TIDMALFA
RNS Number : 2369E
Alfa Financial Software Hldgs PLC
06 July 2021
6 July 2021
Alfa Financial Software Holdings PLC
Pre-close trading update and change to revenue disclosure
Alfa Financial Software Holdings PLC ("Alfa" or the "Company"),
a leading developer of mission-critical software for the asset
finance industry provides this update on trading and also announces
a change in revenue disclosure in order to provide investors and
equity analysts with a clearer picture of the Company's financial
performance in line with the evolution of the business model. This
new revenue disclosure approach will be used on an ongoing basis
from the announcement of the half-year results for the six months
ended 30 June, 2021. The half-year results are expected to be
announced on Wednesday 22 September 2021.
Trading update
Since the AGM trading update on 10 May 2021, we have continued
to see strong revenue performance with good utilisation of our
people driving higher revenues, along with growth in maintenance
and Cloud Hosting subscription revenues.
At the time of the announcement of our 2020 results on 23 March
2021 we had 10 prospects in our late stage pipeline. In recent days
we have signed full contract packs with three prospects:
-- One contract is for a new Alfa implementation for a large European automotive OEM;
-- One is for a new Alfa wholesale finance implementation for a
large US automotive dealer services customer; and
-- One is for an upgrade from Alfa Systems v4 to v5 for a UK merchant bank.
We still have all seven of the remaining prospects in our
late-stage pipeline. Of these, we are in discussions with four
customers for Alfa Systems v4 to v5 upgrades and we are currently
working with two new prospects under letters of engagement which
has contributed to our continuing revenue growth.
Our revenue expectations for H1 remain unchanged, however the
increased contractual cover for the second half as a result of
these recent contract wins, along with further statements of work
for existing customers, means that our revenue expectations for the
second half have increased. We now expect revenues for the full
year to be circa 5% higher than our previous expectations, with
most of the increase benefiting our operating profit performance.
As a consequence we now expect to exceed 2020 underlying revenues
(excluding 2020 one-off licence income) despite the negative impact
of currency.
Background on revenue disclosure
At the time of the IPO in 2017, Alfa's revenues were dominated
by large services based revenues associated with implementation
projects, including both upfront perpetual licence payments and
professional services revenue relating to development and
consulting services supporting implementation projects. At that
time and since then the Group's revenue was split into three
categories: -
-- Software Implementation revenue (principally for new customers);
-- Maintenance revenue; and
-- Ongoing Development Services revenue ("ODS") (principally for existing customers).
Since the IPO, our sources of revenue have evolved and our
customer base has broadened. We see this process continuing into
the future and in particular the success of Alfa Start and Cloud
Hosting has added new and growing recurring subscription revenue
streams which are becoming an increasingly important part of our
business. In addition, the increasing trend for customers to start
work quickly on projects ahead of signing a full set of contracts
has resulted in some implementation project revenue being shown in
ODS. More recently we have also seen growth in implementation
projects for customers upgrading from Alfa Systems v4 to v5 with
these revenues shown exclusively in ODS. These changes in our
business and feedback from investors and analysts have made us
review how we disclose the breakdown of our revenues.
New revenue disclosure
Having conducted a review we have concluded that for reporting
periods starting on or after 1 January 2021 we will split revenues
into three categories, Software, Subscription and Services:
-- Software - Revenue from selling or developing software for new or existing customers
o Software revenue will follow the Group's customised licence
revenue recognised under IFRS 15 (the accounting standard for
revenue recognition). It will therefore include the software
perpetual licence granted to the customer along with revenue from
any development efforts required to customise the software during
the implementation period to meet the customer's specific
requirements, and any maintenance fees for the period during which
the Alfa software is being implemented. It will also include any
unwinding of the option over the right to use the Alfa software
following completion of the implementation period. In addition, it
will include any additional licence payments from existing
customers for new modules or additional licence payments triggered
by customers exceeding agreed contract numbers. It will also
include any development services provided to existing customers. It
will not however include the revenues from implementing the
software as this will now be included in the Services category.
-- Subscription - All revenue charged to clients on a subscription basis
o Subscription revenue is the Group's recurring revenue and
includes all revenue charged on a subscription basis, including
subscription licence fees, production (i.e. post implementation)
maintenance, Alfa Start and Cloud Hosting.
-- Services - Revenue for professional services to implement software for clients
o Services revenue will include all other sources of revenue,
principally based on charging clients on a day rate basis for
professional services. This will include pre-implementation
revenues, software implementation revenues at the stand alone
selling price, any additional consulting work for customers post
go-live (but excluding any work for customers on developing
software), and any expenses revenue charged to our customers.
Comparison with previous presentation
The table below shows the revenues for 2020 as they were
originally presented, and how they will be presented in the new
format.
2020 Revenues as previously H1 H2 FY
presented
GBPk
----------------------------------- ------- ------- --------
Software implementation 16,194 11,134 27,328
Maintenance 8,223 10,956 19,179
Ongoing Development Services 13,757 18,606 32,363
----------------------------------- ------- ------- --------
Total - originally presented 38,174 40,696 78,870
----------------------------------- ------- ------- --------
2020 Revenues in new presentation
format
GBPk
----------------------------------- ------- ------- --------
Software 7,937 12,051 19,988
Subscription 7,752 10,384 18,136
Services 22,485 18,261 40,746
----------------------------------- ------- ------- --------
Total - in new presentation
format 38,174 40,696 78,870
----------------------------------- ------- ------- --------
Reporting in the new format relies on detailed information from
our timesheet system which was implemented in January 2020, and so
we are unable to provide historic revenue splits prior to 2020 in
the new format.
New revenue disclosure summary
We believe the new format will be easier for investors and
research analysts to understand and provide more useful information
in tracking our strategic progress, with our Software and
Subscription revenues reflecting the strong and growing IP in the
business and the Services revenue reflecting the quality of our
implementation capability as evidenced by our delivery record.
Andrew Denton, Chief Executive Officer of Alfa, said:
"We have had a good first half to the year both operationally
and financially. We have also secured three new contract wins,
improving our contractual cover for the second half and enabling us
to increase our estimates for the full year.
Today we have also announced a change in the way we disclose our
revenues. Analysing our revenue into Software, Subscription and
Services will align with our strategy, simplify the way we describe
our performance and help investors understand the key components of
our business. The new analysis will allow stakeholders to see the
increasing predictability of our business through subscription
revenues and focus on the opportunity for revenue growth from the
extensive and growing IP in our class leading Alfa Systems
software."
Enquiries
Alfa Financial Software Holdings
PLC
Andrew Denton, Chief Executive
Officer
Duncan Magrath, Chief Financial
Officer +44 (0)20 7588 1800
Tulchan Communications LLP
James Macey White
Matt Low +44 (0)20 7353 4200
Notes to Editors
Alfa has been delivering software 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 delivery of large software
implementations and highly complex business change projects. With
an excellent delivery track record spanning three decades, Alfa's
experience and performance is unrivalled in the industry.
Alfa Systems, our class-leading technology platform, is at the
heart of some of the world's largest asset finance companies. Key
to the business case for each implementation is Alfa Systems'
ability to replace multiple customer systems with our 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.
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