Trading Update

Alpha Group International PLC

23 July 2024

 

23 July 2024

Alpha Group International plc

("Alpha" or the "Group")

Trading Update

Alpha Group International plc (LON: ALPH) a high-tech, high-touch provider of financial solutions to corporates and institutions, today provides a trading update for the six-month period ended 30 June 2024.

Key Highlights for H1 2024

	-      Group revenue increased by 16% to over £64m (H1 2023: £55m)
	-      Corporate revenue1 increased by 12% to £30m (H1 2023: £27m)
	-      Institutional revenue1 increased by 15% to £33m (H1 2023: £29m)
	-      Cobase revenue increased by 80% to £1m, compared to H1 2023 (pre acquisition)
	-      Average client balances increased by 16% to £2.07bn (H1 2023: £1.77bn)
	-      Net Treasury Income (client and own)2 of £42m (H1 2023: £34m)
	-      Total income3 increased 19% to £107m (H1 2023: £90m)
	-      Delivered strong underlying profit margins alongside continued strategic investment
	-      Strong cash and liquidity position with adjusted net cash of £180m4
	-      Inclusion in the FTSE 250 in June, following a successful listing on the Premium Segment of the Main Market in May
	-      Two share buyback programmes totalling up to £40m, with over £20m completed to date
	-      Appointment of Dame Jayne-Anne Gadhia to the Board as Chair Designate in May 2024

¹ Change in segmental reporting to Corporate & Institutional divisions to more closely align to the Group's organisational structure and provide better clarity around our business model. A reconciliation has been provided as an appendix to this announcement.

² 'NTI comprises of NTI-client: £41.8m (H1 2023: £33.3m) and NTI-own: £0.7m (H1 2023: £0.8m).

³ Total income is made up of the Group's total revenues plus Net Treasury Income (client and own)

⁴ The Group's statutory cash position can fluctuate significantly from day to day due to the impact of changes in collateral paid to banking partners, margin received from clients, early settlement of trades, or the unrealised mark-to-market profit or loss from client swaps. 'Adjusted net cash' therefore excludes these items.

Overview

The Group performed well during H1 of this year, delivering strong growth in revenue and profit in both its corporate and institutional markets. Group revenues increased by 16% to over £64m (H1 2023: £55m), which includes a £1m contribution from Cobase (organic growth without Cobase of 14%). This growth has been delivered whilst maintaining strong underlying profit margins alongside continued strategic investment. Furthermore, the Group generated an additional £42m in net treasury income (Own and Client), taking total income in H1 to £107m (H1 2023: £90m).

Despite continuing headwinds persisting within the Institutional market, trading year to date has been encouraging and remains in line with expectations at the start of the year. The Board looks forward to sharing its half-year results statement in September.

Changes to Reporting Segments

Historically the Group has reported on its performance through the lens of its two core service offerings: FX risk management and alternative banking. However, as the Group has expanded into new markets and added more products, continuing to report through these segments has potentially made our business model more difficult to understand than it needs to be. This is a view that has been shared by a number of our investors, and therefore, after careful consideration, we have chosen to change the way we present the business to better reflect the current operating model.

These improvements will see us reporting through the lens of the two key markets we operate in: the corporate market and the alternative investment / institutional market. Importantly, this also aligns with how our business is now run operationally: our Corporate and Institutional divisions have separate organisational structures, leadership teams and offices. We will continue to disclose the contributions that each of our service offerings has on the division's performance - these offerings being: FX risk management, alternative banking, fund finance and bank connectivity (Cobase).

We hope these changes will make it easier to understand our business model, strategy, performance, and what is driving our growth. We have also included a historical comparison at the end of this statement to show how our figures would have looked under our previous method of segmental reporting.

Corporate Division

About

Our Corporate division operates from its own UK HQ (consisting of sales and operations), and six additional international sales offices in Amsterdam, Madrid, Milan, Munich, Sydney and Toronto. Revenues are derived from the provision of FX risk management services to corporates across more than 50 countries.

Summary

Whilst the business environment impacting corporate markets remains more challenging than in previous years, market activity now feels broadly consistent with what we saw in H1 last year. Companies are continuing to take a more conservative approach to their forecasting, and thus hedging; however, we have moved beyond the peak levels of uncertainty that we saw in Q3 2023 around inflation and interest rates.

Against this backdrop, our strategy of winning more clients whilst growing wallet share with existing ones has proved resilient. Corporate revenues increased by 12% to £30m (H1 2023: £27m), client numbers increased by 9% to 941 (H1 2023: 862), and average revenue per client increased marginally to £63k (2023 H1: £62k).

Breaking this performance down, six of our seven offices grew revenues against H1 of last year, including our UK HQ. The exception was our Toronto office, where revenues were marginally down on H1 2023, but the team has a strong pipeline going into H2, and we are seeing all the right indicators for them to deliver long-term sustainable growth. Our newest office in Munich was launched in Q4 of last year and is off to an excellent start, finishing the half ahead of our internal expectations.  

Whilst we are pleased with the performance to date, a more challenging environment also brings with it a heightened risk of businesses defaulting. Although Alpha has not experienced any significant client defaults to date, this is a risk that we will nonetheless continue to manage judiciously moving forward. Ultimately, our focus remains on adopting a risk appetite that will allow us to maximise revenue whilst minimising risk, rather than targeting a total absence of default.

Institutional Division

About

Our Institutional division operates from its own UK HQ (consisting of sales and operations) and two additional operations offices in Luxembourg and Malta. Revenues are derived from the provision of FX risk management, alternative banking and fund finance services to alternative investment managers and their service providers. Asset classes principally include: private equity, private credit, venture capital, fund of funds, real estate and infrastructure.

Summary

The subdued business environment we saw within our institutional market in 2023 has remained stubbornly with us throughout the first half of this year, and our own experience on the ground aligns with the Q1 analysis of institutional deal flow and volume published by Preqin.

Despite this challenging backdrop, our Institutional division continued to deliver strong growth across both its core product lines in alternative banking and FX risk management. This resulted in institutional revenues growing by 15% to £33m (H1 2023: £29m), FX Risk management client numbers increasing by 19% to 271 (H1 2023: 227), and account numbers increasing by 31% to 7,030 (H1 2023: 5,350). The division's latest product line, fund finance, launched in May of 2023 has also continued to perform positively, with a strong and growing pipeline of interest.

Cross-selling of our offerings has remained strong and validates our continued investment in building a comprehensive product solution customised to this marketplace - a bank alternative dedicated to the alternative investment industry.

Whilst market conditions within the institutional market are likely to remain challenging throughout the remainder of the year, the division's performance has been encouraging, and our teams have continued to make excellent strategic progress. We are therefore both confident in the division maintaining its momentum in the near term, and excited about the division's prospects as market conditions return to those that we experienced when we first launched our service offering.

Cobase

About

Cobase is a treasury-focused technology platform acquired by the Group in December 2023. Based in Amsterdam, the company provides bank connectivity technologies that enable corporates and institutions to manage their banking relationships, accounts and transaction activity all in one place. Revenues are derived from platform usage and annual subscription fees.

Summary

The sales process that Cobase went through between June and December of last year, represented an unavoidable but nonetheless sizeable distraction for the team in Amsterdam. It is therefore pleasing to note that, despite this disruption, the team continued to hit the ground running in the first half of this year; revenues were £1m with client numbers increasing to 169. This represents growth on their 2023 H1 pre-acquisition revenue and client numbers of 80% and 55% respectively. Whilst currently, the majority of these clients continue to come from Cobase's own sales and marketing activities, our corporate and institutional teams are gradually upskilling on the Cobase offering and both teams have now successfully signed up customers and are building strong pipelines.  

Balance Sheet

As we have continued to open more accounts and grow the size of our client balances, the net treasury income¹ we receive on these balances has also continued to grow, up 25% against the same period last year to £42m (H1 2023: £33m). This increase in Net Treasury Income - Client has also helped to maintain an adjusted net cash position of £180m at the period end (H1 2023: £142m, FY2023: £179m) whilst also completing over £20m in share buybacks.

Interest rates are widely expected to come down over the medium to long term. This represents a headwind for net treasury income, however, falling interest rates are good for our underlying trading prospects: as rates go down, the trading activity of both our corporate and institutional clients should increase. This will then also provide us with more opportunities to open accounts, leading to larger balances, which will then go on to earn more interest income.

A quarter-on-quarter breakdown of our average client balances and interest rates is shared below.

Quarter	Blended average client balance, Alternative Banking	Blended average interest rate
Q2 2024	£2.1bn	3.9%
Q1 2024	£2.0bn	4.0%
Q4 2023	£2.1bn	3.8%
Q3 2023	£1.9bn	3.8%
Q2 2023	£1.9bn	3.8%
Q1 2023	£1.6bn	2.8%

¹ A full explanation of Net Treasury Income can be found here.

Share Buyback Programmes of up to £40 million

Between 30 January 2024 and 27 June 2024, Alpha completed its £20 million share buyback programme, repurchasing 1,006,428 shares at an average price of £19.87.

Following the conclusion of this programme, the Board reviewed its cash position and, after giving careful consideration to its current cash balances, the likelihood of further cash generation this year and beyond, and the views of its shareholders, decided to implement a second buyback programme of £20 million. This buyback commenced on 28 June and will expire on or before the company's next AGM (see announcement here).

Since the start of this new buyback, the company has purchased an additional 30,000 shares at an average price of £24.20, taking the total value of shares purchased since its first buyback on 30 January 2024 to £20.7m.

Appendix | Historical Comparison

i) Reporting Framework

	Key	2020	2021			2022			2023
		FY £'000	H1 £'000	H2 £'000	FY £'000	H1 £'000	H2 £'000	FY £'000	H1 £'000	H2 £'000	FY £'000
Group Historical Disclosure
FX Risk Management	A	39,791	24,731	32,305	57,036	32,286	37,223	69,509	39,144	37,185	76,329
Alternative Banking	B	6,426	9,453	10,982	20,435	13,858	14,965	28,823	16,315	17,612	33,927
Cobase											186
Total		46,217	34,184	43,287	77,471	46,144	52,188	98,332	55,459	54,797	110,442
Institutional operating segment, historical disclosure1
Institutional FX Risk Management1	C	7,492	4,578	6,491	11,069	8,058	7,075	15,133	12,584	10,934	23,518
Institutional Alternative Banking		1,282	2,318	2,247	4,565	2,872	1,831	4,703	2,141	1,560	3,701
Total		8,774	6,896	8,738	15,634	10,930	8,906	19,836	14,725	12,494	27,219
Revised Group with new divisions
Corporate	A - C	32,299	20,153	25,814	45,967	24,228	30,148	54,376	26,560	26,251	52,811
Institutional	B + C	13,918	14,031	17,473	31,504	21,916	22,040	43,956	28,899	28,546	57,455
Cobase											186
Total		46,217	34,184	43,287	77,471	46,144	52,188	98,332	55,459	54,797	110,442

ii) FX Risk Management Client Numbers

FX Risk Management client numbers	2020	2021		2022		2023
	FY	H1	FY	H1	FY	H1	FY
Corporate	659	685	709	772	838	862	838
Institutional	95	153	172	203	211	227	233
Total (as previously reported)	754	838	881	975	1,049	1,089	1,071

¹ As reported in Segmental Reporting note to the Group's accounts

Enquiries:

Alpha Group International plc Morgan Tillbrook, Founder and CEO Tim Powell, CFO	Via Alma Strategic Communications
Alma Strategic Communications (Financial Public Relations) Josh Royston Andy Bryant Kieran Breheny	[phone]

Notes to editors

Alpha is a high-tech, high-touch provider of financial solutions dedicated to corporates and institutions. Working with clients across 50+ countries, we blend intelligent human capabilities with new technologies to provide an enhanced alternative to traditional banking services, with solutions covering: FX risk management, global accounts, mass payments, fund finance, and cash management.

Key to our success is our team - over 450 people based across ten global offices, brought together by a high-performance culture and a partnership structure that empowers them to act as owners of our business.

Despite being an established business listed on the London Stock Exchange, we remain relentlessly focused on maintaining the same level of operational agility and client focus we had when we first started in 2009. This dynamic, combined with the passion of our people, has enabled us to make a substantial and enduring difference to our clients, and deliver a growth story to match.

 

END