
David.
The Board is mindful of the need to keep under review its
procedures to ensure that the Directors have a reasonable basis for
making proper judgments on a continuing basis regarding the
financial position and prospects of the Group, particularly in
light of the significant personnel changes outline above. As part
of this review process, the Company has commenced an improvement
programme, which is being led by John Miller, supported by
additional external capabilities, as appropriate. Whilst
prioritising short-term improvements in the timely provision of
financial and operational information to the Board, the Company is
also in the process of expanding the functionality of the recently
implemented Finance and HR system (Workday) which, in the
medium-term, will provide a more robust platform for the provision
of management information.
The Company's outsourced internal audit partner resigned in
August 2019. The Audit & Risk Committee (ARC) has reviewed the
Company's controls and risk management processes, and has concluded
that the Company will be best served by engaging a new external
provider to deliver an internal audit programme, complementing the
work of the Company's Risk Manager. A selection process will be
initiated in October 2019, overseen by ARC, and it is intended that
a new internal audit partner will be appointed before the end of
the financial year.
Alongside the new appointments to the Board, a number of senior
management changes took place in H1 2019. A renewed leadership team
has now been appointed, and we were delighted to be able to promote
a number of experienced Alfa staff to the leadership group,
supplemented with selective external recruits.
Our management changes included refreshing the structure and
leadership of our business development function. We have been
encouraged with the early results from these changes.
The extent of changes to senior personnel has created inevitable
challenges which the Board is determined to address and we are
confident that we now have the right mix of skills and experience
to take Alfa forward through the next phase of its development. Our
people are a key asset and major contributors to the outstanding
work we carry out for our customers. We would like to thank them
for all their efforts over the past six months.
Outlook
In line with our Trading Update issued on 16 September 2019, the
Board anticipates baseline revenue for the full year to be in the
region of GBP63-GBP65m, based on existing customer agreements and
assuming that the challenging market conditions that prevailed in
the rst half of the year continue. This range does not include
potential revenue upside of up to approximately GBP4m, partly
relating to nalising new licence agreements and partly relating to
nalising licence and maintenance settlement arrangements with an
existing customer. Each of these is well advanced but the timing
and recognition of these items remains uncertain.
Competition for talent is high across our markets and
consequently we expect to award remuneration increases for our
delivery teams in excess of general inflation rates. Additionally,
we expect to incur some one-off legal and professional costs in the
second half of 2019. As a result, and as previously announced on 16
September 2019, the Board now expects Alfa's full year pro t for
2019 to be signi cantly below its previous expectations.
Whilst Alfa's overall pipeline is healthy across geographic and
market segments, we expect the current macro-economic and political
uncertainties to continue having an impact on customer buying
behaviour in 2020. Additionally, the effects of current year
remuneration awards, for our delivery teams, will be fully
reflected in next year's financial performance. Consequently, there
will be short-term pressure on Alfa's margins. Nonetheless, the
Board believes that the fundamentals of the business are strong.
The Company has significant cash resources and we are committed to
investing in our people and product to ensure the Company is well
placed to benefit as market conditions improve.
FINANCIAL REVIEW
Introduction
Revenues decreased by GBP2.0 million to GBP30.9 million in the
six months ended 30 June 2019 (H1 2018: GBP32.9 million) primarily
due to a GBP2.5 million decrease in ODS revenues to GBP9.2 million
in H1 2019 (H1 2018: GBP11.7 million), and a GBP0.7 million
decrease in maintenance revenues to GBP7.3 million (H1 2018: GBP8.0
million). These decreases have been partially offset by a GBP1.2
million increase in software implementation revenues to GBP14.4
million in H1 2019 (H1 2018: GBP13.2 million). The number of
ongoing software implementation projects, increased from four
ongoing implementations (plus one paused) during H1 2018 to five
plus one paused in H1 2019.
Operating profit decreased by GBP3.2 million to GBP5.4 million
(H1 2019: GBP8.6 million). Operating profit has been directly
impacted by the decrease in revenues, coupled with an increasing
cost base in the first six months of the year.
Operating Free Cash Flow Conversion (FCF) for the half year
increased to 205%, with cash of GBP53.3 million at 30 June 2019 (31
December 2018: GBP44.9 million). The high FCF is a reflection of an
increased focus on cash management and settlement during the period
of non-recurring receivables of GBP3.2 million for which the
related revenue had been recognised in prior periods.
Total contracted value (TCV) -as defined on page 31- at 30 June
2019, excluding the paused software implementation project, is
GBP70.1 million (31 December 2018: GBP79.0 million), which
consisted of GBP21.0 million of software implementation revenue,
GBP6.4 million of ODS revenues and GBP42.7 million of maintenance
revenues. TCV has decreased due to the delivery of revenue on
software implementation projects, decreases in general levels of
contracted ODS and the termination of some maintenance contracts.
TCV has also been impacted because our new software implementation
customer is in the late stages of negotiation with respect to their
software licence and maintenance contracts, but as at 30 June 2019,
these had not been finalised.
As of 1 January 2019, Alfa updated its accounting policies to
adopt IFRS 16 "Leases". This new standard was in accordance with
the transition provisions in the standard and the cumulative effect
of the initial application has been recognised at the date of
transition. IFRS 16 requires the recognition of a right--of--use
asset and a lease liability at commencement for all leases, except
for short--term leases and leases of low-value assets. Alfa is not
party to any material leases where it acts as a lessor, but has
various lease contracts relating to property and motor vehicles,
where it acts as the lessee. The adoption of IFRS 16 resulted in
the recognition of right to use assets of GBP19.8 million and lease
liabilities of GBP20.2 million as at 1 January 2019. The full
impact of the transition to IFRS 16 has been explained in note 14
to the interim financial statements.
Continuing operations H1 2019 H1 2018 Movement
GBP'000s Unaudited Unaudited %
----------------------- ---------- ---------- -----------------------
Revenue (1) 30,853 32,884 (6) %
Operating expenses
- net (25,445) (24,290) 5%
----------------------- ---------- ---------- -----------------------
Operating profit 5,408 8,594 (37) %
Finance income 57 24 138%
Finance expense (317) - -
Taxation (1,112) (1,896) (41) %
----------------------- ---------- ---------- -----------------------
Profit for the period 4,036 6,722 (40) %
----------------------- ---------- ---------- -----------------------
(1) Revenue in H1 2019 includes GBPnil (2018: GBP0.1 million) of
losses on derivative instruments.
Revenue
Revenue decreased by GBP2.0 million, or by 6%, to GBP30.9
million in H1 2019 (H1 2018: GBP32.9 million), predominantly due to
the decrease in ODS revenue, which reflected lower activity levels,
offset by an increase in implementation revenue, with one new
software implementation customer. At 30 June 2019, the Group had 25
customers (30 customers at 30 June 2018).
Revenue - by type H1 2019 H1 2018 Movement
GBP'000s Unaudited Unaudited %
------------------------- ---------- ---------- -----------------
Software implementation 14,439 13,196 9%
ODS 9,167 11,726 (22) %
Maintenance 7,247 7,962 (9) %
------------------------- ---------- ---------- -----------------
Total revenue 30,853 32,884 (6) %
------------------------- ---------- ---------- -----------------
Software implementation revenues
Software implementation revenues increased by GBP1.2 million, or
by 9%, to GBP14.4 million in H1 2019 (H1 2018: GBP13.2 million)
reflecting four continuing implementation projects and one new
implementation customer, for which implementation work commenced in
H1 2019. This compares to four continuing implementation customers
and one paused implementation project during H1 2018. Average
revenue per implementation customer increased to GBP2.9 million (H1
2018: GBP2.6 million). Of the five software implementations in the
period, three (62% of implementation revenues) are denominated in
US dollars (H1 2018: four, or 83% of implementation revenues).
The new implementation customer contributed GBP3.9 million to
revenues in H1 2019. This customer was reclassified from our ODS to
our software implementation segment in H1 2019 to reflect the
nature of the work being performed under specific fixed-term
engagement letters. At the date of this report, the licence and
maintenance agreements are nearing finalisation.
Revenue from continuing implementation customers contributed
GBP10.7 million in H1 2019, a decrease of GBP1.6 million from H1
2018. This was predominantly due to deferral of go-live dates on
certain projects, increasing the overall length of the projects,
which resulted in write-backs to software licence revenue in the
period. Additionally, the reduced revenue reflects lower overall
activity levels during the period. Implementation revenues
decreased by GBP0.2 million following the write-back of the accrued
income balance in respect of the implementation customer who put
their project on pause in late H1 2018. This represented a GBP1.1
million decrease in total implementation revenues compared to H1
2018.
Ongoing development and services (ODS) revenues
ODS revenues decreased by GBP2.5 million to GBP9.2 million in H1
2019 (H1 2018: GBP11.7 million), reflecting the reduction in
discretionary customer spend on optional upgrades and non-critical
work, which we identified in our Trading Update, earlier this
month. Three new ODS customers contributed GBP1.7 million of
revenues during the first six months of 2019 (H1 2018: GBP4.7
million). Two of the new ODS customers are in respect of
pre-implementation projects which contributed GBP1.0 million of
revenue in H1 2019.
New ODS customer revenues were offset by a GBP3.4 million
decline in revenues from continuing ODS customers, as specific
ongoing development efforts decreased and fewer customers
transitioned from implementation to ODS compared to the previous
year. In addition there was a GBP0.8 million decrease in revenue i
relating to former ODS customers.
The number of ODS customers generating more than GBP100,000 of
revenue decreased to 12 (H1 2018: 15) with revenue per customer
remaining consistent at GBP0.8 million (H1 2018: GBP0.8
million).
Maintenance
Maintenance revenues decreased by GBP0.7 million, or by 9%,
primarily due to lost revenues of GBP1.6 million due to a customer
who terminated their agreement for maintenance and right to use
Alfa in the fourth quarter of 2018, and a customer who paused their
maintenance contract at the end of H1 2018. These declines were
partially offset by a GBP0.8 million increase in maintenance
revenues from existing customers, being a 12% increase against H1
2018 on ongoing maintenance contracts, and GBP0.1 million of new
maintenance revenues.
During H1 2019, Alfa had 26 maintenance customers, with 22
expected to generate maintenance revenues in the second half of
2019. This compares to 28 customers at 30 June 2018.
Operating profit
The Group's operating profit decreased by GBP3.2 million, or
37%, to GBP5.4 million in H1 2019 (H1 2018: GBP8.6 million)
primarily reflecting the GBP2.0 million decrease in revenues, as
well as an increase in the Group's cost base. Excluding the impact
of unrealised gains or losses on derivatives, operating profit on a
constant currency basis decreased by 41%.
Expenses - net H1 2019 H1 2018 Movement
GBP'000s Unaudited Unaudited %
----------------------------------- ---------- ---------- ---------
Implementation and support
expenses 8,984 8,884 1%
Research and product development
expenses 7,085 9,050 (22)%
Sales, general and administrative
expenses 9,598 6,404 50%
Other income (222) (48) 362%
----------------------------------- ---------- ---------- ---------
Total expenses - net 25,445 24,290 5%
----------------------------------- ---------- ---------- ---------
Headcount numbers at 30 June 2019 were 304, and our staff
retention rate has been 82% over the 12 months to that date.
Implementation and Support (I&S) expenses increased by
GBP0.1 million, or by 1%, to GBP9.0 million (H1 2018: GBP8.9
million). I&S expenses predominantly comprise personnel costs.
In the six months ended 30 June 2019, average software
implementation headcount increased by 11, to 111 FTEs (H1 2018: 100
FTEs).
Research and product development (R&PD) expenses decreased
by GBP2.0 million, or 22%, to GBP7.1 million (H1 2018: GBP9.1
million). 92% of R&PD expenses are personnel costs and the
average number of developers decreased in the six months ended 30
June 2019 by 34 to 130 FTEs (H1 2018: 164 FTEs). As in prior
periods, our development efforts centred primarily on customer
project development. During H1 2019, amounts relating to the
following research and development efforts were capitalised;
GBP0.05 million in relation to Alfa Digital and GBP0.3 million in
relation of enhancements of the Alfa user interface (H1 2018:
nil).
Sales, general and administrative (SG&A) expenses increased
by GBP3.2 million, or by 50%, to GBP9.6 million (H1 2018: GBP6.4
million) which includes an increase in depreciation and
amortisation expenses of GBP1.0 million during the first six months
of 2019. This increase was primarily in respect of the new HR and
finance system, which was capitalised in the prior year, as well as
increased computer hardware investment and adoption of IFRS 16 from
1 January 2019. Additionally, share-based payment charges increased
in H1 2019 to GBP0.4 million (H1 2018: GBP0.1 million) in relation
to LTIPs granted in May 2018, legal and professional costs
increased by GBP0.8 million to GBP0.9 million (H1 2018: GBP0.1
million) and general office costs increased by GBP0.6 million,
reflecting both increases in office space in the first half of 2018
and inflationary cost pressures during the first half of 2019.
Profit for the period
Profit after taxation decreased by GBP2.7 million, or 40%, to
GBP4.0 million in H1 2019 (H1 2018: GBP6.7 million). The effective
tax rate increased to 21.6% in H1 2019 against the effective tax
rate for the 2018 year end (FY 2018 19.2%, H1 2018: 22.0%) due to
the increasing proportion of the Group's profits being generated by
our US subsidiary, which is subject to higher corporate tax rates
than the UK.
Earnings per share
Basic earnings per share decreased to 1.40 pence in H1 2019 (H1
2018: 2.37 pence). Diluted earnings per share decreased to 1.35
pence (H1 2018: 2.24 pence).
Cash flow
H1 2019 H1 2018
GBP'000s Unaudited Unaudited
------------------------------------------- ------------ ----------
Operating profit 5,408 8,594
Depreciation and amortisation 1,433 440
Share based payment charge 475 53
Loss on disposal of property, plant
and equipment - 2
Interest element on lease payments (317) -
Unrealised gain on derivative financial
instruments - 103
Movement in working capital 5,891 756
Cash generated from operations 12,890 9,948
Settlement of derivative financial
instruments and margin calls - 21
Income taxes paid (2,752) (4,145)
------------------------------------------- ------------ ----------
Net cash generated from operating
activities 10,138 5,824
Net cash used in investing activities (834) (567)
Net cash used in financing activities (907) -
Net increase in cash and cash equivalents 8,397 5,257
Cash and cash equivalents at beginning
of the period 44,922 31,267
Effect of exchange rate changes (64) (192)
------------------------------------------- ------------ ----------
Cash and cash equivalents at end
of the period 53,255 36,332
------------------------------------------- ------------ ----------
Net cash increased by GBP8.3 million to GBP53.3 million as at 30
June 2019, from GBP44.9 million at 31 December 2018. This increase
has been driven by cash generated from operations as a result of
maintenance payments received in the period; non-recurring
settlement or termination payments of GBP3.2 million received in
the period; and an increased focus on cash management by the Group.
Taken together, this resulted in the Group's Operating Free Cash
Flow Conversion (FCF) rising to 205% for the period ended 30 June
2019, compared to 109% for the period ended 30 June 2018. The
increase in operating cash flow was offset by capital expenditure
of GBP0.9 million and tax payments of GBP2.8 million during the
period. The Group has no external bank borrowings.
Net cash generated from operating activities increased by GBP4.3
million to GBP10.1 million in H1 2019 (H1 2018: GBP5.8 million).
This increase was due to an increase in the cash generated from
operations of GBP2.9 million to GBP12.9 million (H1 2018: GBP9.9
million) as described above, coupled with a GBP1.4 million decrease
in taxation paid.
The movement in working capital predominantly reflected an
increase in contract liabilities, relating to licence and
maintenance payments collected in advance, of GBP6.1 million and an
increase in trade and other payables of GBP0.1 million. This was
slightly offset by an increase in trade and other receivables of
GBP0.3 million.
Net cash outflows used in investing activities of GBP0.8 million
in the six months ended 30 June 2019 related to capital expenditure
in relation to externally acquired software and computer equipment,
as well as payments made in relation to internally developed
software.
In the six months ended 30 June 2019, net cash outflows from
financing activities related to the principal element of lease
payments, resulting from the adoption of IFRS 16. In addition, the
interest element of the lease payments has been included within the
reconciliation from Operating Profit to the cash generated from
operations in H1 2019. Prior to the adoption of IFRS 16 on the 1
January 2019, the payments made in respect of operating leases held
by Alfa were included within the Operating Profit. The cash
generated from operations has therefore increased as a result of
the reclassification of cash flows under IFRS 16 with no impact on
the overall cash flows. No dividends have been paid or proposed for
the six months ended 30 June 2019.
Related party transactions
CHP Software and Consulting Limited is the immediate and
ultimate parent (the "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 2019, there were no transactions
(H1 2018: nil) and at 30 June 2019, 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 2018: GBP0.02 million) with no outstanding
receivable balances at the end of each reporting period.
Subsequent events
In the period since 30 June 2019, three NEDs have been appointed
and two NEDs resigned, as follows:
Chris Sullivan (appointed 18 July 2019)
Steve Breach (appointed 9 August 2019)
David Stead (appointed 20 August 2019)
Robin Taylor (resignation effective 26 September 2019)
Karen Slatford (resignation effective 26 September 2019)
No other material subsequent events have taken place after the
reporting period ended.
PRINCIPAL RISKS AND UNCERTAINTIES
Principal risks and uncertainties which could have a material
impact on the long-term performance of Alfa Financial Software
Holdings PLC and its subsidiaries were set out in the Alfa
Financial Software Holdings PLC Annual Report for the year ended 31
December 2018, dated 7 March 2019, and remain valid at the date of
this report.
These risks and uncertainties (in no specific order) are:
-- Failure to retain or increase market share in relation to
large multinational customers or to retain our existing customer
base - we may fail to assess market, technological or industry
changes; and Alfa Systems may not develop sufficiently to meet
customer requirements;
-- High customer concentration - we have significant customer
concentration risk due to the size and duration of our software
implementation projects and the relatively low revenues generated
from maintenance contracts;
-- Talent recruitment and retention - our business is dependent
on our people and failure to attract and retain high quality staff
may impact our ability to deliver our implementations, maintain
product quality and deliver on our strategic plan;
-- Socio-economic, geo-political - our revenues are derived from
providers of asset finance and the underlying finance industry is
sensitive to changes in economic and political conditions, some of
which cannot be predicted; this could reduce the profitability of
our customers and potential customers reducing amounts available to
spend on our software;
-- Risks to people, skills, location and working environment -
our business is dependent on our people, the market for software
engineers is highly competitive and a failure to attract and retain
high quality staff would have a negative impact on our ability to
serve our customers and deliver our strategic plan;
-- Failure to deliver on our existing implementation or ODS
business - our business depends on our continued delivery success
and our implementation projects involve a high degree of complexity
and significant time investment, from Alfa and our customers;
-- Failure to keep Alfa Systems relevant to the market, or to
have competitive development costs - it is imperative that Alfa
Systems evolves to meet our customers' and prospective customers'
needs, and we need to adapt changing regulatory requirements and
demands for now operating models.
-- IT security and cyber risks - a targeted attack could
adversely affect our customers' or potential customers' perception
of Alfa Systems and could impact our ability to operate our
business;
-- Business interruption or continuity - we are at risk of
disruption to our day-to-day operations if there is a disaster
incident and this could have a negative reputational impact;
In addition to the disclosure in the 2018 Annual Report, the
following risks have been identified:
-- Brexit - there is uncertainty regarding the timing and impact
of Brexit. Beyond economic uncertainties, we might find it
difficult to recruit and retain staff from EU countries, and there
might be implications for our ability to service customers; and
-- Restrictions on movement of employees to new regions - as our
customer base becomes geographically more diverse, we might find it
difficult to provide staff at customer sites.
UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
COMPREHENSIVE INCOME FOR THE SIX MONTHSED 30 JUNE 2019
H1 2019 H1 2018
GBP'000s Note Unaudited Unaudited
------------------------------------- ----- ------------ ------------
Continuing operations
Revenue 3 30,853 32,884
(8,884)
Implementation and support expenses (8,984) (1)
Research and product development (9,050)
expenses (7,085) (1)
Sales, general and administrative (6,404)
expenses (9,598) (1)
Other operating income 222 48
------------------------------------- ----- ------------ ------------
Operating profit 4 5,408 8,594
Finance income 57 24
Finance expense (317) -
Profit before taxation 5,148 8,618
Taxation 6 (1,112) (1,896)
------------------------------------- ----- ------------ ------------
Profit for the period attributable
to owners of the Parent 4,036 6,722
------------------------------------- ----- ------------ ------------
Other comprehensive income
Items that may be subsequently
reclassified to profit or loss
Currency translation differences 88 156
------------------------------------- ----- ------------ ------------
Total comprehensive income, net
of tax 88 156
------------------------------------- ----- ------------ ------------
Total comprehensive income for
the period attributable to owners
of the Parent 4,124 6,878
------------------------------------- ----- ------------ ------------
Earnings per share (in pence)
Basic 7 1.40 2.37
Diluted 7 1.35 2.24
Weighted average number of shares
- basic 7 288,773,893 283,766,785
Weighted average number of shares
- diluted 7 300,000,000 300,000,000
===================================== ===== ============ ============
The consolidated statement of profit or loss and comprehensive
income should be read in conjunction with the accompanying
notes.
(1) Following a change in financial management software during
H2 2018 and an evaluation of the nature of expenses, GBP0.9 million
of H1 2018 "Travel cost" was reallocated to "Personnel expenses" to
better reflect the nature of the expense (see note 4). Due to the
fact that "Travel cost" and "Personnel expenses" are allocated on
different bases to the expense line items disclosed on the face of
the income statement, this has led to the reallocation of the H1
2018 expense amounts on the face of the income statement. The
following changes have been made to the presentation of the H1 2018
income statement line items: Implementation and support expenses
increased by GBP223k, Research and product development expenses
decreased by GBP130k, Sales, general and administrative expenses
decreased by GBP93k. This was a reallocation of expenditure and the
net profit amount was not affected.
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30
JUNE 2019
30 June 31 December
2019 2018
GBP'000s Note Unaudited Audited
---------------------------------- ----- ----------- -----------------
Assets
Non-current assets
Goodwill 24,737 24,737
Other intangible assets 8 1,559 1,203
Deferred tax assets 9 8
Right-of-use assets 14 18,898 -
Property, plant and equipment 8 1,265 1,455
Total non-current assets 46,468 27,403
---------------------------------- ----- ----------- -----------------
Current assets
Trade and other receivables 9 8,853 4,651
Accrued income 9 5,643 9,162
Prepayments 9 1,271 1,452
Other receivables 9 807 947
Cash and cash equivalents 53,255 44,922
---------------------------------- ----- ----------- -----------------
Total current assets 69,829 61,134
---------------------------------- ----- ----------- -----------------
Total assets 116,297 88,537
---------------------------------- ----- ----------- -----------------
Liabilities and equity
Current liabilities
Trade and other payables 9 5,959 7,588
Corporation tax 9 815 2,448
Lease liabilities 14 1,857 -
Contract liabilities - software
implementation 9 3,167 1,662
Contract liabilities - deferred
maintenance 9 8,325 3,772
Total current liabilities 20,123 15,470
---------------------------------- ----- ----------- -----------------
Non-current liabilities
Provisions for other liabilities 9 623 152
Lease liabilities 14 19,284 -
Total non-current liabilities 19,907 152
---------------------------------- ----- ----------- -----------------
Total liabilities 40,030 15,622
---------------------------------- ----- ----------- -----------------
Capital and reserves
Ordinary shares 300 300
Translation reserve 464 376
Retained earnings 75,503 72,239
---------------------------------- ----- ----------- -----------------
Total equity 76,267 72,915
---------------------------------- ----- ----------- -----------------
Total liabilities and equity 116,297 88,537
---------------------------------- ----- ----------- -----------------
The consolidated statement of financial position should be read
in conjunction with the accompanying notes.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE
SIX MONTHSED 30 JUNE 2019
Share Translation Retained Equity
GBP'000s Notes capital reserve earnings attributable
------------------------------- ------ --------- ------------ ---------- --------------
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
------------------------------- ------ --------- ------------ ---------- --------------
Employee share schemes-
value of employee services - - 53 53
------------------------------- ------ --------- ------------ ---------- --------------
Balance as at 30 June
2018 300 156 60,596 61,052
------------------------------- ------ --------- ------------ ---------- --------------
Balance as at 1 January
2019 300 376 72,239 72,915
Effect of initial application
of IFRS 16 14 - - (1,189) (1,189)
------------------------------- ------ --------- ------------ ---------- --------------
Balance at 1 January 2019
- as restated 300 376 71,050 71,726
------------------------------- ------ --------- ------------ ---------- --------------
Profit for the financial
period - - 4,036 4,036
Other comprehensive income - 88 - 88
------------------------------- ------ --------- ------------ ---------- --------------
Total comprehensive income
for the period 300 464 75,086 75,850
------------------------------- ------ --------- ------------ ---------- --------------
Employee share schemes-
value of employee services 11 - - 417 417
------------------------------- ------ --------- ------------ ---------- --------------
Balance as at 30 June
2019 300 464 75,503 76,267
------------------------------- ------ --------- ------------ ---------- --------------
The consolidated statement of changes in equity should be read
in conjunction with the accompanying notes.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX
MONTHSED 30 JUNE 2019
H1 2019 H1 2018
GBP'000s Note Unaudited Unaudited
----------------------------------------- -------- ----------- -----------
Cash flows from operations
Operating profit 5,408 8,594
Adjustments:
Depreciation and amortisation 8, 14 1,433 440
Share based payment charge 11 475 53
Loss on disposal of property, plant
and equipment - 2
Interest element of lease payments 14 (317) -
Unrealised loss on derivative financial
instruments - 103
Movement in working capital:
Movement in trade and other receivables (355) (2,799)
Movement in trade and other payables
and provisions (excluding derivative
financial instruments and contract
liabilities) 132 (2,955)
Movement in contract liabilities 6,114 6,510
----------------------------------------- -------- ----------- -----------
Cash generated from operations 12,890 9,948
Settlement of derivative financial
instruments and margin calls - 21
Income taxes paid (2,752) (4,145)
----------------------------------------- -------- ----------- -----------
Net cash generated from operating
activities 10,138 5,824
----------------------------------------- -------- ----------- -----------
Cash flows from investing activities
Purchases of property, plant and
equipment 8 (112) (325)
Purchase of computer software 8 (397) (266)
Payments for internally developed
software 8 (382) -
Interest received 57 24
Net cash (used in) investing activities (834) (567)
----------------------------------------- -------- ----------- -----------
Cash flows from finance activities
Principal element of lease payments 14 (907) -
----------------------------------------- -------- ----------- -----------
Net cash (used in) finance activities (907) -
----------------------------------------- -------- ----------- -----------
Net increase in cash 8,397 5,257
----------------------------------------- -------- ----------- -----------
Cash and cash equivalents at the
beginning of the period 44,922 31,267
----------------------------------------- -------- ----------- -----------
Effect of exchange rate changes (64) (192)
----------------------------------------- -------- ----------- -----------
Cash and cash equivalents at the
end of the period 53,255 36,332
----------------------------------------- -------- ----------- -----------
The 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 2019
1. General information
Alfa Financial Software Holdings PLC ("Alfa" or the "Company")
is a public company limited by shares and is incorporated and
domiciled in England. Its registered office is at Moor Place, 1
Fore Street Avenue, London, EC2Y 9DT, United Kingdom. Alfa's
registration number is 10713517.
The principal activity of the Company and its subsidiaries (the
"Group") is to provide software solutions and consultancy services
to the asset finance industry in the United Kingdom, United States
of America, Europe and Asia Pacific.
These unaudited Interim Financial Statements have been approved
for issue by the Board of Directors on 26 September 2019. These
Interim Financial Statements have been reviewed but not
audited.
2. Accounting policies
2(a) Basis of preparation
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 2018 (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 Annual Financial
Statements constitute statutory accounts as defined in section 434
of the Companies Act 2006 and a copy these statutory accounts have
been delivered to the Registrar of Companies. The auditor's report
on the Annual Financial Statements was not qualified, did not
include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying the report and did
not contain statements under section 498(2) or (3) of the Companies
Act 2006."
The accounting policies adopted in preparation of the Interim
Financial Statements are consistent with those used to prepare
Alfa's consolidated financial statements for the year ended 31
December 2018 and the corresponding interim reporting period, and
the adoption of new and amended standard, 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, 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(b) Going concern
The directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future,
being a period of not less than 12 months from the date of this
report. Accordingly, they continue to adopt the going concern basis
in preparing the condensed financial statements.
2(c) Changes in accounting policies
Aside from the adoption of IFRS 16, which is described in note
14, the Group has not adopted any other new accounting standards.
Other changes to accounting standards in the year had no material
impact.
2(d) Seasonality
The Group is not significantly influenced by seasonality or
cyclical fluctuation because the Group revenue from maintenance
fees, implementation and ODS fees are relatively consistently
throughout the year. Instead the Group is influenced by the number
and maturity of software implementations during the period.
Separately, the Group's cash flows are subject to seasonal
fluctuations because (i) the Group invoices a large proportion of
its customers for maintenance annually in advance in the first six
months of each year, resulting in a higher inflow of cash receipts
in the first half of the Group's financial year in respect of
maintenance revenues and (ii) cash flows are impacted by the
invoicing of up-front licence fees at the commencement of an
implementation.
2(e) Foreign currency
The average rate for the six month period ended 30 June 2019 for
the US Dollar was 1.2940 (H1 2018: 1.3760). The closing rate for
the US Dollar used was 1.2676 as of 30 June 2019 (31 December 2018:
1.2736).
The average rate for the six month period ended 30 June 2019 for
the Euro was 1.1454 (H1 2018: 1.1366).
The closing rate for the Euro used was 1.1167 as of 30 June 2019
(31 December 2018: 1.1305).
3. Segment information and revenue from contracts with customers
3(a) Revenue by type
The Group assesses revenue by type of project, being software
implementations, ongoing development and services (ODS) and
maintenance, as summarised below:
H1 2019 H1 2018
GBP'000s Unaudited Unaudited
------------------------- ----------- -----------
Software implementation 14,439 13,196
ODS 9,167 11,726
Maintenance 7,247 7,962
------------------------- ----------- -----------
Total revenue (1) 30,853 32,884
------------------------- ----------- -----------
Timing of revenue - the Group derives revenue from the transfer
of goods and services as follows, software implementation and ODS
revenue is derived over time based on time and materials, and
maintenance revenue is derived over time based on a fixed
price.
3(b) Revenue geographical information
Revenue attributable to each geographical market based on where
the licence is sold, or the service is rendered, is as follows:
H1 2019 H1 2018
GBP'000s Unaudited Unaudited
UK 7,982 10,154
US 14,068 14,632
Rest of Europe 7,030 6,596
Rest of the World 1,773 1,502
------------------- ----------- -----------
Total revenue (1) 30,853 32,884
------------------- ----------- -----------
3(c) Revenue by currency
Revenue by contractual currency is as follows:
H1 2019 H1 2018
GBP'000s Unaudited Unaudited
------------------- ----------- -----------
GBP 8,981 10,714
USD 14,155 16,116
EUR 5,642 3,058
Other 2,075 2,996
------------------- ----------- -----------
Total revenue (1) 30,853 32,884
------------------- ----------- -----------
(1) Total revenue is presented net of any losses or gains on
derivative financial instruments. During 2018 we settled the final
portion of a USD forward hedge, with GBP0.1 million of losses
recorded against revenue in the period ended 30 June 2018.
3(d) Assets and liabilities from contracts with customers
H1 2019 FY 2018
GBP'000s Unaudited Unaudited
--------------------------------------------- ----------- -----------
Contract liabilities - deferred licence 3,167 1,662
Contract liabilities - deferred maintenance 8,325 3,772
--------------------------------------------- ----------- -----------
11,492 5,434
--------------------------------------------- ----------- -----------
4. Operating profit
The following items have been included in arriving at operating
profit:
H1 2019 H1 2018
GBP'000s Unaudited Unaudited
------------------------------------------- ----------- -----------
Personnel, external consultants, training
and recruitment expenses 17,598 17,875(1)
Other personnel-related expenses 1,046 1,153
Advertising, sponsorship and marketing
costs 325 395
Depreciation and amortisation 1,433 440
Property costs 112 1,189
Travel costs 1,236 1,148(1)
IT costs 675 600
Insurance 1,763 1,303
Foreign currency differences 46 (197)
Share based compensation 417 53
Other 1,016 379
------------------------------------------- ----------- -----------
(1) Following a change in financial management software during
H2 2018 and an evaluation of the nature of expenses, GBP0.9 million
of H1 2018 "Travel cost" was reallocated to "Personnel expenses" to
better reflect the nature of the expense. Due to the fact that
"Travel cost" and "Personnel expenses" are allocated on different
bases to the expense line items disclosed on the face of the income
statement, this has led to the reallocation of the H1 2018 expense
amounts on the face of the income statement. The following changes
have been made to the presentation of the H1 2018 income statement
line items: Implementation and support expenses increased by
GBP223k, Research and product development expenses decreased by
GBP130k, Sales, general and administrative expenses decreased by
GBP93k. This was a reallocation of expenditure and the net profit
amount was not affected.
5. Employees and Directors
Average monthly number of people employed H1 2019 H1 2018
(including Directors) Unaudited Unaudited
------------------------------------------------- ----------- -----------
UK 233 245
US 60 75
Rest of the World 17 14
------------------------------------------------- ----------- -----------
Total average monthly number of people employed 310 334
------------------------------------------------- ----------- -----------
Average monthly number of people employed H1 2019 H1 2018
(including Directors) Unaudited Unaudited
------------------------------------------------- ----------- -----------
Software implementation 111 100
Research and product development 130 164
Sales, general and administrative 69 70
------------------------------------------------- ----------- -----------
Total average monthly number of people employed 310 334
------------------------------------------------- ----------- -----------
At 30 June 2019 the Group had 304 employees (30 June 2018:
337).
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 2019 was
GBP1.1 million (H1 2018: GBP1.9 million), representing an effective
tax rate of 21.6% (H1 2018: 22.0%, FY 2018: 19.2%).
7. Earnings per share
H1 2019 H1 2018
Unaudited Unaudited
----------------------------------------------- ------------ ------------
Profit attributable to equity holders of
Alfa (GBP'000s) 4,036 6,722
Weighted average number of shares outstanding
during the period 288,773,893 283,766,785
Basic earnings per share (pence per share) 1.40 2.37
Weighted average number of shares outstanding
including potentially dilutive shares 300,000,000 300,000,000
Diluted earnings per share (pence per share) 1.35 2.24
----------------------------------------------- ------------ ------------
On the 3rd of June 2019, the second tranche of the 2014 and 2015
employee share options vested, with a total number of shares of
4,206,093 being released. The weighted average number of shares for
the six months ended 30 June 2019 has increased to 288,733,893.
Diluted EPS - 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, because these
shares have service conditions attached to them. Should the service
conditions not be met, the shares will be forfeited. The shares
have no right to voting or to dividends whilst held in trust.
8 Non- financial assets and liabilities
8 (a) Property, plant and equipment
Fixtures and
GBP'000s fittings IT equipment Motor vehicles Total
----------------------- ------------- ------------- --------------- ------
Cost
At 1 January 2018 1,041 2,511 40 3,592
Additions 95 527 - 622
Disposals (1) (254) - (255)
Foreign exchange 12 75 - 87
----------------------- ------------- ------------- --------------- ------
At 31 December 2018 1,147 2,859 40 4,046
----------------------- ------------- ------------- --------------- ------
Depreciation
At 1 January 2018 389 1,709 31 2,129
Charge for the year 121 494 8 623
Disposals (1) (252) - (253)
Foreign exchange 13 79 - 92
----------------------- ------------- ------------- --------------- ------
At 31 December 2018 522 2,030 39 2,591
Net book value
----------------------- ------------- ------------- --------------- ------
At 31 December 2018 625 829 1 1455
----------------------- ------------- ------------- --------------- ------
Cost
At 1 January 2019 1,147 2,859 40 4,046
Additions - 112 - 112
At 30 June 2019 1,147 2,971 40 4,158
Depreciation
At 1 January 2019 522 2,030 39 2,591
Charge for the period 135 166 1 302
At 30 June 2019 657 2,196 40 2,893
Net book value
----------------------- ------------- ------------- --------------- ------
At 30 June 2019 490 775 - 1,265
----------------------- ------------- ------------- --------------- ------
8 (b) Other intangible assets
Computer software Internally generated
GBP'000s software Total
-------------------------- ------------------ ----------------------- -------
Cost
At 1 January 2018 - - -
Additions 1,049 407 1,456
At 31 December 2018 1,049 407 1,456
-------------------------- ------------------ ----------------- -------------
Depreciation
At 1 January 2018 - - -
Charge for the year 253 - 253
At 31 December 2018 253 - 253
-------------------------- ------------------ ----------------- -------------
Net book value
-------------------------- ------------------ ----------------- -------------
At 31 December 2018 796 407 1,203
-------------------------- ------------------ ----------------- -------------
Cost
At 1 January 2019 1,049 407 1,456
Additions 177 382 559
At 30 June 2019 1,226 789 2,015
-------------------------- ------------------ ----------------- -------------
Depreciation
At 1 January 2019 253 - 253
Charge for the period 135 68 203
-------------------------- ------------------ ----------------- -------------
At 30 June 2019 388 68 456
-------------------------- ------------------ ----------------- -------------
Net book value
At 30 June 2019 838 721 1,559
-------------------------- ------------------ ----------------- -------------
9 Financial assets and liabilities
The Group holds the following financial assets and
liabilities:
Notes H1 2019 FY 2018
GBP'000s Unaudited Audited
------------------------------- ------ ----------- --------------
Financial assets at amortised
cost
Trade receivables 9(a) 8,853 4,651
Other financial assets at
amortised cost 9(b) 7,721 11,561
Cash and cash equivalents 53,255 44,922
------------------------------- ------ ----------- --------------
Total financial assets 69,829 61,134
------------------------------- ------ ----------- --------------
Financial liabilities at
amortised cost
Trade and other payables 9(c) 5,959 7,588
Total financial liabilities 5,959 7,588
------------------------------- ------ ----------- --------------
9 (a) Trade and other receivables
H1 2019 FY 2018
GBP'000s Unaudited Audited
-------------------------- ----------- ---------
Trade receivables 8,853 4,651
Provision for impairment - -
-------------------------- ----------- ---------
Trade receivables - net 8,853 4,651
Trade receivables ageing
H1 2019 FY 2018
Ageing of net trade receivables GBP'000s Unaudited Audited
------------------------------------------ ----------- ---------
Less than 30 days 4,990 3,976
Past due 31-90 days 3,863 643
Past due 91+ days - 32
------------------------------------------ ----------- ---------
Trade receivables - net 8,853 4,651
------------------------------------------ ----------- ---------
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,
90% of trade receivables have been collected.
9 (b) Other receivables held at amortised cost
H1 2019 FY 2018
GBP'000s Unaudited Audited
------------------------------------------- ----------- ------------------
Accrued income 5,643 9,162
Prepayments 1,271 1,452
Other receivables 807 946
Total other receivables held at amortised
cost 7,721 11,560
------------------------------------------- ----------- ------------------
Accrued income represents fees earned, but not invoiced, at the
reporting date, which have no right of offset with contract
liabilities - deferred licence amounts. Accrued income decreased by
GBP4.2 million, being GBP3.2 million of settlement and termination
amounts that had been recognised as revenue in prior periods but
invoiced and collected during the first half of 2019, as well as a
reflection of decreased ODS activity.
In relation to customers that had accrued income balances at 30
June 2019, GBP4.7 million had been invoiced and GBP3.2 million had
been collected as at 26 September 2019.
9 (c) Trade and other payables
H1 2019 FY 2018
GBP'000s Unaudited Audited
------------------------------------------------ ----------- ---------
Trade payables 5,959 7,588
Corporation tax 815 2,448
Contract liabilities - software implementation 3,167 1,662
Contract liabilities - deferred maintenance 8,325 3,772
Provisions for other liabilities 623 152
Total trade and other payables 18,889 15,622
Less: non-current portion (623) (152)
------------------------------------------------ ----------- ---------
Total current trade and other payables 18,266 15,470
------------------------------------------------ ----------- ---------
During the six months ended 30 June 2019, no licence fees (H1
2018: GBP4.0 million) and GBP12.5 million of maintenance fees were
invoiced (H1 2018: GBP11.5 million).
10 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. The
responsibility for risk management has remained with the Board and
there has been no changes to risk management policies since year
end. Compared to year end, there was no material change in the
contractual undiscounted cash outflows for financial
liabilities.
The Group has nil foreign currency financial instruments assets
outstanding at 30 June 2019 (2018: GBP0.1 million assets). The
Group used Level 2 inputs for determining and disclosing the fair
value of financial instruments.
11 Share-based compensation
Under the 2018 Long Term Incentive Plan (LTIP), awards in the
form of nil cost options over ordinary shares in Alfa were granted
on 31 May 2018 to selected employees, in accordance with the
Group's Long-Term Incentive Plan, approved by shareholders at the
annual general meeting on 24 April 2018. Shares in the Company are
transferred to participants at the end of a three-year service
period if they continue to be employed by the Group throughout the
period. There are no other performance conditions pertaining to the
options. The Group has no legal or constructive obligation to
repurchase or settle the options and therefore these awards are
treated as equity settled. None of the outstanding options has an
exercise price and the weighted average contractual life is 3 years
(2018: 3 years).
The fair value of the 2018 LTIP plan has been calculated using
the grant date share price as a proxy for fair value of the option
adjusted for any dividends over the period. There are no market or
non-market performance conditions attached to the option scheme and
as such, no performance conditions are included in the fair value
calculations. The market price of the shares at the grant date
which was GBP1.43, which is the weighted average fair value of
those share options at the measurement date. In calculating the
fair value of the LTIPs, it has been assumed that no dividends will
be paid on the shares during the three year service period, and
that employee attrition will be 21% over that period (30 June 2018:
30%).
The Group's shares have been quoted since June 2017, therefore
the amount of historical share price data was considered
insufficient to determine the expected volatility parameter at the
time of valuation. Instead, a measure was taken by assessing the
volatility, over a 10 year period, of certain quoted companies that
were considered to offer some degree of comparability to the
Company. The fair value of the Company's shares was the intrinsic
value at the date of grant, because the exercise price was nil. The
appraisal value at the date of grant (being 4 October 2018), with a
three-year vesting period, was determined to be the intrinsic value
at that date.
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 2019 is GBP0.4 million (30 June 2018: GBP0.1
million).
12 Related party
The immediate and ultimate parent undertaking is CHP Software
and Consulting Limited, which is the Parent undertaking of the
smallest and largest group in relation to these interim
consolidated financial statements. The ultimate controlling party
is Andrew Page. There was no trading between the Group and the
Parent.
In the six months ended 30 June 2019 and 2018 there were no
transactions and at 30 June 2019 there were no balances outstanding
from, or to, the Parent (30 June 2018: 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 2018: GBP0.02 million) with no outstanding
receivable balances at the end of either reporting period.
13 Subsequent events
In the period since 30 June 2019, three NEDs have been appointed
and two NEDs resigned, as follows:
Chris Sullivan (appointed 18 July 2019)
Steve Breach (appointed 9 August 2019)
David Stead (appointed 20 August 2019)
Robin Taylor (Resignation effective 26 September 2019)
Karen Slatford (Resignation effective 26 September 2019)
No other material subsequent events have taken place after the
reporting period ended.
14 Changes in accounting policies
This note explains the impact of the adoption of IFRS 16 Leases
on the group's financial statements and discloses the new
accounting policies that have been applied, from 1 January
2019.
In the current year, Alfa has updated its accounting policies as
a result of adopting IFRS 16 "Leases". This new standard supersedes
IAS 17 'Leases', IFRIC 4 'Determining whether an Arrangement
contains a Lease', SIC-15 'Operating Leases-Incentives' and SIC-27
'Evaluating the Substance of Transactions Involving the Legal Form
of a Lease'.
The Group has applied IFRS 16 'Leases' from 1 January 2019 and,
in accordance with the transition provisions in the standard, has
recognised the cumulative effect of initially applying the new
standard at that date. Comparatives for the prior six-month period
have not been restated, as permitted under the specific
transitional provisions in the standard. Alfa has also elected not
to apply IFRS 16 to contracts that were not identified as
containing a lease under IAS 17 and IFRIC 4, 'Determining whether
an Arrangement contains a Lease'.
IFRS 16 introduces new or amended requirements with respect to
lease accounting, along with significant changes to lessee
accounting by removing the distinction between operating and
finance leases. The standard requires the recognition of a
right--of--use asset and a lease liability at commencement for all
leases, except for short--term leases and leases of low value
assets. The Group is not party to any material leases where it acts
as a lessor, but the Group does have various lease contracts
relating to property and motor vehicles, where it acts as the
lessee.
Details of Alfa's accounting policies under IFRS 16 are set out
below, followed by a description of the financial impact of
adopting IFRS 16.
14(a) The Group's leasing activities and how these are accounted
for
Alfa enters into lease contracts in respect of various
properties and motor vehicles. These rental contracts are typically
made for fixed periods of two to 10 years, and sometimes have
extension options. Lease terms are negotiated on an individual
basis and contain a wide range of different terms and conditions.
In accordance with IFRS 16, leases are recognised as a right-of-use
asset with a corresponding liability, at the date at which the
leased asset is available for use by Alfa. These assets and
liabilities are initially measured on a present value basis (as set
out in more detail below), with each subsequent lease payment
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period to produce a
constant periodic rate of interest on the remaining balance of the
liability for each period. The right-of use asset is depreciated
over the shorter of the asset's useful life and the lease term on a
straight-line basis.
Alfa assesses whether a contract is, or contains a lease, at
inception of the contract. The Group recognises a right--of--use
asset and a corresponding lease liability, with respect to all
lease arrangements in which it is the lessee, except for
short--term leases (defined as leases with a lease term of 12
months, or fewer) and leases of low-value assets. For these leases,
the Group recognises the lease payments as an expense on a
straight--line basis over the term of the lease unless, another
systematic basis is more representative of the time pattern in
which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the Group uses its incremental
borrowing rate.
Lease payments included in the measurement of the lease
liability comprise:
-- fixed lease payments (including in substance fixed payments), less any lease incentives;
-- variable lease payments that depend on an index or rate,
initially measured using the index or rate at the commencement
date;
-- the amount expected to be payable by the lessee under residual value guarantees;
-- the exercise price of purchase options, if the lessee is
reasonably certain to exercise the options; and
-- penalties for terminating the lease, if the lease term
reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the
consolidated statement of financial position. It is subsequently
measured by increasing the carrying amount to reflect interest on
the lease liability (using the effective interest method) and by
reducing the carrying amount to reflect the lease payments
made.
The Group re-measures the lease liability (and makes a
corresponding adjustment to the related right--of--use asset)
whenever:
-- the lease term has changed, or there is a change in the
assessment of exercise of a purchase option, in which case the
lease liability is re-measured by discounting the revised lease
payments using a revised discount rate.
-- the lease payments change due to changes in an index, or
rate, or a change in expected payment under a guaranteed residual
value. In these cases, the lease liability is re-measured by
discounting the revised lease payments, using the initial discount
rate (unless the lease payments change is due to a change in a
floating interest rate, in which case a revised discount rate is
used).
-- a lease contract is modified and the lease modification is
not accounted for as a separate lease, in which case the lease
liability is re-measured by discounting the revised lease payments
using a revised discount rate.
During the period, one of the Group's property leases was
subject to a market review of the lease payment. As a result, the
right-to-use asset and corresponding lease liability were
re-measured and increased by GBP0.01 million to reflect the present
value of the additional lease payments to be paid over the
remaining lease term.
The right--of--use assets comprise:
-- the initial measurement of the corresponding lease liability;
-- lease payments made at, or before, the commencement day;
-- any initial direct costs; and
-- restoration cost.
The right--of--use assets are presented as a separate line in
the consolidated statement of financial position.
The right-of-use assets are subsequently measured at cost less
accumulated depreciation and impairment losses (if applicable).
They are depreciated from the commencement date of the lease and
over the shorter period of the lease term and useful life of the
underlying asset. If a lease transfers ownership of the underlying
asset, or the cost of the right--of--use asset reflects an
expectation that the Group will exercise a purchase option, the
related right--of--use asset is depreciated over the useful life of
the underlying asset. Currently, the Group does not have any leases
that include a purchase option, or transfer ownership of the
underlying asset.
Whenever the Group incurs an obligation for costs to dismantle
and remove a leased asset, restore the site on which it is located,
or restore the underlying asset to the condition required by the
terms and conditions of the lease, a provision is recognised and
measured under IAS 37.
Extension options (or periods after termination options) are
only included in the lease term if the lease is reasonably certain
to be extended (or not terminated). The assessment is reviewed if a
significant event or a significant change in circumstances occurs
which affects this assessment and that is within the control of the
lessee. During the current financial period, there have been no
changes in such assessments.
Variable rents that do not depend on an index, or rate, are not
included in the measurement of the lease liability and the
right--of--use asset. The related payments are recognised as an
expense in the period in which the event or condition that triggers
those payments occurs and are included as an expense in the income
statement.
14(b) Approach to transition
The Group has applied IFRS 16 using the modified retrospective
approach, without restating the comparative information. In respect
of those leases that the Group previously treated as operating
leases, the Group has:
-- recognised the lease liability as the present value of the
remaining lease payments, discounted using the borrowing rate at
the date of initial application; and
-- elected to measure its right-of-use assets using the approach
set out in IFRS 16.C8(b)(i) to calculate the carrying value as if
the Standard had applied at the lease commencement date, but
discounted using the borrowing rate at the date of initial
application.
The Group's weighted average incremental borrowing rate applied
to lease liabilities as at 1 January 2019 is 3%.
14(c) Practical expedients adopted on transition
The Group has made use of the practical expedient available on
transition to IFRS 16 not to reassess whether a contract is, or
contains, a lease. Accordingly, the definition of a lease in
accordance with IAS 17 and IFRIC 4 will continue to be applied to
those leases entered into, or modified, before 1 January 2019.
As part of the Group's adoption of IFRS 16 and application of
the modified retrospective approach to transition, the Group also
elected to use the following practical expedients:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- accounting for operating leases with a remaining lease term
of less than 12 months as at 1 January 2019 as short-term
leases;
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application; and
-- the use of hindsight in determining the lease term, where the
contract contains options to extend, or terminate, the lease.
14(d) Financial impact of applying IFRS 16
IFRS 16 changes how the Group accounts for leases previously
classified as operating leases under IAS 17, which were
off--balance sheet. The main changes are detailed below:
-- all leases (except as noted above) are now recognised as
right--of--use assets and lease liabilities in the consolidated
balance sheet, initially measured at the present value of the
future lease payments as described above;
-- lease incentives (e.g. rent free periods) are recognised as part of the measurement of the right--of--use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expenses on a straight line basis;
-- right--of--use assets will be tested for impairment in
accordance with IAS 36 Impairment of Assets. This replaces the
previous requirement to recognise a provision for onerous lease
contracts. There were no onerous lease contracts that would have
required an adjustment to the right-of-use assets at the date of
initial application;
-- the Group recognises depreciation of right--of--use assets
and interest on lease liabilities in the consolidated income
statement, whereas, under IAS 17, operating leases previously gave
rise to a straight--line expense in other operating expenses;
and
-- the Group separates the total amount of cash paid for leases
that are on balance sheet into a principal portion (presented
within financing activities) and interest (presented within
operating activities) in the consolidated cash flow statement.
Under IAS 17, operating lease payments were presented as operating
cash outflows.
In addition, IFRS 16 requires changes with respect to the
accounting for assets formerly held under a finance lease. The main
difference between IFRS 16 and IAS 17 is the measurement of the
residual value guarantees provided by the lessee to the lessor.
IFRS 16 requires that the Group recognises as part of its lease
liability only the amount expected to be payable under a residual
value guarantee, rather than the maximum amount guaranteed as
required by IAS 17. This change did not have a material effect on
the Group's consolidated financial statements at 30 June 2019,
because the Group did not have any assets formerly held under
finance leases at the date of transition.
The following table sets out the impact on the statement of
financial position at 1 January 2019:
31 December Impact of IFRS Adjusted 1 January
GBP'000 2018 16 2019
--------------------------- ------------ --------------- -------------------
Non-current assets
Property plant and
equipment 1,455 - 1,455
Right-of-use assets - 19,758 19,758
Other non-current
assets 25,948 - 25,948
--------------------------- ------------ --------------- -------------------
Total non-current
assets 27,403 19,758 47,161
=========================== ============ =============== ===================
Current assets
Total current assets 61,134 70 61,204
--------------------------- ------------ --------------- -------------------
Total assets 88,537 19,828 108,365
=========================== ============ =============== ===================
Current liabilities
Lease liabilities - 1,808 1,808
Other current liabilities 15,470 (961) 14,509
--------------------------- ------------ --------------- -------------------
Total current liabilities 15,470 847 16,317
=========================== ============ =============== ===================
Non-current liabilities
Lease liabilities - 20,170 20,170
Other non-current
liabilities 152 - 152
--------------------------- ------------ --------------- -------------------
Total non-current
liabilities 152 20,170 20,322
--------------------------- ------------ --------------- -------------------
Total liabilities 15,622 21,017 36,639
=========================== ============ =============== ===================
Shareholders' equity 72,915 (1,189) 71,726
--------------------------- ------------ --------------- -------------------
Total liabilities
and equity 88,537 19,828 108,365
=========================== ============ =============== ===================
Of the total right--of--use assets of GBP19.8 million recognised
at 1 January 2019, GBP19.7 million related to leases of property
and GBP0.1 million to leases of motor vehicles.
At the date of transition, Alfa had no finance leases
recognised. The table below presents a reconciliation from
operating lease commitments disclosed at 31 December 2018 to lease
liabilities recognised at 1 January 2019.
GBP'000s Unaudited
------------------------------------------------------------ ----------
Operating lease commitments disclosed under IAS
17 at 31 December 2018 19,627
Short--term and low-value lease commitments straight--line
expensed under IFRS 16 (41)
Payments due in periods covered by extension options
that are included in the lease term 6,652
Operating lease commitments recognised on adoption
of IFRS 16 26,238
Discounted using the incremental borrowing rate
at 1 January 2019 21,978
Finance lease liabilities recognised under IAS -
17 at 31 December 2018
Lease liabilities recognised at 1 January 2019 21,978
The recognised right-of-use assets relate to the following types
of assets:
1 January 2019 H1 2019
GBP'000s Unaudited Unaudited
---------------------- --------------- -----------
Property 19,666 18,771
Motor vehicles 92 127
---------------------- --------------- -----------
Total net book value 19,758 18,898
====================== =============== ===========
In terms of the income statement impact, the application of IFRS
16 resulted in a decrease in rental expenses and an increase in
depreciation and interest expense compared to IAS 17. During the
six months ended 30 June 2019, in relation to leases under IFRS 16
the Group recognised the following amounts in the consolidated
income statement:
H1 2019
GBP'000 Unaudited
--------------------------- -----------
Depreciation (928)
Interest expense (317)
Short--term lease expense 31
Low--value lease expense -
Additionally, if IFRS 16 had been applied from 1 January 2018,
it would have increased operating profit by GBP0.2 million and
decreased profit before taxation by GBP0.4 million for the year
ended 31 December 2018. Operating cash flows would have been higher
by GBP1.6 million for the full year ended 31 December 2018, because
cash payments for the principal portion of the lease liability are
classified within financing activities. Only the interest part of
repayments can continue to be presented as operating cash flows
under IFRS 16.
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.
The current directors of Alfa Financial Software Holdings PLC
are:
Andrew Page
Andrew Denton
Chris Sullivan (appointed 18 July 2019)
Steve Breach (appointed 9 August 2019)
David Stead (appointed 20 August 2019)
Robin Taylor (resignation effective 26 September 2019)
Karen Slatford (resignation effective 26 September 2019)
By order of the Board
Andrew Denton
Chief Executive Officer
26 September 2019
INDEPENT 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 2019 which comprises the consolidated
statement of profit or loss account and comprehensive income,
consolidated statement of financial position, consolidated
statement of changes in equity, consolidated statement of cash
flows and related notes 1 to 14. 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 Guidance 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(th)
June 2019 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, England
26 September 2019
DEFINITIONS
Constant currency - When the Company believes it would be
helpful for understanding trends in its business, the Company
provides percentage increases or decreases in its revenues or
operating profit to eliminate the effect of changes in currency
values. When trend information is expressed herein "in constant
currencies", the comparative results are derived by re-calculating
non-GBP denominated revenues and/or expenses using the average
exchange rates of the comparable months in the current reporting
period, excluding gains or losses on derivative financial
instruments. The material applicable rates are as follows:
Average exchange rates for the period H1 2019 H1 2018
--------------------------------------- -------- --------
USD 1.2940 1.3760
Euro 1.1454 1.1366
ODS - Ongoing development and services, being one of the Alfa
revenue segments.
Operating free cash flow (FCF) conversion - Operating FCF
Conversion is calculated as cash from operations, less gains and
losses on settlement of derivative instruments and margin calls,
less capital expenditures and the principal element of lease
payments, as a percentage of operating profit. Operating FCF is
calculated as follows:
H1 2019 H1 2018
Unaudited GBP'000s GBP'000s
------------------------------------- ------------ ----------
Cash generated from operations 12,890 9,948
Settlement of derivative financial
instruments and margin calls - 21
Capital expenditure (891) (591)
Principal element of lease payments (907) -
------------------------------------- ------------ ----------
Operating FCF generated 11,092 9,378
Operating FCF Conversion 205% 109%
Total contracted value ('TCV') - TCV is calculated by analysing
future contracted revenue based on the following components: (i) an
assumption of three years of current maintenance payments (actual
maintenance contracted length varies by customer); (ii) the
estimated remaining time to complete any software implementations
and recognise deferred and material right-to-use licence amounts;
and (iii) ODS work which is contracted under a statement of
work.
Revenue from customers - revenue excluding unrealised gains or
losses on derivative instruments.
Adjusted Earnings, Adjusted EBIT and Adjusted EPS, diluted - In
the past the Company has used these measures to adjust the profit
for the period from continuing operations attributable to equity
holders of the Group, and the profit from continuing operations
before income taxes and finance income / expenses, for IPO related
expenses and pre-IPO share based payments. These measures were used
in order to allow management to monitor the underlying performance
of the business by excluding items not considered by management to
be reflective of the underlying trading operations of the Group or
adding items which are reflective of the overall trading
operations. During the year ended 31 December 2018, during the six
months ended 30 June 2019, there were no IPO related expenses,
pre-IPO share based payments or other adjusting items incurred. As
such Adjusted Earnings, Adjusted EBIT and Adjusted EPS, diluted
have not been used in these interim financial statements.
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 FELLLKKFZBBD
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September 26, 2019 02:02 ET (06:02 GMT)
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