TIDMALFA
RNS Number : 5724K
Alfa Financial Software Hldgs PLC
23 April 2020
23 April 2020
Alfa Financial Software Holdings PLC
2019 Preliminary Results Announcement
Alfa Financial Software Holdings PLC ("Alfa" or the "Company"),
a leading developer of mission critical software for the asset
finance industry, today publishes its audited results for the year
ended 31 December 2019.
Business highlights:
-- Revenue in line with 16 September 2019 guidance, H2 2019
boosted by contractual non-recurring revenue items.
-- Year-on-year revenue decline, with operating profits down
39%, due to delays in implementation projects and reduced
discretionary spend by customers.
-- Strong implementation delivery across seven customer implementations.
-- Robust balance sheet position with GBP59m of cash and no debt.
-- Refreshed sales and business development approach delivering
conversion of late-stage pipeline opportunities.
-- Sustained investment in Alfa Systems' functionality and expansion of partner ecosystem.
-- Cost pressures will continue, in competitive market for
high-skilled delivery teams, reducing margins in 2020.
-- Despite an encouraging start to the year and continued demand
for products and services, Covid-19 dictates a conservative outlook
for 2020.
Financial highlights:
2019 2018
GBPmillion GBPmillion
unless unless otherwise
otherwise stated Movement
Statutory highlights stated %
---------------------------- ----------- ------------------ ---------
Revenue 64.5 71.0 (9%)
Operating profit 13.7 22.4 (39%)
Profit for the period 10.2 18.2 (44%)
Earnings per share - basic 3.5 pence 6.3 pence (44%)
Net cash 58.8 44.9 31%
2019 2018
GBPmillion GBPmillion
unless otherwise unless otherwise Movement
Financial highlights (1) stated stated %
------------------------------------- ------------------ ------------------ ---------
Revenue - constant currency 64.5 72.5 (11%)
Adjusted EBIT 12.7 22.0 (42%)
Adjusted EBIT - constant currency 12.7 22.8 (44%)
Operating free cash flow conversion 142% 87% 63%
(1) See Definitions section for further information of the
calculation of measures not specifically defined by IFRS
Post year-end highlights:
-- Go-live of major US auto finance customer.
-- First Alfa Start go-live for Hampshire Trust Bank.
-- Announcement of global partnership with Accenture.
-- Announcement of two new contract wins cementing
market-leading position in US auto leasing industry.
-- Announcement of implementation and hosting agreement with major South African bank.
Initial impact of Covid-19:
-- Business in remote working mode since 13 March 2020 without
significant impact to the business or its revenue.
-- Management team ensuring our people, customers and suppliers
receive appropriate support to minimise personal and business
disruption.
-- Cancellation of one of the new US auto contracts referred to
above, which was lower tier in terms of value.
-- Requests from some other customers to reschedule work.
-- At this stage, we expect to be able to redeploy most of our
people to satisfy other customer projects.
-- Early stage pipeline affected by uncertainty but continued
engagement from later stage opportunities.
-- Implementation customers continue to see the benefits of
installing Alfa Systems and our plans for 2020 remain substantially
unchanged.
Andrew Denton, Chief Executive Officer of Alfa, said :
"I am pleased that we have been able to deliver revenue for the
year in line with our Trading Update of 16 September 2019, although
it was disappointing that revenue and operating profits declined
year-on-year, because of delays in anticipated implementation
projects, as well as reductions in discretionary spend by
customers.
In addition to important implementation successes for a global
OEM and for one of the largest US automotive finance companies, we
have also announced a number of new contract wins with customers
including a large German automotive finance provider and Hampshire
Trust Bank PLC, the latter being our first Alfa Start sale in the
UK. In 2020, we have announced further contract wins with an
implementation and multi-year hosting agreement with a large South
African bank, and a new agreement with an existing US auto
customer. We also announced an Alfa Start sale to a fast-growing
US-based automotive manufacturer, but this contract was cancelled
by the customer due to the economic downturn precipitated by
Covid-19.
The medium- and long-term prospects for Alfa remain compelling
with a number of pipeline opportunities across our target markets.
Those opportunities extend beyond our existing market segments and
our pre-configured Alfa Start offering and cloud-hosted solutions
have attracted significant interest. We remain committed to
enhancing the performance and functionality of Alfa Systems to
maintain our competitive advantage.
Covid-19 presents operational challenges, but these are being
monitored and mitigated by careful resource allocation across our
implementation projects. Our people have adapted superbly to
working remotely and the management team has spent considerable
time ensuring that our people, customers and suppliers receive
appropriate support to minimise personal and business disruption.
The exceptional quality of our people, software and customer base
continues to give me every confidence that we have the fundamentals
in place to benefit as the Covid-19 virus recedes and when
macroeconomic conditions improve."
Presentation
There will be a presentation for analysts this morning at 9.30am
via conference call. Please contact alfa@tulchangroup.com if you
would like to dial in.
Enquiries
Alfa Financial Software Holdings
PLC
Andrew Denton, Chief Executive
Officer
John Miller, Interim Chief Financial
Officer +44 (0)20 7588 1800
Tulchan Communications LLP
James Macey White
Matt Low +44 (0)20 7353 4200
Barclays
Robert Mayhew
Tom Macdonald
Edward Hill +44 (0)20 7623 2323
Numis
Simon Willis
Jonathan Abbott +44 (0)20 7260 1000
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
highly 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 client systems on a single platform.
Alfa Systems supports both retail and corporate business for auto,
equipment, wholesale and dealer finance on a multijurisdictional
basis, including leases/loans, originations and servicing. An
end-to-end solution with integrated workflow and automated
processing using business rules, Alfa Systems provides compelling
solutions to asset finance companies.
Alfa Systems is currently used by customers or has live
implementations in 26 countries and Alfa has offices in Europe,
Australasia 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.
Definitions
Adjusted EBIT - Adjusted EBIT is defined as profit from
continuing operations, before interest and income taxes, adjusted
for capitalised costs relating to internally generated assets and
the relevant amortisation costs on associated internally generated
assets, with the Adjusted EBIT margin being Adjusted EBIT as a
proportion of revenue. Management utilises this revised measure to
monitor performance as it illustrates the underlying performance of
the business by adding back capitalised costs, net of relevant
amortisation, which management believes is reflective of the
underlying cost base and overall trading operations.
Previously management defined Adjusted EBIT as profit from
continuing operations before income taxes, finance income, pre-IPO
share-based compensation and IPO-related expenses, with the
Adjusted EBIT margin calculated as Adjusted EBIT as a proportion of
revenue. In 2019, management updated this definition because the
IPO share-based compensation and IPO-related expenses were only
relevant to the year in which the Company undertook its IPO, being
2017.
Billings - Billings are amounts invoiced in the year.
Constant Currency - We provide percentage increases or decreases
in revenue and Adjusted EBIT to eliminate the effect of changes in
currency values because this shows the underlying trends in the
business. When trend information is expressed herein "in constant
currencies", the comparative results are derived by re-calculating
non-GBP-denominated revenue and/or expenses using the average
monthly exchange rates of this year and applying it to the
comparative year's results, excluding gains, or losses, on
derivative financial instruments. The average rates are as
follows:
Average exchange rates for the year 2019 2018
USD 1.2771 1.3355
Euro 1.1407 1.1303
Swedish Krona 12.0708 11.5953
New Zealand Dollar 1.9379 1.9311
Australian Dollar 1.8365 1.7862
ODS - Ongoing development and services, which is one of Alfa's
revenue segments.
Operating free cash flow conversion - Cash from operations, less
gains and losses on settlement of derivative instruments and margin
calls, less capital expenditures and less total lease payments in
respect of IFRS 16 (which was applied for the first time in the
year ended 31 December 2019). Operating free cash flow conversion
represents Operating free cash flow generated as a proportion of
Adjusted EBIT. Management uses Operating free cash flow conversion
for monitoring and managing cash flows.
CHIEF EXECUTIVE'S REVIEW
CEO's review of the year - 2019
Trading performance and delivery
In line with our revised expectations, set out in our Trading
Update issued on 16 September 2019, the Group recognised total
revenue for the year ended 31 December 2019 of GBP64.5 million
(2018 GBP71.0 million). In securing GBP5.5m of contractual
non-recurring revenue items in H2 2019, operating profit was
boosted to GBP13.7 million (2018 GBP22.4 million). Alfa operated in
challenging business conditions throughout 2019 with macroeconomic
and political uncertainty contributing to reduced capital
expenditure by customers. That, in turn, led to slower than
anticipated implementations of certain projects and a reduction in
customer spend on optional upgrades and non-critical work.
During the year, we increased our focus on cash management. Our
operating free cash flow conversion for the year was 142% (2018:
87%). We ended the year with a cash balance of GBP58.8m (2018:
GBP44.9m) and a strong, unencumbered balance sheet.
We continued to provide implementation services for the four
customers we were working on at the start of 2019. Of those, one
OEM went live in three countries: Spain, in June 2019, Germany, in
September 2019 and the UK, in November 2019. Separately, in
September 2019, another OEM went live with an initial phase of
their project, in Europe.
In November 2019, we signed a contract with one of the largest
automotive finance providers in Germany where we had started
implementation work, under a letter of engagement, early in 2019.
In the same month, we announced an Alfa Start sale in the UK to
Hampshire Trust Bank, a fast-growing challenger bank. In March
2020, Hampshire Trust Bank went live, just 19 weeks after we
started implementation work.
Since March 2019, we have been working for one of the largest
banks in South Africa, under successive letters of engagement. In
October 2019, we progressed from design to implementation work, and
in March 2020, we signed a contract to provide implementation and
cloud hosting services.
The core phase of an implementation project, for one of the
largest US automotive finance companies, went live in January 2020.
The culmination of a substantial and significant systems
replacement project, spanning five years, this achievement further
positioned Alfa as a compelling software choice for retail auto
firms in the US.
Hosting and subscription-based revenue streams, in connection
with cloud-based installations, will be increasingly material in
2020 and beyond. In March 2020, we celebrated the hard launch of
the global Alfa Start product line; and announced a new contract
with an existing customer in the US auto industry. In the same
month, we announced a second Alfa Start sale, to a fast-growing
US-based automotive manufacturer, but this contract, which was
lower tier in terms of value, was cancelled by the customer due to
the economic downturn precipitated by Covid-19.
Product development and innovation
Investment in the Alfa platform will always be at the heart of
our corporate strategy. During 2019, the principal advances were in
respect of cloud hosting, digital investment, the performance and
scalability of Alfa Systems and key new functional areas.
The company is generating returns on previous years' investment
in cloud, which we continued in 2019. We have rebuilt our automated
tooling for the management of customer environments to provide more
security, scalability and simplification. This has generated
significant additional capacity, which increases the number of
production environments we are able to host.
Our cloud service also offers an accelerator for customers who
want to manage our service for themselves. This is in line with our
general objective of speeding up implementation projects.
The investment in digital solutions in 2018 and 2019 has
resulted in the aforementioned go-lives in Spain, Germany and the
UK of a React-based point of sale solution. 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 we are in the early stages of
further POSkit projects. We expect digitalisation to remain an
important factor in customer purchasing decisions.
Continued development has enhanced Alfa's library of APIs, as
well as the development of mobile application functionality to
support the full asset finance customer journey. We have partnered
with industry-leading specialist suppliers to provide additional
functionality such as customer identity verification, e-signing and
direct payments. This development is an important part of ensuring
the Alfa platform maintains its market-leading position.
Beyond these developments, a number of functional enhancements
to the platform are in progress including:
-- Measurable improvements to all users' experience;
-- Development of Cash Accounts functionality;
-- Development of usage-based billing - a key enabler for the
industry trend towards servitisation and subscription models;
and
-- PostgreSQL support.
We have also invested in research in artificial intelligence. An
accompanying thought leadership campaign launched in H2 2019, and
this work will continue in 2020.
In 2020, we will continue to improve the user experience of the
application, to maintain its leading position. We also have planned
functional changes to support the replacement for LIBOR - including
SONIA in the UK; and ESTER, EONIA and SOFR in the US - and improve
the ease of system maintenance, reducing the total cost of
ownership for our customers and improving the efficiency of our
Alfa hosting service.
Alfa Start was first used in the US automotive finance sector in
2018. 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 gave Alfa a ready-to-deploy
repeatable solution based on a subscription-licensing model for
smaller customers in our home market.
A major focus for 2020 is to deliver our software, more
frequently, and at a lower cost, to our customers. We are
increasing our investment in modularisation. In the short-term,
this will make the platform easier for us to maintain, as well as
supporting longer-term opportunities in adjacent markets.
We are also enhancing our software development lifecycle (SDLC).
The tooling and process needed to make changes and deliver new,
high-quality versions of Alfa needs to improve continuously. We
will effect a number of changes to speed up feedback time, both of
individual development changes, and from customers. This will
ensure our development is more efficient by eliminating re-work and
waiting times.
Alongside these improvements, the go-live in January 2020 for
the large US automotive finance company, required the ability to
manage 4.6 million active vehicle contracts. Through this
implementation project, we delivered performance improvements and
scalability of Alfa Systems. We anticipate this will provide
substantial benefits to all of our current and future
customers.
Partnerships
Our partnership programme is an important part of Alfa's growth
strategy. Throughout 2019, we made good progress in training
partner staff and co-bidding for new projects.
During 2019, we delivered induction training to 31 partner team
members. At 31 December 2019, six resource augmentation partner
staff (2018: one) were supporting our efforts across three discrete
projects and the late-stage pipeline contained two co-bids with
systems integrator partners, including one bid that was 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 comprises five (2018: three)
partners (including Genpact, Teamwill Consulting, Tellox
Finansservice, and Accenture - the latter being an agreement signed
in February 2020). We are in discussions with further potential
implementation partners.
Board changes and governance
Our initial Non-Executive Directors, Richard Longdon, Karen
Slatford and Robin Taylor, stood down from the Board during the
year, having provided invaluable support and guidance through our
transition from private to public company status. Additionally,
David Stead had to stand down as a Non-Executive Director, due to
restrictions on his availability. We were pleased to be able to
appoint Chris Sullivan and Steve Breach as new Non-Executive
Directors, in 2019. In March 2020, we announced that Adrian
Chamberlain and Charlotte de Metz had agreed to join the Board
after the release of our 2019 financial results. Our Non-Executive
Directors collectively provide a strong combination of industry,
strategic planning, and financial management knowledge and
experience.
We strengthened the Executive Director team with the appointment
of Matthew White to the Board, as Chief Operating Officer in
October 2019. Vivienne Maclachlan stepped down as Chief Financial
Officer, in April 2019, having piloted Alfa through our IPO, with
John Miller joining as Interim Chief Financial Officer, in May
2019. In March 2020, we announced that Duncan Magrath would join
the Board as Chief Financial Officer after the release of our 2019
financial results.
In November 2019, BDO was selected to provide internal audit
services. This followed a review by the Audit & Risk Committee
(ARC) which concluded that the Company would be best served by
engaging a new external provider to complement the work of the
Company's Risk Manager. KPMG, the Company's previous external
provider, resigned in August 2019.
The Board continues to review the Company's procedures to ensure
the Directors have a reasonable basis for making proper judgments
on a continuing basis regarding the financial position and
prospects of the Group. As detailed in our H1 results announcement,
as part of the Board's review process, in October 2019, the Company
launched an improvement programme, led by John Miller. Good
progress was made in the initial phase of the programme in the
final quarter of 2019. Whilst prioritising short-term improvements
in the timely provision, and extent, 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, which, in the medium-term, will improve the provision of
management information.
Leadership and employees
In 2019, a new Company Leadership Team (CLT) was constituted. We
took the opportunity to promote a number of staff with a deep
understanding of their functional areas. The CLT has a combined
total of 124 years of service at Alfa. We have supplemented this
core Alfa and industry experience with selective external
recruitment and, in March 2020, we were delighted to welcome Vicky
Edwards as our new Chief People Officer.
We spent considerable time during the year ensuring that
business development was given sufficient resource and leadership.
As Chief Executive Officer, I provided this leadership directly for
most of 2019 and business development will continue to be a key
focus for me, through 2020. These efforts were reflected in the
successful generation, progression and conversion of late-stage
pipeline opportunities from late 2019, onwards.
Our exceptional people will always be central to our efforts. We
recruit talented people across the Company and provide them with
the skills and environment to develop and succeed. We support their
efforts with a full Environmental, Social and Governance (ESG)
programme, Innovation Days and Learning and Development
opportunities. 2019 also saw the Company focus on communication of
strategy at all levels of the business and, entering 2020, we
benefit from greater engagement in and understanding of, the
Company's goals.
Outlook for 2020
At the time of writing, the extent of the impact of Covid-19 is
necessarily uncertain. Apart from the aforementioned contract
cancellation, we have received requests from some other customers
to reschedule work, but at this stage we expect to be able to
redeploy most of our people to satisfy other customer projects. We
will continue to monitor and actively mitigate any challenges by
careful resource allocation. We are grateful to our people who have
adapted with remarkable efficiency and professionalism to these
unusual times.
The full year effect of remuneration increases for our people,
in November 2019, will be fully reflected in 2020's financial
performance. Taken together with the impact of investment in Alfa's
future capabilities and one-off legal costs, there will be
short-term pressure on Alfa's margins. Beyond this, we will
maintain rigorous cost control such that expenditure is only
incurred to the extent that it is business critical and/or supports
the growth of the Company in the future.
Above all our priority is to support our people, customers,
partners and suppliers through the current crisis. Our
implementation customers continue to see the benefits of installing
Alfa Systems and our plans for 2020 remain substantially unchanged.
We benefit from having a strong net cash position with no debt. We
are therefore in a position where we do not need to make reactive
decisions, but can run the business to ensure that, when the crisis
abates, we are in the strongest possible position for 2021 and
beyond.
Andrew Denton
Chief Executive Officer
23 April 2020
FINANCIAL REVIEW
Group results 2019 2018 Movement
GBP'000s GBP'000s %
------------------------------------- ---------- ---------- ---------
Revenue 64,480 71,038 (9%)
Implementation and support expenses (18,103) (18,924) (4%)
Research and product development
expenses (15,189) (16,341) (7%)
Sales, general and administrative
expenses (18,056) (13,457) 34%
Other operating income 577 66 774%
------------------------------------- ---------- ---------- ---------
Operating profit 13,709 22,382 (39%)
Finance income 143 74 93%
Finance expense (852) - -
Profit before taxation 13,000 22,456 (42%)
Taxation (2,818) (4,306) (35%)
------------------------------------- ---------- ---------- ---------
Profit for the financial year 10,182 18,150 (44%)
------------------------------------- ---------- ---------- ---------
2019 was a challenging year for the Group, with revenue
decreasing by GBP6.5 million from GBP71.0 million in 2018 to
GBP64.5 million in 2019. Whilst we fell short of our budgets for
the year, revenue was in line with our revised expectations, as set
out in our Trading Update issued on 16 September 2019. Excluding
the impacts of gains and losses on derivative financial
instruments, this represented an annual decrease of GBP6.7 million
in revenue from customers, comprising a GBP4.3 million decrease in
software implementation revenue, a GBP0.5 million decrease in ODS
revenue and a GBP1.9 million decrease in maintenance revenue.
The decline in turnover, coupled with an increase in the Group's
cost base, ultimately led to operating profit margin decreasing to
21% in 2019 from 32% in 2018. Operating profits included GBP5.5
million of contractual non-recurring ODS revenue in 2019, of which
GBP3.5 million was outside of the revenue guidance of GBP63-65
million provided in our Trading Update.
As of 1 January 2019, Alfa updated its accounting policies to
adopt IFRS 16 "Leases". This new standard was adopted 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 the start of the agreement, 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-of-use assets of GBP18.0
million and lease liabilities of GBP20.5 million as at 1 January
2019, with the difference being recorded against opening retained
earnings.
Revenue 2019 2018 Movement
GBP'000s GBP'000s %
------------------------------------- ---------- ---------- ---------
Software implementation 26,128 30,391 (14%)
ODS 23,460 23,920 (2%)
Maintenance 14,892 16,846 (12%)
------------------------------------- ---------- ---------- ---------
Revenue from customers 64,480 71,157 (9%)
(Loss)/gain on derivative financial
instruments - (119) -
------------------------------------- ---------- ---------- ---------
Group revenue from customers
* 64,480 71,038 (9%)
------------------------------------- ---------- ---------- ---------
*Revenue from customers is presented net of any losses or gains
on derivative financial instruments. During 2018 we settled the
final portion of our USD forward contract, with GBP0.1 million of
losses recorded against revenue in that year.
Excluding the impact of gains or losses on financial instruments
and restating our 2018 revenue using 2019 exchange rates, our 2019
constant currency revenue decline was 11%, in comparison to an
actual decline of 9%. Excluding the impact of gains and losses on
financial instruments and using 2019 exchange rates, our 2018
revenue would have been GBP72.5 million. Additional information on
the calculation of constant currency can be found in the key
financial metrics section below.
Software implementation revenue 2019 2018 Movement
GBP'000s GBP'000s GBP'000s
-------------------------------------- ---------- ---------- --------------------
New 8,839 36 8,803
Continuing 16,312 25,950 (9,638)
Completed 1,166 3,301 (2,135)
Paused (189) 1,104 (1,293)
-------------------------------------- ---------- ---------- --------------------
Software implementation revenue from
customers 26,128 30,391 (4,263)
-------------------------------------- ---------- ---------- --------------------
Software implementation revenue decreased by GBP4.3 million, or
by 14%, to GBP26.1 million for the year ended 31 December 2019
(2018: GBP30.4 million). This was predominantly due to the deferral
of go-live dates on certain projects, increasing the overall length
of those projects, which resulted in write-backs to software
licence revenue in the year. Although this decreased software
implementation revenue in 2019, it is expected that the overall
project value will increase due to the increased work effort in
future periods. Additionally, the application of IFRS 15 has
required the Group to write-back GBP3.3 million of its licence
revenue in order to establish a material right to use liability.
This liability reflects discounts in respect of the right to use
renewal payments that customers will be required to pay in future
years. While this also contributed to decreased implementation
revenue in 2019, the relevant revenue will be recognised over the
four years following a project's go-live date.
One implementation project was completed late in 2019 and
further services to this customer will be classified as ODS
revenue. Revenue in the prior year included amounts from the
software implementation project that was paused midway through
2018.
These declines have been partially offset by GBP8.8 million of
implementation revenue from the three new implementation customers
in 2019. One of these new customers is one of the largest
automotive finance providers in Germany. We had been carrying out
pre-implementation work during 2018, and started implementation
work from January 2019, under successive letters of engagement,
before signing a full contract in November 2019. The second
implementation is with one of the largest banks in South Africa,
where we worked under successive letters of engagement, in advance
of the finalisation of the related software and maintenance
agreements in March 2020. Pre-implementation work began with this
customer in April 2019, with implementation work starting in
October 2019. The third customer addition during 2019 was Hampshire
Trust Bank, a fast-growing UK challenger bank where the Group
launched its first Alfa Start implementation in the equipment
finance market. It should be noted that the Group recognises
pre-implementation revenue within its ODS revenue segment.
The number of implementation customers therefore increased to
seven during 2019 (2018: four), one of which completed its
implementation in late 2019. These customer numbers exclude the
customer that paused its implementation project in mid-2018. This
project had not restarted during the course of 2019.
In 2019, 61% of implementation revenue was denominated in US
dollars (2018: 88%), 34% was denominated in Euros (2018: 12%) and
5% in GBP (2018: nil). As such, the Group's implementation revenue
continued to be affected by the varying USD and Euro rates during
the year.
We completed software implementation work in respect of an
initial portfolio of contracts at a large US auto finance
organisation in January 2020 and at Hampshire Trust Bank in March
2020, which was delivered in 19 weeks.
At the date of the preliminary announcement, one software
implementation customer is due to complete its initial phase in
mid-2020, one implementation customer is due to complete later in
2020, two customers have go-live dates scheduled for 2021 and one
customer has its second portfolio go-live scheduled for 2022. We
will continue to work closely with our customers, through the
current uncertain economic conditions and we are actively managing
our resource allocations to mitigate the effects of
Covid-19-related disruption.
ODS revenue 2019 2018 Movement
GBP'000s GBP'000s GBP'000s
---------------------------------------- ---------------- ---------- ----------
New 2,321 - 2,321
Pre-implementation 2,438 960 1,478
Continuing 13,118 19,917 (6,799)
Completed or contractual non-recurring 5,583 3,043 2,540
ODS revenue from customers 23,460 23,920 (460)
---------------------------------------- ---------------- ---------- ----------
ODS revenue decreased by 2% in 2019 to GBP23.5 million (2018:
GBP23.9 million).
The ODS revenue from ongoing ODS customers decreased by GBP6.8
million to GBP13.1 million during 2019 (2018: GBP19.9 million).
This decrease reflected the reduction in discretionary customer
spend on optional upgrades and non-critical work, which we
identified in our Trading Update and half-year results both
published in September 2019. In addition, fewer customers
transitioned from implementation to ODS than in 2018.
This decline was offset by six new ODS projects, contributing
GBP4.8 million of revenue, which included revenue from four new
pre-implementation projects and two implementation customers who
procured additional services, incremental to the services
associated with their main implementation project.
Two contractual non-recurring revenue items totalling GBP5.5
million were recognised in 2019. The first of these amounting to
GBP1.6 million, represented the amount due from a customer which
exceeded the maximum number of contracts within the tier of its
licence agreement. The second related to additional settlement
amounts on right to use for Alfa Systems and maintenance contracts
that were both terminated during the fourth quarter of 2018. The
timing of the termination notice had been in line with expectations
and resulted in the recognition, during 2018, of GBP2.5 million
contractual non-recurring revenue covering the period until the
expected termination date of the contract being October 2019. Prior
year billings were wholly recognised in 2018 because the customer
had no right of clawback on payments made. During 2019, the
customer requested an extension to the termination period through
to October 2020 and this resulted in the recognition, in 2019, of
an additional GBP3.9 million of contractual non-recurring revenue.
Again, there is no right of clawback, within the contractual
amounts payable covering the extension period.
Maintenance
Maintenance revenue decreased by GBP1.9 million, or 12%, to
GBP14.9 million (2018: GBP16.8 million), primarily due to a
reduction of GBP2.5 million from customers who did not renew
maintenance contracts, and GBP0.5m reduction from the impact of a
key customer which paused its maintenance contract in 2018. Of the
customers not renewing their maintenance contracts, a decrease of
GBP2.3 million relates to the customer which served its termination
notice in the fourth quarter of 2018 and which has been referred to
in more detail in the paragraph, above.
These declines were offset by gains of GBP0.3 million through
new maintenance revenue from an existing implementation customer,
which went live with the first phase of their implementation
project, during the second half of 2019; and additional hosting
revenue of GBP0.2 million, largely from three of the new
implementation customers. Maintenance revenue from existing
contracts grew by GBP0.6 million in the year reflecting annual
inflationary rate rises on the existing customer base.
Geographical overview
On a regional basis, 44% of the Group's revenue is generated
from US-based customers (2018: 47%), 29% from UK customers (2018:
32%), 20% from the Rest of Europe (2018: 17%) and 7% from the Rest
of World (2018: 4%).
Geographical split of revenue 2019 2018 Movement
GBP'000s GBP'000s GBP'000s
------------------------------------- ---------- ---------- ----------
UK 18,618 22,847 (4,229)
US 28,087 33,124 (5,037)
Rest of Europe 13,016 12,391 625
Rest of World 4,759 2,795 1,964
Revenue 64,480 71,157 (6,677)
(Loss)/gain on derivative financial
instruments - (119) 119
------------------------------------- ---------- ---------- ----------
Group revenue 64,480 71,038 (6,558)
------------------------------------- ---------- ---------- ----------
UK
UK revenue decreased by GBP4.2 million, or by 19%, to GBP18.6
million for the year ended 31 December 2019 (2018: GBP22.8 million)
primarily due to a reduction in customer spend on optional upgrades
and non--critical work, driven by macroeconomic uncertainties, as
explained in the Trading Update and half-year results, both
published in September 2019.
In addition there was a decline in maintenance spend due to
customers not renewing contracts, as referred to in the maintenance
revenue paragraph, above.
This decline was offset by a year-on-year increase of GBP1.4
million in relation to contractual non-recurring settlement revenue
from the customer which terminated its right to use Alfa Systems
and maintenance contracts during the fourth quarter of 2018 and
subsequently extended their termination period by an additional 12
months, from November 2019 through to October 2020, as noted
above.
UK customers are predominately from the equipment sector,
contributing 81% or GBP15.1 million of this revenue in 2019 (2018:
72%).
US
US revenue decreased by GBP5.0 million, or by 15%, to GBP28.1
million for the year ended 31 December 2019 (2018: GBP33.1
million). There was a reduction of GBP7.3 million in implementation
revenue from existing clients. This was due to lower activity
during the year; the deferral of go-live dates on certain projects,
increasing the overall length of the projects, which in turn
resulted in write-backs to software licence revenue in the period;
and the write-back of certain amounts of licence revenue in order
to establish a material right to use liability in accordance with
IFRS 15. Additionally, the paused project from 2018 resulted in a
year-on-year decreased revenue of GBP1.9 million. There was also a
GBP0.5 million decline in ODS and maintenance revenue from US-based
customers, primarily due to the reduction in discretionary customer
spend on optional upgrades and non-critical work.
Offsetting this decline, the Group had new pre-implementation
projects from US-based customers that contributed GBP0.8 million to
revenue in 2019; contractual non-recurring licence revenue in 2019
of GBP1.6 million due to a US-based customer exceeding the maximum
number of contracts in the tier of their licence agreement; and
GBP2.3 million of additional ODS revenue from two US-based
implementation customers who procured additional services,
incremental to the services associated with their main
implementation project.
US revenue is predominately derived from automotive customers,
contributing 98% of revenue (2018: 100%).
Rest of Europe
Rest of Europe ("RoE") revenue grew by 5% to GBP13.0 million
(2018: GBP12.4 million) predominately driven by a GBP6.6 million
increase to GBP7.6 million (2018: GBP1.0 million) from our large
automotive finance provider customer, in Germany, which formally
started its implementation project at the beginning of 2019. This
increase was offset by declines in revenue from other European
implementation customers of GBP4.2 million; and revenue from other
European ODS customers of GBP1.8 million. These declines were for
the same macro reasons as outlined above for our US-based
implementation and ODS customers.
In 2019, RoE revenue was derived primarily from customers in the
automotive sector, contributing 70% of this revenue (2018:
37%).
Rest of World
Rest of World ("RoW") revenue during 2019 was generated
principally in South Africa, Australia and New Zealand.
RoW revenue grew by 70% to GBP4.8 million (2018: GBP2.8 million)
predominately driven by increased revenue of GBP3.0 million
generated from our new large South African bank customer, where we
started pre-implementation work in April 2019, followed by formal
implementation work from October 2019. This increase was offset by
a GBP1.0 million decline in ODS revenue from our Australasian
customers, primarily due to a reduction in discretionary customer
spend on optional upgrades and non-critical work.
In 2019, RoW revenue was derived primarily from customers in the
equipment sector, contributing 82% of this revenue (2018: 67%).
Operating profit
The Group's operating profit decreased by GBP8.7 million, or
39%, to GBP13.7 million in the year ended 31 December 2019, from
GBP22.4 million in 2018, with the operating profit margin
decreasing to 21% (2018: 32%). This decline predominantly reflects
the decrease in revenue in 2019, coupled with an increase in the
Group's cost base.
Expenses by activity 2019 2018 Movement
GBP'000s GBP'000s %
----------------------------------- ---------- ---------- ---------
Implementation and support
expenses 18,103 18,924 (4%)
Research and product development
expenses 15,189 16,341 (7%)
Sales, general and administrative
expenses 18,056 13,457 34%
Other operating income (577) (66) 774%
----------------------------------- ---------- ---------- ---------
Total operating expenses 50,771 48,656 4%
----------------------------------- ---------- ---------- ---------
Implementation and Support ("I&S") expenses decreased by
GBP0.8 million, or by 4%, to GBP18.1 million (2018: GBP18.9
million). I&S expenses are predominately personnel costs,
accounting for 77% of total activity costs (2018: 75%). In the
year, average I&S headcount reduced slightly with average
headcount of 108 (2018: 110), and a decrease in personnel-related
costs of GBP0.1 million. In addition, there was a decrease in other
costs of GBP0.7m.
Research and product development ("R&PD") expenses have
fallen by GBP1.1 million, or 7%, to GBP15.2 million (2018: GBP16.3
million), however the total expenditure including amounts
capitalised was GBP16.3 million (2018: GBP16.7 million), a decrease
of GBP0.4 million or 3%. 96% of R&PD costs are personnel costs
(2018: 89%). The key reason for the small decrease in R&PD
costs is a decline in the number of engineers from 152 in 2018 to
134 in 2019, partially offset by increased remuneration following
above inflation pay awards, in November 2019.
During 2019, our development efforts continued to focus on
internal investment projects and we capitalised GBP1.1 million
(2018: GBP0.4 million) of our costs in relation to:
-- Continued investment in the digital capabilities of our product;
-- Upgrades and improvements to usability and functionality of
the Alfa Systems user interfaces;
-- Investment in the functionality of the cloud-hosting platform offered by the Group;
-- The adaptation of the existing Alfa Start technology to meet
the requirements of the UK equipment finance market; and
-- Specific functionality requested by existing clients for
which the Group has invested time developing new modules and
capabilities within Alfa Systems.
The increase in capitalised costs demonstrates our continued
commitment to invest in our product with a number of components
moving from research into a development phase in 2019.
Sales, general and administrative ("SG&A") expenses
increased by GBP4.6 million, or by 34%, to GBP18.1 million (2018:
GBP13.5 million). Depreciation and amortisation expenses were
GBP2.8 million during 2019, an increase of GBP1.9 million from
2018, primarily in respect of the adoption of IFRS 16 from 1
January 2019, the new HR and finance system, which was capitalised
in 2018, as well as increased computer hardware and internal
development investments. Additionally, professional advisor costs
increased by GBP1.5 million to GBP3.6 million during 2019 (2018:
GBP2.1 million) due to increased legal fees, and advisor costs
associated with the financial management improvement programme
which started in the second half of 2019.
Profit after taxation
Profit after taxation decreased by GBP8.0 million, or by 44%, to
GBP10.2 million (2018: GBP18.2 million). The effective rate of
taxation in 2019 increased to 21.7%, (2018: 19.2%) primarily
reflecting non-deductible expenses and higher tax rates outside of
the UK.
Tax policy
The Group accounts for tax matters in accordance with the
Group's code of conduct and ethical guidelines. It is the Group's
obligation to pay the amount of tax legally due and to observe all
relevant and applicable rules and regulations in the jurisdictions
in which it operates. Whilst meeting this obligation, the Group
also has an obligation to its shareholders to plan, manage and
control tax costs. The Group seeks to achieve this by conducting
business affairs in a way that is efficient from a tax perspective,
such as implementing a robust transfer pricing policy and claiming
available tax credits and incentives. The Group is committed to
building a constructive working relationship with the tax
authorities of the countries in which it operates.
Key financial metrics
The Group uses a number of key financial metrics which are not
specifically defined by IFRS but which management use as key
measures to assess financial performance. Adjusted EBIT and
Adjusted EBIT margin are used by management to monitor performance
because they illustrate the underlying performance of the business
by adding back capitalised costs, net of relevant amortisation,
which management believe is reflective of the underlying cost base
and overall trading operations. The most directly comparable
measure of Adjusted EBIT and Adjusted EBIT margin is profit from
continuing operations.
Billings and Operating cash flow conversion are monitored by
management as liquidity measures. The most directly comparable
measure of Operating cash flow conversion is Cash generated from
operations as a percentage of Operating profit.
These measures are not directly comparable to similarly
referenced measures used by other companies and, as a result,
investors should not consider these performance measures in
isolation from, or as a substitute analysis for, our results of
operations as determined in accordance with IFRS.
New customer revenue
New customer revenue comprises revenue generated by customers
who have not previously generated revenue in the applicable segment
in the prior year.
Constant currency
We provide percentage increases or decreases in revenue and
Adjusted EBIT to eliminate the effect of changes in currency values
as we believe it is helpful to the understanding of underlying
trends in the business. When trend information is expressed herein
"in constant currencies", the comparative results are derived by
re-calculating non-pound sterling denominated revenue and/or
expenses using the average monthly exchange rates of this year and
applying them to the comparative year's results, excluding gains or
losses on derivative financial instruments. The average rates are
as follows:
2019 2018
USD 1.2771 1.3355
Euro 1.1407 1.1303
Swedish Krona 12.0708 11.5953
New Zealand Dollar 1.9379 1.9311
Australian Dollar 1.8365 1.7862
2019 2018 Movement
Key financial metrics GBP'000s GBP'000s %
----------------------------------- ---------- ---------- ---------
Revenue - as reported 64,480 71,038 (9%)
Revenue - constant currency 64,480 72,503 (11%)
EBIT - as reported 13,709 22,382 (39%)
EBIT - constant currency 13,709 23,205 (41%)
Adjusted EBIT - as reported 12,727 21,975 (42%)
Adjusted EBIT - constant currency 12,727 22,798 (44%)
Adjusted EBIT 2019 2018
GBP'000s GBP'000s
----------------------------------------- ---------- ----------
Profit for the period 10,182 18,150
Adjusted for:
Taxation 2,818 4,306
Finance income (143) (74)
Finance expense 852 -
----------------------------------------- ---------- ----------
Adjusted EBIT - 2018 definition 13,709 22,382
----------------------------------------- ---------- ----------
Capitalised development costs (1,135) (407)
Amortisation of capitalised development 153 -
costs
----------------------------------------- ---------- ----------
Adjusted EBIT - 2019 definition 12,727 21,975
----------------------------------------- ---------- ----------
Adjusted EBIT
Adjusted EBIT in 2019 is defined as profit from continuing
operations before interest and income taxes, adjusted for
capitalised costs relating to internally generated assets and the
relevant amortisation costs on associated internally generated
assets, with the Adjusted EBIT margin being Adjusted EBIT as a
proportion of revenue. Adjusted EBIT decreased by GBP9.3 million,
or 42%, to GBP12.7 million (2018: GBP22.0 million). Adjusted EBIT
margin in 2019 decreased to 20% (2018: 31%), reflecting a decline
in revenue of GBP6.5 million and an increase in costs of GBP2.7
million. Excluding the impacts of currency, Adjusted EBIT, on a
constant currency basis, decreased by 44%.
Previously management defined Adjusted EBIT as profit from
continuing operations before income taxes, finance income, pre-IPO
share-based compensation and IPO-related expenses, with the
Adjusted EBIT margin calculated as Adjusted EBIT as a proportion of
revenue. In 2019, management updated this definition, because IPO
share-based compensation and IPO-related expenses were only
relevant to the year in which the Company undertook its IPO, being
2017. Management utilises this revised measure to monitor
performance as it illustrates the underlying performance of the
business by adding back capitalised costs, net of relevant
amortisation, which management believe is reflective of the
underlying cost base and overall trading operations.
Billings
These are amounts invoiced in year. This differs from revenue,
as defined by IFRS 15, due to the deferral of customised licence
revenue recognition during 2019, the release of deferred income in
relation to maintenance agreements, the recognition of accrued
income in relation to work in progress and certain contractual
non-recurring amounts. Billings increased by GBP4.6 million, or
13%, to GBP71.1 million (2018: GBP66.5 million), which was GBP6.6
million more than revenue recognised in 2019.
Operating free cash flow conversion
Operating free cash flow conversion increased to 142% (2018:
87%), reflecting an increased focus on working capital management
and the recovery of receivables where the related revenue was
recognised in previous years.
Operating free cash flow generation 2019 2018
GBP'000s GBP'000s
------------------------------------- ---------- ----------
Cash generated from operations 22,548 20,954
Adjusted for:
Settlement of derivative financial
instruments and margin calls - (108)
Capital expenditure (2,076) (1,638)
Total lease payments in respect of
Right-of-Use Assets (2,462) -
------------------------------------- ---------- ----------
Operating free cash flow 18,010 19,208
------------------------------------- ---------- ----------
Adjusted EBIT - 2019 definition 12,727 21,975
------------------------------------- ---------- ----------
Operating free cash flow conversion 142% 87%
------------------------------------- ---------- ----------
Funding and liquidity
At 31 December 2019, the Group had cash reserves of GBP58.8
million (2018: GBP44.9 million). Cash balances were denominated
predominately in Pounds Sterling, being 82% of the total cash and
cash equivalents balance (2018: 46%).
Cash flow 2019 2018
GBP'000s GBP'000s
---------------------------------------------- ---------- ----------
Cash generated from operations 22,548 20,954
Interest element on lease payments (852) -
(IFRS 16)
Settlement of derivative financial
instruments and margin calls - (108)
Income taxes paid (4,074) (5,846)
---------------------------------------------- ---------- ----------
Net cash generated from operating activities 17,622 15,000
---------------------------------------------- ---------- ----------
Net cash (used in) by investing activities (1,933) (1,564)
---------------------------------------------- ---------- ----------
Cash used in financing activities (1,610) -
---------------------------------------------- ---------- ----------
Effect of exchange rate changes (162) 219
---------------------------------------------- ---------- ----------
Movement in year 13,917 13,655
Cash and cash equivalents at the beginning
of the year 44,922 31,267
---------------------------------------------- ---------- ----------
Cash and cash equivalents at the end
of the year 58,839 44,922
---------------------------------------------- ---------- ----------
Net cash generated from operating activities
Net cash generated from operating activities increased by GBP2.6
million to GBP17.6 million during the year ended 31 December 2019
(2018: GBP15.0 million) primarily due to the increase in cash
generated from operations of GBP1.6 million to GBP22.5 million, and
a decrease in tax paid of GBP1.8 million.
The increase of GBP1.6 million in cash generated from operations
was primarily due a positive movement in working capital of GBP8.0
million. Movements in working capital and other balance sheet items
during 2019 resulted in a net cash inflow of GBP5.3 million (2018:
GBP2.7 million outflow), as shown in the table below. This positive
movement was offset by the decrease of GBP6.4 million in operating
profit, after non-cash items of depreciation, amortisation, share
based payment charge and unrealised gains and losses on derivative
instruments.
Movements in working capital and other 2019 2018
balance sheet items GBP'000s GBP'000s
----------------------------------------- ---------- ----------
Movement in provisions 515 65
Movement in contract liabilities 3,110 (1,379)
Movement in working capital:
Movement in trade and other receivables 2,532 (1,237)
Movement in trade and other payables
and provisions (excluding derivative
financial instruments and contract
liabilities) (858) (179)
Movement in working capital and other
balance sheet items 5,299 (2,730)
----------------------------------------- ---------- ----------
Trade and other receivables in 2019 generated an inflow of
GBP2.5 million. This movement comprises a GBP0.6 million decrease
in trade receivables, due to an increased focus on cash management
by the Group, and a decrease in accrued income of GBP1.9 million.
Accrued income represents unbilled work in progress in relation to
our ODS customers and certain non-recurring revenue items where
there is a contractual agreement to invoice in the following year.
Of the accrued income balance at 31 December 2019, 68% had been
invoiced and 66% collected as at 31 March 2020.
The movement in contract liabilities relates to deferred licence
fees and maintenance amounts. The inflow in 2019 was GBP3.1
million, due to:
-- An increase in maintenance contract liabilities of GBP0.2
million primarily due to general inflationary increases in annual
amounts chargeable, as well as one maintenance customer which
commenced paying maintenance during 2019, when the first phase of
their implementation project went live; and
-- An increase in software implementation contract liabilities
of GBP2.9 million as a result of, the deferral of go-live dates on
certain projects, which increased the overall length of the
projects resulting in write-backs to software licence revenue in
the year, and the application of IFRS 15 which has required the
Group to write-back certain amounts of its licence revenue, in
order to establish a material right to use liability.
Net cash flows used in investing activities of GBP1.9 million in
the year ended 31 December 2019 related to investment in internal
systems and other computer equipment. We capitalised GBP1.1 million
of development costs relating to internally generated intangible
assets during 2019 (2018: GBP0.4 million).
Net cash outflows from financing activities related to the
principal element of lease payments, following 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 net cash generated from operations in the year. Prior to the
adoption of IFRS 16 on 1 January 2019, the payments made in respect
of operating leases held by Alfa were included within Operating
profit. The cash generated from operations has therefore increased
because of the reclassification of cash flows under IFRS 16, even
though there is no impact on the overall cash flows.
Currency hedging
The Group entered into US dollar forward contracts in 2016.
These were fully settled by 31 December 2018. In 2019 there were no
currency movements from these arrangements (2018: loss of GBP0.1m)
and no further instruments were utilised.
Capital expenditure and contractual obligations
The Group's capital expenditure is primarily invested in the UK
and related to GBP0.4 million of equipment (2018: GBP0.6 million),
GBP0.6 million on the new HR and finance system (2018: GBP0.6
million) and capitalised development costs of GBP1.1 million (2018:
GBP0.4m) for internally generated intangible assets.
Capital allocation
Alfa seeks to deliver high-quality visible earnings, future
earnings growth and maintain a strong balance sheet.
The Group's capital allocation policy includes the following
elements aimed at supporting the achievement of strategic
objectives:
-- Reinvestment in people and technology; and
-- Maintaining strong liquidity.
The Directors have not declared a dividend for 2019 (2018: nil),
instead focussing on retaining the strong cash balance and
continuing to invest in people and technology developments.
In making investment decisions regarding our people, the
Directors considered the Group's financial performance and position
as well as investor and analyst feedback; dialogue and feedback
from employees, covering employee engagement and retention rates;
requirements for training and professional development; and
appropriate reward structures in the context of the current labour
market. The allocation of capital towards our people will support
the Group in achieving its strategic objective, to maintain a
high-performance organisation with a culture of continuous
improvement.
In making investment decisions to develop our technology, the
Directors considered the Group's financial performance and
position; the feedback and requirements of customers; the
operational efficiency of the existing technology; and the efficacy
and expected return on investment of certain development and
enhancement work. The allocation of capital to technological
development will support the delivery of our strategic objectives
to grow market share, to extend our best in class digital agenda,
and to promote and grow value and develop resilience.
Distributions to shareholders
In 2019, there were no distributions to shareholders. No final
dividend has been declared.
Related party transactions
The ultimate parent undertaking is CHP Software and Consulting
Limited (the "Parent"). There was no trading between the Group and
the Parent. There were no balances outstanding from, or to, the
Parent at 31 December 2019 and 31 December 2018.
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 GBP0.04
million (2018: GBP0.04 million) with no outstanding receivable
balances at the end of each reporting period.
Going concern
The Group continues to be cash-generative and the Directors
believe that the Group has a resilient business model. In making
their assessment of going concern, the Directors have considered
the current financial projections and facilities available to the
Group as well as the principal risks and uncertainties, including
the impact of Covid-19.
In line with FRC guidance issued on 26 March 2020, additional
downside stress testing has been performed for a period of 12
months from the date of approval of the financial statements which
demonstrates that, given the existing level of cash held by the
Group, even in the most extreme downside conditions considered
reasonably possible, the Group would continue to be able to meet
its obligations as they fall due, without the need for substantive
mitigating actions.
On this basis, whilst it is acknowledged that there is a great
deal of uncertainty regarding the future impacts of Covid-19, the
Directors are satisfied that the Group remains well placed to
manage its business risks successfully and therefore they have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of 12 months from
the date of approval of the financial statements. Accordingly, the
financial statements continue to be prepared on a going concern
basis.
Subsequent events
The Directors note that the outbreak of Covid-19 during early
2020 may have a significant impact on the Group and the environment
in which it operates. These events are considered to be
non-adjusting events after the reporting date, and accordingly no
adjustments have been made to the financial performance and
position of the Group as of the reporting date. The events have
been considered within the assessment of going concern and
viability.
There have been no other reportable subsequent events since the
balance sheet date.
John Miller
Interim Chief Financial Officer
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARED 31
DECEMBER 2019
The disclosed figures are not statutory accounts in terms of
section 434 of the Companies Act 2006. The statutory accounts give
full disclosure of the Group accounting policies and are scheduled
to be posted to shareholders in the first week of May 2020 and will
be filed with the Registrar of Companies in due course. On the
statutory accounts for the year ended 31 December 2019, the auditor
gave an unqualified opinion that did not contain an emphasis of
matter and did not contain a statement under section 498(2) or (3)
of the Companies Act 2006.
Condensed consolidated statement of profit or loss and
comprehensive income for the year ended 31 December 2019
GBP'000s Note 2019 2018
--------------------------------------------- -------- ------------------- --------------------
Continuing operations
Revenue 2/3 64,480 71,038
Implementation and support expenses 4/5 (18,103) (18,924)
Research and product development expenses 4/5 (15,189) (16,341)
Sales, general and administrative expenses 4/5/6 (18,056) (13,457)
Other operating income 577 66
--------------------------------------------- -------- ------------------- --------------------
Operating profit 13,709 22,382
Finance income 7 143 74
Finance expense 7/19(d) (852) -
Profit before taxation 13,000 22,456
Taxation 8 (2,818) (4,306)
--------------------------------------------- -------- ------------------- --------------------
Profit for the financial year 10,182 18,150
--------------------------------------------- -------- ------------------- --------------------
Other comprehensive income:
Items that may be subsequently reclassified
to profit and loss
Exchange differences on translation
of foreign operations 11(b) (350) 376
Other comprehensive (expense)/income,
net of tax (350) 376
--------------------------------------------- -------- ------------------- --------------------
Total comprehensive income for the
period 9,832 18,526
--------------------------------------------- -------- ------------------- --------------------
Earnings per share (in pence) for profit
attributable to the ordinary equity
holders of the company
Basic 17 3.5 6.3
Diluted 17 3.4 6.1
Weighted average no. of shares - basic 17 290,554,694 285,962,898
Weighted average no. of shares - diluted 17 298,812,270 300,000,000
The above consolidated statement of profit or loss and
comprehensive income should be read in conjunction with the
accompanying notes.
At 1 January 2019 the Company adopted 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 accounting
standard has been applied retrospectively, in line with the
guidelines of the standard, and consequently the comparatives have
not been restated but the impact of the adoption of the new
standard has been recorded directly to the opening equity balance
of the 2019 financial year. See note 19 for the details on the
first time application of this standard.
Consolidated statement of financial position as of 31 December
2019
GBP'000s Note 2019 2018
------------------------------------------------ -------- ------------------ -------------------
Assets
Non-current assets
Goodwill 10(b) 24,737 24,737
Other intangible assets 10(c) 2,255 1,203
Deferred tax assets 10(d) 596 8
Property, plant and equipment 10(a) 1,166 1,455
Right-of-use lease assets 19(d) 16,402 -
Total non-current assets 45,156 27,403
------------------------------------------------ -------- ------------------ -------------------
Current assets
Trade and other receivables 9(a) 4,050 4,651
Accrued income 9(b)/16 7,214 9,162
Prepayments 9(b) 1,613 1,452
Other receivables 9(b) 1,020 947
Cash and cash equivalents 9(c) 58,839 44,922
------------------------------------------------ -------- ------------------ -------------------
Total current assets 72,736 61,134
------------------------------------------------ ---------------------------- -------------------
Total assets 117,892 88,537
------------------------------------------------ ---------------------------- -------------------
Liabilities and equity
Current liabilities
Trade and other payables 9(d) 5,884 7,588
Corporation tax 9(d) 1,355 2,448
Lease liabilities 19(d) 1,672 -
Contract liabilities - software implementation 3(e)/16 4,581 1,662
Contract liabilities - deferred maintenance 3(e) 4,060 3,772
Total current liabilities 17,552 15,470
------------------------------------------------ -------- ------------------ -------------------
Non-current liabilities
Lease liabilities 19(d) 17,330 -
Provisions for other liabilities 9(d) 667 152
Total non-current liabilities 17,997 152
------------------------------------------------ -------- ------------------ -------------------
Total liabilities 35,549 15,622
------------------------------------------------ -------- ------------------ -------------------
Capital and reserves
Ordinary shares 11(a) 300 300
Translation reserve 11(b) 26 376
Retained earnings 82,017 72,239
------------------------------------------------ -------- ------------------ -------------------
Total equity 82,343 72,915
------------------------------------------------ -------- ------------------ -------------------
Total liabilities and equity 117,892 88,537
------------------------------------------------ -------- ------------------ -------------------
The above consolidated statement of financial position should be
read in conjunction with the accompanying notes.
The consolidated financial statements were approved and
authorised for issue by the Board of Directors on 23 April 2020 and
signed on its behalf.
Andrew Denton Matthew White
Chief Executive Officer Chief Operating Officer
Alfa Financial Software Holdings PLC - Registered number
10713517
Consolidated statement of changes in equity for the year ended
31 December 2019
Equity attributable
Share Translation Retained to owners
GBP'000s Note capital reserve earnings of the parent
------------------------------- ------ --------- ------------ ---------- --------------------
Balance as at 1 January
2018 300 - 53,821 54,121
------------------------------- ------ --------- ------------ ---------- --------------------
Profit for the financial
year - - 18,150 18,150
Other comprehensive income - 376 - 376
------------------------------- ------ --------- ------------ ---------- --------------------
Total comprehensive income
for the year - 376 18,150 18,526
------------------------------- ------ --------- ------------ ---------- --------------------
Employee share schemes
- value of employee services 6 - - 268 268
------------------------------- ------ ---------
Balance as at 31 December
2018 300 376 72,239 72,915
------------------------------- ------ --------- ------------ ---------- --------------------
Effect of initial application
of IFRS 16 19(d) - - (1,459) (1,459)
------------------------------- ------ --------- ------------ ---------- --------------------
Deferred tax impact of
initial application of
IFRS 16 419 419
------------------------------- ------ --------- ------------ ---------- --------------------
Adjusted balance at 1
January 2019 300 376 71,199 71,875
------------------------------- ------ --------- ------------ ---------- --------------------
Profit for the financial
year - - 10,182 10,182
------------------------------- ------ --------- ------------ ---------- --------------------
Other comprehensive
expense - (350) - (350)
------------------------------- ------ --------- ------------ ---------- --------------------
Total comprehensive
(expense)/income for
the year - (350) 10,182 9,832
------------------------------- ------ --------- ------------ ---------- --------------------
Employee share schemes
- value of employee
services 6 - - 636 636
------------------------------- ------ --------- ------------ ---------- --------------------
Balance as at 31 December
2019 300 26 82,017 82,343
------------------------------- ------ --------- ------------ ---------- --------------------
The above consolidated statement of changes in equity should be
read in conjunction with the accompanying notes.
Consolidated statement of cash flows for the year ended 31
December 2019
GBP'000s Note 2019 2018
---------------------------------------------- ------------ ----------------- -----------------
Operating profit 13,709 22,382
Adjustments:
Depreciation 10(a)/19(d) 2,388 623
Amortisation 10(c) 428 253
Employee share scheme charge 6 724 305
Loss on disposal of property, plant
and equipment - 2
Unrealised loss on derivative financial
instruments 2(a)/9(e) - 119
Movement in provisions 9(d) 515 65
Movement in contract liabilities 9(d) 3,110 (1,379)
Movement in working capital:
Movement in trade and other receivables 9(a) 2,532 (1,237)
Movement in trade and other payables
(excluding derivative financial instruments
and contract liabilities) 9(d) (858) (179)
Cash generated from operations 22,548 20,954
Interest element on lease payments 7/19(d) (852) -
Settlement of derivative financial
instruments and margin calls - (108)
Income taxes paid 8 (4,074) (5,846)
---------------------------------------------- ------------ ----------------- -----------------
Net cash generated from operating activities 17,622 15,000
Cash flows from investing activities
Payments for property, plant and equipment 10(a) (376) (622)
Payments for software intangible assets 10(c) (565) (609)
Payments for software development costs 10(c) (1,135) (407)
Interest received 7 143 74
---------------------------------------------- ------------ ----------------- -----------------
Net cash (used in)/generated by investing
activities (1,933) (1,564)
---------------------------------------------- ------------ ----------------- -----------------
Cash flows from financing activities
Principal element on lease payments 19(d) (1,610) -
Cash used in financing activities (1,610) -
---------------------------------------------- ------------ ----------------- -----------------
Net increase in cash 14,079 13,436
Cash and cash equivalents at the beginning
of the year 9(c) 44,922 31,267
---------------------------------------------- ------------ ----------------- -----------------
Effect of exchange rate changes (162) 219
---------------------------------------------- ------------ ----------------- -----------------
Cash and cash equivalents at the end
of the year 9(c) 58,839 44,922
---------------------------------------------- ------------ ----------------- -----------------
The above consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
Notes to the consolidated financial statements for the year
ended 31 December 2019
1. Summary of significant accounting policies
This note provides a list of the significant accounting policies
adopted in the preparation of these consolidated financial
statements to the extent they are not disclosed in the other notes
below. These policies have been consistently applied to all the
years presented, unless otherwise stated. The financial statements
are for the Group, consisting of Alfa Financial Software Holdings
PLC (Alfa) and its subsidiaries.
A list of subsidiaries is contained in note 15(b). Alfa is a
public company limited by shares and is incorporated and domiciled
in England. Its shares are listed on the London Stock Exchange.
The registered office is Moor Place, 1 Fore Street Avenue,
London, EC2Y 9DT, United Kingdom. Alfa's registration number is
10713517.
These financial statements were authorised for issue by the
Directors on 23 April 2020. All press releases, financial reports
and other information are available on our website in the Investor
Relations section at www.alfasystems.com/investors
The principal activity of the Group is to provide software
solutions and consultancy services to the asset finance industry in
the United Kingdom, United States of America, Europe and
Australia.
1 (a) Basis of preparation
Compliance with IFRS - The consolidated financial statements of
the Group have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and interpretations issued
by the IFRS Interpretations Committee ("IFRIC") as adopted by the
European Union and with the Companies Act 2006 as applicable to
companies reporting under IFRS.
Historical cost convention - The consolidated financial
statements have been prepared under the historical cost convention,
other than the revaluation of financial assets and financial
liabilities (including derivative instruments) recorded at fair
value through profit or loss.
Going concern - The financial statements are prepared on the
going concern basis. The Group continues to be cash-generative and
the Directors believe that the Group has a resilient business
model. The Group meets its day-to-day working capital requirements
through its cash reserves generated from operating activities.
Within the ordinary course of business, there may be uncertainty in
relation to operations, particularly over (a) the level of demand
for the Group's software, and (b) the ability to retain existing
customers. The going concern assessment also takes into account the
principal risks and the other matters discussed in connection with
the viability statement, which include the impact of Covid-19. The
Group's forecasts and projections, taking account of reasonably
possible changes in trading performance, show that the Group has
sufficient cash reserves to operate for a period of not less than
12 months.
In line with FRC guidance issued on 26 March 2020, additional
downside stress testing has been performed which demonstrates that,
even in the most extreme downside conditions considered reasonably
possible, given the existing level of cash held, the Group would
continue to be able to meet its obligations as they fall due,
without the need for substantive mitigating actions.
On this basis, whilst it is acknowledged that there is a great
deal of uncertainty surrounding the future impacts of Covid-19, the
directors consider it appropriate to adopt the going concern basis
of accounting in preparing its consolidated financial statements.
Further information on cash and cash equivalents is given in note
9(c) to the consolidated financial statements.
New and amended standards adopted by the group
In the current year, the Group has applied a new International
Financial Reporting Standards and a new International Financial
Reporting Interpretations issued by the International Accounting
Standards Board that are effective for an annual period that begins
on or after 1 January 2019, being IFRS 16 " Leases" and IFRIC "23
Uncertainty over Income Tax Treatments".
IFRS 16 Leases
In the current year, Alfa 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'. See note 19 for the details on the first time
application.
IFRIC 23 Uncertainty over Income Tax Treatments
The Group has adopted IFRIC 23 for the first time in the current
year. IFRIC 23 sets out how to determine the accounting tax
position when there is uncertainty over income tax treatments. The
Interpretation requires the Group to:
-- determine whether uncertain tax positions are assessed separately or as a group; and
-- assess whether it is probable that a tax authority will
accept an uncertain tax treatment used, or proposed to be used, by
an entity in its income tax filings.
The Group has determined its accounting tax position to be
consistent with the tax treatment used and planned to be used in
its income tax filings without any material impact on the current
or prior period recognition of tax charges or any related
accounts.
New standards, amendments and interpretations not yet
adopted
There are no standards that are not yet effective and that would
be expected to have a material impact on the entity in the current
or future reporting periods and on foreseeable future
transactions.
1(b) Principles of consolidation
The accounting policy and list of subsidiaries consolidated are
contained in note 15(b).
1(c) Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the CODM, as disclosed in note
2.
1(d) Foreign currency translation
(i) Functional currency - Items included in the consolidated
financial statements of each of the Group's subsidiaries are
measured using the currency deemed to be their functional currency.
Significant subsidiaries are deemed to have a functional currency
similar to the currency in which they operate. Certain smaller
subsidiaries are deemed to be operating as an extension of the UK
trading subsidiary, and therefore have a functional currency of
pounds sterling.
(ii) Presentation currency - The consolidated financial
statements are presented in pounds sterling. Alfa's functional and
presentation currency is pounds sterling,
(iii) Foreign currency transactions - Transactions in foreign
currencies are translated into the respective functional currencies
using the exchange rates prevailing at the dates of the
transactions. Foreign exchange differences arising from the
settlement of such transactions and from the translation at the
reporting date of monetary assets and liabilities denominated in
foreign currencies are recognised in profit or loss. The average
annual rate for the US dollar used was 1.2271 in 2019 (2018:
1.3355). The closing rate for the US dollar used was 1.3186 in 2019
(2018: 1.2736).
(iv) Group companies - the results and financial position of
foreign operations (none of which has the currency of a
hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the
presentation currency as follows:
- Assets and liabilities for each consolidated statement of
financial position presented are translated at the closing rate at
the date of that consolidated statement of financial position;
- Income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average
exchange rates (unless this is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the
dates of the transactions); and
- All resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the
translation of any net investment in foreign entities are
recognised in other comprehensive income. When a foreign operation
is sold the associated exchange differences are reclassified to
profit or loss, as part of the gain or loss on sale.
1(e) Revenue recognition
The accounting policies for the Group's revenue from contracts
with customers are explained in note 3.
1(f) Income tax
The accounting policies for income tax and deferred tax are
explained in note 8 and 10(d).
1(g) Leases
Due to the adoption of IFRS 16 in the current year, the
accounting policy for operating leases in 2019 is explained in note
19. Prior year accounting policy for operating lease is disclosed
in note 14 (b).
1(h) Impairment of assets
The accounting policy for impairment of long-life assets is
explained in note 10 (b).
Other assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount might
not be recoverable. An impairment loss is recognised for the amount
by which the asset's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset's fair
value less costs of disposal and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash inflows which are
largely independent of the cash inflows from other assets or groups
of assets (cash-generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at the end of each reporting period.
1(i) Cash and cash equivalents
The accounting policy for cash and cash equivalents is explained
in note 9(c).
1(j) Trade receivables
The accounting policy for trade receivables is explained in note
9(a).
1(k) Investments and other financial assets
The accounting policy for financial assets is explained in note
9.1.
Impairment of financial assets is explained in note 13(b).
1(l) Derivative financial instruments
The accounting policy for derivative financial instruments is
explained in note 9(e). Hedge accounting has not been applied.
1(m) Property, plant and equipment
The accounting policy for property, plant and equipment is
explained in note 10(a).
1(n) Goodwill and other intangible assets
The accounting policies for goodwill and other intangibles,
including the amortisation methods and periods, are explained in
note 10 (b) and 10(c) respectively.
Research and development which does not meet the criteria set
out in 10(c) is recognised as an expense as incurred. Development
costs previously recognised as an expense are not recognised as an
asset in subsequent periods.
1(o) Trade and other payables
The accounting policy for trade and other payables is explained
in note 9(d).
1(p) Provisions
The accounting policy for provisions is explained in note
9(d).
1(q) Employee benefits
Short term obligations - See accounting policy in note 5.
Long-term benefits - See accounting policy in note 5.
Pension obligations - See accounting policy in note 5.
Employee share scheme expense - See accounting policy in note
6.
1(r) Equity
The accounting policies for ordinary shares and other reserves
are explained in note 11.
1(s) Earnings per share
The accounting policies for basic, diluted and adjusted earnings
per share are explained in note 17.
2. Segments and principal activities
2.1 Segments: Operating segment and reporting segments are
reported in a manner consistent with the internal reporting
provided to the Chief Operating Decision Maker ("CODM"). The
Group's Chief Executive Officer ("CEO"), who is responsible
for allocating resources and assessing performance, has been
identified as the CODM.
The CODM regularly reviews the Group's operating results in
order to assess performance and to allocate resources. The
CODM considers the business from a product perspective and,
therefore, recognises one operating and reporting segment,
being the sale of software and related services. The Group
is choosing to present revenue segmentation by type of project
and a consolidated adjusted Earnings Before interest and taxation
("Adjusted EBIT") measure, as presented to the CODM, as additional
information in this note, along with the required entity wide
disclosure.
The Group discloses revenue split by type of project being
Software implementation, Ongoing development and services ("ODS")
and Maintenance.
(i) Software implementation projects - An implementation process
contains three types of billing streams, being the recognition
of a licence, fees in relation to implementation tasks and
fees for additional development. Software implementation projects
can take from a few months to several years depending on the
complexity of the implementation and the size of customer.
The licence element is generally invoiced and collected at
the beginning of the project and the licence amount is banded
by the number of geographies, modules taken by the customer
and the number of contracts or agreements to be written and
managed on Alfa Systems.
Implementation and development fees are invoiced based on a
daily rate basis.
(ii) ODS revenue - represents the ongoing development and services
efforts which are either ad hoc projects with existing customers
or relate to development or services delivered after a new
implementation. The services can be: support immediately after
an implementation, further development for customer specific
functionality, or change management assistance. Such services
are generally provided on a shorter contractual term.
(iii) Maintenance revenue is invoiced periodically in advance.
Maintenance amounts are linked to the volumes of contracts
or agreements being written through Alfa Systems and therefore
increase if the customer's portfolio increases.
See note 3 for details of our revenue recognition accounting
policy and related critical accounting judgements and estimates
in relation to revenue recognition.
2.2 Adjusted EBIT: The CODM analyses the financial performance
of the business on this adjusted profit measure. Adjusted EBIT
is not a measure defined by IFRS. The most directly comparable
IFRS measure to Adjusted EBIT is operating profit for the relevant
period.
Adjusted EBIT is defined as profit from continuing operations
before interest and income taxes, adjusted for capitalised
costs relating to internally generated assets and the relevant
amortisation costs on associated internally generated assets.
Management utilises this measure to monitor performance as
it illustrates the underlying performance of the business by
adding back costs which management believes are reflective
of the underlying cost base and overall trading operations.
Previously management defined Adjusted EBIT as profit from
continuing operations before income taxes, finance income,
pre-IPO share-based compensation and IPO-related expenses,
with the Adjusted EBIT margin calculated as Adjusted EBIT as
a proportion of revenue. In 2019, management updated this definition,
because IPO share-based compensation and IPO-related expenses
were only relevant to 2017, the year in which the Company undertook
its IPO.
Management uses Adjusted EBIT to (i) provide senior management
with a monthly report of operating results that is prepared
on an adjusted earnings basis and (ii) prepare strategic plans
and annual budgets on an adjusted earnings basis. Senior management's
annual compensation may also be reviewed, in part, using adjusted
performance measures.
2(a) Revenue by type
The Group assesses revenue by type of project, being Software
implementation, ODS and Maintenance, as summarised below:
GBP'000s 2019 2018
-------------------------------------------- ----------------- -----------------
Software implementation 26,128 30,391
ODS 23,460 23,920
Maintenance 14,892 16,846
-------------------------------------------- ----------------- -----------------
Operating revenue 64,480 71,157
(Loss) on derivative financial instruments - (119)
-------------------------------------------- ----------------- -----------------
Total revenue 64,480 71,038
-------------------------------------------- ----------------- -----------------
2(b) EBIT and Adjusted EBIT
The following tables reconcile profit for the period
attributable to equity holders to EBIT and Adjusted EBIT for the
periods presented:
GBP'000s 2019 2018
--------------------- ------------------ ------------------
Profit for the year 10,182 18,150
Adjusted for:
Taxation 2,818 4,306
Finance income (143) (74)
Finance expense 852 -
EBIT 13,709 22,382
--------------------- ------------------ ------------------
GBP'000s 2019 2018
----------------------------------------- -------- -------
EBIT 13,709 22,382
Adjusted for:
Capitalised development costs * (1,135) (407)
Amortisation of capitalised development 153 -
costs
Adjusted EBIT 12,727 21,975
----------------------------------------- -------- -------
*Capitalised salary costs and third party partner costs relating
to the capitalisation of internally generated assets in both 2018
and 2019.
2(c) Non-current assets geographical information
Non-current assets (other than financial instruments and
deferred tax assets) attributable to each geographical market:
GBP'000s 2019 2018
------------------------------------------------ -------------------- -------------------
UK 44,276 27,096
USA 220 269
Rest of World 64 30
------------------------------------------------ -------------------- -------------------
Total non-current assets (other than financial
instruments and deferred tax assets) 44,560 27,395
------------------------------------------------ -------------------- -------------------
Revenue by geographical market is contained within note 3.
3. Revenue from contracts with customers
3.1 Revenue
The Group derives revenue from the following sources:
(1) software implementation revenue which includes software
licences, software development and other software implementation
services;
(2) software maintenance (help desk and other support services);
and
(3) ongoing development and support services.
The Group provides the right to use, software development services,
core implementation services and ongoing support of its product,
Alfa Systems. The Group's contractual arrangements contain
multiple deliverables or services, such as the development
or customisation of the software to the customer's requirements,
implementation services such as migration of data and testing
and certain project management services.
Alfa assesses whether there are distinct performance obligations
at the start of each contract and throughout the performance
of the implementation, development and services projects and
maintenance period. These performance obligations are laid
out below.
3.2 Accounting policy, performance obligations and critical
accounting judgements and key sources of estimation uncertainty
The Group has identified that the following separate performance
obligations exist within its revenue contracts. Any one contract
may include a single performance obligation or a combination
of those listed below:
(i) Software implementation services - Where implementation
services are considered to be distinct, i.e. when relatively
straightforward, do not require additional development services
and could be performed by an external third party, the implementation
services are accounted for as a separate performance obligation
from any development services. The transaction price is allocated
to each performance obligation based on the stand-alone selling
prices, derived from day rates and is recognised monthly based
on the effort incurred, limited to the amount to which Alfa
has a right to payment.
(ii) Development services - The second performance obligation
is the granting of a right to use Alfa Systems, which includes
the delivery of the related software licence and any development
efforts which change the underlying code. The total revenue
attributable to this performance obligation is estimated at
the outset of the relevant software implementation project
and recognised as the effort is expended, on a percentage
of completion basis, limited to the amount to which Alfa has
the right to payment. A percentage-of-completion basis has
been used because customers obtain the ability to benefit
from the product from the start of the implementation project,
the development or customisation of the asset has no alternative
use to the Group; and the customer is entitled to the benefits
of the efforts as at the date the efforts are delivered, so
recognition over time is appropriate.
Development services are valued using the residual value method
as there are no stand-alone selling prices which are observable
as each project is customised.
(iii) Option over the right to use Alfa Systems - In the event
that customers have to pay periodic maintenance fees in order
to keep using Alfa Systems, a component of these future maintenance
fees is attributable to the right to use the software. In
these circumstances the licence granted by Alfa is considered
to renew in future periods. There may be a material right
in respect of discounts in future periods. In order to ascribe
a value to this option management initially determine the
periodic value of the development services during the software
implementation period and estimate the remaining expected
customer life.
(iv) Periodic right to use Alfa Systems - This represents
the stand-alone selling price of the periodic option to renew
the right to use Alfa Systems. If there is the right of clawback
of the annual right to use, such amounts are recognised throughout
the annual period. If there is no right of clawback, then
the annual right to use amount is recognised in full when
there is a right of collection.
(v) Periodic maintenance amounts - This represents the stand-alone
selling price of the ongoing support or maintenance of Alfa
Systems which is recognised throughout the period over which
the services are delivered.
(vi) Subscription amounts - Certain of the Group's implementation
and service contracts include a subscription payment mechanism.
This represents a monthly fee charged to the customer covering
the following performance obligations; the provision of monthly
hosting services; the monthly periodic right to use Alfa Systems
and, the provision of monthly maintenance services (when this
becomes applicable to the customer). The monthly payments
are recognised as revenue in the period to which they relate.
This reflects the underlying performance obligations of the
Group and termination rights of the customer.
Critical judgements in applying the Group's accounting policies
Revenue recognition - Assessing performance obligations - The
Group is required to make an assessment as to whether the implementation
process, which includes licence, implementation and development
revenue streams as well as any maintenance fees during this
phase, forms one or a number of performance obligations. In
addition, the Group is also required to make an assessment as
to whether each contract contains an expectation to deliver
multiple separate instances of the customised licence which
may form separate groups of distinct performance obligations.
In doing the above, the Group assesses each software implementation
contract as to whether the underlying software requires significant
modification or customisation by the Group in order to meet
the customer's requirements before Alfa Systems can be utilised
by the customer. Therefore judgement is required in determining
which efforts relate to the implementation process and which
efforts could be determined to be development services which
change or enhance the underlying code. In making this judgement,
the Group assesses the contractual terms and the original project
plan for the implementation but also uses historical evidence
of what constitutes core implementation work.
===========================================================================
Key sources of estimation uncertainty
Revenue recognition - Assigning a stand-alone selling price
for implementation services day rates - The Group assesses
the value of the implementation services delivered by assessing
the effective day rate for an implementation contract, taking
into account all revenue streams from implementation contracts
against day rates of similar projects in the same geographies.
If the stand-alone selling price in relation to the implementation
day rate decreased by 5%, this would result in a cumulative
increase to revenue of GBP0.8 million in 2019.
====================================================================
Other sources of estimation uncertainty
Revenue recognition - Percentage of completion estimate -
The Group estimates the number of days required to complete
the relevant software customisation effort at the outset of
each project and on an ongoing basis including at each consolidated
statement of financial position date. Estimates of total project
days required for a relevant project are based on historical
evidence of past implementations, knowledge of the customer's
systems being replaced and scope of customisation being requested.
The Group applies the percentage-of-completion method when
calculating development services revenue and updates estimates
at each quarter end accordingly. At 31 December 2019, if the
Group's estimates of development days to complete increased
by 20% in relation to ongoing software implementation projects,
this would result in development services revenue decreasing
by GBP0.2 million in 2019.
=====================================================================
3.3 Unrealised gains or losses on derivative financial instruments.
The Group has made an accounting policy election to recognise
unrealised gains or losses on derivative financial instruments
within revenue, therefore such gains or losses are shown net
of revenue where instruments have been entered into match the
US dollar denominated projected cash flows. There are no unrealised
gains or losses on derivative financial instruments recognised
in the year ended 31 December 2019 (2018: GBP0.1 million of
unrealised losses).
Disaggregation of revenue from contracts with customers
3(a) Customer concentration - Customers with revenue accounting
for more than 10% of total revenue are as follows:
GBP'000s 2019 2018
------------ ----- -----
Customer A 20% 21%
Customer B 13% 10%
Customer C 12% 1%
Customer D 9% 13%
See note 9(a) for outstanding trade receivables from those
customers with revenue accounting for more than 10% of total
revenue.
3(b) Timing of revenue - The Group derives revenue from the
transfer of goods and services over time and at a point in time in
the following revenue segments:
2019 - GBP'000s Software ODS Maintenance Total
implementation revenue
---------------------------------- ---------------- ------- ------------ ---------------------------
At a point in time - time and
materials - 17,926 - 17,926
At a point in time - fixed price - 5,534 - 5,534
Over time - time and materials 26,033 - - 26,033
Over time - fixed price 95 - 14,892 14,987
Total revenue 26,128 23,460 14,892 64,480
---------------------------------- ---------------- ------- ------------ ---------------------------
2018 - GBP'000s Software ODS Maintenance Total
implementation revenue
-------------------------------- ---------------- -------- ------------ ---------
At a point in time - time
and materials - 21,459 - 21,459
At a point in time - fixed
price - 2,461 - 2,461
Over time - time and materials 30,391 - - 30,391
Over time - fixed price - - 16,846 16,846
Total revenue ** 30,391 23,920 16,846 71,157
-------------------------------- ---------------- -------- ------------ ---------
All goods and services are sold directly to the customer.
3(c) Revenue geographical information - Revenue attributable to
each geographical market based on where the licence is sold or the
service is as follows:
GBP'000s 2019 2018
------------------ ----------------- -------
UK 18,618 22,847
USA 28,087 33,124
Rest of Europe 13,016 12,391
Rest of World 4,759 2,795
------------------ ----------------- -------
Total revenue ** 64,480 71,157
------------------ ----------------- -------
* Revenue from customers is presented before any losses or gains
on derivative financial instruments. During 2018 we settled the
final portion of our USD forward programme, with GBP0.1 million of
losses recorded against revenue in the period.
3(d) Revenue by currency - Revenue by contractual currency is as
follows:
GBP'000s 2019 2018
------------------ ------------------ ------------------
GBP 21,644 23,608
USD 29,398 36,532
Euro 9,429 5,830
Other 4,009 5,187
------------------ ------------------ ------------------
Total revenue ** 64,480 71,157
------------------ ------------------ ------------------
** Revenue from customers is presented before any losses or
gains on derivative financial instruments. During 2018 we settled
the final portion of our USD forward programme, with GBP0.1 million
of losses recorded against revenue in the period.
3(e) Assets and liabilities from contracts with customers
GBP'000s 2019 2018
--------------------------------------------- ----------------- ------------------
Contract liabilities - deferred licence 4,581 1,662
Contract liabilities - deferred maintenance 4,060 3,772
--------------------------------------------- ----------------- ------------------
8,641 5,434
--------------------------------------------- ----------------- ------------------
4. Operating profit
Operating profit is calculated after items such as personnel
costs (including training and recruitment), the cost of software
not capitalised, research and development costs and other infrastructure
expenses.
Implementation and support expenses - Such expenses relate
to the remuneration of personnel assigned to software implementation
services, in addition to project-related travel and accommodation
expenses and an appropriate portion of relevant overheads.
Research and product development expenses - The Group invests
a substantial part of its time in research and product development
work in relation to the enhancement of its product platform
and capabilities. Research and product development work is
charged to the customer where it is linked to specific customer
projects, such as initial software implementations or customisation
of the software to the customer's requirements . The Group's
research and product development costs include remuneration
costs and an appropriate portion of relevant overheads.
Internally generated research and product development costs
only qualify for capitalisation if the Group can demonstrate
all of the criteria explained in note 10(c), where capitalised
development costs are disclosed as internally generated intangible
assets. If the criteria are not met, such expenditure is recognised
as an expense in the period in which it is incurred. The Group
continues to assess the eligibility of development costs for
capitalisation on a project by project basis.
All other operating costs are recorded through "Sales, general
and administrative expenses."
The following items have been included in arriving at operating
profit:
GBP'000s 2019 2018
------------------------------------------------- ------------------ -------------------
Personnel costs *** 32,586 34,795
Training and recruitment 1,027 516
Other personnel related expenses 3,234 2,639
Advertising, sponsorship and marketing expenses 566 822
Depreciation and amortisation (note 10(a),
10(c), 19(d)) 2,816 876
Property costs 1,449 2,750
Travel costs *** 2,100 2,254
IT expenses 1,586 1,498
Professional advisor costs *** 3,589 1,844
Insurance 232 216
Foreign currency differences 269 (523)
Employee share schemes (note 6) 636 268
Other 1,258 767
A further split by nature is set out below:
GBP'000s 2019 2018
------------------------------------------------- ------------------- -------------------
Personnel costs *** 14,003 14,100
Travel costs *** 2,100 2,254
IT expenses 1,468 1,213
Overhead allocation 532 1,357
------------------------------------------------- ------------------- -------------------
Implementation and support expenses 18,103 18,924
Personnel costs 14,558 14,509
Overhead allocation 631 1,832
------------------------------------------------- ------------------- -------------------
Research and product development expenses 15,189 16,341
Personnel costs *** 8,286 8,825
Advertising, sponsorship and marketing expenses 566 822
Professional advisor costs *** 3,589 2,128
Depreciation (note 10(a)) 2,388 623
Amortisation (note 10(d)) 428 253
Foreign currency differences 269 (523)
Employee share schemes (note 6) 636 268
Overhead allocation 1,894 1,061
------------------------------------------------- ------------------- -------------------
Sales, general and administrative expenses 18,056 13,457
------------------------------------------------- ------------------- -------------------
5. Personnel costs
Employee benefits - The Group provides a range of benefits
to employees, including paid holiday arrangements and defined
contribution pension plans.
Short term benefits - Short-term benefits, including health
cover and other similar non-monetary benefits, are recognised
as an expense in the period in which the service is received.
Post-employment benefits - The Group operates various defined
contribution plans for its employees. A defined contribution
plan is a pension plan where the Group pays fixed contributions
into a separate independent entity. The Group has no legal
or constructive obligation to pay further contributions if
the fund does not hold sufficient assets to pay all employees
the benefits relating to the employee's service in the current
and prior periods.
Employee share schemes -Expense in relation to employee share
schemes is recognised in line with the accounting policy in
note 6.
Personnel costs
GBP'000s 2019 2018
----------------------------------------- ------------------ ------------------
Wages, salaries and short-term benefits
*** 27,687 29,681
Training and recruitment 1,027 516
Social security 4,013 4,322
Post-employment benefits 2,575 2,094
Other employee expenses 1,545 1,336
Employee share schemes 636 268
----------------------------------------- ------------------ ------------------
Total personnel costs 37,483 38,217
----------------------------------------- ------------------ ------------------
*** Following a detailed review during 2019 of the nature of
expenses, management made changes to the groupings of the line
items disclosed under operating expense. This was done in order to
better reflect the nature of the expenses. In order to keep
comparatives in line with current year disclosure, the 2018 figures
have been amended as follows: GBP1.6 million "Travel cost" was
reallocated to "Personnel expenses" and (GBP0.2) million relating
to capitalised salary costs was reallocated from "Professional
advisor costs" to "Personnel costs". Total expenses have not
changed.
Average monthly number of people employed 2019 2018
(including Directors)
------------------------------------------------- ----- -----
UK 236 235
US 61 72
RoW 16 20
------------------------------------------------- ----- -----
Total average monthly number of people employed 313 327
------------------------------------------------- ----- -----
Average monthly number of people employed 2019 2018
(including Directors)
------------------------------------------------- ----- -----
Implementation and support 108 110
Research and product development 134 152
Sales, general and administrative 71 65
------------------------------------------------- ----- -----
Total average monthly number of people employed 313 327
------------------------------------------------- ----- -----
6. Employee share schemes
Employee share schemes are schemes in which the Group receives
services as consideration for its own equity instruments. These
are accounted for as equity-settled share-based payments. The
grant date fair value of the employee share scheme is recognised
as a personnel cost, with a corresponding increase in equity,
over the period that the employee becomes unconditionally entitled
to the awards. The fair value of the awards granted is measured
using an options valuation model where required, taking into
account the terms and conditions upon which the awards were
granted and is charged to the consolidated statement of profit
or loss and comprehensive income on a straight-line basis over
the vesting period of the award. The amount recognised as an
expense is adjusted to reflect the actual number of awards
for which the related service and non-market vesting conditions
are expected to be met, such that the amount ultimately recognised
as an expense is based on the number of awards that do meet
the related service and non-market performance conditions at
the vesting date.
The group has two schemes in existence, being the 2014/2015
pre-IPO plan, and the Company LTIP plan, under which LTIPs
were granted in October 2018 and November 2019.
GBP'000s 2019 2018
----------------------------------------------- ----- -----
Employee share schemes - value of services 636 268
Expense in relation to fair value of social
security liability on employee share schemes 88 37
Total cost of employee share schemes 724 305
----------------------------------------------- ----- -----
Year Vesting date 2019 Number 2018 Number
of grant of shares of shares
------------------------ ----------- ------------------- ------------ ------------
2019 1 November 2022 1,205,036 -
Company LTIP plan
Company LTIP plan 2018 1 June 2021 1,474,225 1,733,375
4 annual tranches
2014/2015 pre-IPO plan 2014/2015 from 1 June 2018 3,803,689 11,627,878
Number of shares 2019 LTIP 2018 LTIP awards 2014/2015 pre-IPO
awards plan
------------------------- ---------- ---------------------- --------------------------
2019 2019 2018 2019 2018
------------------------- ---------- ---------- ---------- ------------ ------------
Issued and outstanding
at the beginning of
the year - 1,733,375 - 11,627,878 16,744,191
Granted during the year 1,205,036 - 1,745,250 - -
Vested during the year - - - (4,206,093) (4,867,716)
Forfeited during the
year - (259,150) (11,875) (3,618,096) (248,597)
Issued and outstanding
at the end of the year 1,205,036 1,474,225 1,733,375 3,803,689 11,627,878
------------------------- ---------- ---------- ---------- ------------ ------------
2019 LTIP awards - C onditional awards over ordinary shares in
Alfa were granted, on 1 November 2019, to selected employees in
accordance with the Company's Long-Term Incentive Plan approved by
shareholders at the Annual General Meeting on 24 April 2018. Shares
in the Company will be transferred to participants at the end of
the three-year service period if they continue to be employed by
the Group throughout the period.
Calculation of the fair value of the 2019 LTIP awards - The 2019
LTIP awards have been valued using the grant date share price as a
proxy for fair value, adjusted for any dividends over the period.
There are no market or non-market performance conditions attached
to the LTIP scheme, other than awardees must be employed by the
Group at the time of vesting, and as such no performance conditions
are included in the fair value calculations. The grant date share
price used, which was GBP0.834, was calculated as the average
market price in the five working days before the grant of these
conditional awards. Assumptions used in calculating the fair value
include: no dividends are expected to be paid on the shares over
the three-year vesting period; and the expected attrition rate of
those eligible employees over the remainder of the vesting period
is estimated to be 16.32%.
2018 LTIP awards - Conditional awards over ordinary shares in
Alfa were granted on 31 May 2018 to selected employees in
accordance with the Company's Long-Term Incentive Plan approved by
shareholders at the Annual General Meeting on 24 April 2018. Shares
in the Company will be transferred to participants at the end of
the three-year service period if they continue to be employed by
the Group throughout the period.
Calculation of the fair value of the 2018 LTIP awards - The 2018
LTIP awards have been valued using the grant date share price as a
proxy for fair value, adjusted for any dividends over the period.
There are no market or non-market performance conditions attached
to the LTIP scheme, other than awardees must be employed by the
Group at the time of vesting, and as such no performance conditions
are included in the fair value calculations. The market price of
the shares at the award date, which was GBP1.43, is the weighted
average fair value of these conditional awards at the measurement
date. Assumptions used in calculating the fair value include: no
dividends are expected to be paid on the shares over the three-year
vesting period; and the expected attrition rate of those eligible
employees over the vesting period is estimated to be 15.38%.
2014/2015 pre-IPO plan - The Group granted 91,020 Ordinary A
shares and 75,689 Ordinary A1 shares to employees in 2014 and 2015,
which were subsequently re-measured to fair value when a listing
event became probable in the fourth quarter of 2016. The
share-based compensation charge in relation to these grants was
recognised in full in the year ended 31 December 2017.
7. Finance income and expense
Finance income is recognised on short term bank deposits as
earned.
Finance expense is recognised on lease liabilities see note
19 for detail.
GBP'000s Note 2019 2018
------------------------------- ------ ------ -----
Finance income
Interest income on cash or
short-term bank deposits 143 74
GBP'000s Note 2019 2018
Finance expense
Interest on lease liabilities 19(d) (852) -
------------------------------- ------ ------ -----
8. Income tax expense
Taxation expense for the year comprises current and deferred
tax recognised in the reporting period. Tax is recognised in
profit and loss, except to the extent that it relates to items
recognised in other comprehensive income or directly in equity.
Current or deferred taxation assets and liabilities are not
discounted.
i) Current tax - The current income tax charge is calculated
on the basis of the tax laws enacted or substantively enacted
at the reporting date in the countries where the Group and
its subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is
subject to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid to
the tax authorities.
ii) Deferred tax - Deferred income tax is recognised, using
the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying
amounts in the Group's consolidated financial statements. However,
the deferred income tax is not accounted for if it arises from
initial recognition of an asset or liability in a transaction
other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred
income tax is determined using tax rates (and laws) that have
been enacted or substantively enacted by the reporting date
and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability
is settled.
Deferred income tax assets are recognised to the extent that
it is probable that future taxable profits will be available
against which the temporary differences can be utilised. Deferred
income tax assets and liabilities are offset when there is
a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income taxes
assets and liabilities relate to income taxes levied by the
same taxation authority on either the taxable entity or different
taxable entities where there is an intention to settle the
balances on a net basis.
Analysis of charge for the year
GBP'000s 2019 2018
--------------------------------------------------- ------ ------
Current tax
Current tax on profit for the year 2,159 3,800
Adjustment in respect of prior years (23) (73)
Foreign tax on profit of subsidiaries for
the current year 851 605
--------------------------------------------------- ------ ------
Current tax 2,987 4,332
Deferred tax
Origination and reversal of temporary differences (189) (29)
Adjustment in respect of prior years - 3
Effect of changes in tax rates 20 -
--------------------------------------------------- ------ ------
Deferred tax (169) (26)
Total tax charge in the year 2,818 4,306
--------------------------------------------------- ------ ------
The effective tax rate for the year is higher (2018: higher)
than the standard rate of corporation tax in the UK. The effective
tax rate for the year ended 31 December 2019 was 21.7% (2018: 19.1
%). The differences are explained below:
Analysis of charge for the year
GBP'000s 2019 2018
----------------------------------------------- ------- -------
Profit on ordinary activities before taxation 13,000 22,456
----------------------------------------------- ------- -------
Profit on ordinary activities at the standard
rate of corporation tax
Tax effects of: 2,470 4,267
Effect of different tax rates of subsidiaries
operating in other jurisdictions 274 84
Expenses not deductible for tax purposes 260 51
Income not taxable for tax purposes (1) (26)
Share-based payments (152) -
Adjustment in respect of prior years (23) (70)
Impact of tax rate changes 20 -
Other (30) -
Total tax charge for the year 2,818 4,306
----------------------------------------------- ------- -------
9. Financial assets and liabilities
This note provides information about the Group's financial
instruments, including:
-- An overview of all financial instruments held by the Group;
o Trade receivables (note 9(a));
o Other financial assets at amortised cost (note 9(b));
o Cash and cash equivalents (note 9(c));
o Trade and other payables (note 9(d)); and
o Derivative financial liabilities (note 9(e))
-- Specific information about each type of financial instrument;
-- Accounting policies; and
-- Information about determining the fair value of the
instruments, including judgements and estimation uncertainty
involved.
The Group holds the following financial assets and
liabilities:
GBP'000s Notes 2019 2018
---------------------------------------- ------ ------- -------
Financial assets at amortised cost
Trade receivables 9(a) 4,050 4,651
Other financial assets at amortised
cost 9(b) 9,847 11,561
Cash and cash equivalents 9(c) 58,839 44,922
Total financial assets 72,736 61,134
---------------------------------------- ------ ------- -------
Financial liabilities at amortised
cost
Trade and other payables 9(d) 5,884 7,588
Contract liabilities 16 8,641 5,434
---------------------------------------- ------ ------- -------
Total financial liabilities 14,525 13,022
---------------------------------------- ------ ------- -------
9.1 Financial assets and liabilities are recognised in the
statement of financial position when the Group becomes party
to the contractual provision of the instrument.
9.2 Financial assets
Recognition and derecognition
Financial assets are derecognised when the contractual rights
to the cash flows from the financial
asset expire, or when the financial asset and substantially
all the risks and rewards are transferred.
A financial liability is derecognised when it is extinguished,
discharged, cancelled or expires.
Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a significant
financing component and are measured at the transaction price
in accordance with IFRS 15, all financial assets are initially
measured at fair value adjusted for transaction costs (where
applicable). Financial assets, other than those designated
and effective as hedging instruments, are classified into the
following categories:
-- Amortised cost;
-- Fair value through profit or loss (FVTPL);
-- Fair value through other comprehensive income (FVOCI).
In the periods presented the Group does not have any financial
assets categorised as FVTPL or FVOCI.
The classification is determined by both:
-- The entity's business model for managing the financial asset;
-- The contractual cash flow characteristics of the financial
asset.
All income and expenses relating to financial assets that are
recognised in profit or loss are presented within finance costs,
finance income or other financial items, except for impairment
of trade receivables which is presented within other expenses.
Subsequent measurement of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised cost if the assets
meet the following conditions (and
are not designated as FVTPL):
-- They are held within a business model whose objective is
to hold the financial assets and collect
its contractual cash flows; and
-- The contractual terms of the financial assets give rise
to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
After initial recognition, these are measured at amortised
cost using the effective interest method.
Discounting is omitted where the effect of discounting is immaterial.
The Group's trade and most other receivables (note 9 (a)) and
cash and cash equivalents (note 9 (c)) fall into this category
of financial instruments.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets that are held within a different business
model other than 'hold to collect' or 'hold to collect and
sell' are categorised at fair value through profit and loss.
Further, irrespective of business model financial assets whose
contractual cash flows are not solely payments of principal
and interest are accounted for at FVTPL. All derivative financial
instruments fall into this category, except for those designated
and effective as hedging instruments, for which the hedge accounting
requirements apply (see below).
The category also contains equity investments. The Group accounts
for investments at FVTPL and did not make the irrevocable election
to account for investments in subsidiaries and listed equity
securities at fair value through other comprehensive income
(FVOCI). The fair value was determined in line with the requirements
of IFRS 9, which does not allow for measurement at cost.
Assets in this category are measured at fair value with gains
or losses recognised in profit or loss. The fair values of
financial assets in this category are determined by reference
to active market transactions or using a valuation technique
where no active market exists.
Financial assets at fair value through other comprehensive
income (FVOCI)
The Group accounts for financial assets at FVOCI if the assets
meet the following conditions:
-- They are held under a business model whose objective it
is "hold to collect" the associated cash flows and sell; and
-- The contractual terms of the financial assets give rise
to cash flows that are solely payments of principal and interest
on the principal amount outstanding. Any gains or losses recognised
in other comprehensive income (OCI) will be recycled upon derecognition
of the asset.
Impairment of financial assets
Under IFRS 9 the requirements are to use forward-looking information
to recognise expected
credit losses - the 'expected credit loss (ECL) model'. The
Group considers a broad range of information when assessing
credit risk and measuring expected credit losses, including
past events, current conditions, reasonable and supportable
forecasts that affect the expected collectability of the future
cash flows of the
instrument.
In applying this forward-looking approach, a distinction is
made between:
* Financial instruments that have not deteriorated
significantly in credit quality since initial
recognition or that have low credit risk ('Stage 1');
* Financial instruments that have deteriorated
significantly in credit quality since initial
recognition
and whose credit risk is not low ('Stage 2'); and
* 'Stage 3' would cover financial assets that have
objective evidence of impairment at the reporting
date.
'12-month expected credit losses' are recognised for the first
category while 'lifetime expected
credit losses' are recognised for the second category.
During the current period result of the above was immaterial
and no impairment recognised.
9.3 Financial liabilities - The Group's financial liabilities
include trade and other payables.
Financial liabilities are initially measured at fair value,
and, where applicable, adjusted for transaction
costs unless the Group designated a financial liability at
fair value through profit or loss.
Subsequently, financial liabilities are measured at amortised
cost using the effective interest
method. All interest-related charges and, if applicable, changes
in an instrument's fair value that are
reported in profit or loss are included within finance costs
or finance income.
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or
expired.
9.4 Fair value measurement - The Group measures certain financial
instruments at fair value. Fair value is the price that would
be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. The fair value is based on the presumption
that the transaction to sell the asset or transfer the liability
takes place either in the principal market for the asset or
liability, or in the absence of a principal market, in the
most advantageous market for the asset or liability.
The principal market or the most advantageous market must be
accessible to or by the Group. The fair value of an asset or
a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that
market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in
the circumstances and for which sufficient data is available
to measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs. All assets
and liabilities for which fair value is measured or disclosed
in the Group's consolidated financial statements are categorised
within the fair value hierarchy, as follows:
* Level 1 inputs: Quoted prices (unadjusted) in active
markets for identical assets or liabilities;
* Level 2 inputs: Inputs other than quoted prices
included within Level 1 that are observable for the
asset or liability, either directly or indirectly;
and
* Level 3 inputs: Inputs for the asset or liability
that are not based on observable market data.
The Group's policy is to recognise transfers into and out of
fair value hierarchy levels at the end of the reporting period
when the event or change in circumstances occurred.
9 (a) Trade receivables
9.5 Trade receivables are amounts due from customers for licences
sold or services performed in the ordinary course of business.
They are generally due for settlement within 30 days of the
invoice date and are therefore all classified as current. Trade
receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method,
less provision for impairment. An impairment loss is recognised
when there is objective evidence that the Group will not be
able to collect all amounts due according to the original terms
of the receivable. The Group considers information developed
internally or obtained from external sources that indicates
that a debtor is unlikely to pay its creditors, including the
Group, in full (without taking into account any collateral held
by the Group) as an indication that a financial asset is not
recoverable.
The amount of the impairment charge is the difference between
the asset's carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest
rate. The impairment loss is recognised in the consolidated
statement of profit or loss and comprehensive income within
other expenses and subsequent recoveries are credited to the
same account previously used to recognise the impairment charge.
The maximum exposure to credit risk at the reporting date is
the carrying value of each class of receivable mentioned above.
The credit qualities of these receivables are periodically assessed
by reference to external credit ratings (if available) or to
historical information about their default rates. The Group
does not hold any collateral as security.
As the total carrying amount of the current portion of the trade
and other receivables is due within the next 12 months after
the reporting date, the impact of applying the effective interest
method is not significant and, therefore, the carrying amount
equals the contractual amount or the fair value initially recognised.
GBP'000s 2019 2018
-------------------------- ------ ------
Trade receivables 4,050 4,651
Provision for impairment - -
-------------------------- ------ ------
Trade receivables - net 4,050 4,651
Ageing of trade receivables
Ageing of net trade receivables GBP'000s 2019 2018
------------------------------------------ ------------------ -----------------
Less than 30 days 3,641 3,976
Past due 31-90 days 152 643
Past due 91+ days 257 32
------------------------------------------ ------------------ -----------------
Trade receivables - net 4,050 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.
Currency of trade receivables
GBP'000s 2019 2018
------------------------------- ------ ----------------
GBP 1,319 1,109
USD 2,073 2,993
Other 658 549
------------------------------- ------ ----------------
Trade receivables - net 4,050 4,651
------------------------------- ------ ----------------
Trade receivables due from significant customers - Customers
with revenue accounting for more than 10% of total revenue have
outstanding trade receivables as follows:
GBP'000s 2019 2018
------------ ---------------- ---------------
Customer A 737 2,228
Customer B 353 542
Customer C - -
Customer D - -
As at issuance of these financial statements, all amounts
relating to customers accounting for more than 10% of total revenue
had been collected.
Impairment and risk exposure - Information about the impairment
of trade receivables and the Group's exposure to market risk
(specifically foreign currency risk) and credit risk can be found
in note 13(a) and (b).
9 (b) Other receivables held at amortised cost
GBP'000s 2019 2018
------------------------------------------- ------------------ ------------------
Accrued income 7,214 9,162
Prepayments 1,613 1,452
Other receivables 1,020 947
Total other receivables held at amortised
cost 9,847 11,561
------------------------------------------- ------------------ ------------------
9.6 Accrued income represents fees earned but not yet invoiced
at the reporting date which has no right of offset with contract
liabilities - deferred licence amounts.
Accrued income decreased by GBP1.9 million. The current year
balance represents unbilled work in progress in relation to our ODS
customers and GBP3.5m of certain non-recurring revenue items where
there is contractual agreement to invoice in 2020. As at 31 March
2020 68% of the accrued income balance had been invoiced and 66%
had been received.
9 (c) Cash and cash equivalents
9.7 Cash and cash equivalents include cash at bank and in
hand as well as short-term deposits with original maturities
of three months or less.
GBP'000s 2019 2018
--------------------------- ------- -------
Cash at bank and in hand 58,839 44,922
Cash and cash equivalents 58,839 44,922
--------------------------- ------- -------
Currency of cash and cash equivalents
GBP'000s 2019 2018
--------------------------- ----------------- ------------------
GBP 48,222 20,882
USD 5,730 16,877
SEK 82 206
AUD 2,335 1,813
Euro 2,105 4,751
Other 365 393
--------------------------- ----------------- ------------------
Cash and cash equivalents 58,839 44,922
--------------------------- ----------------- ------------------
9(d) Current and non-current liabilities
9.8 Trade payables are obligations to pay for goods or services
which have been acquired in the ordinary course of business
from suppliers. Trade payables are recognised initially at
fair value and subsequently measured at amortised costs using
the effective interest rate method. As the total carrying amount
is due within the next 12 months from the consolidated statement
of financial position date, the impact of applying the effective
interest method is not significant and, therefore, the carrying
amount equals the contractual amount or the fair value initially
recognised.
Trade and other payables are classified as current liabilities
if payment is due within one year or less. If not, they are
presented as non-current liabilities.
9.9 Provisions are recognised when the Group has a present
legal or constructive obligation as a result of past events,
it is more likely than not that an outflow of resources will
be required to settle the obligation and a reliable estimate
of the amount can be made. When the effect of the time value
is material, provisions are measured at the present value of
the expenditures expected to be required to settle the obligation.
GBP'000s 2019 2018
------------------------------------------------ ------------------ ------------------
Trade payables 5,884 7,588
Corporation tax 1,355 2,448
Contract liabilities - software implementation 4,581 1,662
Contract liabilities - deferred maintenance 4,060 3,772
Lease liabilities (note 19(d)) 19,002 -
Provisions for other liabilities 667 152
Total current and non-current liabilities 35,549 15,622
Less non-current portion (17,997) (152)
------------------------------------------------ ------------------ ------------------
Total current liabilities 17,552 15,470
------------------------------------------------ ------------------ ------------------
See note 8 for further information on corporation tax
liabilities
See note 3 and 16 for further information on contract
liabilities
Provision
for other
GBP'000s liabilities
------------------------ -------------
At 1 January 2018 87
Provided in the period 65
At 31 December 2018 152
Provided in the period 515
At 31 December 2019 667
------------------------ -------------
9(e) Derivative financial instruments
9.10 Derivative financial instruments are initially recognised
at fair value on the date the contract is entered into and are
subsequently remeasured at fair value at each reporting date.
The method of recognising the gains and losses depends on whether
the derivative is designated as a hedging instrument, and if
so, the nature of the hedged item. The Group designates derivatives
as held for trading. While providing effective economic hedges
under the Group's risk management policies, certain derivatives
are not designated as hedging instruments according to IFRS
9 'Financial Instruments'. They are classified as held for trading
and the changes in the fair value are immediately recognised
within 'Revenue'. See note 3 for further information. Related
cash-flows are reported as cash flows from investing activities.
Derivatives not designated for hedge accounting are classified
as a current asset or liability.
The Group has nil foreign currency financial instruments
outstanding at 31 December 2019 (2018: nil). The Group has used
Level 2 inputs for determining and disclosing the fair value of
financial instruments.
10. Non-financial assets and liabilities
This note provides information about the Group's non-financial
assets and liabilities, including:
-- Specific information about each type of non-financial asset and non-financial liability:
-- Property, plant and equipment (note 10(a));
-- Goodwill (note 10(b));
-- Other intangible assets (note 10(c)); and
-- Deferred tax balances (note 10(d)).
-- Accounting policies; and
-- Information about determining the fair value of the assets
and liabilities, including judgements and of estimation uncertainty
involved.
10(a) Property, plant and equipment
10.1 Property, plant and equipment is stated at historical
cost less accumulated depreciation. Historical cost includes
expenditure that is directly attributable to the acquisition
of the item. Depreciation on assets is calculated using the
straight-line method to allocate their cost over their estimated
useful lives, as follows:
Furniture and 3 - 10 years
fittings:
IT equipment: 2 - 5 years
Motor vehicles: 10 years
The assets' residual values and useful lives are reviewed and
adjusted if necessary at each reporting date. An asset's carrying
amount is written down immediately to its recoverable amount
if the asset's carrying amount is greater than its estimated
recoverable amount. Repairs and maintenance are charged to
the consolidated statement of profit or loss and comprehensive
income as incurred. Any gains or losses on disposals are recognised
within 'Sales, general and administrative expenses' in the
consolidated statement of profit or loss and comprehensive
income unless otherwise specified.
10.2 Impairment of finite life non-financial assets - Finite
life non-financial assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised
for the amount by which the asset's carrying amount exceeds
its recoverable amount, which is the higher of an asset's fair
value less costs to sell and value in use. For the purpose
of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows.
10 (a) Property, plant and equipment
GBP'000s Fixtures and 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 1,455
------------------- ---------------------- ------------- --------------- ------
Cost
At 1 January 2019 1,147 2,859 40 4,046
Additions 4 372 - 376
Foreign exchange 67 (54) - 13
At 31 December
2019 1,218 3,177 40 4,435
Depreciation
At 1 January 2019 522 2,030 39 2,591
Charge for the
year 107 565 1 673
Foreign exchange 25 (20) - 5
At 31 December
2019 654 2,575 40 3,269
Net book value
------------------- ---------------------- ------------- --------------- ------
At 31 December
2019 564 602 - 1,166
------------------- ---------------------- ------------- --------------- ------
Sub-lease rentals
One of the leased properties is sub-leased to tenants under
long-term operating leases, with rentals payable quarterly. Minimum
lease payments receivable on these sub-leases of property are as
follows:
GBP'000s 2019 2018
------------------------------------------ ----- ------
Within one year 427 427
Later than one year but not later than 5
years 473 900
Later than 5 years - -
Total sub-lease payments receivable 900 1,327
10 (b) Goodwill
10.3 Goodwill arose on the acquisition of subsidiaries in
2012 as part of a group reorganisation and represents the excess
of the consideration transferred and the amount of any non-controlling
interest in the investment over the fair value of the identifiable
assets acquired and liabilities and contingent liabilities
assumed.
Goodwill is tested annually for impairment. The carrying amount
is allocated to the cash-generating unit ("CGU") that is expected
to benefit from investment and which represents the lowest
level at which the goodwill is monitored for internal management
purposes. The carrying value of the CGU is then compared to
the higher of its fair value less costs of disposal and its
value in use. Any impairment attributed to the goodwill is
recognised immediately as an expense and is not subsequently
reversed.
GBP'000s 2019 2018
---------------- ------- -------
Cost
At 1 January 24,737 24,737
At 31 December 24,737 24,737
---------------- ------- -------
Impairment of goodwill -The Group tests annually whether
goodwill has suffered any impairment on an annual basis in
accordance with the accounting policy stated above. There is one
CGU, being the Group, as its geographical operations do not have
separate or distinct cash inflows. The recoverable amount of
goodwill has been determined based on value-in-use calculations
using cash flow projections from financial budgets and forecasts
for a three-year period using a discount rate of 12%. Cash flows
beyond these periods have been extrapolated using a steady 2%
average growth rate in both the US and Europe. This growth rate
does not exceed the long-term average growth rate for the markets
in which the Group operates.
Budgeted cash flow projections are based on the expectation of
signing new customers in the Group's sales pipeline as well as
ongoing projects or ODS projects with existing customers. Budgeted
gross margin is based on historical evidence and the expectations
of market development and efficiency leverage. Management believes
that any reasonable change in any of the key assumptions on which
the recoverable amount is based would not cause the reported
carrying amount to exceed the recoverable amount of the CGU. The
discount rate used reflects the Group's pre-tax weighted average
cost of capital (WACC), as adjusted for region specific risks and
other factors as required by IFRS.
10 (c) Other intangible assets
Internally generated research and product development costs
only qualify for capitalisation if the Group can demonstrate
all of the following:
* The technical feasibility of completing the
intangible asset so that it will be available for use
or sale, its intention to complete the intangible
asset and use or sell it;
* Its ability to use or sell the intangible asset,
including how the intangible asset will generate
probable future economic benefits;
* The existence of a market or, if it is to be used
internally, the usefulness of the intangible asset;
* The availability of adequate technical, financial and
other resources to complete the development and to
use or sell the intangible asset;
* Its ability to measure reliably the expenditure
attributable to the intangible asset during
development.
Generally, commercial viability of new products, modules or
capabilities is not proven until all high-risk development issues
have been resolved through testing of the specific development.
Development expenditure incurred on minor or major upgrades,
or other changes in software functionality, does not satisfy
the criteria, where it is considered that the product is not
substantially new in its design or functional characteristics.
Such expenditure is therefore recognised as an expense. See
note 10(c) for disclosure of development costs which have met
the criteria of IAS 38.
The Group continues to assess the eligibility of development
costs for capitalisation on a project-by-project basis.
The Group amortises intangible assets with a limited useful
life, using the straight-line method over the
following periods:
Computer software: licence period or 10 years as applicable
Internally generated software: 3 - 5 years
10 (c) 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 345 1,135 1,480
At 31 December 2019 1,394 1,542 2,936
----------------------- ------------------ --------------------- ------
Depreciation
At 1 January 2019 253 - 253
Charge for the period 275 153 428
----------------------- ------------------ --------------------- ------
At 31 December 2019 528 153 681
----------------------- ------------------ --------------------- ------
Net book value
At 31 December 2019 866 1,389 2,255
----------------------- ------------------ --------------------- ------
Significant movement in other intangible assets - During 2019,
Alfa developed new internally generated software at a cost of
GBP1.1 million. This software will be amortised over 3 to 5
years.
Critical judgements in applying the Group's accounting policies
Internally generated software development - Assessing whether
a project meets criteria of IAS 38 - The Group is required
to make an assessment of each ongoing project in order to
determine at what stage a project meets the criteria outlined
in the Group's accounting policies. Such assessment may, in
certain circumstances, require significant judgement. In making
this judgement, the Group evaluates, amongst other factors,
the stage at which technical feasibility has been achieved,
management's intention to complete and use or sell the product,
the likelihood of success, the availability of technical and
financial resources to complete the development phase and
management's ability to measure reliably the expenditure attributable
to the project. Research and product development expenditure
incurred on minor or major upgrades, or other changes in software
functionality, does not satisfy the criteria where it is considered
that the product is not substantially new in its design or
functional characteristics. Such expenditure is therefore
recognised as an expense.
The total research and product development expense for the
period was GBP15.2 million (2018: GBP16.3 million) and there
was GBP1.07 million capitalised personnel costs in the year
(2018: GBP0.2m) and GBP0.1 million of capitalised external
agency costs (2018: GBP0.2m).
=======================================================================
10 (d) Deferred income tax
The provision for deferred tax consists of the following
deferred tax assets/(liabilities) relating to accelerated capital
allowances and short-term timing differences in relation to unpaid
pensions accruals and share-based payments.
GBP'000s 2019 2018
---------------------------------------------- ----- -----
Balance as at 1 January 8 (17)
Adjustments in respect of prior period 419 (1)
Deferred income taxes recognised in the
consolidated statement of profit or loss
and comprehensive income 169 26
Balance as at 31 December 596 8
---------------------------------------------- ----- -----
Consisting of:
Depreciation in excess of capital allowances 359 (22)
---------------------------------------------- ----- -----
Other timing differences 237 30
---------------------------------------------- ----- -----
Balance as at 31 December 596 8
---------------------------------------------- ----- -----
Deferred income tax liabilities have not been recognised for the
withholding tax and other taxes that would be payable on the
unremitted earnings of certain subsidiaries as the Group is able to
control the timing of these temporary differences and it is
probable that they will not reverse in the foreseeable future.
Unremitted earnings totalled GBP8.9 million at 31 December 2019
(2018: GBP7.6 million).
11. Equity
11 (a) Ordinary shares
Ordinary shares are classified as equity. There are no restrictions
on the distribution of capital and the repayment of capital.
Issued and fully paid 2019 2018
----------------------------- ----------------------- -----------------------
Shares GBP'000s Shares GBP'000s
----------------------------- ------------ --------- ------------ ---------
Ordinary shares - 0.1 pence 300,000,000 300 300,000,000 300
Balance as at 31 December 300,000,000 300 300,000,000 300
----------------------------- ------------ --------- ------------ ---------
No additional shares have been issued or cancelled in the year
ended 31 December 2019.
11 (b) Other reserves
Cumulative translation reserve
GBP'000s 2019 2018
-------------------------------------- ------ -----
At 1 January 2019 376 0
Currency translation of subsidiaries (350) 376
At 31 December 2019 26 376
-------------------------------------- ------ -----
Exchange differences arising on translation of the foreign controlled
entity are recognised in OCI and accumulated in a separate reserve
within equity. The cumulative amount would be reclassified to
profit or loss if the net investment is disposed of.
12. Critical judgements and estimates
The preparation of financial statements requires the use of
accounting estimates which, by definition, will seldom equal the
actual results. Management also needs to exercise judgement in
applying the group's accounting policies.
This note provides an overview of the areas that involved a
higher degree of judgement or complexity, and of items which are
more likely to be materially adjusted due to estimates and
assumptions turning out to be wrong. Detailed information about
each of these estimates and judgements is included in other notes,
together with information about the basis of calculation for each
affected line item in the financial statements
The Group's areas involving significant judgements or estimates
are as follows:
-- Critical judgement - Revenue recognition - Assessing performance obligations (note 3)
-- Key sources of estimation uncertainty - Revenue recognition -
Assigning the transaction value to performance obligations (note
3)
-- Other sources of estimation uncertainty - Revenue recognition
- Percentage of completion estimate (note 3)
-- Critical judgement - Internally generated software
development - Assessing whether the project meets the criteria of
IAS 38 (note 10(c))
13. Financial risk management
This note explains the Group's exposure to financial risks and
how these risks could affect the Group's future financial
performance. Current year profit and loss information has been
included where relevant to add further context.
Area Exposure arising Measurement Management
from
Market risk - Contracted revenue Cash flow forecasting Natural hedging
foreign exchange and costs denominated from localised
in a currency cost base
other than the
entity's functional
currency; and
monetary assets
and liabilities
denominated in
a currency other
than the entity's
functional currency.
----------------------- ---------------------- -------------------------
Credit risk - Cash and cash Credit ratings Diversification
cash balances equivalents of bank
deposits
----------------------- ---------------------- -------------------------
Credit risk - Trade receivables Ageing analysis Diversification
customer receivables and Credit ratings of
contract assets credit limits
and
letters of credit
----------------------- ---------------------- -------------------------
Liquidity Cash and cash Cash flow forecasting Collection of
equivalents up-front licence
fees, ageing analysis
of customer receivables
----------------------- ---------------------- -------------------------
The Group's overall risk management policy focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group's financial performance. The
Group has used financial instruments to hedge certain risk
exposures in the past. Risk management is carried out by the
finance function under policies approved by the Chief Financial
Officer. The finance function identifies, evaluates and mitigates
financial risks when deemed necessary.
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern, so that they
can provide returns for shareholders and benefits for other
stakeholders and maintain an optimal capital structure.
13 (a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various currencies, primarily with
respect to those described below. Revenue is predominantly
denominated in pounds sterling and US dollars. Operating costs are
influenced by the currencies of the countries where the Group's
subsidiaries are based and pounds sterling and the US dollar are
the currencies in which most operating costs are denominated.
The split by currency in relation to trade receivables is set
out in note 9(a).
The Group's exposure to foreign currency risk in relation to
revenue is set out in note 3.
During the current period the Group has not entered into or
utilised any form of hedging against foreign currency exposure. All
instruments were settled as of 31 December 2018. The notional
principal amounts of the outstanding commercial foreign exchange
contracts at 31 December 2019 was nil (2018: nil).
A 10% movement in the USD GBP exchange rate in the year ended 31
December 2019 would impact revenue and operating profit (excluding
share-based payments) by 5% and (14%) respectively.
13 (b) Credit risk
(i) Credit risk related to transactions with financial institutions
Credit risk with financial institutions is managed by the
Group's finance function in accordance with a Board approved
policy. Management is not aware of any significant risks associated
with financial institutions as a result of cash and cash
equivalents deposits (including short-term investments) and
financial derivative transactions.
(ii) Credit risks related to customer trade receivables
Significant financial difficulties of the debtor, probability
that the debtor will enter bankruptcy or financial reorganisation,
change of strategy and default or delinquency in payments are
considered indicators that a trade receivable could be impaired.
Given the complexity, the size and the length of certain software
implementation of service-related projects, a delay in the
settlement of an open trade receivable does not constitute
objective evidence that the trade receivable is impaired.
The Group has a relatively diverse customer base geographically
and by industry. The responsibility for customer credit risk
management rests with management of the Group. Payment terms are
set in accordance with practices in the different geographies and
end-markets served, typically being 30 days from the date of the
invoice. Trade receivables are actively monitored and managed.
Collection risk is mitigated through the use of upfront payments of
licences and maintenance. Historically, there has been a de minimis
level of customer default as a result of the long history of
dealing with the Group's customer base and an active credit
monitoring function. Where applicable, credit limits may be
established based on internal or external rating criteria, which
take into account such factors as the financial condition of the
customers, their credit history and the risk associated with their
industry segment.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and contract assets. To measure
the expected credit losses, trade receivables and contract assets
have been grouped based on shared credit risk characteristics and
the days past due. The contract assets relate to unbilled work in
progress and have substantially the same risk characteristics as
the trade receivables for the same types of contracts, other than
where the Group has collected upfront payments in the form of
licence fees at the start of a software implementation contract.
The Group has therefore concluded that the expected loss rates for
trade receivables are less than the loss rates for the contract
assets.
The expected loss rates of trade receivables are based on the
payment profiles of customer invoices over a period of 36 months
before 31 December 2019 or 31 December 2018 respectively and the
corresponding historical credit losses experienced within this
period. The historical loss rates would then be adjusted to reflect
current or forward looking information in relation to any
macroeconomic factors affecting the ability of the customers to
settle the receivables.
The Group has not identified any current factors or forward
looking information which would be relevant to the historical loss
rates as all trade receivables have been collected in the past 24
months. Therefore on this basis, the loss allowance as at 31
December 2019 and 31 December 2018 was nil, for both trade
receivables and contract assets.
See note 9(a) - Trade and other receivables for the ageing of
trade receivables and significant customer credit risk
exposure.
13 (c) Liquidity risk
The Group's principal objective when managing capital is to
safeguard the Group's ability to continue as a going concern, so
that it can continue to provide returns for shareholders and
benefits for other stakeholders.
The capital structure of the Group consists of cash and cash
equivalents (note 9(c)) and equity attributable to equity holders
of the parent.
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due.
The Group manages its exposure to liquidity risk through short
and long-term forecasts and by seeking to align the maturity
profiles of its financial assets with its financial liabilities.
The Group's policy is to maintain an adequate level of liquidity to
meet its liabilities expected to be settled in the short or near
term, under both normal and stressed conditions.
The following table details the remaining contractual maturity
of the Group's derivative and non-derivative financial liabilities.
The amounts disclosed in the table are the contractual undiscounted
cash flows.
31 December 2019
----------------- -----------------------------------------------------------------
Less than Between Between Between More than
GBP'000s 6 months 6-12 months 1-2 years 2-5 years 5 years
----------------- ----------- -------------- ----------- ----------- ----------
Trade and other 5,884 - - - -
payables
Provisions - - 400 125 142
31 December 2018
----------------- -----------------------------------------------------------------
Less than Between Between Between More than
GBP'000s 6 months 6-12 months 1-2 years 2-5 years 5 years
----------------- ----------- -------------- ----------- ----------- ----------
Trade and other 7,588 - - - -
payables
Provisions - - - - 152
14. Unrecognised items
14 (a) Contingencies and commitments
The Group has no capital commitments, no material contingent
liabilities and no contingent assets.
14 (b) Non-cancellable operating leases
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'. 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. The comparatives
for the prior twelve-month period have not been restated, under
the specific transitional provisions in the standard, and are
presented under IAS 17. The amounts disclosed in this note
below relate specifically only to the comparatives. Refer to
note 19 to see the impact of the adoption of IFRS 16 from 1
January 2019.
Under IAS 17, where a significant portion of the risks and
rewards of ownership are retained by the lessor, leases are
classified as operating leases. Various buildings, machinery
and equipment from third parties are leased under operating
lease agreements. Under such operating lease agreements, the
total lease payments are recognised as rent expense on a straight-line
basis over the term of the lease agreement, and are included
in "Sales, general and administrative expenses," reflecting
the nature of the leased assets. Lease incentives received
to enter into an operating lease are credited to the consolidated
statement of profit or loss and comprehensive income, to reduce
the lease expense, on a straight-line basis, over the period
of the lease. The Group's property lease in respect of its
London headquarters has a lease term of ten years, with a five
year extension.
Operating lease commitments relate to property and motor vehicle
leases. Operating lease payments in the year amounted to GBP2.3
million in 2018. Future operating lease payments, in respect of
non-cancellable leases, are set out below at the applicable
dates:
GBP'000s 2018
------------------------------------------ ------
Within one year 2,465
Later than one year but not later than 5
years 9,306
Later than 5 years 7,856
14 (c) Events occurring after the reporting period
The Directors note that the outbreak of Coronavirus (Covid-19)
during early 2020 may have a significant impact on the Group and
the environment in which it operates. This is discussed in more
detail within the Strategic report and Directors' report. However
these events are considered to be non-adjusting events after the
reporting date, and accordingly no adjustments have been made to
the financial performance and position of the Group as of the
reporting date. The events have been considered within the
assessment of going concern and viability, as set out in Note 1(a)
and in the Directors' report.
There have been no other reportable subsequent events.
15. Related parties
15 (a) Controlling shareholder
The ultimate parent undertaking is CHP Software and Consulting
Limited (the "Parent"), which is the parent undertaking of the
smallest and largest group in relation to these consolidated
financial statements. The ultimate controlling party is Andrew
Page.
15 (b) Subsidiaries
Subsidiaries - Subsidiaries are all entities over which the
Group has control. The Group controls an entity when the Group
is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group.
Unless otherwise stated, subsidiaries have share capital consisting
solely of ordinary shares, and the proportion of ownership interests
held equals the voting rights held by the Group. The country
of incorporation or registration is also each subsidiary's principal
place of business.
All intra-Group transactions, balances, income and expenses are
eliminated on consolidation. All subsidiaries have a 31 December
year end and all trading subsidiaries act as sales offices for the
Company's principal activity. The below percentages held by Company
and Group refer to ordinary shares held.
Held Held Held Held
by Company by Group by Company by Group
Registered address Principal 2019 2019 2018 2018
and country of activity
incorporation
---------------- ------------------------- --------------- ------------ ---------- ------------ ----------
Moor Place, 1
Alfa Financial Fore Street Avenue,
Software London, EC2Y Holding
Group Limited 9DT, UK company 100% 100% 100% 100%
Moor Place, 1
Alfa Financial Fore Street Avenue,
Software London, EC2Y Software
Limited 9DT, UK and services - 100% - 100%
Alfa Financial 350N Old Woodward
Software Avenue, Birmingham, Software
Inc MI 48009, USA and services - 100% - 100%
Level 57 MLC
Alfa Financial Centre, 19-29
Software Martin Place,
Australia Sydney, NSW 2000, Software
Pty Limited Australia and services - 100% - 100%
Level 1 Building
Alfa Financial B, 600 Great
Software South Road, Greenlane, Software
NZ Limited Auckland 1051,NZ and services - 100% - 100%
Bockenkheimer
Landstraße
Alfa Financial 20,
Software 60323 Frankfurt Software
GmbH am Main, Germany and services - 100% - 100%
Alfa Financial Software GmbH was established in 2017 and has
started trading in 2019.
15 (c) Transactions with related parties
There was no trading between the Group and the Parent.
The balances outstanding from the Parent at 31 December 2019 and
2018 were nil and nil respectively.
During the period, the Group made arms-length transactions with
Classic Technology Limited, a company in which the founder holds an
interest. These transactions amounted to GBP0.04 million (2018:
GBP0.04 million) in relation to fees paid for rental of property.
There were no outstanding receivables balances at the end of the
reporting period.
15 (d) Key management
Key management compensation (including Directors)
GBP'000s 2019 2018
--------------------------------------------------- ------------------- ---------------------
Wages, salaries and short-term benefits 2,428 1,651
Social security 223 229
Post-employment benefits 61 63
Share-based payments 19 -
Total key management compensation 2,731 1,943
--------------------------------------------------- ------------------- ---------------------
15 (e) Directors
Aggregate Director compensation
GBP'000s 2019 2018
--------------------------------------- ------------------ -----------------
Aggregate emoluments 1,305 1,366
Post-employment benefits 32 22
--------------------------------------- ------------------ -----------------
Total aggregate director compensation 1,337 1,388
--------------------------------------- ------------------ -----------------
For further details on Directors' remuneration, see the Report
on Directors' Remuneration in the Governance section of the Annual
Report. Key management includes Directors and members of the
Company Leadership Team.
16. Offsetting assets and liabilities
Financial assets and liabilities are offset and the net amount
is reported in the consolidated statement of financial position
where Alfa currently has a legally enforceable right to offset the
recognised amounts, and there is an intention to realise the asset
and settle the liability simultaneously.
The following table presents the recognised financial
instruments that are offset as at 31 December 2019 and 31 December
2018.
2019 Gross amounts Gross amounts Net amounts
GBP000's offset presented
in the in the
consolidated consolidated
statement statement
of financial of financial
position position
Financial assets
Accrued income 15,763 (8,549) 7,214
--------------------------------- -------------- -------------- --------------
Financial liabilities
Contract liabilities - software
implementation (13,130) 8,549 (4,581)
--------------------------------- -------------- -------------- --------------
2018 Gross amounts Gross amounts Net amounts
GBP000's offset presented
in the in the
consolidated consolidated
statement statement
of financial of financial
position position
Financial assets
Accrued income 12,301 (3,139) 9,162
--------------------------------- -------------- -------------- --------------
Financial liabilities
Contract liabilities - software
implementation (4,801) 3,139 (1,662)
--------------------------------- -------------- -------------- --------------
17. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of Alfa by the weighted average
number of ordinary shares outstanding during the year.
Diluted earnings per share , for the periods presented, the
ordinary shares which are held in an employee trust on behalf
of employees are treated as having a potentially dilutive effect
as these shares have service conditions attaching to them.
Should the service conditions not be met, the shares will be
forfeited. The shares have no right to voting or to dividends
while held in trust.
2019 2018
----------------------------------------------- ------------------------ ---------------------
Profit attributable to equity holders of
Alfa (GBP'000s) 10,182 18,150
Weighted average number of shares outstanding
during the year 290,554,694 285,962,898
Basic earnings per share (pence per share) 3.5 6.3
Weighted average number of shares outstanding
including potentially dilutive shares 298,812,270 300,000,000
Diluted earnings per share (pence per share) 3.4 6.1
----------------------------------------------- ------------------------ ---------------------
18. Auditor's remuneration
The Group obtained the following services from the Group's
auditor as detailed below:
GBP'000s 2019 2018
------------------------------------------------ ----- -----
Audit of the consolidated financial statements 165 117
Audit fees relating to prior year 48 -
Audit of subsidiaries 150 108
------------------------------------------------ ----- -----
Total audit fees 363 225
Audit-related assurance fees 135 77
------------------------------------------------ ----- -----
Total assurance fees 498 302
Non-audit services - -
------------------------------------------------ ----- -----
Total audit and non-audit related services 498 302
------------------------------------------------ ----- -----
19. IFRS 16
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 twelve-month
period have not been restated, 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 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.
19 (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 right-of-use
assets with corresponding liabilities, 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 assets are 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, or at the point of transition to IFRS 16
if this was later than the commencement date of the lease. The
Group recognises right--of--use assets and corresponding lease
liabilities, 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 liabilities are 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
liabilities 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 liabilities are 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 liabilities (using the effective interest method) and by
reducing the carrying amount to reflect the lease payments
made.
The Group re-measures the lease liabilities (and makes a
corresponding adjustment to the related right--of--use assets)
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 liabilities are 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
liabilities are 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-of-use assets and corresponding lease liabilities 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 liabilities;
-- 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 liabilities and the
right--of--use assets. 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
consolidated statement of profit or loss and comprehensive
income.
19 (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 liabilities 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 4.43%.
The Group does not recognise leases under 12 months or leases of
low-value assets on the consolidated statement of financial
position.
19 (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 assets 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.
19 (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
statement of financial position, initially measured at the present
value of the future lease payments as described above;
-- Extension options (or periods after termination options) are
included in the lease term if the lease is reasonably certain to be
extended (or not terminated).
-- 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 statement of
profit or loss and comprehensive income, whereas, under IAS 17,
operating leases previously gave rise to a straight--line expense
included in operating expenses; and
-- The Group separates the total amount of cash paid for leases
that are on the consolidated statement of financial position 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
liabilities 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 31 December 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 - 17,990 17,990
Other non-current
assets 25,948 - 25,948
------------------------ ----------------------- ----------------------------------- ------------------------------
Total non-current
assets 27,403 17,990 45,393
======================== ======================= =================================== ==============================
Current assets
Total current assets 61,134 70 61,204
------------------------ ----------------------- ----------------------------------- ------------------------------
Total assets 88,537 18,060 106,597
======================== ======================= =================================== ==============================
Current liabilities
Lease liabilities - 1,478 1,478
Other current
liabilities 15,470 (961) 14,509
------------------------ ----------------------- ----------------------------------- ------------------------------
Total current
liabilities 15,470 517 15,987
======================== ======================= =================================== ==============================
Non-current
liabilities
Lease liabilities - 19,002 19,002
Other non-current
liabilities 152 - 152
------------------------ ----------------------- ----------------------------------- ------------------------------
Total non-current
liabilities 152 19,002 19,154
------------------------ ----------------------- ----------------------------------- ------------------------------
Total liabilities 15,622 19,519 35,141
======================== ======================= =================================== ==============================
Shareholders' equity 72,915 (1,459) 71,456
------------------------ ----------------------- ----------------------------------- ------------------------------
Total liabilities
and equity 88,537 18,060 106,597
======================== ======================= =================================== ==============================
Of the total right--of--use assets of GBP18.0 million recognised
at 1 January 2019, GBP17.9 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
------------------------------------------------------------ -------
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 20,480
Finance lease liabilities recognised under IAS -
17 at 31 December 2018
------------------------------------------------------------ -------
Lease liabilities recognised at 1 January 2019 20,480
------------------------------------------------------------ -------
The following table sets out the reconciliation of the lease
liabilities from the 1 January 2019 to the amount disclosed at 31
December 2019:
GBP'000s 2019
------------------------------------------------ --------
Lease liabilities recognised at 1 January 2019 20,480
Additions 132
Disposals -
Interest charge 852
Payments made on lease liabilities (2,462)
------------------------------------------------ --------
At 31 December 2019 19,002
================================================ ========
The following table sets out the reconciliation of the
right-of-use assets from the 1 January 2019 to the amount disclosed
at 31 December 2019:
GBP'000s Motor vehicles Property Total
----------------------------- --------------- --------- --------
Cost
Adjusted opening balance at
1 January 2019: 92 17,898 17,990
Additions 128 4 132
Foreign exchange (8) 3 (5)
At 31 December 2019 212 17,905 18,117
----------------------------- --------------- --------- --------
Depreciation
At 1 January 2019 - - -
Charge for the year (67) (1,648) (1,715)
At 31 December 2019 (67) (1,648) (1,715)
Net book value 145 16,257 16,402
----------------------------- --------------- --------- --------
In terms of the consolidated statement of profit or loss and
comprehensive income 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. The Group recognised the
following amounts in the consolidated statement of profit or loss
and comprehensive income in relation to leases under IFRS 16:
2019
GBP'000
--------------------------- --------
Depreciation (1,715)
Interest expense (852)
Short--term lease expense (47)
Low--value lease expense -
If IFRS 16 had been applied from 1 January 2018, it would have
increased operating profit by GBP0.4 million and decreased profit
before taxation by GBP0.5 million for the year ended 31 December
2018. Operating cash flows would have been higher by GBP1.4 million
for the full year ended 31 December 2018, because cash payments for
the principal portion of the lease liabilities are classified
within financing activities. Only the interest part of repayments
is presented within operating cash flows under IFRS 16.
Below is the maturity analysis of the lease liabilities as per
requirement of paragraphs 39 and B11 of IFRS 7:
GBP'000s 2019
-------------------------------- --------
Non-current 17,330
Current 1,672
Total lease liabilities 19,002
-------------------------------- --------
No later than one year 2,456
Between 1 year and 5 years 11,504
Later than 5 years 9,409
-------------------------------- --------
Total future lease payments 23,369
-------------------------------- --------
Total future interest payments (4,367)
-------------------------------- --------
Total lease liabilities 19,002
-------------------------------- --------
The Group does not face a significant liquidity risk with regard to its lease liabilities.
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF ALFA FINANCIAL
SOFTWARE HOLDINGS PLC ON THE PRELIMINARY ANNOUNCEMENT OF ALFA
FINANCIAL SOFTWARE HOLDINGS PLC
As the independent auditor of Alfa Financial Software Holdings
PLC we are required by UK Listing Rule LR 9.7A.1(2)R to agree to
the publication of Alfa Financial Software Holdings PLC 's
preliminary announcement statement of annual results for the period
ended 31 December 2019.
The preliminary statement of annual results for the period ended
31 December 2019 includes disclosures required by the Listing Rules
and any additional content such as highlights, the Chief
Executive's review, financial review, narrative disclosures,
management commentary and press release. We are not required to
agree to the publication of presentations to analysts, trading
statement, interim management statement or half-yearly financial
report.
The directors of Alfa Financial Software Holdings PLC are
responsible for the preparation, presentation and publication of
the preliminary statement of annual results in accordance with the
UK Listing Rules.
We are responsible for agreeing to the publication of the
preliminary statement of annual results, having regard to the
Financial Reporting Council's Bulletin "The Auditor's Association
with Preliminary Announcements made in accordance with UK Listing
Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of Alfa Financial
Software Holdings PLC is complete and we signed our auditor's
report on 23 April 2020. Our auditor's report is not modified and
contains no emphasis of matter paragraph.
Our audit report on the full financial statements sets out the
following key audit matters which had the greatest effect on our
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team, together with how
our audit responded to those key audit matters and the key
observations arising from our work:
REVENUE RECOGNITION
Total group revenue recognised for the year ended 31 December
2019 was GBP64.5 million (2018: GBP71.0 million).
We have focused our work on the potential inappropriate
recognition of revenue where there is:
i) risk of incorrect identification of the different performance obligations;
ii) risk that the transaction price is incorrectly allocated to
the different performance obligations; and
iii) recognition of out of period items, contract modifications
and the timing of right to use licence revenues.
Given the level of judgement involved in the identification of
distinct performance obligations, we identified this as a potential
fraud risk area. There are also judgements in respect of the timing
of recognition of contract modifications or other out of period
items.
We consider the key estimates to be in respect of the standalone
selling price of a customised licence in the material right
calculations and the allocation of time spent between development
and implementation days.
Further details are included in the revenue note 3.1 and
critical accounting estimates and judgements note 3.2 to the
consolidated financial statements and the Audit and Risk Committee
Report.
How the scope of our audit responded to the key audit matter
In response to this key audit matter, we performed the following
procedures:
-- Obtained an understanding of controls regarding revenue recognition;
-- Reviewed trends in monthly revenue recognised by customer to
identify any large deviations from expectations;
-- Performed a customer circularisation during the year and at
the year end to obtain confirmation over completeness of the
contracts in place and the completeness of any side agreements;
-- Reviewed a sample of new and key ongoing contracts to
determine whether revenue has been appropriately recognised in
terms of allocating transaction price to different performance
obligations;
-- Held discussions with the project managers to check for
completeness of contracts and other contractual arrangements
outside the usual terms and/or any contract modifications;
-- Reviewed minutes of meetings and Project Finance Review
Reports to assess whether the accounting treatment is consistent
with the commercial substance of the agreements and assessed
revenue contracts for completeness;
-- Made enquiries of project managers by challenging their
estimates of the projected costs to complete through assessing
historical accuracy, including the allocation of effort between
development and implementation performance obligations;
-- Considered the evidence available for standalone selling
prices by reference to day rates offered to post go-live customers
for consultancy services;
-- Tested a sample of accrued and deferred income amounts for
valuation and accuracy respectively; and
-- Reviewed the disclosures in the financial statements to
evaluate whether: i) changes to revenue policies are clearly
described and explained, ii) performance obligations are identified
and explained, and iii) critical judgements and key sources of
estimation uncertainty are disclosed along with appropriate
sensitivity analysis.
Key observations
We identified immaterial uncorrected differences in judgement
included within management's allocation of the transaction price to
different performance obligations, the allocation of time between
implementation and development activity, and on the timing of
recognition of items relating to post go-live contract
modifications. From the procedures performed, we are satisfied that
the amounts recorded and the associated disclosures are
appropriate.
CAPITALISATION OF DEVELOPMENT COSTS
The group expends time in research and product development work
in relation to the enhancement of its product. In total internally
generated software costs of GBP1.4m (2018: GBP0.4m) were
capitalised during 2019. In accordance with IAS 38: Intangible
assets internally generated research and development costs can only
qualify for capitalisation if the group can demonstrate all of the
recognition criteria are met. The group considers the eligibility
of development costs for capitalisation on a project by project
basis.
There is a judgement over the point at which work moves from the
research phase to the development phase and over whether
development costs are creating an asset which is substantially new
in functionality or design. There is a risk that development costs
are not capitalised for projects that create an enduring
enhancement to the software capabilities available for sale to
other customers.
Further details are included in the critical accounting
estimates and judgements note 10(c) and operating profit note 4.1
to the consolidated financial statements and the Audit and Risk
Committee Report.
How the scope of our audit responded to the key audit matter
In response to this key audit matter, we performed the following
procedures:
-- Obtained an understand of the controls surrounding the
classification of development costs and the assessment of these
costs against IAS 38;
-- Tested Management's assessment of the customisation and costs
incurred on client specific costs, against the criteria set out in
the accounting standard, to determine whether an asset is generated
for future use with other customers and should be capitalised;
-- Made enquiries of the development team as to the activities
of both the client specific and the non-client specific costs and
assessed whether the criteria for capitalisation as per IAS 38 have
been met;
-- Reviewed minutes of the company's Investment Committee during the year;
-- Performed tests of details on the allocation and valuation of
costs capitalised by testing both the associated third party and
employee salary costs;
-- Performed procedures to assess whether the time sheet data
inputs included are complete and accurate;
-- Performed procedures over the allocation of central Product
Engineering team time in order to assess whether the time has been
appropriately allocated to customer projects; and
-- Reviewed both the numerical and narrative disclosures in the
financial statements to assess whether there is a fair and balanced
presentation of the development costs incurred which is consistent
with the accounting judgements applied.
Key observations
From the procedures performed, whilst we consider management's
assessment of those development costs that should be capitalised to
be conservative, we are satisfied that the amounts recorded and the
associated disclosures are appropriate.
GOING CONCERN - COVID-19
Covid-19 presents considerable uncertainty and may have a
significant impact on the group. There has been focus and time
spent by both management and the audit team with judgement required
to assess the impact on going concern, considering the key
assumptions within the group's forecasts, the level of uncertainty
inherent in the group's markets and operations, the group's cash
reserves of GBP58.8m at 31 December 2019 (2018: GBP44.9m) and the
nature and extent of any mitigating actions which could be taken by
management if required.
Management considered business resilience and continuity plans,
financial modelling and stress testing of liquidity and financial
resources of the group. The downside scenarios considered
non-conversion of sales pipeline, the termination of a significant
implementation project and the majority of maintenance customers,
and the cessation of all ongoing development and services ("ODS")
work from June 2020.
Further details are included in the Strategic Report, the Audit
and Risk Committee report and note 1(a) to the financial
statements.
How the scope of our audit responded to the key audit matter
In response to this key audit matter, we performed the following
procedures:
-- Obtained an understanding of management's process for
assessing the impact on the group posed by Covid-19;
-- Evaluated the assessment in the context of the uncertainty
and risks to the business including stress test modelling and the
group's liquidity;
-- Performed additional stress testing of management's forecasts
including reverse-stress testing;
-- Considered whether the judgement taken by management that
Covid-19 is a non-adjusting subsequent event is appropriate;
and
-- Assessed the disclosures in the financial statements against
applicable accounting standards and evaluated the consistency of
the disclosures with our knowledge of the group.
Key observations
From the procedures performed we concur with management, based
on the evidence available and the cash reserves held by the group,
that it is reasonable to adopt the going concern basis. We consider
the disclosures presented in the financial statements to be
appropriate.
Procedures performed to agree to the preliminary announcement of
annual results
In order to agree to the publication of the preliminary
announcement of annual results of Alfa Financial Software Holdings
PLC we carried out the following procedures:
(a) checked that the figures in the preliminary announcement
covering the full year have been accurately extracted from the
audited or draft financial statements and reflect the presentation
to be adopted in the audited financial statements;
(b) considered whether the information (including the management
commentary) is consistent with other contents of the annual
report;
(c) considered whether the financial information in the preliminary announcement is misstated;
(d) considered whether the preliminary announcement includes a
statement by directors as required by section 435 of CA 2006 and
whether the preliminary announcement includes the minimum
information required by UKLA Listing Rule 9.7A.1;
(e) where the preliminary announcement includes alternative
performance measures ("APMs"), considered whether appropriate
prominence is given to statutory financial information and
whether:
-- the use, relevance and reliability of APMs has been explained;
-- the APMs used have been clearly defined, and have been given
meaningful labels reflecting their content and basis of
calculation;
-- the APMs have been reconciled to the most directly
reconcilable line item, subtotal or total presented in the
financial statements of the corresponding period; and
-- comparatives have been included, and where the basis of
calculation has changed over time this is explained.
(f) read the management commentary, any other narrative
disclosures and any interim period figures and considered whether
they are fair, balanced and understandable.
Use of our report
Our liability for this report, and for our full audit report on
the financial statements is to the company's members as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's 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 and the company's members as a body,
for our audit work, for our audit report or this report, or for the
opinions we have formed.
Richard Howe FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, UK
23 April 2020
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties which could have a
material impact on the long-term performance of Alfa Financial
Software Holdings PLC and its subsidiaries are set out in our 2018
Annual Report available on our website. Two additional risks have
been added in 2019 which will be included in our 2019 Annual Report
and are as below:
Principal risk and uncertainty How it impacts us
Brexit and the uncertainty There is continuing uncertainty surrounding
surrounding trading arrangements the trade, immigration, legal and regulatory
after the transition relationships between the UK and the
period EU, and between the UK and other regions
once the transition period ends on 31(st)
December 2020. It is possible that we
will face:
* Difficulty recruiting staff from EU countries,
reducing our recruitment market;
* Difficulty in retaining staff who originate from EU
countries;
* Difficulties in providing consultancy staff for EU
customers;
* Difficulties providing consultancy staff for USA and
other countries, if trade agreements are not in place
or are in transition periods;
* Enforced changes in trading relationships and
regulatory regimes, impacting our commercial
relationships, tax and accounting treatments; and
* Economic uncertainty, risk of downturn, and impact on
our customers' and prospects' IT budgets.
What are we doing about it?:
The steps being taken to protect against
"Risk C - Socio-economic, geo-political
risk" are relevant here. In addition,
we are taking a variety of Brexit-specific
steps:
* We have monitored the Brexit process as it has
evolved, and will continue to do so during 2020, to
identify actions we need to take.
* We have subsidiary German and French companies, and
have an established presence in the EU through
business development and continuing implementation
and ODS activities.
* We are providing advice and support for our EU staff
residing in the UK, including in respect of the
process of applying for the right to stay in the UK
after 20 June 2021.
Our Alfa partner organisations have
an established presence in the EU and
the USA, extending our implementation
capabilities in these regions.
------------------------------------------------------------------
Pandemic outbreak in
Alfa and/or client geographies * Covid-19 was declared a pandemic by the World Health
Organisation on 11 March 2020.
* We treat the health and wellbeing of our staff, their
families and other stakeholders as of the utmost
importance, and we respond to this risk, accordingly.
* Base- and worst-case scenarios anticipate significant
infection levels at the peak of the virus outbreak.
This could temporarily reduce the resource capacity
of our business and our professional services
fee-earning capacity, potentially resulting in
deferred or lost revenue.
* Similarly, customers and potential customers may
become temporarily resource-constrained, limiting
their capacity to manage large-scale IT projects and
run sales processes, respectively.
* Travel is being restricted by our own policy,
customer policy and government policy, and this will
temporarily reduce our ability to operate at some of
our geographically diverse customer sites.
* Remote working relies on third party cloud-based
services such as video calling and chat software.
Such services may experience problems during peak
remote working times, impacting the efficiency of our
staff.
* We may experience a slowdown in supply for our IT
equipment needs.
What are we doing about it?:
* We have an established, and recently reviewed
pandemic response plan, as part of our business
continuity procedures.
* We have created a Coronavirus Incident Response Team
(IRT), which is managing and coordinating our
actions. This team is chaired by our Chief People
Officer, and contains representatives from across our
business units and geographies.
* The IRT monitors the World Health Organisation
updates and advice, and takes action on that advice,
on a daily basis. The team also monitors and acts
upon government advice in our each of our
geographies.
* Guidance and advice is being communicated regularly
to all of our employees. We also liaise with customer
organisations to ensure that we abide by their
policies, for example with respect to business
travel.
* As part of our pandemic plan, we have instructed our
staff to work remotely. Remote working is already an
established practice in our organisation, with the
majority of our staff, including all of our
consultants and engineers, using laptops, remote
connections and remote working tools. We tested the
capacity and resilience of these tools before
instructing staff to work remotely.
* Our essential customer services - Alfa support, Alfa
hosting and Technical Operations - are run by
globally-distributed teams, using cloud
infrastructure, providing resilience against business
continuity risks.
* We have been in contact with the providers of our key
remote working tools who have confirmed that they
have suitable business continuity and capacity
planning in place.
* We have ensured that we have ordered sufficient stock
of essential IT equipment, particularly laptops, for
our staff for the remainder of 2020.
------------------------------------------------------------------
Directors' responsibilities statement
The responsibility statement below has been prepared in
connection with the annual report and financial statements for the
year ended 31 December 2019. Certain parts thereof are not included
within this Preliminary Announcement.
The Directors confirm that to the best of their knowledge:
- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole;
- the strategic report includes a fair review of the development
and performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face; and
- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
This responsibility statement was approved by the Board of
Directors and is signed on its behalf by:
Andrew Denton
Chief Executive Officer
23 April 2020
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
FR DBGDSLDDDGGD
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