Full Year Report for year ended 31 December 2023

Alfa Financial Software Hldgs PLC

14 March 2024

Alfa Financial Software Holdings PLC

Full Year Report for the year ended 31 December 2023

Strong subscription growth driving revenue and TCV

Alfa Financial Software Holdings PLC ("Alfa" or the "Company"), a leading developer of software for the asset finance industry, today publishes its audited results for the twelve months ended 31 December 2023 ("the period").

Financial summary


Results	Years ended 31 December		Movement
£m, unless otherwise stated	2023	2022	%
Revenue	102.0	93.3	9%
Operating profit	30.1	29.6	2%
Profit before tax	29.6	28.9	2%
Earnings per share - basic (p)	7.99	8.24	(3)%
Earnings per share - diluted (p)	7.90	8.09	(2)%
Special dividend declared per share (pence)	2.0	1.5	33%
Proposed ordinary dividend (p)	1.3	1.2	8%

£m	2023	2022	Movement %
Cash	21.8	18.7	17%
Special dividends paid in the year (p)	5.5	6.5	(15)%

Key measures ⁽¹⁾	2023	2022	Movement
£m, unless otherwise stated			%
Revenue - constant currency	102.0	93.3	9%
Cash generated from operations	39.2	34.0	15%
Operating free cash flow conversion (%)	115%	102%	13%
Total Contract Value (TCV)	165.3	142.9	16%

^{(1) See definitions section for further information regarding calculation of measures not defined by IFRS.}

Financial highlights:

· Revenue up 9% versus 2022, driven by subscription revenues up 16%

· Operating profit up 2% on 2022 as we invested in the platform to deliver the pipeline

· Record TCV of £165.3m up 16% (2022: £142.9m)

· Very strong cash generation with 115% free cash flow conversion

· Robust balance sheet position with £21.8m of cash and no bank debt

· Special dividend of 2.0 pence per share (£5.9m) declared

· Proposed final ordinary dividend up 8% to 1.3 pence per share (£3.8m)

Strategic highlights:

Accelerating transition to subscription model

· 16% growth in subscription revenues

· 28% growth in subscription TCV

· 90% of late-stage pipeline looking to utilise Alfa Cloud

Investment in product, people, planet

· £35m (2022: £29m) investment in product

· Launch of Alfa Systems 6, including 10 new modules

· Average headcount increased by 10%

· High staff retention (97%) and engagement (82%)

· Emission reduction targets validated by SBTi and commitment to net-zero by 2050

Diversification of customer base

· Top five customers generated 35% of revenues (2019: 61%)

· 19 customers contributing revenue over £2m in the period (17 in 2022 and 7 in 2019)

· No customer accounts for more than 10% of revenues (largest customer 20% of revenues in 2019)

Strong sales and delivery momentum

· Strong late-stage pipeline, increased from 9 to 11, with 6 new prospects, 3 wins and 1 back to mid-stage

· 10 out of 11 customers in late-stage pipeline at preferred supplier status

· Record year for software delivery with seven customer go-lives in the year along with 28 other deliveries

Outlook

The asset and automotive finance markets have continued to remain strong through 2023 despite broader macro uncertainty with demand for software remaining robust. Alfa continues to see software projects proceed, new sales close and new opportunities enter our pipeline.

We expect 2024 revenue growth to be mid to high single digits driven by continuing strong growth in subscription. Within this performance, we anticipate a greater weighting in the second half of the year as new sales come fully on stream. Our encouraging new business pipeline, confidence in the outlook and our strategy means that Alfa will continue to invest in our technology and people, whilst continuing to return cash to shareholders through our sustainable, progressive dividend.

Andrew Denton, Chief Executive Officer

"Throughout 2023 we have remained focused on operational excellence and delivering our strategy with continuing strong growth in our subscription business and a record seven go-lives for our customers. We have continued to develop our product roadmap and have announced the launch of Alfa Systems 6, the sixth major version of our software. We have a strong late-stage pipeline and have converted two of these into wins in the last few months. We have built a resilient business with reduced customer concentration, operating across diverse markets both geographically and by asset class. The business is supported by a growing subscription revenue base and the conversion of the late-stage pipeline points to a strong second half in 2024 for our services. This alongside the inherent robustness of the asset finance software market and our continued investment in high-quality people, underpins our strong confidence in the outlook for the business."

Enquiries

Alfa Financial Software Holdings PLC	+44 (0)20 7588 1800
Andrew Denton, Chief Executive Officer Duncan Magrath, Chief Financial Officer Andrew Page, Executive Chairman
Barclays	+44 (0)20 7623 2323
Robert Mayhew Anusuya Gupta
Investec	+44 (0)20 7597 4000
Patrick Robb Virginia Bull
Teneo	+44 (0)20 7353 4200
James Macey White Victoria Boxall

Investor and analyst webcast

The Company will host a conference call today at 09:30am. To obtain details for the conference call, please email alfa@teneo.com. Please dial in at least 10 minutes prior to the start time.

An archived webcast of the call will be available on the Investors page of the Company's website https://www.alfasystems.com/en-eu/investors

Notes to editors

Alfa has been delivering software systems and services to the global asset and automotive finance industry since 1990. Our agile methodologies and specialised knowledge of asset and automotive finance enables the delivery of large software implementations and highly complex business change projects. With an excellent delivery track record now into its fourth decade, 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 and automotive finance companies. 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. A cloud-native, 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 live in 37 countries. Alfa has offices in Europe, Australasia and North America. For more information, visit www.alfasystems.com.

Forward-looking statements

This Full Year Report ("FYR") has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The FYR should not be relied on by any other party or for any other purpose. This report contains certain forward-looking statements. All statements other than statements of historical fact are forward-looking statements. These include statements regarding Alfa's intentions, beliefs or current expectations, and those of our officers, directors and employees, concerning (without limitation), with respect to the financial condition, results of operations, liquidity, prospects, growth, strategies and businesses of Alfa. These statements and forecasts involve known and unknown risks, uncertainty and assumptions because they relate to events and depend upon circumstances that will or may occur in the future and should therefore be treated with caution. 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 applicable law, Alfa disclaims any obligation or undertaking to update the forward-looking statements or to correct any inaccuracies therein, or to keep current any other information contained in the FYR. Accordingly, reliance should not be placed on any forward-looking statements.

BUSINESS REVIEW

Strong performance

In 2023, we remained focused on continuing to drive the business forward, delivering growth and at the same time making strong strategic progress towards a subscription-based business. One of our differentiators is the quality of our delivery record, and in the year we saw a record of seven go-live events and a total of 35 delivery events. We have also continued to develop and enhance our software and the launch of Alfa Systems 6 in Q4 2023, the sixth major version of our software, has been enthusiastically received by customers and sees ten new modules available for customers to implement.

Financial performance was strong with revenue up 9% to £102.0m (2022: £93.3m) with particularly strong growth in subscription revenues, up 16%. Operating profit was £30.1m (2022: £29.6m) after the costs of investing into people as we build for future growth. Cash conversion was extremely strong at 115% (2023: 102%) with a high level of receipts just before yearend and we finished the period with net cash of £21.8m (31 Dec 2022: £18.7m). We expect this very strong position to partially unwind in 2024, with the long-term average trend being c100%.

We have had a very strong pipeline for some time now, and it was very pleasing that we converted two prospects into wins before the end of the year with Total Contract Value ("TCV") growing 16% to £165m (2022: £143m) at 31 December 2023. This increase in TCV has been driven by 28% growth in our subscription revenues showing how the transition to a subscription model is underpinning future revenues. The two recent wins are for major customers with multi-phase rollouts and these along with prospects we expect to convert in the late-stage pipeline will provide revenues for the business for years to come.

We had 19 customers (2022: 17) contributing revenues of more than £2m in the year, up from just seven in 2019. We have significantly reduced our customer concentration, with our top five customers now representing 35% of our revenues in 2023, compared with 61% in 2019. Our largest customer now represents less than 10% of our revenues for the first time in over 8 years.

As expected, following very strong recruitment for the previous two years and as a result of our improved and very high retention rate of 97% (2022: 90%), we deliberately slowed recruitment in 2023. This was to ensure the quality of the experience for new joiners as we consolidate experience levels within the team as a whole. Headcount at 31 December 2023 was up 8% at 475 (2022: 441). Average headcount in the period of 463 (2022: 420) was a 10% increase on last year.

The Company received two approaches from Private Equity houses in the summer. Neither approach led to a formal offer, and the business continued to focus on delivering against its objectives.

Net-zero commitment

Our Environmental Impact community was created six years ago and in 2023 a major milestone was achieved with the company committing to a net-zero target. We performed a detailed analysis of our emissions, including calculating the emissions from our supply chain, supported by some external specialists, following which we decided to align our ambitions with those of the Science Based Target initiative (SBTi). We submitted our targets to SBTi and had them validated. We have formally committed to reducing our Scope 1 and Scope 2 emissions by 42% by 2030, along with a commitment to achieve net-zero by 2050, which entails at least a 90% reduction in emissions with the remainder offset by carbon removal credits.

Strategic progress

Alfa is a leading asset finance software company with global scale. Our software platform, Alfa Systems, is the world's leading asset finance software, and has been supporting some of the world's largest and most innovative companies for more than 30 years.

Our vision is to grow our Company and grow our impact faster than headcount, always retaining our underlying culture. Key to achieving this is delivering more concurrent Alfa implementations, more efficiently with our world-class Alfa Systems product. We will have a big company impact, but a small company feel.

Our strategic priorities are to:

· Strengthen

· Sell

· Scale

· Simplify

We have continued to make good progress in all these areas in 2023, but there are three areas where we have made particularly strong progress:

· Growth in subscription revenues

· Launch of Alfa Systems 6

· Improvement of the Alfa Development Model

All three areas are covered in more detail below.

Subscription - Strong growth in subscription revenues and TCV

Subscription revenues arise from recurring revenues from subscription licences, Alfa Cloud and maintenance.

Alfa has been on a journey transitioning from the on-premise perpetual licence environment to a subscription-based Cloud model. In 2017 we started to offer Alfa Cloud, a hosted solution and in 2020 won our first Alfa Start customer, which has the benefit of the speed of implementation of a pre-configured system hosted in Alfa Cloud paid for on a subscription basis. The demand from all customers for a subscription-based Alfa Cloud solution, incorporating the automated monitoring, patching, scheduling and security features, has increased since then with all of the wins in 2023 being subscription-based Alfa Cloud solutions. Looking forwards 90% of our late-stage pipeline are looking to adopt Alfa Cloud and all new customers are looking for a subscription-based pricing model. We are seeing the strongest growth in our revenues from the Subscription revenue stream and expect this to continue as momentum builds.

We have a single-tenant SaaS solution. We and our customers benefit from a single standard code-set and database, but with multi-layer data segregation as opposed to code-based segregation used in multi-tenant SaaS models. One of the big benefits of this approach is that customers can control their release cycles rather than having a timetable dictated to them. We mitigate the extra cost from this approach by encouraging customers to share branches and release dates.

Our hosted services are ISO 27001 and ISO 27018 certified and SOC1 and SOC2 audited to confirm compliance with controls around data security and availability. Given the mission-critical nature of our systems to our customers, having such third-party verification of our compliance with these standards is a key selling point.

Subscription revenues grew strongly in the period, up 16%, with TCV increasing 28%. The growth in revenues was particularly strong from Alfa Cloud supplemented by a growing licence base. All customers upgrading from v4 to v5 have moved to Alfa Cloud. We have 13 customers using Alfa Cloud for their live production environments and have another 3 customers taking hosting services during the design and implementation phase. Maintenance revenues also grew strongly with the benefit of price rises and also from the net increase in live customers.

Software - Exciting roadmap of development

Software revenues arise from development work for new and existing customers, along with perpetual licence recognition.

Software revenue for the year was down 4% on 2022. Following a very strong first half of customer funded development days, in the second half, we saw a reduction as attention moved towards investment for the launch of Alfa Systems 6.

Our strategy is to continue to develop our software, to ensure that we meet and exceed customer and market needs as they evolve and as the regulatory and commercial environment continues to change. We believe we have the industry leading software and we continue to invest to increase that lead, through a balance of customer funded development and self-funded development.

Despite having what we believe is the industry's leading software, we continue to look for ways to improve our software and also the way we develop the software. During 2023, we ran a project to refine our Alfa Development Model. This has resulted in a number of actions being taken, including reorganising the structure of the Engineering teams to align under product areas, and reviewing the way we communicate and collaborate to improve the workflow through the development process. We are already seeing the benefits of this with improved speed and quality of development.

We release an upgrade every four weeks and periodically we release a new version of Alfa Systems which highlights the step change functional and technical advancement that has been made since the last version. During 2023, we made progress in several valuable and eye-catching new areas, such as Alfa Compose and Environmental Accounting, which are headline items for our next major version. Alfa Systems 6 is the sixth major release since Alfa was formed 33 years ago. Announced in the autumn of 2023, Alfa Systems 6 is a functional upgrade, giving customers access to ten additional modules, and is being released through the usual four-week upgrade cycle over a number of months, so can be implemented like any other upgrade and will be frictionless for customers.

Services - High quality services with a record seven new go-live events

Services revenues arise from work on implementations and other services.

Overall services revenue was up 10% on 2022, with strong chargeability during the first half but with lower chargeability in the second half due to the successful delivery of a number of go-lives. We continue to implement a number of v4 to v5 upgrades, and these accounted for 17% (2022: 14%) of total services revenue. Other work for existing customers accounted for 50% (2022: 52%) of our services revenue, with the balance of 33% (2022: 34%) from new implementations. There were sixteen new implementations and v5 upgrades during 2023, with seven of these having go-live events in the year. We have a number of large customer projects that we expect to start up during H1 2024.

We had seven go-live events in the year: two UK Alfa Start projects, three automotive finance projects across three continents and two v4 to v5 upgrades in the UK for equipment finance. In addition, we had an existing customer go live in a new country, Mexico, although one customer exited a small market resulting in the total number of countries where we are live remaining at 37. We also went live with our first African commercial asset finance portfolio, just over two years after we went live with the customer's retail portfolio.

Increasing our use of partners is a key element of our longer-term strategy for increasing the number of implementations we can deliver and providing us with a more flexible implementation resource. Our programme is well developed in Europe and now we have two partners in the US supporting us on two different client projects. At the moment, partners augment our existing resources on projects, but very much work under our direction. We continue to work towards setting up the training, processes and tooling that would allow partners to lead on implementations. For the first time, we have enabled a partner team member to work on an Alfa Start implementation.

Artificial Intelligence

2023 has seen a rapid growth in interest in how AI may change the ways companies work, with a particular focus on Generative AI use cases. Alfa has been a leader on AI for many years: both directly supporting our customers' digitalisation journeys with AI-based Know Your Customer (KYC) and Anti-Money Laundering (AML) checks and through our Alfa iQ joint venture.

We set up Alfa iQ over three years ago as a joint venture with Bitfount to explore the opportunities in the auto and equipment finance markets. Given the success of our work in Alfa iQ on credit decisioning, delinquency prediction and business process analytics, we have now consolidated its activities into Alfa and ended the joint venture relationship.

As AI increasingly becomes a key focus of the customer journey, we believe the advantages of integrating the thinking and expertise into Alfa outweigh the advantages of keeping it as a separate standalone entity. We will continue to build on the strong base of products and modelling techniques that we have developed in Alfa iQ, and also leverage the tighter integration into the core Alfa Systems product.

Strong engagement with our people

We have continued to ensure timely and clear communications with our employees, which was particularly important during 2023 where there were two possible offers for the Company. We are delighted to see that our retention rates have improved and now sit at 97%. We are focusing on enhancing our training programmes both for technical development and to develop our leaders of the future.

We have settled into a post-COVID working pattern, making the most of in-person events to maintain our culture, whilst also being thoughtful on our travel and the emissions footprint that this generates. We continue to assess the ways we work to ensure that they work for both the individual and for the team as a whole.

Capital return

We remain a strongly cash-generative business, with cash conversion of 115% in 2023 being the fourth year in a row in excess of 100%. We continue to generate more cash than we need for our growth plans and continue to return excess cash to shareholders.

Our main mechanism for returning capital is the payment of a regular dividend, and our policy is to grow this progressively. In the year we paid an ordinary dividend of 1.2 pence or £3.5m.

We have also made one-off returns of capital through special dividends. In the year, we paid special dividends of 5.5p per share or £16.2m. This took total special dividend payments over the last three years to 37.0 pence or £109m.

In addition to the dividend payments, we announced in January 2022 an 18 month share buy-back programme which came to an end on 30 June 2023. In 2023, we purchased 1.9m shares at a cost of £3.1m. This took total purchases since the programme started to 4.8m shares at cost of £7.7m. All of the purchased shares are currently held in Treasury.

Having executed this share buyback programme, we currently believe the quickest and simplest mechanism for returning cash to shareholders is via special dividends, but we will keep under review whether another share buy-back program should be launched.

Even after paying dividends of £19.7m and share purchases of £4.8m, we finished the year with a strong balance sheet with net cash of £21.8m. As a consequence, the Board is proposing a final dividend of 1.3 pence per share, 8% up on last year (2022: 1.2 pence per share), with an ex-dividend date of 30 May 2024, a record date of 31 May 2024 and a payment date of 27 June 2024. In addition, the Board has decided to declare a special dividend of 2.0 pence per share, with an ex-dividend date of 2 May 2024, a record date of 3 May 2024 and a payment date of 30 May 2024. The special dividend would amount to a total payment of £5.9m.

Steady market conditions

The macro outlook remains uncertain at the moment, although the recent high levels of inflation have eased and interest rates may have peaked. Alfa Systems is operational in 37 countries; in automotive finance, equipment finance and wholesale and loan finance; for OEMs, banks and independents and across all asset classes. The breadth and diversity of Alfa's business interests help to insulate us from economic uncertainty in individual geographies and sectors of our business.

Along with Alfa's diverse revenue sources providing insulation against the current economic uncertainty, the market itself provides protection. The asset finance market is a more secure form of lending and it has a history of gaining market share in uncertain times compared with non-asset backed lending markets. In addition, the need for software is not associated with new business alone, large players in our market will have significant extant portfolios to manage whether they are writing new business or not, and these portfolios will be subject to the same drivers of technical change as growing businesses. Regulatory change, digitalisation and the growing need for flexibility continue to drive customers to review their systems, particularly those still running on legacy platforms, and they will continue to select more flexible modern systems.

We believe that the asset finance software market will remain robust. We continue to see new opportunities entering into our sales pipeline which supports this. With our functional, flexible, modern, cloud-native system, we continue to be well positioned to capitalise on that end market demand.

Strong pipeline

We are pleased to have converted two prospects in the late-stage pipeline in recent months with up to four more expected to convert in the near future. In total, we have 11 prospects in the late stage, ten of which are at preferred supplier status and five where we are already performing paid work under letters of engagements on implementations as we finalise commercial contracts. We also continue to see new prospects coming into the early-stage pipeline, showing that the buying dynamics of the market remain unchanged. It was also pleasing to see the speed at which we won an Alfa Start project and completed the implementation, all within the calendar year.

Overall, we remain confident in both the demand for our software and our ability to win work in the market.

Outlook

FINANCIAL REVIEW

Financial results

			Movement
£m	2023	2022	%
Revenue	102.0	93.3	9%
Gross profit	63.7	59.9	6%
Operating profit	30.1	29.6	2%
Profit before tax	29.6	28.9	2%
Taxation	(6.1)	(4.4)	39%
Profit for the period	23.5	24.5	(4)%
Basic EPS	7.99p	8.24p	(3)%
Diluted EPS	7.90p	8.09p	(2)%

Revenues increased by 9% or £8.7m to £102.0m in the 12 months ended 31 December 2023 (2022: £93.3m). Growth at constant currency was also 9%.

Gross profit increased 6% to £63.7m (2022: £59.9m) slightly behind the increase in revenue mainly due to increased headcount and salary inflation, with operating profit increasing by 2% or £0.5m to £30.1m (2022: £29.6m) with profit before tax of £29.6m (2022: £28.9m).

The Effective Tax Rate (ETR) for 2023 is 20.6% (2022: 15.2%) which increased over 2022 largely due to the increase in the UK Corporation Tax rate. The resulting profit for the period was £23.5m (2022: £24.5m).

Revenue

Revenue - by type	2023	2022	Movement
£m			%
Subscription	31.8	27.4	16%
Software	15.6	16.3	(4)%
Services	54.6	49.6	10%
Total revenue	102.0	93.3	9%

Subscription revenues

Overall subscription revenues increased strongly by 16% to £31.8m (2022: £27.4m), with growth across all three elements of licence, maintenance and hosting driven from both existing and new customers. All new customers in the late-stage pipeline are looking for a subscription licence contract, with 90% looking to utilise Alfa Cloud.

Software revenues

Software revenues of £15.6m were down £(0.7)m or 4% on last year (2022: £16.3m), due to a reduction in the recognition of customised licences from perpetual licence customers, as we focus on moving customers to a subscription model. Development work for existing customers was heavily weighted towards the first half of the year, but overall was in line with 2022. There were one-off licence revenues of £0.5m (2022: £0.4m) .

Services revenues

Total services revenues increased by 10% to £54.6m (2022: £49.6m) at actual exchange rates. Growth was broadly spread and came from both implementation revenues for new customers and also from existing customers, either going through v4 to v5 upgrades (which accounted for 17% of total services work versus 14% last year) or ongoing services work.

Total Contract Value (TCV)

TCV - by stream
£m	2023	2022	Movement %
Subscription	119.5	93.3	28%
Software	17.8	20.1	(11)%
Services	28.0	29.5	(5)%
Total TCV	165.3	142.9	16%

Total contract value (TCV) increased over last year by 16% to £165.3m, significantly boosted by two large contracts signed in the year offset by the completion of one large project. Subscription TCV has increased 28%, driven by strong growth in both hosting and licence subscriptions. There was a 11% decrease in Software TCV, principally from a reduction in the as yet unrecognised customised licence as we transition to subscription licences. Services TCV of £28.0m was down 5% versus this time last year due to a lower level of activity in advance of new contracts being signed and started.

TCV - by type for next 12 months
£m	2023	2022	Movement %
Subscription	37.1	30.1	23%
Software	8.7	10.2	(15)%
Services	21.2	24.7	(14)%
Total TCV	67.0	65.0	3%

Of the TCV at 31 December 2023, £67.0m (31 Dec 2022: £65.0m) is anticipated to convert into revenue within the next 12 months. Within this subscription TCV is up strongly by 23% to £37.1m (2022: £30.1m) on the back of two new contracts, software TCV of £8.7m (2022: £10.2m) is down 15% due to the reduction in unrecognised customised licence, with services TCV down 14% to £21.2m (2022: £24.7m). We expect this to increase as new contracts start.

Operating profit

The Group's operating profit increased by £0.5m, or 2%, to £30.1m in 2023 (2022: £29.6m) primarily reflecting the net benefit of increasing revenues net of operating costs.

Headcount numbers were up 8% at 31 December 2023 at 475 (2022: 441), with average headcount of 463 up 10% on last year (2022: 420). Staff retention rate was very strong through 2023 and was at 97% at 31 December 2023 (2022: 90%).

Expenses - net	2023	2022	Movement
£m			%
Cost of sales	38.3	33.4	15%
Sales, general and administrative expenses*	34.0	32.1	6%
Other income, FX and one-off costs*	(0.4)	(1.8)	(78%)
Total expenses - net	71.9	63.7	13%

* FX gains and losses and fair value movement on FX forward contracts as well as the one-off aborted transaction costs have been removed from SG&A to better show underlying costs, and have been shown together with other income in the table above.

Cost of sales increased by £4.9m to £38.3m (2022: £33.4m) to support the growth in the business. This was due to higher headcount, in both our implementation and engineering teams along with pay increases. Hosting costs increased from the strong growth in Alfa Cloud.

Sales, general and administrative (SG&A) costs increased to £34.0m in the year (2022: £32.1m). Salary costs were up 12% in the period to £46.8m (2022: £41.8m) due to higher headcount and pay increases. Profit Share Pay, including employer's costs, in the period was £3.8m (2022: £3.5m). Share-based payment charges have decreased over last year at £1.6m (2022: £1.8m), principally due to lower provision for NI costs from a lower share price at yearend. Other costs increased 11% to £15.6m (2022: £14.0m) with cost patterns returning to normal along with the impact of inflation.

Other income, FX and one-off costs decreased by 78% since 2022. Included within this is £0.5m (2022: nil) of income related to the Research & Development expenditure credit ("RDEC") scheme which we qualified for in 2023 for the first time, with reduction in sub-letting income in FY 23 due to be office space being assigned in 2022. Legal & other costs related to possible offers for the company were £0.6m (2022: £nil). There was a net gain of £0.3m (2022: £1.1m) from FX gains and losses and fair value movement on FX forward contracts.

We have continued to invest in our product, with total investment increasing in 2023 to £35.0m (2022: £29.1m). This investment is calculated based on the total time spent by people in our Product Engineering team working on Alfa Systems product either for specific customer developments, which are largely chargeable, or internal investment and enhancement of the product. It does not include time spent on implementing or maintaining and supporting systems for customers. It includes salary costs and a full overhead allocation, and includes amounts shown as R&D expense and costs that have been capitalised.

Profit before Tax

Net finance costs reduced to £0.2m (2022: £0.6m) benefiting from a full year of reduced lease costs and interest income of £0.3m (2022: £nil). Overall Profit before Tax of £29.6m was up 2% on last year (2022: £28.9m).

Profit for the period

Profit after taxation decreased by £1.0m, or 4%, to £23.5m (2022: £24.5m). The Effective Tax Rate (ETR) for the year increased to 20.6% (2022: 15.2%) as a result of the increase in the UK corporation tax rate, net of the benefit from prior year credits of £1.2m principally due to the last year of operating under the R&D tax credit scheme. For the full year 2024, we expect the ETR to be around 26% due to the full year effect of the increase in the UK Corporation Tax rate to 25% along with the loss of the R&D tax credit which has been replaced by RDEC scheme, which is shown in other income and not within the tax charge.

Earnings per share

Basic earnings per share decreased by 3% to 7.99 pence (2022: 8.24 pence) on the increased tax charge. Diluted earnings per share decreased by 2% to 7.90 pence (2022: 8.09 pence).

Cash flow

Cash generated from operations was very strong at £39.2m in the period (2022: £34.0m) up £5.2m on last year. Net cash generated from operating activities was also very strong at £32.2m (2022: £27.2m) with tax payments of £6.5m up on the £6.2m for 2022.

Net cash (including the effect of exchange rate changes) increased by £3.1m to £21.8m at 31 December 2023. In the year the 2022 final dividend and two special dividends were paid, totalling £19.7m (2022: £22.5m). In addition, the purchase of own shares was £4.8m (2022: £5.6m) for both the share buy-back, which ended in June 2023, and to fund the Employee Benefit Trust (EBT). Net capital expenditure of £3.4m was up on last year (2022: £2.3m) with increased capitalisation of software, as expected, up to £2.8m (2022: £1.5m) and with other capex of £0.6m (2022: £0.8m) principally due to investment in IT equipment.

Operating free cash flow conversion
£m	2023	2022
Cash generated from operations	39.2	34.0
Adjusted for:
Capital expenditure	(3.4)	(2.3)
Principal element of the lease payments in respect of IFRS 16	(1.3)	(1.6)
Operating free cash flow	34.5	30.1
Operating profit	30.1	29.6
Operating free cash flow conversion	115%	102%

The Group's Operating Free Cash Flow Conversion (FCF) of 115% (2022: 102%) was very strong, benefiting from extremely prompt payment by customers at year end. As noted before, over time the ongoing trend for 12 month cash conversion will be around 100% as we move to a subscription model.

Balance sheet

The significant movements in the Group's balance sheet, aside from the cash balance which is described above, from 31 December 2022 to 31 December 2023 are detailed below.

Other intangible assets have increased by £2.1m to £5.0m (2022: £2.9m) due to additions to capitalised development costs.

Right of Use Assets and total Lease Liabilities have decreased by £1.0m and £1.1m respectively due to depreciation charges and lease payments made in the year.

Trade receivables reduced by £3.3m to £5.6m at 31 December 2023 (31 December 2022: £8.9m) with very strong cash collection at yearend. Accrued income reduced to £4.6m (31 December 2022: £6.5m) due to prompt billing.

Corporation tax receivable has increased to £1.9m (2022: £0.2m) due to tax payments made during the year and the impact of the R&D tax claims.

Trade and other payables balance increased by £0.5m to £10.0m at 31 December 2023 (31 December 2022: £9.5m).

Contract liabilities reduced slightly by £0.6m to £14.2m at 31 December 2023 (31 December 2022: £14.8m) due to a small reduction in the deferred licence balances.

Capital allocation and distributions

The Group has had very strong cash generation over a number of years and we expect to continue to be cash-generative going forwards. The Group's capital allocation policy takes into consideration the need to continue to invest in our people and technology whilst maintaining strong liquidity. We wish to retain a degree of optionality for future investment which we can assess at the time.

Over the three years since November 2020, ordinary dividends of £9.8m and special dividends of £109.4m for a total of £119.2m have been paid. In addition, we purchased 4.8 million shares at a cost of £7.7m through the share buy-back programme which finished in June 2023. Therefore, over the last three years, there has been a return of over £125m to shareholders.

The Board intends to progressively increase the ordinary dividend as the Group grows, whilst ensuring that we retain a strong balance sheet.

For 2023, we are proposing an ordinary dividend of 1.3 pence per share, amounting to £3.8m, with an ex-dividend date of 30 May 2024. In addition, we have declared a special dividend of 2.0 pence per share, amounting to £5.9m with an ex-dividend date of 2 May 2024.

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. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group has sufficient cash reserves to continue to operate for a period of not less than 12 months from the date of approval of these financial statements. The going concern assessment also includes downside stress testing in line with FRC guidance 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, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing the financial statements.

Subsequent events and related parties

There are no subsequent events that require disclosure. Details about related party transactions are disclosed in note 32.

Duncan Magrath

Chief Financial Officer

13 March 2024

DEFINITIONS

Constant currency

When the Company believes it would be helpful for understanding trends in its business, the Company provides percentage increases or decreases in its revenues or operating profit to eliminate the effect of changes in currency values. When trend information is expressed herein "in constant currencies", the comparative results are derived by re-calculating comparative non-GBP denominated revenues using the average exchange rates of the comparable months in the current reporting period.

Operating free cash flow (FCF) conversion

Operating FCF conversion is calculated as cash from operations, less capital expenditures and the principal element of lease payments, as a percentage of operating profit. Operating FCF is calculated as follows:

	2023	2022
Unaudited	£m	£m
Cash generated from operations	39.2	34.0
Capital expenditure	(3.4)	(2.3)
Principal element of lease payments	(1.3)	(1.6)
Operating FCF generated	34.5	30.1
Operating profit	30.1	29.6
Operating FCF Conversion	115%	102%

Total contract value (TCV)

Total contract value ("TCV") - TCV is calculated by analysing future contract revenue based on the following components:

(i) an assumption of three years of Subscription payments (including maintenance, Cloud Hosting and subscription licence) assuming these services continued as planned (actual contract length varies by customer);

(ii) the estimated remaining time to complete Services and Software deliverables within contracted software implementations, and recognise deferred licence amounts (which may not all be under a signed statement of work); and

(iii) Pre-implementation and ongoing Services and Software work which is contracted under a statement of work. As TCV is a reflection of future revenues, forward looking exchange rates are used for the conversion into GBP. The exchange rates used for the TCV calculation are as follows:

Exchange rates used for TCV	H2 2023	H1 2023	H2 2022
USD	1.25	1.30	1.25
EUR	1.15	1.18	1.18

Consolidated statement of profit or loss and comprehensive income

£m	Note	2023	2022
Continuing operations
Revenue	5	102.0	93.3
Cost of sales		(38.3)	(33.4)
Gross profit		63.7	59.9
Sales, general and administrative expenses		(34.3)	(31.0)
Other income		0.7	0.7
Operating profit	6	30.1	29.6
Share of net loss of joint venture	19	(0.3)	(0.1)
Profit before net finance costs and tax		29.8	29.5
Finance income	10	0.3	-
Finance expense	10	(0.5)	(0.6)
Profit before taxation		29.6	28.9
Taxation	11	(6.1)	(4.4)
Profit for the financial year		23.5	24.5
Other comprehensive income:
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations	27	(0.2)	0.4
Other comprehensive (loss)/income net of tax		(0.2)	0.4
Total comprehensive income for the year		23.3	24.9
Earnings per share (in pence) for profit attributable to the ordinary equity holders of the Company
Basic	12	7.99	8.24
Diluted	12	7.90	8.09

The above consolidated statement of profit or loss and comprehensive income should be read in conjunction with the accompanying notes.

Consolidated statement of financial position

£m	Note	2023	2022
Assets
Non-current assets
Goodwill	14	24.7	24.7
Other intangible assets	15	5.0	2.9
Property, plant and equipment	16	1.0	1.0
Right-of-use assets	17	6.1	7.1
Deferred tax assets	18	0.3	1.6
Interests in joint venture	19	-	0.2
Total non-current assets		37.1	37.5
Current assets
Trade receivables	20	5.6	8.9
Accrued income	21	4.6	6.5
Prepayments	21	3.8	4.5
Other receivables	21	0.3	0.2
Corporation tax recoverable	21	1.9	0.2
Cash and cash equivalents	22	21.8	18.7
Total current assets		38.0	39.0
Total assets		75.1	76.5
Liabilities and equity
Current liabilities
Trade and other payables	23	10.0	9.5
Lease liabilities	24	1.4	1.3
Contract liabilities	23	14.2	14.8
Total current liabilities		25.6	25.6
Non-current liabilities
Lease liabilities	24	6.8	8.0
Provisions for other liabilities	25	0.7	0.9
Total non-current liabilities		7.5	8.9
Total liabilities		33.1	34.5
Capital and reserves
Share capital	26	0.3	0.3
Translation reserve	27	0.2	0.4
Own shares	28	(8.7)	(7.5)
Retained earnings		50.2	48.8
Total equity		42.0	42.0
Total liabilities and equity		75.1	76.5

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

Consolidated statement of changes in equity

£m	Note	Share capital	Own shares	Translation reserve	Retained earnings	Equity attributable to owners of the parent
Balance as at 1 January 2022		0.3	(3.4)	-	46.5	43.4
Profit for the financial year		-	-	-	24.5	24.5
Other comprehensive income		-	-	0.4	-	0.4
Total comprehensive income for the year		-	-	0.4	24.5	24.9
Transactions with owners in their capacity as owners:
Equity-settled share-based payment schemes	29	-	-	-	1.5	1.5
Equity-settled share-based payment schemes - deferred tax impact	18	-	-	-	0.1	0.1
Dividends	31	-	-	-	(22.5)	(22.5)
Own shares distributed	28	-	1.5	-	(1.3)	0.2
Own shares acquired	28	-	(5.6)	-	-	(5.6)
Balance as at 31 December 2022		0.3	(7.5)	0.4	48.8	42.0
Profit for the financial year		-	-	-	23.5	23.5
Other comprehensive (loss)		-	-	(0.2)	-	(0.2)
Total comprehensive income for the year		-	-	(0.2)	23.5	23.3
Transactions with owners in their capacity as owners:
Equity-settled share-based payment schemes	29	-	-	-	1.5	1.5
Equity-settled share-based payment schemes - deferred tax impact	18	-	-	-	(0.5)	(0.5)
Dividends	31	-	-	-	(19.7)	(19.7)
Own shares distributed	28	-	3.6	-	(3.4)	0.2
Own shares acquired	28	-	(4.8)	-	-	(4.8)
Balance as at 31 December 2023		0.3	(8.7)	0.2	50.2	42.0

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated statement of cash flows

£m	Note	2023	2022
Cash flows from operating activities
Profit before tax		29.6	28.9
Net finance costs		0.2	0.6
Share of net loss from joint venture		0.3	0.1
Operating profit		30.1	29.6
Adjustments:
Depreciation	6/16/17	1.8	2.2
Amortisation	6/15	0.7	0.8
Share-based payment charge	29	1.6	1.8
RDEC tax credit	6	(0.5)	-
Net gain on disposal of assets		-	(0.3)
Movement in provisions	25	(0.2)	(0.5)
Movement in working capital:
Movement in contract liabilities	23	(0.6)	3.8
Movement in trade and other receivables	20/21	5.8	(3.6)
Movement in trade and other payables (excluding contract liabilities)	23	0.5	0.2
Cash generated from operations		39.2	34.0
Interest element on lease payments	10/24	(0.4)	(0.6)
Other interest paid	10	(0.1)	-
Income taxes paid		(6.5)	(6.2)
Net cash generated from operating activities		32.2	27.2
Cash flows from investing activities
Purchases of property, plant and equipment	16	(0.6)	(0.7)
Purchases of computer software	15	-	(0.1)
Payments for internally developed software	15	(2.8)	(1.5)
Interest received	10	0.3	-
Net cash used in investing activities		(3.1)	(2.3)
Cash flows from financing activities
Dividends paid to Company shareholders	31	(19.7)	(22.5)
Principal element on lease payments	24	(1.3)	(1.6)
Purchase of own shares	28	(4.8)	(5.6)
Cash used in financing activities		(25.8)	(29.7)
Net increase/(decrease) in cash		3.3	(4.8)
Cash and cash equivalents at the beginning of the year	22	18.7	23.1
Effect of foreign exchange rate changes on cash and cash equivalents		(0.2)	0.4
Cash and cash equivalents at the end of the year	22	21.8	18.7

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 2023

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. 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 or the Company), its subsidiaries and joint venture, and are presented to the nearest £0.1m unless otherwise stated.

The principal activity of the Group is to provide software solutions and consultancy services to the auto and equipment finance industry in the United Kingdom, North America, Europe, Australasia and Africa.

1.1 Basis of preparation

Statement of Compliance

The preliminary results for the year ended 31 December 2023 are prepared in accordance with UK adopted International Accounting Standards (IAS) and interpretations by the IFRS Interpretations Committee applicable to companies reporting under UK adopted IFRS. They do not include all the information required for full annual statements and should be read in conjunction with the 2023 Annual Report. The accounting policies adopted in this preliminary announcement are consistent with the Annual Report for the year ended 31 December 2023.

The financial information has been extracted from the financial statements for the year ended 31 December 2023, which have been approved by the Board of Directors on 13 March 2024. They have been reported on by the Group's auditors and will be delivered to the Registrar of Companies in due course. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The comparative figures for the financial year 31 December 2022 have been extracted from the Group's statutory accounts for that financial year. The Board of Directors approved the 2022 Group financial statements on 1 March 2023, and they have been delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The financial information contained in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

Compliance with IFRS

The Consolidated Financial Statements of the Group have been prepared in accordance with the Companies Act 2006 and with United Kingdom adopted International Accounting Standards.

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 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. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group has sufficient cash reserves to continue to operate for a period of not less than 12 months from the date of these financial statements.

The going concern assessment also includes downside stress testing in line with FRC guidance 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.

On this basis, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing the financial statements.

New and amended standards adopted by the Group

In the current year, the Group has applied a number of amendments to IFRS Accounting Standards issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2023. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. The amendments relevant to the Group are:

· Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction;

· Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates;

· Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Disclosure of Accounting policies; and

· Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.

New standards, amendments and interpretations not yet adopted

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Standards that have been issued but are not yet effective:

· Amendments to IAS 1 - Non-current liabilities with covenants; Amendments to IFRS 16 - Leases on sale and leaseback; Amendments to IAS 7 and IFRS 7 - Supplier finance; and Amendments to IAS 21 - Lack of Exchangeability.

The adoption of these is not expected to have a material impact on the financial statements of the Group.

1.2 Group structure

Basis of consolidation

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.

The Group exercises control over the employee benefit trust because it is exposed to, and has a right to, variable returns from this trust and is able to use its power over the trust to affect those returns. The trust is therefore consolidated by the Group.

Joint arrangements

A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the relevant activities that significantly affect the investee's returns require the unanimous consent of the parties sharing control.

Joint control is the contractually agreed sharing of control of an arrangement, and exists only when decisions about the activities that significantly affect the arrangement's returns require the unanimous consent of the parties sharing control. Judgement is required in determining this classification through an evaluation of the facts and circumstances arising from each individual arrangement. Joint arrangements are classified as either joint operations or joint ventures based on the rights and obligations of the parties to the arrangement. In joint operations, the parties have rights to the assets and obligations for the liabilities relating to the arrangement, whereas in joint ventures, the parties have rights to the net assets of the arrangement.

Alfa only has one joint venture, namely Alfa iQ Limited, which was formed in May 2020. The investment in the joint venture is accounted for using the equity method. The Group's share of the joint venture's net profit/(loss) is based on its most recent financial statement drawn up to the Group's balance sheet date. The total carrying value of investment in the joint venture represents the cost of the investment, including loans which form part of the net investment in the joint venture, plus the share of post-acquisition retained earnings and any other movements in reserves less any impairment in the value of the investment.

The carrying values of joint ventures are reviewed on a regular basis and if there is objective evidence that an impairment in value has occurred as a result of one or more events during the period, the investment is impaired. The Group's share of the joint venture's losses in excess of its interest in that joint venture is not recognised to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture. Unrealised gains arising from transactions with joint ventures are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way, but only to the extent that there is no evidence of impairment.

Loans to the joint venture are measured at fair value on initial recognition, and subsequently carried at amortised cost. Any surplus between the nominal and fair value of the loan is recognised as an investment in the joint venture.

The activity in Alfa IQ is being brought fully into the Group. As a result, the Alfa iQ joint venture ceased its activity in late 2023 and the structure is now in the process of being formally dissolved.

1.3 Segment reporting

Operating 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 splits revenue by type of activity but reports operating results on a consolidated basis, as presented to the CODM, along with the required entity wide disclosures.

The Group discloses revenue split by type of activity, being Subscription, Software and Services.

a. Subscription revenues include recurring revenues paid on a monthly or annual basis, including subscription licence revenues, maintenance and cloud hosting.

b. Software revenues include revenues from the recognition of customised licence revenue, one-off licence fees and any development revenues.

c. Services revenues are revenues from any work done for customers including pre-implementation, implementation work, and ongoing services, but excludes any revenue from development work which is disclosed in Software.

See note 1.5 for details of our revenue recognition accounting policy and note 2 for the critical accounting judgements and estimates in relation to revenue recognition.

1.4 Foreign currency translation

Functional currency

Items included in the consolidated financial statements of each of the Group's subsidiaries are measured using their functional currency. The functional currency of the parent and each subsidiary is the currency of the primary economic environment in which the entity operates. See applicable exchange rates used in 2023 and 2022 below:

	2023		2022
	Closing	Average	Closing	Average
USD	1.27	1.24	1.21	1.24
EUR	1.15	1.15	1.13	1.17
NZD	2.01	2.02	1.90	1.95
AUD	1.87	1.87	1.77	1.78

Presentation currency

The consolidated financial statements are presented in pounds sterling. The Company's functional and presentation currency is pounds sterling.

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.

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. See applicable exchange rates used by the Group above.

1.5 Revenue recognition

The Group derives revenue by type of activity being Subscription, Software and Services (as disclosed in note 1.3).

i Subscription revenue includes the periodic rights to use Alfa Systems, periodic maintenance, subscription (including cloud hosting) and one-off revenue relating to catch-up periodic maintenance;

ii Software revenue includes development revenue (part of the customised licence revenue), options over the right to use Alfa Systems, and one-off licence fees; and

iii Services revenue includes software implementation 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.

Any one contract may include a single performance obligation or a combination of those listed below:

1.5.1 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.

When a customer is in the process of implementing the software, the transaction price is allocated to this based on the stand-alone selling prices (derived from standard day rates) and is recognised over time based on the effort incurred, limited to the amount to which Alfa has a right to payment. Over time recognition is considered appropriate as customers simultaneously receive and consume the benefits provided. For customers under the Group's subscription-based contracts that are undergoing implementation, revenue for software implementation services is deemed to be distinct from any other performance obligation and is recognised based on a percentage-of-completion basis.

When the type of services provided are ongoing services, the transaction price is deemed to be the actual day rate, and revenue is recognised at a point in time as the service is provided.

1.5.2 Development services and licence services (the customised licence)

Another 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.

During the initial phase of implementing the software, 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 of revenue to which Alfa has the right to payment. See note 5.6 for the accounting policy for variable consideration. 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 is tailored to the customer's specific requirements; 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.

Revenue attributable to development services is valued using the residual value method as there are no stand-alone selling prices which are observable, as each project is customised. For customers under the Group's subscription-based contracts that are undergoing implementation, revenue for development services is deemed to be distinct from any other performance obligation and is recognised based on a percentage-of-completion basis.

Once the customer is already using the software and the services provided are ongoing development, the transaction price is deemed to be the actual day rate and revenue is recognised at a point in time as the development service is provided.

1.5.3 Option over the right to use Alfa Systems

In the event that perpetual licence 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 annualises the value of the customised licence performance obligation and compares it to the annual right to use software performance obligation post go live.

The value of this option is built up from the start of the implementation project in line with the percentage of completion of development revenue described in note 1.5.2 above. Following the completion of the implementation project, the value of this option is recognised evenly over the expected remaining customer life.

1.5.4 Periodic right to use Alfa Systems

When a customer pays its maintenance fee annually, this performance obligation represents the proportion of this fee which relates to 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.

When a customer pays for its maintenance fee as part of a subscription contract (see note 1.5.6 below), it will not be treated as a separate performance obligation (and will instead be part of the subscription amount).

1.5.5 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.

1.5.6 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 one or more of 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.

1.5.7 One-off revenue amounts

From time to time, the Group is entitled to receive one-off licence revenue from its customers as they increase the number of contracts on their version of Alfa Systems. Additionally, there are times when catch-up periodic maintenance amounts are entitled to be received by the Group, also as a result of the increased number of contracts. Generally, this revenue is recognised at the point in time it is invoiced, or becomes contractually payable, reflecting the fact that the Group has no remaining performance obligations to satisfy.

Capitalised sales incentive costs

The Group incentivises its sales force for securing sales. In line with IFRS 15, these costs are capitalised and are amortised in line with the percentage of completion of the software implementation project.

Costs to fulfil contracts

The Group has recognised an asset in relation to employee costs to fulfil its long-term development contracts (as disclosed in note 21). These costs relate directly to the contracts, generate or enhance resources to be used to satisfy performance obligations in the future and are expected to be recovered. This asset is presented within prepayments in the statement of financial position. These costs are amortised within cost of sales in line with the percentage of completion of the development project.

1.6 Operating expenses

Operating expenses include items such as personnel costs (including training and recruitment), cost of software not capitalised, research and development costs, and other infrastructure expenses. These items have been grouped into the following categories for disclosure purposes:

· Cost of sales - This includes salaries and other direct costs associated with satisfying customer contracts (including hosting costs) and for developing software.

· Sales, general and administrative expenses - This includes all the residual operating costs.

1.7 Income tax

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.

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.

Under the R&D Expenditure Credit (also referred to as the 'RDEC') scheme, the Group has received a tax credit based on qualifying R&D expenditure. This tax credit is recognised within pre-tax income, as 'Other Income'.

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.

1.8 Leases

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 ten years, and sometimes have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In accordance with IFRS 16, leases are recognised as a right-of-use asset with a corresponding liability, at the date at which the leased asset is available for use by Alfa. These assets and liabilities are initially measured on a present value basis (as set out in more detail below), with each subsequent lease payment allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Alfa assesses whether a contract is, or contains, a lease at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability, with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months, or less) 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.

Lease liabilities

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise:

· Fixed lease payments (including in substance fixed payments), less any lease incentives;

· Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

· The amount expected to be payable by the lessee under residual value guarantees;

· The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and

· Penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The lease liability is presented in separate lines, split between current and non-current liabilities, in the consolidated statement of financial position. It is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group re-measures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

· The lease term has changed, or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate;

· The lease payments change due to changes in an index, or rate, or a change in expected payment under a guaranteed residual value. In these cases, the lease liability is re-measured by discounting the revised lease payments, using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); and

· A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate.

Right-of-use assets

The right-of-use assets comprise:

· The initial measurement of the corresponding lease liability;

· Lease payments made at, or before, the commencement day;

· Any initial direct costs; and

· Restoration cost.

The right-of-use assets are presented as a separate line in the consolidated statement of financial position.

The right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses (if applicable). They are depreciated from the commencement date of the lease and over the shorter period of the lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset, or the cost of the right-of-use asset reflects an expectation that the Group will exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. Currently, the Group does not have any leases that include a purchase option, or transfer ownership of the underlying asset.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located, or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37.

Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee. During the current financial period, there have been no changes in such assessments.

Variable rents that do not depend on an index, or rate, are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included as an expense in the consolidated statement of profit or loss and comprehensive income.

1.9 Impairment of non-financial assets

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.

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.

1.10 Cash and cash equivalents

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.

1.11 Financial assets

Recognition and de-recognition

Financial assets are recognised in the statement of financial position when the Group becomes party to the contractual provision of the instrument.

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.

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); and

· Fair value through other comprehensive income (FVOCI).

In the periods presented, the Group does not have any material financial assets categorised as FVTPL or FVOCI. The classification is determined by both:

· The entity's business model for managing the financial asset; and

· The contractual cash flow characteristics of the financial asset.

All income and expenses relating to financial assets that are recognised in profit or loss, where material, are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within sales, general and administrative 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 their 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 (notes 20 and 21) and cash and cash equivalents (note 22) fall into this category of financial instruments.

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, and reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.

1.12 Trade receivables

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 has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. The expected impairment loss is recognised in the consolidated statement of profit or loss and comprehensive income within sales, general and administrative expenses, and subsequent recoveries are credited to the same account previously used to recognise the impairment charge. During the current and prior period, the result of the above was immaterial and no impairment loss has been recognised.

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.

1.13 Property, plant and equipment

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:

· Fixtures and fittings: 3-10 years

· IT equipment: 2-5 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.

Property, plant and equipment 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.

1.14 Goodwill and other intangible assets

Goodwill

Goodwill arose on the acquisition of subsidiaries in 2012 as part of a group reorganisation and represents the excess of the consideration transferred over the fair value of the identifiable assets acquired and the liabilities and contingent liabilities assumed.

The Group assesses whether goodwill has suffered any impairment on an annual basis in accordance with the accounting policy stated in note 1.9 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.

Budgeted cash flow projections are based on the expectation of signing new customers in the Group's sales pipeline as well as ongoing 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.

Intangible assets

Internally generated 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; and

· Its ability to measure reliably the expenditure attributable to the intangible asset during development.

Commercial viability of new products, modules or capabilities is generally not proven until the major 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 15 for disclosure of development costs which have met the criteria of IAS 38 for recognition. The Group continually assesses the eligibility of development costs for capitalisation on a project-by-project basis.

Externally acquired intangible assets are initially recorded at historical cost. Historical cost includes expenditure that is directly attributable to the acquisition of the item.

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

Amortisation is presented within sales, general and administrative expenses.

Research and development costs which do not meet the criteria set out above are recognised as an expense when incurred. Development costs previously recognised as an expense are not recognised as an asset in subsequent periods.

1.15 Trade and other payables

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 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.

The Group's financial liabilities include trade and other payables and lease liabilities. 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.

Trade and other payables and lease liabilities are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

1.16 Provisions

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 discounting is material, provisions are measured at the present value of the expenditures expected to be required to settle the obligation.

1.17 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 scheme expense

The Group makes equity-settled share-based payments to certain employees, which are measured at fair value at the date of grant and expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. For those share schemes with market-related vesting conditions, the fair value is determined using the Monte Carlo model at the grant date. For share options issued with EPS (non-market) performance vesting conditions, the fair value of the underlying vehicle is equal to the grant date share price discounted by the expected dividend yield to reflect the lack of dividend accrual over the vesting period. For all other share awards, those with pure employment conditions attached, the fair value is determined by reference to the market value of the shares at the grant date or (where they have an exercise price) by using the Black Scholes model. For all share schemes with non-market vesting conditions, the likelihood of vesting has been taken into account when determining the relevant charge. Vesting assumptions are reviewed during each reporting period to ensure they reflect current expectations.

1.18 Equity

Ordinary shares

Ordinary shares are classified as equity. There are no restrictions on the distribution of capital and the repayment of capital.

Cumulative translation reserve

Exchange differences arising on translation of foreign subsidiaries are recognised in other comprehensive income and accumulated in a separate reserve within equity. The cumulative amount would be reclassified to profit or loss if the entity was disposed of.

Own shares

Own shares represent the shares of the parent company Alfa Financial Software Holdings PLC that are either held by the employee benefit trust, or acquired by the Group as part of its share buy-back programme (see note 28).

Own shares are recorded at cost and deducted from equity.

1.19 Earnings per share

Basic 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 (excluding own shares held).

Diluted earnings per share

Diluted earnings per share is calculated in line with the basic earnings per share calculation above except that the weighted average number of shares includes all potentially dilutive options granted by the reporting date as if those options had been exercised on the first day of the accounting period or the date of the grant, if later. The shares have no right to voting or to dividends while held in trust.

2. Critical accounting judgements, estimates and assumptions

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 in future periods 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.

2.1 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 customised licence and implementation revenue streams as well as any maintenance fees during this phase, forms one or a number of performance obligations. Since the residual value method is used for the customised licence revenue (as explained in note 1.5), the estimation of fair value of implementation revenue will impact the contract consideration assigned to the customised licence.

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.

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 (if at all) 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.

2.2 Key sources of estimation uncertainty

Revenue recognition - Estimates feeding through to the customised licence

The customised licence and its associated material right are both impacted by the following estimates:

· 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;

· Estimating the appropriate life of customer relationship: the Group calculates the material right deferral of the customised licence based on the total customer relationship life. This is also the time over which the material right will be spread; and

· Determining the split of maintenance amount between support efforts and right to use: the Group must estimate what percentage of the total maintenance fee relates to the customised licence.

A change to the stand-alone selling price for implementation services to the effective day rate, or an increase in expected customer life by a year, or a 10% variance in the split of maintenance amount between support efforts and right to use, results in an impact on revenue for the year of up to an increase/decrease of £0.1m.

3. Financial risk management

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

Area	Exposure arising from	Measurement	Management
Market risk - foreign exchange	Contracted revenue and costs denominated in a currency other than the entity's functional currency; and Monetary assets and liabilities denominated in a currency other than the entity's functional currency.	Cash flow forecasting and foreign exchange sensitivity	Natural hedging from localised cost base and conversion of foreign currency cash balances into pounds sterling Use of forward contracts to manage some of the foreign exchange risk (these are not hedge accounted)
Credit risk - cash balances	Cash and cash equivalents	Credit ratings	Diversification of bank deposits
Credit risk - customer receivables	Trade receivables and accrued income	Ageing analysis Credit ratings	Credit checks and contractual payment terms
Liquidity	Cash and cash equivalents	Daily cash reporting	Cash forecasting and managing maturity of cash deposits

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 Board. 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 it can provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital structure.

3.1 Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risks 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 20.

The Group's exposure to foreign currency risk in relation to revenue is set out in note 5.4.

The Group utilised forward contracts in both 2023 and 2022 to hedge against foreign currency exposure. The Group has one outstanding commercial foreign exchange contract at 31 December 2023 with a fair value of £0.2m (2022: none outstanding). No hedge accounting has been applied in the year.

A 10% increase in the USD:GBP exchange rate in the year ended 31 December 2023 would have increased revenue and profit by 3% and 6% respectively (2022: 4% and 8% respectively). Management believes that 10% is a reasonable sensitivity given historical exchange rate movement.

3.2 Credit risk

a. 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 treasury 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.

b. 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 related projects, a delay in the settlement of an open trade receivable does not necessarily constitute objective evidence that the trade receivable is irrecoverable.

The Group's customer base predominantly consists of large financial institutions that are financially sound. 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 prompt submission of invoices. 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 accrued income. To measure the expected credit losses, trade receivables and accrued income have been grouped based on shared credit risk characteristics and the days past due. The accrued income relates to unbilled work in progress and has 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 expected loss rates of trade receivables are based on the payment profiles of customer invoices over a period of 36 months before 31 December 2023 (2022: 31 December 2022), and the corresponding historical credit losses experienced within this period. The historical loss rates are then 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 same approach is applied to both trade receivables and accrued income expected credit loss provisions.

The Group has not identified any current factors or forward-looking information which would be relevant to the historical loss rates. Therefore, on this basis, the loss allowance as at 31 December 2023 and 31 December 2022 was immaterial for both trade receivables and accrued income.

See note 20 - Trade receivables for the ageing of trade receivables and significant customer credit risk exposure.

3.3 Liquidity risk

The Group's principal objectives when managing capital are to ensure that funds are available to support its growth strategy and to safeguard the Group's ability to continue as a going concern.

The capital structure of the Group consists of cash and cash equivalents (note 22) 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 financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

		31 December 2023
£m	Total	Less than 6 months	Between 6 to 12 months	Between 1 to 2 years	Between 2 to 5 years	More than 5 years
Trade and other payables	8.0	8.0	-	-	-	-
Lease liabilities - future lease payments	9.3	0.8	0.9	1.6	4.6	1.4

		31 December 2022
£m	Total	Less than 6 months	Between 6 to 12 months	Between 1 to 2 years	Between 2 to 5 years	More than 5 years
Trade and other payables	7.6	7.6	-	-	-	-
Lease liabilities - future lease payments	10.9	0.9	0.9	1.7	4.6	2.8

4. Segments and principal activities

4.1 Revenue by stream

The Group assesses revenue by type of activity, being Subscription, Software and Services, as summarised below:

£m	2023	2022
Subscription	31.8	27.4
Software	15.6	16.3
Services	54.6	49.6
Total revenue	102.0	93.3

4.2 Non-current assets geographical information

Non-current assets attributable to each geographical market:

£m	2023	2022
UK	35.7	34.4
USA	1.0	1.2
Rest of World	0.1	0.3
Total non-current assets	36.8	35.9

Revenue by geographical market is contained within note 5.3. The table above excludes deferred tax assets for both 2023 and 2022.

5. Revenue from contracts with customers

5.1 Customer concentration

There were no customers with revenue accounting for more than 10% of total revenue in the current year. In the prior year, one customer had revenue accounting for 11% of total revenue.

5.2 Timing of revenue

The Group derives revenue from the transfer of goods and services as follows over time and at a point in time in the following revenue segments:

2023 £m	Subscription	Software	Services	Total revenue
At a point in time - time and materials	-	9.8	39.3	49.1
At a point in time - fixed price	-	0.5	-	0.5
Over time - time and materials	-	3.5	15.3	18.8
Over time - fixed price	31.8	1.8	-	33.6
Total revenue	31.8	15.6	54.6	102.0

2022 £m	Subscription	Software	Services	Total revenue
At a point in time - time and materials	-	8.9	33.1	42.0
At a point in time - fixed price	-	0.4	0.4	0.8
Over time - time and materials	-	6.1	16.1	22.2
Over time - fixed price	27.4	0.9	-	28.3
Total revenue	27.4	16.3	49.6	93.3

All goods and services are sold directly to customers.

5.3 Revenue geographical information

Revenue attributable to each geographical market based on where the customer mainly utilises its instance of Alfa, or where the service is rendered, is as follows:

£m	2023	2022
UK	38.1	31.0
USA	33.6	33.6
Rest of EMEA (excl. UK)	23.1	21.3
Rest of World	7.2	7.4
Total revenue	102.0	93.3

5.4 Revenue by currency

Revenue by contractual currency is as follows:

£m	2023	2022
GBP	46.3	39.0
USD	34.6	34.3
Euro	13.9	12.6
Other	7.2	7.4
Total revenue	102.0	93.3

5.5 Liabilities from contracts with customers

£m	2023	2022
Contract liabilities - deferred licence and fees	8.0	8.6
Contract liabilities - deferred maintenance	6.2	6.2
Total contract liabilities	14.2	14.8

Contract liabilities - deferred licence

Where a customer purchases a perpetual software licence, this is generally invoiced upfront at the commencement of the implementation project. Customers generally require additional development efforts over the life of the implementation project in order to customise the underlying code within Alfa Systems. Together, these two elements form the Group's customised licence performance obligation. The fair value of this performance obligation is determined using the residual method as set out in note 1.5.2 and this fair value is recognised as the development effort is expended, on a percentage-of-completion basis.

As such, the deferred licence contract liability balance as at 31 December 2023 and 31 December 2022 represents any amounts received in advance for the customised licence performance obligation being satisfied (including any unrecognised software licence amounts that were received upfront). Additionally, where an option over the right to use Alfa Systems in the future exists, the value of this is also included within the deferred licence contract liability. The contract liability relating to the material right value is increased over the life of the implementation project in line with the percentage of completion of the development efforts and then released on a straight-line basis over the expected remaining customer life post completion of the implementation project.

The deferred licence contract liability balance will increase during the year as a result of:

· Any new upfront software licence payments;

· Any write back in previously recognised revenue as a result of project extensions or re-plans;

· Decreasing percentage of completion of development efforts; and

· Any additional material right balances that are added during the year.

The deferred licence contract liability balance will decrease during the year as a result of:

· Increasing percentage of completion of development efforts; and

· Any release of material right balances following the completion of the implementation project.

Contract liabilities - deferred maintenance

The majority of the Group's customers are invoiced annually in advance for the maintenance and support service provided by the Group. As such, the deferred maintenance contract liability balance will increase as a result of billing and invoices becoming due, and will decrease as the Group satisfies its associated performance obligations. The deferred maintenance contract liability balance as at 31 December 2023 and 31 December 2022 therefore represents the Group's unsatisfied period maintenance performance obligation for which the revenue has been invoiced in advance.

5.6 Unsatisfied performance obligations

During 2020, the Group entered into a new one-off five-year contract with a customer to renew its software licence and maintenance agreements. The total amount of the contract price from this non-cancellable contract that relates to the performance obligations that are unsatisfied at 31 December 2023 is £4.0m (2022: £6.2m). We expect to recognise £2.2m in the next financial year and then the remaining £1.8m in the final financial year of the contract, being 2025.

In addition, the Group has unsatisfied or partially satisfied performance obligations at 31 December 2023 that relate to the licence customisation for those customers that have ongoing implementation projects. This performance obligation includes the delivery of the related software licence and any development efforts which will change the underlying code. Linked to certain of these ongoing and future projects, and also to certain implementation projects completed during 2023, the Group also has unsatisfied or partially satisfied performance obligations at 31 December 2023 that relate to the option over the right to use Alfa Systems, and in particular any material right in respect of discounts to be received by customers in future periods.

The above includes certain amounts recognised as contract liabilities. The transaction price allocated to these unsatisfied or partially satisfied performance obligations as at 31 December 2023 is £9.4m (2022: £11.0m). This amount is expected to be recognised over the remaining life of the implementation projects, in respect of the licence and development efforts, and over the expected customer life (following the completion of the implementation project) in respect of the option over the right to use Alfa Systems. Of the £9.4m, it is expected that £2.0m will be recognised in 2024, with the remainder being recognised in subsequent years.

These unsatisfied or partially satisfied performance obligations are based on management's best judgement and may be impacted in the future by a number of factors including:

· Any possible contract modifications;

· Currency fluctuations;

· External market factors; and

· Changes to the overall forecast project plan including the overall life of the implementation project and any required development efforts.

The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about the unsatisfied performance obligations that have original expected durations of one year or less. This includes those performance obligations linked to ongoing services for all project types (i.e. subscription, software and services).

The Group also applies the practical expedient in paragraph B16 of IFRS 15 and does not disclose the amount of the transaction price allocated to the unsatisfied contract performance obligations where consideration will be received directly corresponding to the value of the performance obligation in the future and this consideration aligns to the value received to date for the corresponding performance obligation. This includes those performance obligations linked to our software implementation services.

The disclosures above for unsatisfied or partially satisfied performance obligations are not relevant to our subscription performance obligations as these are typically satisfied on a monthly basis in line with the termination rights of the customers (see note 1.5.6).

The Group has variable consideration in the form of contract banding for its licence and maintenance volumes. It is included it in the transaction price only to the extent that it is highly probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

6. Operating profit

The following items have been included in arriving at operating profit in the table below:

£m	2023	2022
Research and development costs	3.1	2.2
Depreciation of property, plant and equipment	0.6	0.5
Depreciation of right-of-use lease assets	1.2	1.7
Amortisation of intangible assets	0.7	0.8
Foreign exchange loss / (gain)	0.1	(1.1)
Forward foreign exchange contracts (gain)	(0.4)	-
Share-based payments (including social security contributions)	1.6	1.8
RDEC tax credit*	(0.5)	-
Costs related to possible offers **	0.6	-

*The RDEC tax credit of £0.5m has been presented within 'Other Income'. See note 1.7.

**Costs related to possible offers of £0.6m were incurred in 2023 (2022: nil). These related to legal fees and expenses incurred as a result of two possible offers from private equity firms.

7. Personnel-related costs

£m	2023	2022
Wages and salaries	38.5	34.8
Social security contributions (on wages and salaries)	5.1	4.4
Pension costs	3.2	2.6
Profit share pay*	3.8	3.5
Share-based payments**	1.6	1.8
Total employment costs	52.2	47.1

*Profit share pay refers to a pool of money (that equates to approximately 10% of the Group's pre-tax profits) which is shared amongst the employees, excluding Directors and some other senior managers, as a percentage of basic salary. The amount disclosed includes the related social security contributions.

**This includes the related social security contributions.

Average monthly number of people employed based on location of home office (including Executive Directors)	2023	2022
UK	334	307
USA	86	75
Rest of World	43	38
Total average monthly number of people employed	463	420

At 31 December 2023, the Group had 475 employees (2022: 441).

8. Key management

Key management compensation (including Directors):

£m	2023	2022
Wages, salaries and short-term benefits	2.1	2.7
Social security contributions	0.2	0.3
Post-employment benefits	-	0.1
Share-based payments*	1.0	1.1
Total key management compensation	3.3	4.2

*This includes the related social security contributions.

Key management personnel consist of the Company Leadership Team and the Executive and Non-Executive Directors. Directors' remuneration is detailed in the Remuneration Report.

9. Auditor's remuneration

The Group obtained the following services from the Group's auditor as detailed below:

£m	2023	2022
Audit fees
RSM UK Audit LLP
Audit of the consolidated financial statements	0.2	0.2
Audit of subsidiaries	0.2	0.2
Total audit fees	0.4	0.4
Audit-related assurance fees
Review of interim financial report	0.1	0.1
Total audit-related assurance fees	0.1	0.1
Non-audit services	-	-
Total audit and non-audit-related services	0.5	0.5

10. Finance income and expense

£m	2023	2022
Finance income
Interest income on cash or short-term bank deposits	0.3	-

£m	Note	2023	2022
Finance expense
Interest on lease liabilities	24	(0.4)	(0.6)
Other interest expense		(0.1)	-
Total finance expense		(0.5)	(0.6)

11. Income tax expense

Analysis of charge for the year

£m	2023	2022
Current tax:
Current tax on profit for the year	6.1	5.2
Adjustment in respect of prior years	(1.2)	(1.4)
Foreign tax on profit of subsidiaries for the current year	0.5	0.3
Current tax	5.4	4.1
Deferred tax:
Origination and reversal of temporary differences	0.7	0.2
Adjustment in respect of prior years	-	0.1
Deferred tax	0.7	0.3
Total tax charge in the year	6.1	4.4

The effective tax rate for the year is lower (2022: lower) than the standard rate of corporation tax in the UK. The effective tax rate for the year ended 31 December 2023 was 20.6% (2022: 15.2%). The effective tax rate for the year is impacted by favourable adjustments in respect to prior years totalling £1.2m (2022: £1.3m), due predominately to the benefit of the R&D claim for 2022 (2022: due to the benefit of the R&D claim for 2021 of £0.9m and favourable adjustments in respect to prior year provisions of £0.4m). As the Group is now required to claim relief for R&D under the UK RDEC regime, no tax rate benefit will be expected in the future (the tax benefit is instead reflected in lower cash tax payable) and, as a consequence, the effective tax rate will trend towards the UK statutory tax rate.

The overall tax charge for the year is reconciled as follows:

Analysis of charge for the year

£m	2023	2022
Profit on ordinary activities before taxation	29.6	28.9
Profit on ordinary activities at the standard rate of corporation tax - 23.5% (2022: 19.0%)	7.0	5.5
Tax effects of:
Effect of different tax rates of subsidiaries operating in other jurisdictions	-	0.1
Adjustment in respect of prior years	(1.2)	(1.3)
Impact of disallowable items	0.2	-
Other	0.1	0.1
Total tax charge for the year	6.1	4.4

The rate of UK corporation tax increased from 19% to 25% with effect from April 2023. The blended rate of UK corporation tax for 2023 is therefore 23.5%.

12. Earnings per share

	2023	2022
Profit attributable to equity holders of Alfa (£m)	23.5	24.5
Weighted average number of shares outstanding during the year	294,462,166	296,309,874
Basic earnings per share (pence per share)	7.99	8.24
Weighted average number of shares outstanding including potentially dilutive shares	298,119,816	302,038,789
Diluted earnings per share (pence per share)	7.90	8.09

The weighted average number of ordinary shares in issue excludes 5,537,834 (2022: 3,690,126) shares, being the weighted average number of shares held by the Group under the employee benefit trust, and in Treasury as a result of the share buy-back programme (that completed in June 2023). The weighted average diluted number of ordinary shares outstanding, including share awards, uses an average of 3,657,650 (2022: 5,728,914) dilutive ordinary shares.

13. Financial assets and liabilities

£m	Note	2023	2022
Financial assets
Financial assets at amortised cost:
Trade receivables	20	5.6	8.9
Other financial assets at amortised cost	21	4.9	6.7
Cash and cash equivalents	22	21.8	18.7
Total financial assets		32.3	34.3
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables	23	8.0	7.6
Lease liabilities	24	8.2	9.3
Total financial liabilities		16.2	16.9

14. Goodwill

£m	2023	2022
Cost
At 1 January	24.7	24.7
At 31 December	24.7	24.7

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 five-year period using a pre-tax discount rate of 10.4% (2022: 12.2%) which is based on the CGU's weighted average cost of capital. Cash flows beyond these periods have been extrapolated using a steady 2.7% (2022: 2.5%) average growth rate which is reflective of management's best estimate at the time. 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.

15. Other intangible assets

£m	Computer software	Internally generated software	Total
Cost
At 1 January 2022	1.6	3.1	4.7
Additions	0.1	1.5	1.6
Disposals	-	(0.3)	(0.3)
At 31 December 2022	1.7	4.3	6.0
Amortisation
At 1 January 2022	0.9	1.4	2.3
Charge for the period	0.1	0.7	0.8
Disposals	-	-	-
At 31 December 2022	1.0	2.1	3.1
Net book value
At 31 December 2022	0.7	2.2	2.9
Cost
At 1 January 2023	1.7	4.3	6.0
Additions	-	2.8	2.8
At 31 December 2023	1.7	7.1	8.8
Amortisation
At 1 January 2023	1.0	2.1	3.1
Charge for the period	0.1	0.6	0.7
At 31 December 2023	1.1	2.7	3.8
Net book value
At 31 December 2023	0.6	4.4	5.0

Significant movement in other intangible assets

During 2023, Alfa developed new internally generated software at a cost of £2.8m (2022: £1.5m). This software will be amortised over three to five years.

The total research and product development expense for the period was £3.1m (2022: £2.2m).

16. Property, plant and equipment

£m	Fixtures and fittings	IT equipment	Total
Cost
At 1 January 2022	1.2	3.5	4.7
Additions	0.4	0.3	0.7
Disposals	(0.1)	-	(0.1)
At 31 December 2022	1.5	3.8	5.3
Depreciation
At 1 January 2022	0.8	3.1	3.9
Charge for the year	0.2	0.3	0.5
Disposals	(0.1)	-	(0.1)
At 31 December 2022	0.9	3.4	4.3
Net book value
At 31 December 2022	0.6	0.4	1.0
Cost
At 1 January 2023	1.5	3.8	5.3
Additions	0.1	0.5	0.6
Disposals	-	(1.1)	(1.1)
At 31 December 2023	1.6	3.2	4.8
Depreciation
At 1 January 2023	0.9	3.4	4.3
Charge for the year	0.2	0.4	0.6
Disposals	-	(1.1)	(1.1)
At 31 December 2023	1.1	2.7	3.8
Net book value
At 31 December 2023	0.5	0.5	1.0

17. Right-of-use assets

£m	Motor vehicles	Property	Total
Cost
At 1 January 2022	0.4	19.2	19.6
Additions	0.1	-	0.1
Disposals	-	(8.3)	(8.3)
At 31 December 2022	0.5	10.9	11.4
Depreciation
At 1 January 2022	0.2	5.0	5.2
Charge for the year	0.1	1.6	1.7
Disposals	-	(2.6)	(2.6)
At 31 December 2022	0.3	4.0	4.3
Net book value
At 31 December 2022	0.2	6.9	7.1
Cost
At 1 January 2023	0.5	10.9	11.4
Additions	0.2	-	0.2
At 31 December 2023	0.7	10.9	11.6
Depreciation
At 1 January 2023	0.3	4.0	4.3
Charge for the year	0.2	1.0	1.2
At 31 December 2023	0.5	5.0	5.5
Net book value
At 31 December 2023	0.2	5.9	6.1

The disposal in 2022 relates to the assignment of the lease to the 9th floor of Moor Place, 1 Fore Street Avenue, London. Refer to note 32.3.

The Group recognised the following amounts in the consolidated statement of profit or loss and comprehensive income in relation to leases under IFRS 16:

£m	2023	2022
Depreciation	(1.2)	(1.7)
Interest expense	(0.4)	(0.6)
Short-term lease expense	(0.1)	(0.2)

Sub-lease rentals

One of the leased properties was being sub-leased to tenants under operating leases, with rentals payable quarterly. This sub-lease ended during 2022. Minimum lease payments receivable on these sub-leases of property are as follows:

£m	2023	2022
Within one year	-	-
Later than one year but not later than five years	-	-
Later than five years	-	-
Total sub-lease payments receivable	-	-
Income from sub-lease in the year	-	0.5

18. 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 accruals and share-based payments.

£m	2023	2022
Balance as at 1 January	1.6	1.8
Effect of changes in tax rates	(0.1)	-
Adjustments in respect of prior period	-	(0.1)
Deferred income taxes recognised in the consolidated statement of profit or loss and comprehensive income	(0.7)	(0.2)
Deferred tax on share-based payments recognised in reserves	(0.5)	0.1
Balance as at 31 December	0.3	1.6
Consisting of:
Depreciation in excess of capital allowances	(0.1)	(0.1)
Other timing differences	0.4	1.7
Balance as at 31 December	0.3	1.6

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 £5.5m at 31 December 2023 (2022: £4.1m).

At the reporting date, the provision for deferred tax comprised net deferred tax assets of £0.4m relating to overseas group companies, and net deferred tax (liabilities) in respect to the UK of £(0.1m). In the prior year, the provision for deferred tax comprised net deferred tax assets of £0.4m relating to overseas group companies, and net deferred tax assets in respect to the UK of £1.2m.

19. Interests in joint venture

At the beginning of May 2020, the Group formed Alfa iQ, a joint venture established to greatly enhance Alfa's ability to develop artificial intelligence solutions for the auto and equipment finance industry. The joint venture was set up 51:49 between Alfa and Bitfount, a company founded by Blaise Thomson. The financial and operating activities of the Group's joint venture are jointly controlled by the participating shareholders. The participating shareholders have rights to the net assets of the joint venture through their equity shareholdings. The activity in Alfa iQ is being brought fully into the Group. As a result, the Alfa iQ joint venture ceased its activity in late 2023 and the structure is now in the process of being formally dissolved. The investment in joint venture and the loan have therefore been written off as at 31 December 2023. The interest in the joint venture consists of part investment and part loan to the joint venture, accounted for as set out in note 1.2.

Investment

£m	2023	2022
Carrying amount as at 1 January	0.1	0.2
Other movements	0.1	-
Share of net loss from the joint venture	(0.2)	(0.1)
Carrying amount as at 31 December	-	0.1

Loan to joint venture

£m	2023	2022
Carrying amount as at 1 January	0.1	0.1
Loan write off	(0.1)	-
Carrying amount as at 31 December	-	0.1

The loss from interest in joint ventures is £0.3m (2022: £0.1m) made up of both Alfa's share of its loss for the year and also the write off of the loan (as part of bringing in Alfa iQ's operations into Alfa). The total interest in the joint venture is £nil (2022: £0.2m).

20. Trade receivables

£m	2023	2022
Trade receivables	5.6	8.9
Provision for impairment	-	-
Trade receivables - net	5.6	8.9

Ageing of trade receivables

Ageing of net trade receivables £m	2023	2022
Within agreed terms	5.0	6.4
Past due 1-30 days	0.6	2.4
Past due 31-90 days	-	0.1
Past due 91+ days	-	-
Trade receivables - net	5.6	8.9

The Group believes that the amounts that are past due are fully recoverable as there are no indicators of future delinquency or potential litigation.

Currency of trade receivables

£m	2023	2022
GBP	2.6	4.5
USD	2.4	2.7
Other	0.6	1.7
Trade receivables - net	5.6	8.9

Trade receivables due from significant customers

There were no customers with revenue accounting for more than 10% of total revenue in the current year. In the prior year, the one customer with revenue accounting for more than 10% of total revenue had outstanding trade receivables of £0.7m (all amounts have since 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 3.

21. Other receivables held at amortised cost

£m	2023	2022
Accrued income	4.6	6.5
Prepayments	3.8	4.5
Corporation tax recoverable	1.9	0.2
Other receivables	0.3	0.2
Total other receivables held at amortised cost	10.6	11.4

Accrued income represents fees earned but not yet invoiced at the reporting date which have no right of offset with contract liabilities - deferred licence amounts. Faster invoicing at December 2023 reduced the accrued income balance, which reduced by £1.9m compared with December 2022.

Prepayments include £1.3m (2022: £1.7m) of deferred costs in relation to costs to fulfil contracts - see note 1.5. During the year, £0.2m (2022: £0.3m) relating to costs to fulfil contracts has been recognised within cost of sales.

Corporate tax recoverable at the reporting date of £1.9m (2022: £0.2m) represents UK tax, pending the submission of R&D related claims for 2022 and 2023.

22. Cash and cash equivalents

£m	2023	2022
Cash at bank and in hand	21.8	18.7
Cash and cash equivalents	21.8	18.7

Currency of cash and cash equivalents

£m	2023	2022
GBP	13.5	10.0
USD	3.4	4.3
AUD	1.8	2.1
EUR	2.2	1.9
Other	0.9	0.4
Cash and cash equivalents	21.8	18.7

Cash and cash equivalents are all held with banks and other financial instructions which must fulfil credit rating and investment criteria approved by the Board.

23. Current and non-current liabilities

£m	2023	2022
Trade payables	0.5	0.8
Other payables	9.5	8.7
Contract liabilities - deferred licence and fees	8.0	8.6
Contract liabilities - deferred maintenance	6.2	6.2
Lease liabilities (note 24)	8.2	9.3
Provisions for other liabilities (note 25)	0.7	0.9
Total current and non-current liabilities	33.1	34.5
Less non-current portion	(7.5)	(8.9)
Total current liabilities	25.6	25.6

Other payables includes amounts relating to other tax and social security of £2.0m (2022: £1.9m). Of the remainder, £5.4m (2022: £5.3m) relates to amounts due as part of payroll.

24. Lease liabilities

The following table sets out the reconciliation of the lease liabilities from 1 January 2022 to the amount disclosed at 31 December 2023:

£m	Total
Lease liabilities recognised at 1 January 2022	17.1
Additions	0.1
Disposals	(6.3)
Interest charge	0.6
Payments made on lease liabilities	(2.2)
At 31 December 2022	9.3
Additions	0.2
Disposals	-
Interest charge	0.4
Payments made on lease liabilities	(1.7)
At 31 December 2023	8.2

Additions to lease liabilities include extensions to existing lease agreements. Total lease payments in 2023 were £1.8m (2022: £2.4m).

Below is the maturity analysis of the lease liabilities:

£m	2023	2022
Non-current	6.8	8.0
Current	1.4	1.3
Total lease liabilities	8.2	9.3
No later than one year	1.7	1.8
Between one year and five years	6.2	6.2
Later than five years	1.4	2.9
Total future lease payments	9.3	10.9
Total future interest payments	(1.1)	(1.6)
Total lease liabilities	8.2	9.3

The Group's net debt is made up of cash and cash equivalents and lease liabilities. The movement during the year in lease liabilities is set out above. Movements in cash and cash equivalents are set out in the cash flow statement. These are the only changes in liabilities arising from financing activities in the year.

25. Provision for other liabilities

£m
At 1 January 2022	1.4
Provided in the period	0.3
Utilised in the period	(0.3)
Released in the period	(0.5)
At 31 December 2022	0.9
Provided in the period	0.2
Utilised in the period	(0.4)
Released in the period	-
At 31 December 2023	0.7

Provisions for other liabilities comprise amounts for office dilapidations and employer taxes on share-based payments. It is expected that these will be utilised as follows: £0.3m in 2030 and £0.4m over various years.

26. Share capital

	2023		2022
Issued and fully paid	Shares	£m	Shares	£m
Ordinary shares - 0.1 pence	300,000,000	0.3	300,000,000	0.3
Balance as at 31 December	300,000,000	0.3	300,000,000	0.3

No additional shares have been issued or cancelled in the year ended 31 December 2023.

27. Translation reserve

£m	2023	2022
At 1 January	0.4	-
Currency translation of subsidiaries	(0.2)	0.4
At 31 December	0.2	0.4

28. Own shares

£m	2023	2022
Balance at 1 January	7.5	3.4
Acquired in the year	4.8	5.6
Distributed on exercise of options	(3.6)	(1.5)
Balance at 31 December	8.7	7.5

On 18 January 2022, the Group announced the launch of a share buy-back programme which ended on 30 June 2023. Refer to the Company website for more details.

The own shares reserve represents the cost of shares in Alfa Financial Software Holdings PLC that have been:

· Purchased in the market and held by the Group's employee benefit trust to satisfy options under the Group's share options plans. The number of shares held as at 31 December 2023 was 721,036 (FY 2022: 2,163,952); and

· Purchased in the market and held by the Group as a result of the share buyback programme that was launched on 18 January 2022. The number of shares held at 31 December 2023 was 4,775,119 (FY 2022: 2,832,073).

Own shares distributed relates to shares distributed to employees from the employee benefit trust for bonus awards under share schemes. As at 31 December 2023, the Group held 1.84% (2022: 1.67%) of its own called-up share capital.

29. Share awards

The Group recognised total expenses relating to share-based payment of £1.6m (2022: £1.8m) in the current year. Of this, £1.3m (2022: £1.6m) relates to equity-settled LTIP schemes and £0.3m (2022: £0.2m) relates to Employee ShareSave schemes. See further detail below. The outstanding share schemes are made up of the following:

Grant date	Condition type	Plan	Vesting date	Exercise price	Share options 31 December 2023	Share options 31 December 2022
June 2020	Service and Performance	LTIP	June 2023	0p	-	2,286,502
June 2020	Service Only	LTIP	June 2023	0p	-	35,971
April 2021	Service and Performance	LTIP	April 2024	0p	1,070,668	1,070,668
November 2021	Service Only	LTIP	October 2024	0p	60,872	60,872
November 2021	Service Only	UK Employee ShareSave	January 2025	153.6p	172,832	397,228
November 2021	Service Only	US Employee ShareSave	January 2024	167.0p	40,323	70,515
April 2022	Service and Performance	LTIP	April 2025	0p	741,162	741,162
April 2022	Service Only	LTIP	April 2025	0p	237,965	237,965
April 2022	Service Only	US Employee ShareSave	June 2024	141.1p	27,727	36,731
May 2022	Service Only	UK Employee ShareSave	June 2025	132.8p	214,383	530,320
September 2022	Service Only	LTIP	September 2025	0p	5,917	5,917
April 2023	Service and Performance	LTIP	April 2026	0p	913,963	-
April 2023	Service Only	LTIP	April 2026	0p	383,814	-
April 2023	Service Only	UK Employee ShareSave	June 2026	109.6p	857,493	-
April 2023	Service Only	US Employee ShareSave	June 2025	116.5p	54,960	-

The weighted average share price at the date of exercise for share options exercised during the period was 161.7 pence (2022: 150.0 pence). The options outstanding at 31 December 2023 had a weighted average exercise price of 34.7 pence (2022: 27.1 pence), and a weighted average remaining contractual life of 1.5 years (2022: 1.2 years).

The opening weighted average exercise price at 1 January 2023 was 27.1 pence (1 January 2022: 24.1 pence). The weighted average exercise price of options forfeited and exercised during the year was 161.2 pence (31 December 2022: 128.5 pence). The expected price volatility is based on the historical volatility adjusted for any expected changes to future volatility due to publicly available information. The weighted average exercise price of options granted in the period was 45.4 pence (2022: 48.7 pence).

The total share-based payment charge relating to Alfa Financial Software Holdings PLC shares for the year is split as follows:

£m	2023	2022
Employee share schemes - value of services	1.5	1.5
Expense in relation to fair value of social security liability on employee share schemes	0.1	0.3
Total cost of employee share schemes	1.6	1.8

Details of the share options outstanding during the year are as follows:

	2023	2022
Outstanding at 1 January	5,473,851	5,470,741
Conditionally awarded in year	2,210,230	1,552,095
Exercised	(2,322,473)	(1,032,382)
Forfeited or expired in year	(579,529)	(516,603)
Outstanding at 31 December	4,782,079	5,473,851
Exercisable at the end of the year	-	-

29.1 LTIPs

The June 2020 LTIP awards vested during the year. The exercise of these awards had a net impact of £1.7m on own shares and £3.4m on retained earnings.

The 2021 April LTIP awards and the 2022 April LTIP awards (service and performance conditions) are conditional on performance conditions, 50% based on EPS performance (non-market condition) and 50% on TSR (market condition) as well as a three-year employment fulfilment. The fair value of these awards has been determined using the Monte Carlo model.

The 2021 November LTIP awards, the 2022 April LTIP awards and the 2022 September LTIP awards (service conditions) are conditional on employment only. The fair value of these awards is equal to the closing share price on the date of grant, discounted by the expected 12-month dividend yield to reflect the lack of dividend accrual over the vesting period. The expected price volatility is based on the historical volatility (based on the remaining life of the scheme), adjusted for any expected changes to future volatility due to publicly available information.

The 2023 April LTIP awards (service and performance conditions plan) are granted conditional on performance conditions, 50% based on EPS performance (non-market condition) and 50% on TSR (market condition) as well as a three year employment fulfilment. For those awards with market-related vesting conditions, the fair value has been determined using the Black Scholes model at the grant date. For awards issued with EPS (non-market) performance vesting conditions, the fair value of the underlying option is equal to the grant date share price. The following table lists the inputs to the model used for the awards granted in the year ended 31 December 2023 based on information at the date of grant:

LTIP awards (granted in April)	TSR element	EPS element
Share price at date of grant	139.0p	139.0p
Award price	0p	0p
Volatility	47.0%	0.0%
Embedded TSR	10.3%	-
Average correlation	19.8%	-
Life of award	3 years	3 years
Risk-free rate	3.43%	-
Fair value per award	68.1p	124.1p

In April 2023, the Group awarded to certain employees an LTIP conditional on employment only. The fair value of these awards on the date of grant is 124.1p, discounted by the expected 12-month dividend yield to reflect the lack of dividend accrual over the vesting period (three years).

All of these Company schemes, as well as any non-cyclical awards, are equity-settled by award of ordinary shares.

29.2 Employee ShareSave Scheme

The Group has in place an Employee ShareSave Scheme - the Save As You Earn (SAYE) scheme in the UK and Employee Stock Purchase Plan (ESPP) scheme in the USA. Under these schemes, eligible employees can save up to a set limit each month. At the end of the savings period (three years for SAYE and two years for ESPP), employees can choose whether or not they wish to buy the shares at the option price or take back their savings as cash. The option price is the share price at the start of the plan with a 20% discount for the UK scheme and 15% discount for the US scheme. The fair value of these awards has been determined using the Black Scholes model at the grant date.

	31 December 2023
	SAYE		ESPP
	Number of share options	Exercise price	Number of share options	Exercise price
Outstanding at beginning of year	927,548	145.0p	107,246	158.0p
Conditionally awarded in year	857,493	109.6p	54,960	116.5p
Forfeited or expired in year	(75,699)	145.0p	(21,436)	156.1p
Replaced in year (i.e. left an earlier plan to join the new plan)	(464,634)	140.9p	(17,760)	167.0p
Outstanding at the end of the year*	1,244,708	119.7p	123,010	138.6p
Exercisable at the end of the year	-	-	-	-

* The exercise price is a weighted average.

The inputs used in the calculation of the fair value of options granted in the year were as follows:

	SAYE 31 December 2023	ESPP 31 December 2023
Share price	142.0p	136.5p
Exercise price	109.6p	116.5p
Expected volatility	52.40%	45.30%
Expected life	36 months	24 months
Risk-free rate	3.68%	3.48%
Expected dividend yields	3.70%	3.70%
Fair value per award	54.0p	40.2p

30. Unrecognised items

30.1 Contingencies and commitments

The Group has no capital commitments, no material contingent liabilities and no contingent assets.

30.2 Events occurring after the reporting period

There have been no reportable subsequent events.

31. Dividends

A 2022 ordinary dividend of 1.2 pence per share was paid on 26 June 2023 amounting to £3.5m (2022: £3.3m at 1.1p per share).

A 2023 special dividend of 1.5 pence per share was paid on 9 May 2023 amounting to £4.4m (2022: £8.9m at 3.0p per share).

A 2023 special dividend of 4.0 pence per share was paid on 6 October 2023 amounting to £11.8m (2022: £10.3m at 3.5p per share).

Subject to approval at the Annual General Meeting on 1 May 2024, a 2023 final dividend of 1.3 pence per share will be paid on 27 June 2024 to holders on the register on 31 May 2024. The ordinary shares will be quoted ex-dividend on 30 May 2024. In addition, the Board has decided to declare a special dividend of 2.0 pence per share, with an ex-dividend date of 2 May 2024, a record date of 3 May 2024 and a payment date of 30 May 2024.

32. Related parties

32.1 Controlling shareholder

The ultimate parent undertaking as at 31 December 2023 was CHP Software and Consulting Limited (the 'ultimate parent'), which was the parent undertaking of the smallest and largest group in relation to these consolidated financial statements. Following an internal reorganisation within the CHP group, the ultimate parent (from 12 January 2024 onwards) is CHP Software and Consulting Holdings Limited. The ultimate controlling party is Andrew Page.

32.2 Basis of consolidation

The principal subsidiaries and joint ventures of the Group and the Group percentage of equity capital are set out below. All these are consolidated within the Group's financial statements with the exception of Alfa iQ which is accounted for using the equity method.

	Registered address and country of incorporation	Principal activity	Held by Company 2023	Held by Group 2023	Held by Company 2022	Held by Group 2022
Alfa Financial Software Group Limited	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Holding company	100%	100%	100%	100%
Alfa Financial Software Limited	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Software and services	-	100%	-	100%
Alfa Financial Software Inc	124 E Hudson Ave, Royal Oak, MI 48067, United States	Software and services	-	100%	-	100%
Alfa Financial Software Australia Pty Limited	Lisgar House, Level 3, 32 Carrington Street, Sydney, NSW, 2000, Australia	Services	-	100%	-	100%
Alfa Financial Software NZ Limited	Level 1 Building B, 600 Great South Road, Greenlane, Auckland 1051, New Zealand	Services	-	100%	-	100%
Alfa Financial Software GmbH	Peter-Müller-Straße 3, Düsseldorf Airport City BC GmbH & Co. KG, 40468 Düsseldorf, Germany	Software and services	-	100%	-	100%
Alfa Financial Software International Limited	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Software and services (Dormant)	-	100%	-	100%
Alfa iQ Limited*	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Software and services	-	51%	-	51%

*The activity in the Alfa iQ joint venture ceased in late 2023 and the structure is now in the process of being formally dissolved.

32.3 Transactions with related parties

Full details of the Directors' compensation and interests are set out in the Directors' Remuneration Report. See note 8 for further detail on remuneration of key management (including Directors).

Dividends to the amount of £11.8m were paid to the ultimate parent (2022: £15.0m).

Dividends of 1.5 pence, 1.2 pence and 4.0 pence per share were paid to all shareholders in 2023 (2022: 3.0 pence, 1.1 pence and 3.5 pence per share). Directors and other key management received dividends based on their beneficial interest in the shares of the Company. Directors' beneficial interests in the shares of the Company are disclosed in the Remuneration Report.

In 2020, the Group invested £0.4m in Alfa iQ consisting of: a capital contribution of £0.3m; and an interest-free loan fair valued at £0.1m. At 31 December 2023 the investment is carried at £nil (2022: £0.1m) and the loan is carried at £nil (2022: £0.1m). This is because the activity in the Alfa iQ joint venture ceased in late 2023 and the structure is in the process of being formally dissolved. In 2023 Alfa Financial Software Limited paid expenses of £0.1m (2022: £0.1m) on behalf of Alfa iQ Limited (relating to computer costs and payroll) and these were fully recharged back to Alfa iQ Limited at no mark up.

On 29 July 2022, the Group reached an agreement for the assignment of its lease to the 9th floor of Moor Place, 1 Fore Street Avenue, London (including a car parking space) to the ultimate parent. There is no consideration for the transaction, with the ultimate parent taking on all the rights and liabilities for the 9th floor from Alfa. The assignment of the lease resulted in the de-recognition of the right of use asset and lease liability, which resulted in a one-off gain of £0.6m which was fully recognised in 2022.

In 2022, the Company had rental income of £0.4m from a short-term rental agreement with the ultimate parent for rental of the 9th Floor of Moor Place. There was no such income in 2023 due to the assignment of the lease to the 9th floor of Moor Place, 1 Fore Street Avenue, London to the ultimate parent in July 2022. In 2022 the Company also received rental income of £3,718 relating to its prior arrangement with the ultimate parent for the rental of a meeting room on the 9th Floor of Moor Place. There was no such income in 2023 due to the assignment mentioned above.

In 2023, the Company paid property expenses of £0.04m (2022: £nil) on behalf of the ultimate parent and these were fully recharged back to the ultimate parent at no mark up.

In 2023, the Company sold two debentures to the ultimate parent for £0.2m (2022: nil). The transaction was at arm's length.

The balances outstanding from the ultimate parent at 31 December 2023 and 2022 were £nil and £nil respectively. There were no other outstanding receivable balances from related parties at the end of the reporting period.

33. Offsetting assets and liabilities

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 assets and liabilities that are offset as at 31 December 2023 and 31 December 2022 in the consolidated statement of financial position.

31 December 2023 £m	Gross amounts	Amounts offset	Net amounts presented
Accrued income	5.5	(0.9)	4.6
Contract liabilities - deferred licence	(8.9)	0.9	(8.0)

31 December 2022

£m

Gross

amounts

Amounts

offset

Net amounts

presented

Accrued income

15.6

(9.1)

6.5

Contract liabilities - deferred licence

(17.7)

9.1

(8.6)

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The responsibility statement below has been prepared in connection with the annual report and financial statements for the year ended 31 December 2023. 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 applicable set of accounting standards, 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; and

- the strategic report, contained within the annual report and financial statements for the year ended 31 December 2023, 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.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Alfa Financial Software Holdings PLC websites. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

This responsibility statement was approved by the Board of Directors and is signed on its behalf by:

Andrew Denton

Chief Executive Officer

13 March 2024

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.

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Alfa Financial Software Holdings (ALFA)

Friday, 22nd November 2024

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