Full Year Results

RNS Number : 4823S

Alpha FX Group PLC

17 March 2021

 

17 March 2021

Alpha FX Group plc

("Alpha FX" or the "Group")

Full Year results

for the year ended 31 December 2020

Alpha FX Group plc (AIM: AFX), a provider of FX risk management and alternative banking solutions to corporates and institutions internationally, is pleased to announce its audited Full Year results for the year ended 31 December 2020.

Financial Highlights

· Group revenue up 31% to £46.2m (2019 £35.4m)

· Underlying* profit before tax up 20% to £17.5m (2019 £14.6m)

· Reported profit before tax up 27% to £17.1m (2019 £13.5m)

· Underlying profit before tax margin of 38% (2019 41%)

· Basic earnings per share up 15% to 31.7p (2019 27.7p) and on an underlying basis 32.8p (2019: 30.1p)

· Final dividend of 8.0 pence per share, payable on 14 May 2021 to shareholders on the register as at 16 April 2021

Operational highlights

· 16% increase in client numbers, from 648 to 754**

· Average revenue per client grew by 12%

· 32% increase in average employee headcount, from 102 to 135

· 44% of employees hold a long-term equity interest in the business***

· Solid cash position and debt free with £91m net assets and £52m in free cash

· Cash conversion of 100%, excluding the impact of our Norwegian client (2019 72%)

· Canadian office launched in 2018 now profitable for the full year

· Alpha Platform Solutions launched in 2018 now profitable and grew year on year revenues by over 600%

* Underlying excludes the impact of exceptional property related costs in the prior year and non-cash share-based payments.

** The Group exclude Training Accounts (those that have generated less than £10,000 in revenue since being onboarded) in order to provide a clearer picture of client retention for the purposes of these figures.

*** The Group defines a 'long-term equity interest' as an equity stake: held prior to the Company's IPO; or held in the Group's B, C or E growth share scheme; or shares owned directly in one of the Group's trading subsidiaries.

 

Outlook

The success of our investments to date has ensured that the market opportunity for Alpha remains strong, and our business resilient, even under the most testing conditions.

Whilst COVID-19 provides a continuing cause for caution across the world, the Group has made an excellent start to the year.  Subsequently, the Board remains optimistic that, providing the situation under COVID-19 does not deteriorate, the Group is on track to deliver another strong year of growth.

Morgan Tillbrook, Chief Executive Officer of Alpha FX, commented:

"For many companies across the world, 2020 has represented their greatest challenge to date, and Alpha was no different. However, what I witnessed last year was a team that grew more ambitious, more determined and more connected with every challenge that was thrown at them. The result that the market will see today was another year of consecutive growth across all divisions, and I am naturally delighted with this. However, I believe the long-term benefits for our team and culture, having overcome this experience together, will prove far more valuable still."

Enquiries:

Alpha FX Group plc   via Alma PR

Morgan Tillbrook, Founder and CEO

Tim Kidd, CFO

Liberum Capital Limited (Nominated Adviser and Sole Broker)                      Tel: [phone]

Neil Patel

Richard Bootle

Kane Collings

Alma PR (Financial Public Relations)  Tel: [phone]

Josh Royston

Helena Bogle

Market Abuse Regulation

This announcement is released by Alpha FX Group plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

The person who arranged for the release of this announcement on behalf of Alpha FX Group plc was Tim Kidd, Chief Financial Officer.

Notes to Editors

Alpha provides FX risk management and alternative banking solutions to corporates and institutions across the UK, Europe and Canada.  Combining leading expertise and technology, the Group partners with a small number of high value clients to provide enterprise-level solutions across four key areas: FX risk management, international payments, accounts and collections. Since it was incorporated in 2010, Alpha FX has been able to build and retain a high-quality client base that includes a number of highly respected brands.

 

Chief Executive's Statement

The financial results demonstrate another year of profitable revenue growth, which is particularly impressive when set against the backdrop against which they were delivered. When I wrote this statement last year it was to celebrate Alpha's 10-year anniversary and state that we were well placed to enjoy a long, profitable future. At the time, it was impossible to foresee the challenges that we would face in the year ahead. Our focus on culture has always been of paramount importance and has enabled us to meet these challenges head-on, navigate our path through them, and learn from them. As a result, we have emerged an even stronger, more balanced and more resilient group in order to drive growth for the next decade and beyond. The increasingly diverse nature of our Group has also added greater levels of resilience, justified our investments to date, and has given us greater confidence in the ambitious plans that we have for the future.

At the end of the first quarter, the acceleration of COVID-19, coupled with the collapse of the oil price into negative territory, led to unprecedented falls in the value of certain currencies, resulting in many clients seeing the value of their forward contracts deviate significantly. One client was left with outstanding payment obligations of over £30m, when the Norwegian Krone fell 15.9% against the US Dollar in a single week, having already depreciated over 15% in the prior weeks, during which time they continued to meet their margin obligations on time. This was nearly three times its previous largest weekly fall of 6.4% recorded during the 2008 financial crisis. Since agreeing a weekly repayment plan with the client, all payments have been received on time, which is testament to the client's strong financial standing and the robustness of our credit underwriting. In retrospect, the core issue was overconcentration in one client. The experience acts as a further reminder to never underestimate how irrational markets can be, and not to assess future volatility based off historical records. We need to be prepared for the unexpected - and more.  We have therefore decided to introduce controls to ensure our client concentration never reaches those sorts of levels again.

As highlighted at the time of our interim report, we have carried out a thorough review of our internal processes and completed additional steps to further enhance the business's resilience and safeguard the interests of all our stakeholders. This includes reducing our appetite for material client concentrations (regardless of their credit standing) moving forward. Additionally, in order to give our clients, suppliers and investors improved visibility, we now bi-annually publish our concentration of clients by sector, and top 20 clients as a percentage of our forward book, the largest of which represents less than 3% at the end of the full year - five times lower than it was in 2019.  The full breakdown can be viewed online at: https://www.alphafx.co.uk/investors/financial-information/client-concentration/sector-concentration/. 

As a fast-paced, high-tempo business, the global slowdown in the wake of the pandemic gave us a rare moment to pause and reflect on what has made us successful to date and reassess our strategy from an outside perspective. In doing so, we realised we had an incredible platform for growth: an exceptional team, armed with a highly diversified offering, standing before a marketplace we have barely scratched the surface of.  It is a privileged position to be in, and we have worked hard to get here.  However, as I said to the team in a recent townhall, this is still only the beginning. To ensure our growth continues, I believe we now need to set our sights on upholding three strategic focuses. These are:

-  cultural density - providing an exceptional community full of opportunity, that inspires our team to expel discretionary energy and go further than our peers;

-  client-centricity - scaling a high-performing yet humble sales team that puts our clients' needs first whilst seeking to better understand them and;

- operational agility - reducing complexity and complacency as we scale to provide a low friction and efficient experience for our clients and employees.

As businesses scale, these are often the three areas they lose touch with. Yet I believe they are also the most important to our growth and we must therefore protect them with vigour. I passionately believe that if we remain client-centric, operationally agile, and protective of our culture at all costs, this fantastic growth story will continue long into the future for the benefit of the team, our clients and our shareholders.

Market Opportunity

The market opportunity for Alpha continues to grow, and our ability to execute upon it strengthens. As we develop, we learn where we get the most traction and where our biggest areas of opportunity lie, driven by the understanding of the needs of our growing client base and creating the optimal solutions to meet them.  It is important to remember that our Corporate team in London has barely scratched the surface of the addressable market for FX Risk Management and this opportunity has increased further with the addition of our Institutional team, Canadian and Amsterdam offices. Likewise, the Alternative Banking division is still at a nascent stage.

Although we have proven the viability in each of these revenue streams and already delivered tangible results, we have barely begun our journey. Alpha is becoming a more diversified and more resilient business, and that trend will continue.  Furthermore, increasing regulation within the UK, in addition to European passporting rights no longer being accessible from the UK, means competitors are now required to be dual regulated if they wish to service both the EU and the UK. This will create additional barriers to entry for new participants, whether in the form of greater capital requirements, expertise, technology or risk management processes.

FX Risk Management

Our FX Risk Management division focuses on supporting corporates and institutions across the UK, Europe and Canada that trade currency for commercial purposes, such as buying or selling goods and services overseas or hedging the underlying value of an asset or liability. We service this marketplace through our corporate and institutional sales teams in London, Canada and Amsterdam.  Revenue for FX Risk Management was up 18% at £40.3m (2019: £34.2m).

The first half of the year saw revenue growth slow significantly as clients delayed their trading activity as they adjusted to the realities of the pandemic and assessed its impact on their businesses. As the situation became clearer, patterns normalised and the second half of the year saw much stronger growth. The Canadian office posted a profit for the year, affirming our investment and belief in the market opportunity, and we expect to see continued growth in the current year. We have also been pleased with the performance of our sales team in Amsterdam which was launched late in the first quarter and which achieved consecutive quarterly revenue growth.

Whilst we saw slightly tempered growth (compared to historical standards) within our corporate and institutional risk management teams in London, it is again important to consider these performances against the backdrop from which they were delivered. Like all teams, the continuing restrictions which have resulted from COVID-19 have meant that our sales staff have had to work remotely for large parts of the year, making it a very difficult environment to hire and develop new salespeople. Furthermore, the corporate sales team has been deprived of some of its longer-standing and more experienced individuals as they have been re-focused within the Group to spearhead our more nascent operations. Ultimately, the sales team's continuing strong performance in spite of these conditions reflects the quality of the new cohorts introduced in recent years and the team's spirit and competence, which has been enhanced through the appointment of Alex Howorth as Group Managing Director of FX Risk Management in April 2020. We are confident we will see strong growth moving forward, and whilst we will continue to grow the team to support the rate of client acquisition, we know there also remains significant capacity within the existing team to support considerable growth long into the future.

Alternative Banking

Our Alternative Banking division focuses on providing corporates and institutions across the UK, Europe and Canada with a suite of alternative banking solutions covering payments, collections and accounts. Serviced primarily by a specialist team within Alpha Platform Solutions (formerly named Alpha Payment Solutions), the team also benefits the wider Group from cross-selling with our corporate and institutional sales teams.  Revenue was up 417% to £6.0m (2019: £1.2m).

This division still remains very much in its infancy and its performance to date has proven it has the ability to become a significant part of the Group. By taking the time to clarify 'where to play and how to win' over the course of the year, we have seen increasing traction and stickiness with clients as our product offering has evolved to better meet their requirements. Our focus remains on researching our clients' needs and concentrating on those areas and markets where we know that we can differentiate and therefore grow sustainably. The strong progress made is testament to Adam Dowling's impact since joining us to head up our payments offering at the end of 2018. Indeed, as a result of the growing potential of this division and Adam's importance within it, we were pleased to appoint Adam to the position of Group Managing Director of Alternative Banking in April 2020.

The FX Risk Management and Alternative Banking divisions are symbiotic in nature and will continue to complement each other. However, as our expertise within the alternative banking space increases alongside our product's capabilities, it is becoming increasingly apparent that each division would benefit greatly from having their own dedicated and decentralised infrastructure, operations and reporting lines. The Board has therefore decided that investment will be made in this financial year, giving each division the greatest level of operational agility and stronger foundations to deepen our differentiation moving forward. The decision taken earlier this year to bring all of our technology competence in-house has already proved successful, and we believe will be highly advantageous for our plans going forward. If we want to be a sustainable long-term growth story, we must think long-term too.  Avoiding short-cuts now and being prepared to lean into the path of most resistance will ensure we eliminate unnecessary complexity and legacy technology, both of which can start to stifle a business as it grows. Decentralisation of our two core offerings will ensure we remain agile and focused as we scale and that we can double down on what differentiates us in the FX risk management and alternative banking spaces. The organisational changes required to facilitate the decentralisation process have already been completed and the response from the team has been incredibly positive. We are already seeing the benefits of this change and I believe we will look back on our decision to decentralise a decade from now and see it as a pivotal moment.

 

People and Culture

We believe investment in the quality of our team is paramount to delivering sustainable, long-term growth. Our ability to remain a growth business in 2020, despite the impact of COVID-19, is a testament to the fact that, when a company looks after its people, they will look after their company.  Indeed, it was because our team dug deep and pulled together when it mattered that we were able to continue paying full bonuses and commissions in 2020, whilst also issuing salary increases as usual at the start of 2021. Accordingly, the Group continued its investment in Back Office, with headcount growing from 50 to 69 during the year to support the ongoing technological development of our alternative banking solutions, and the increase in support required across Compliance, Risk, Settlements and Technology as the business scales. 

Our Front Office team meanwhile saw a smaller increase in headcount from 74 to 78.  Although employee attrition rates remained stable, this was due to new hiring being reduced, owing to the challenge of inducting new salespeople remotely and at a time where people were naturally more reluctant to move from known job security. This was exacerbated by the fact that several of our key recruitment partners were themselves furloughed, owing to the difficult nature of the market. As talent identification remains so important to Alpha, we have decided to take control of our own destiny and are starting to build a team of internal recruitment specialists. Sitting amongst our sales floor, the team lives and breathes the Alpha culture, and we will now look to scale the department to service the rest of the Group. I have wanted to build an internal recruitment team for a long time; however, it should not be underestimated how difficult it is to find the right people.  I am very excited about the team's prospects, and the impact they are going to have in supporting our talent acquisition strategy in the future.

Across the Group, we made four placements of note during the year. The first of these has been Matt Knowles' transition from a Non-Executive Director on the Board, to a more active role within the Group as Strategic Advisor. Since joining the Board in 2018 I have welcomed Matt's counsel and we are lucky to be able to draw on the experience of somebody who has grown an exceptional business within financial services. Matt's appointment came about after I finished reading a book recommendation of his, 'The Trillion Dollar Coach'. Within the book is a quote from Eric Schmidt (retired Chairman & CEO of Google) which reads '"Hire a coach' is the best advice I ever got"'. Whether Matt intended it as a hint or not, this inspired me to do what Clive Kahn had also been recommending for a while, and ask Matt to take on a more active role as a Strategic Adviser. Coaching me is just a small part of the value Matt is now adding; he has been instrumental in developing and challenging our strategic thinking and is at the forefront of our efforts to properly understand our clients as well as our own unique capabilities and how they connect to current and future opportunities.

In April, Alex Howorth was promoted to the role of Group Managing Director of FX Risk Management. Alex joined Alpha in 2014 as a Portfolio Manager when we were a team of less than 20, and therefore has an intricate understanding of the needs and feelings of the Front Office. He harnesses the sense of "intrapreneurialism" that has made our sales team so successful and which, like all businesses that scale, we were in danger of diluting as we began to rely too heavily on KPI's and processes. His impact has already been significant, and the global sales team is thriving under his stewardship. Whilst we are now a much larger business, the passion and ambition amongst the sales floor once again feels like it was when we were just a small team in Windsor, working towards our goal of becoming a public company. It is an incredibly powerful position to be in and I am very excited for the future of the team working with Alex, and their opportunities to further participate in the business's growth via remuneration and equity schemes as we continue our exciting journey as a public company.

Adam Dowling's transition from MD of Payments to Group MD of Alternative Banking is testament to how far this division has come under his leadership: what began as a payments solution has quickly grown into a highly compelling banking alternative. Adam's vision and expertise are driving a culture of innovation and ensuring we maintain an exciting roadmap for the future. He is also a prodigious executer, and the work ethic he has cultivated has ensured our growing potential is underpinned by tangible results. I have been truly impressed with Adam's ability to focus on the commercials as well as the importance of the operations, and have great confidence that he and the Alternative Banking division will go from strength to strength.

James Carey joined us in April last year from Betfair, where he was Head of Technology for a platform that handled 3 billion requests and 700 million transactions per day. James works closely alongside Adam Dowling and has had an immediate impact, maturing our tech team, refining our processes and creating a high-performance technology culture. We are already seeing the benefits of this, with product updates being rolled out faster than ever before and at a higher quality. It is a privilege to have someone of James' calibre with us, and it is exciting to see our product offering and technology stack grow from strength-to-strength under his and Adam's guidance.

As always, I would like to thank the Board and investors for their support. However, this year, I would also like to give an extra special thank you to the team for what has been a truly heroic performance, under very difficult circumstances.  This has been our most difficult year to date, but it should also be our proudest, and that is solely down to the passion and commitment demonstrated by each and every one of you.  Thank you.

Brexit

We had been preparing for the possibility of a no-deal Brexit for a considerable length of time and therefore had processes established to be able to continue servicing the vast majority of our European clients when it occurred. However, the limited scope covering financial services within the Free Trade Agreement meant we have also since chosen to open a wholly-owned subsidiary established in Malta, launched in early March. This has ensured that we can continue to service all clients without disruption both now and in the future.

We naturally explored several opportunities for servicing European derivatives clients, including through our office in Amsterdam. However, certain laws in the Netherlands would have precluded us from remunerating our staff on the same basis that we do in other territories, and as our cultural integrity is vital to us, we felt this was far from ideal. We also identified Malta as a potential new market and have already made strong progress towards building a client base in the country. Finally, Maltese corporate law is closely aligned to UK law, which offers a number of operational efficiencies.

We continue to stay abreast of any developments but do not anticipate any further material impact arising from the EU-UK Trade and Cooperation Agreement.

 

Financial Review

2020 was another strong year of growth for the business, despite the impact of COVID-19, with revenue for the year increasing by 31% to £46.2m. In addition to the segmental analysis in note 4 of the Financial Statements, the Group segments the revenue between FX Risk Management and Alternative Banking to reflect the two main drivers of growth.

The FX Risk Management division focuses on supporting corporates and institutions that trade currency for commercial purposes through the Group's sales teams located in London, Canada and Amsterdam. Despite a slowing of growth in the first half of the year as clients assessed the impact of the pandemic upon their business needs, revenue for the division for the full year grew by 18%.

The Alternative Banking division focuses on providing corporates and institutions with a suite of alternative banking solutions covering payments, collections and accounts across the UK, Europe and Canada. The service is primarily offered by Alpha Platform Solutions (formerly Alpha Payment Solutions), a division of Alpha FX Limited. In addition, Alpha Platform Solutions also services some FX Risk Management clients benefiting from cross-selling opportunities from the corporate and institutional sales teams. The Alternative Banking division saw a £4.8m increase in revenue in the year to £6.0m.

	Year ended   31 Dec 2020	Year ended 31 Dec 2019	Variance
	'000	'000	%
FX Risk Management	40,267	34,228	18%
Alternative Banking	5,950	1,150	417%
Total	46,217	35,378	31%

As shown in note 3 of the Financial Statements, total revenue from hedging products (forwards and options), has increased slightly in 2020 from £27.0m to £27.5m with a higher proportion of revenue derived from option products. Spot and payments revenue increased from £8.3m to £18.8m due to the growth of Alpha Platform Solutions together with increased spot flow from the Institutional business, where underlying activities mean that spot transactions are more common. In aggregate 52% of revenue in the year was derived from products where the revenue is converted into cash within a few days of the trade date as opposed to 30% in 2019. This has had a positive impact on the Group's cashflow.

The revenue from forward transactions represents the difference between the rate charged to clients and the rate paid to banking counterparties. There were no structural changes in forward commission rates in the year in comparison to the prior year.

During the year the Group entered into a settlement agreement with a Norwegian client whereby weekly repayments are due until June 2022 in respect of their obligations for unpaid margin totalling £30.2m. Throughout the year the client has continued to meet their settlement agreement cash repayment obligations on time with a gross balance of £20.2m outstanding at 31 December 2020.  Accounting standards require the Group to book two accounting provisions that have no cash impact. The first provision of £0.3m at 31 December 2020 is based on an estimated probability of default, with the charge included in operating expenses. The second net provision of £0.6m at 31 December 2020 represents the difference between the nominal value of future payments and their net present value. The initial provision of £1.3m is included in operating expenses whilst the reversal of the provision during the year of £0.7m is included within finance income. All of these provisions should reverse in full as cash repayments are received in the period to June 2022.

Despite the unprecedented macro-economic impact of COVID-19, the bad debt provision created in respect of all other clients during the year amounted to only £1.0m (2019: £nil).

During the year the Group continued to invest, with average headcount increasing by 33 to 135 and the establishment of a sales office in The Netherlands. Costs also included the impact of Brexit-planning and the full-year impact of the move to the new Head Office in Paddington. Despite this, profit before tax in the year grew by 27% to £17.1m. Underlying profit is presented in the income statement to allow a better understanding of the Group's financial performance on a comparable basis from year to year. The underlying profit excludes the impact of share-based payments, and in the year ended 31 December 2019 also excludes one-off property-related costs. On this basis, the underlying profit before tax in the year increased by 20% to £17.5m.

The underlying profit before tax margin fell to 38% (2019: 41%). If the provisions relating to the client on a repayment plan are added back to underlying profit before tax, the margin for the year would be 40%. With recent investments driving future scalability, particularly for the Alternative Banking division, and the impact of COVID-19 subsiding, we expect margins to broadly return to more normal levels.

Underlying basic earnings per share increased from 30.1p in 2019 to 32.8p in 2020. Basic earnings per share in the year increased from 27.7p to 31.7p.

In April 2020 the Group announced that it had completed a share placing by the issue of 2,941,177 new shares raising £19.2m after expenses. The proceeds have been used to continue investment in new products and markets including Alpha Platform Solutions, Canada and The Netherlands, as well as provide the capital base to acquire new clients.

Overall net assets of the Group increased in the year by £33.1m to £90.6m.

Cash flow

On a statutory basis, net cash and cash equivalents increased by £9.0m to £83.0m. The Group's cash position can fluctuate significantly from period to period due to the impact of changes in the collateral received from clients, early settlement of trades, or the unrealised mark to market profit or loss from client swaps, resulting in an increase or decrease in cash with a corresponding change in other payables and trade receivables. Therefore, in addition to the statutory cash flow, the Group presents an adjusted net cash summary below which excludes the above items.

In the year ended 31 December 2020 adjusted net cash on this basis has increased by £13.7m. This represents the net impact of the funds raised from the placing, and cash conversion from the trading in the year offset by the cash outflow from the client subject to a repayment plan.

 

	31 Dec 20	31 Dec 19
	£'000	£'000
Net cash and cash equivalents	82,972	73,960
Variation margin paid to banking counterparties	17,734	1,127
	100,706	75,087
Margin received from clients and client held funds*	(50,767)	(41,862)
Net MTM timing loss from client drawdowns and extensions within trade receivables	2,332	5,364
Adjusted net cash**	52,271	38,589

* Included in 'other payables' within 'trade and other payables'

** Excluding collateral received from clients, early settlements and the unrealised mark to market profit or loss from client swaps

The method used to calculate the Group's cash conversion in previous reports (cash from operations before tax and after capital expenditure as a % of underlying operating profit) is substantially impacted by the client on the repayment plan. On a consistent basis the conversion would be -8% compared to 72% for FY 2019. If the cash impact of the client on the repayment plan is excluded, the conversion would be exactly 100%, largely due to the higher proportion of revenue being derived from products where cash is received within a few days of the trade date as described above.

Alpha remains profitable, debt-free and extremely well capitalised, with £52m in free cash immediately available on its balance sheet, alongside over 90m in net assets.  At a time when many within our industry are adopting more defensive strategies, our strong cash position has provided us with the financial flexibility to continue acquiring new clients, whilst maintaining our key strategic investments in new products and markets.

Dividend

Following the strong results for the year, the Board is pleased to declare a final dividend of 8.0 pence per share. Subject to shareholder approval, the final dividend will be payable to Shareholders on the register at 16 April 2021 and will be paid on 14 May 2021.

B Share Growth Scheme

The Group has previously implemented the B Share Growth Scheme pursuant to which B Shares were issued to certain full-time employees of the Group. The B Share Growth Scheme is administered and managed by the Board. The B Shares contain a put option, such that, when and to the extent vested, they can be converted into ordinary shares in the Company. The B Shares vest in five equal tranches, occurring annually, starting on 31 December 2017 until 31 December 2021. The requirement for revenue growth of Alpha FX Limited in the first three years was 30% per annum, whilst vesting in years four and five requires 20% annual revenue growth.

Following the outbreak of COVID-19, the Group announced on 30 March 2020 that it was deferring the admission of 535,300 ordinary shares that had vested under the B Share Growth Scheme for the year ending 2019. These shares will now be issued to employees under the B Share Scheme and are expected to be admitted to trading on 23 March 2021.

Since Alpha FX Limited achieved revenue growth in excess of 20% in the year ended 31 December 2020, the fourth tranche of B Shares has vested. Following careful consultation with employees, the Company has chosen to defer the issuance of these shares to employees under the B Share Growth by circa 12 months.  The total number of shares due to be issued in March 2022 is 648,921.

C Share Growth Scheme

The Group has previously implemented the C Share Growth Scheme pursuant to which C shares were issued to certain full-time employees of the Group.  The C Shares contain a put option, such that, when and to the extent vested, they can be converted into ordinary shares in the Company.

The C Shares vest in five tranches, occurring annually on 31 December 2018, 31 December 2019, 31 December 2021, 31 December 2022 and 31 December 2023. The first and second tranches that have vested were equal to 10% and 22.5% of the participant's C Share entitlement and all remaining tranches are equal to 22.5% of the participant's C Share entitlement. The requirement for revenue growth is 25% in 2021, 20% in 2022 and 20% in 2023 in order for vesting to occur. There was no revenue growth requirement for the shares in respect of 2018 and 2019.  From 2021, the gain that a C Shareholder can receive is also capped through placing a ceiling on the maximum market capitalisation of Alpha of £650m.  The result of doing so is that the C Shares will be entitled to a pro rata share of the gain in market capitalisation of Alpha between the hurdle price at the time of allotment and the market capitalisation ceiling of £650m.

Following the outbreak of COVID-19, the Group announced on 30 March 2020 that it was deferring the admission of 287,573 ordinary shares that had vested under the C Share Growth Scheme for the year ending 2018 and 2019. These shares will now be issued to employees under the C Share Scheme and are expected to be admitted to trading on 23 March 2021.

Save As You Earn (SAYE) Scheme

The Group has received an exercise notice from an employee to exercise options in respect of 2,403 shares pursuant to the Company's Save As You Earn share scheme.

Based on the issue of shares pursuant to the B Share Growth Scheme, C Share Growth Scheme and the SAYE Scheme, application has been made for the 825,276 new ordinary shares of £0.002 each in the Company (the "New Ordinary Shares") to be admitted to trading on AIM. The new ordinary shares will rank pari passu in all respects with the existing ordinary shares of the Company and will be admitted to trading on or about 23 March 2021.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

		Year ended  31 December 2020	Year ended  31 December 2019
	Note	£'000		£'000
Revenue		46,217	35,378
Operating expenses		(29,457)	(21,698)
Underlying operating profit		17,149	14,735
Exceptional property related costs		-	(558)
Share-based payments		(389)	(497)
Operating profit	4	16,760	13,680
Finance income	5	747	81
Finance expenses	5	(370)	(216)
Profit before taxation		17,137	13,545
Taxation		(3,333)	(2,525)
Profit for the year		13,804	11,020
Attributable to:
Equity holders of the parent		12,469	10,260
Non-controlling interests		1,335	760
Profit for the year		13,804	11,020
Other comprehensive income/(loss):
Exchange gains /(losses) arising on translation of foreign operations		17	(3)
Total comprehensive income for the year		13,821	11,017
Attributable to:
Equity owners of the parent		12,486	10,257
Non-controlling interests		1,335	760
Total comprehensive income for the year		13,821	11,017
Earnings per share attributable to equity owners of the parent (pence per share)
-  basic	6	31.7p	27.7p
-  diluted	6	30.5p	26.9p
-  underlying basic	6	32.8p	30.1p
-  underlying diluted	6	31.6p	29.2p

Consolidated Statement of Financial Position

As at 31 December 2020

Company number: 07262416		As at	As at
		31 December 2020	31 December 2019
	Note	£'000	£'000
Non-current assets
Intangible assets		2,074	1,182
Property, plant and equipment		2,251	2,279
Right-of-use assets	8	6,945	7,750
Trade and other receivables	9	5,832	-
Total non-current assets		17,102	11,211
Current assets
Trade and other receivables	9	70,476	45,453
Cash and cash equivalents	10	82,972	73,960
Other cash balances	10	4,025	3,867
Total current assets		157,473	123,280
Total assets		174,575	134,491
Equity
Share capital	11	80	74
Share premium account		50,582	31,388
Capital redemption reserve		4	4
Merger reserve		667	667
Retained earnings		35,631	22,932
Translation reserve		24	7
Equity attributable to equity holders of the parent		86,988	55,072
Non-controlling interests		3,653	2,499
Total equity		90,641	57,571
Current liabilities
Trade and other payables	12	74,310	68,056
Current tax liability		1,808	837
Provisions		-	95
Total current liabilities		76,118	68,988
Non-current liabilities
Deferred tax liability		626	294
Lease liability	8	7,190	7,638
Total non-current liabilities		7,816	7,932
Total equity and liabilities		174,575	134,491

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

		Year ended 31 December 2020	Year ended 31 December 2019
	Note	£'000	£'000
Cash flows from operating activities
Profit before taxation		17,137	13,545
Net finance (income)/expense		(377)	135
Amortisation of intangible assets		496	248
Impairment of intangible assets		278	-
Depreciation of property, plant and equipment		449	204
Depreciation of right-of-use assets		805	485
Initial recognition of discount relating to the Norwegian client		1,275	-
Loss on disposal of fixed assets		1	47
Share-based payment expense		389	442
Provision utilised in year		(95)	(104)
(Increase)/decrease in other receivables		(1,117)	236
Increase in other payables		10,972	32,146
(Increase) in derivative financial assets		(11,453)	(9,815)
(Increase) in financial assets at amortised cost		(18,199)	-
(Decrease)/increase in derivative financial liabilities		(4,691)	9,565
(Increase) in other cash balances		(158)	(1,304)
Cash (outflows)/inflows from operating activities		(4,288)	45,830
Tax paid		(2,029)	(2,468)
Net cash (outflows)/inflows from operating activities		(6,317)	43,362
Cash flows from investing activities
Payments to acquire property, plant and equipment		(425)	(2,366)
Payments to acquire right-of-use assets		-	(165)
Proceeds from the sale of property, plant and equipment		3	8
Expenditure on internally developed intangible assets		(1,666)	(993)
Net cash outflows from investing activities		(2,088)	(3,516)
Cash flows from financing activities
Dividends paid to equity owners of the Parent Company		-	(2,524)
Dividends paid to non-controlling interests		(1,020)	(1,088)
Issue of ordinary shares by Parent Company		19,281	-
Share issue costs		(81)	-
Issue of ordinary shares by subsidiary		1	-
Payment of lease liabilities		(775)	(356)
Net interest (paid)/received		(6)	83
Purchase of non-controlling interest for cash		-	(394)
Net cash inflows/(outflows) from financing activities		17,400	(4,279)
Increase in net cash and cash equivalents in the year		8,995	35,567
Net cash and cash equivalents at beginning of year		73,960	38,396
Net exchange gains / (loss)		17	(3)
Net cash and cash equivalents at end of year	10	82,972	73,960

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

			Attributable to the owners of the parent
	Share capital	Share premium account		Capital redemption reserve	Merger reserve	Retained earnings	Translation reserve	Total	Non-controlling interests	Total
	£'000	£'000		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2019	73	31,388		4	667	15,003	10	47,145	1,562	48,707
Profit for the year	-	-		-	-	10,260	-	10,260	760	11,020
Other comprehensive loss	-	-		-	-	-	(3)	(3)	-	(3)
Transactions with owners
Shares issued on vesting of share option scheme	1	-		-	-	(1)	-	-	-	-
Issue of shares to non-controlling interests in subsidiary undertakings	-	-		-	-	-	-	-	1,426	1,426
Shares repurchased from non-controlling interests	-	-		-	-	(248)	-	(248)	(146)	(394)
Forfeiture of shares in subsidiary	-	-		-	-	-	-	-	(15)	(15)
Share-based payments	-	-		-	-	442	-	442	-	442
Dividends paid	-	-		-	-	(2,524)	-	(2,524)	(1,088)	(3,612)
Balance at 31 December 2019	74	31,388		4	667	22,932	7	55,072	2,499	57,571
Profit for the year	-	-		-	-	12,469	-	12,469	1,335	13,804
Other comprehensive income	-	-		-	-	-	17	17	-	17
Transactions with owners
Issue of shares to non-controlling interests in subsidiary undertakings	-	-		-	-	-	-	-	1,089	1,089
Shares repurchased from non-controlling interests	-	-		-	-	(185)	-	(185)	(192)	(377)
Shares issued on vesting of share option scheme	-	5		-	-	-	-	5	-	5
Forfeiture of shares in subsidiary	-	-		-	-	-	-	-	(58)	(58)
Shares issued on placing	6	19,994		-	-	-	-	20,000	-	20,000
Cost of shares issued on placing	-	(805)		-	-	-	-	(805)	-	(805)
Share-based payments	-	-		-	-	415	-	415	-	415
Dividends paid	-	-		-	-	-	-	-	(1,020)	(1,020)
Balance at 31 December 2020	80	50,582		4	667	35,631	24	86,988	3,653	90,641

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

1. General information

Alpha FX Group plc, (the 'Company') is a public limited company having listed its shares on AIM, a market operated by The London Stock Exchange, on 7 April 2017. The Company is incorporated and domiciled in the UK (registered number 07262416) and its registered office is Brunel Building, Canalside Walk, London, W2 1DG. The consolidated financial statements incorporate the results of the Company and its subsidiary undertakings, Alpha FX Limited, Alpha FX Institutional Limited, Alpha Foreign Exchange (Canada) Limited, Alpha FX Netherlands Limited and Alpha FX Europe Limited.

Statutory accounts for the year ended 31 December 2019 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2020 will be delivered to the Registrar of Companies following the Group's Annual General Meeting.

The auditors' reports on the financial statements for 31 December 2020 and 31 December 2019 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

2. Accounting policies

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006.

The financial information set out above does not constitute statutory accounts for the purposes of section 435 of the Companies Act 2006, for the years ended 31 December 2020 and 31 December 2019, but is derived from those accounts.

The Directors have assessed the Group's projected business activities and available financial resources together with detailed forecasts for cash flow and relevant sensitivity analysis. The directors believe that the Group remains well placed to manage its business risks successfully. After making appropriate enquiries the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  Accordingly, the directors continue to adopt the going concern basis in preparing the statutory accounts for the year ended 31 December 2020.

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Accounting policies

The accounting policies adopted in these financial statements are identical to those adopted in the Group's most recent annual financial statements for the year ended 31 December 2019 except as described below.

New standards that have been adopted in the annual financial statements for the year ended 31 December 2020, but have not had a significant effect on the Group are:

· IAS 1 Presentation of Financial Statements and IAS 8 Accounting policies, Changes in Accounting Estimates and Error (Amendment- definition of material); and

· Revised Conceptual Framework for Financial Reporting.

Segment reporting

The revenue for the Group is generated through the sale of forward currency contracts, foreign exchange spot transactions, payments & collections and option contracts. The Group has four reportable segments based on the individually reportable subsidiaries and divisions. 

In 2020, 38% of the Group's revenue derived from within the UK.  Details of segmental reporting are shown in note 3.

3. Segmental reporting

During the year the Group generated revenue from the sale of forward currency contracts, option contracts, foreign exchange spot transactions and fees received from payments, collections and currency accounts.

The Group has four reportable segments under the provisions of IFRS 8, based on the individually reportable subsidiaries and divisions.  These four segments are:

· Corporate London represents revenue generated by Alpha FX Limited's Corporate clients serviced from the London head office. It also includes Alpha FX Netherlands Limited, which has been trading since April 2020 and services Corporate clients from Amsterdam, The Netherlands.

· Institutional represents revenue from Alpha FX Institutional Limited, which primarily services funds.

· Corporate Toronto represents revenue generated by Alpha Foreign Exchange (Canada) Limited, serviced from Toronto, Canada.

· Alpha Platform Solutions (formerly Alpha Payment Solutions) is a division of Alpha FX Limited which services clients who have the requirement to send, hold or receive money from overseas, in the form of international payments, collections and currency accounts.

The chief operating decision makers, being the Group's Chief Executive Officer and the Chief Financial Officer, monitor the operating results of the business segments separately each month. Key measures used to evaluate performance are revenue and profit before taxation. Management believe that these measures are the most relevant in evaluating the performance of the segment and for making resource allocation decisions.

2020	Corporate London	Institutional	Corporate Toronto	Alpha Platform Solutions	Total
	£'000	£'000	£'000	£'000	£'000
FX hedging*	21,392	4,277	1,788	-	27,457
Spot and payments transactions**	6,694	4,497	343	7,226	18,760
Total revenue	28,086	8,774	2,131	7,226	46,217
Underlying operating profit	9,409	4,612	181	2,947	17,149
Share-based payments	(383)	(6)	-	-	(389)
Finance costs	(276)	(52)	-	(42)	(370)
Finance income	747	-	-	-	747
Profit before taxation	9,497	4,554	181	2,905	17,137

2019	Corporate London	Institutional	Corporate Toronto	Alpha Platform Solutions	Total
	£'000	£'000	£'000	£'000	£'000
FX hedging*	21,422	4,829	795	-	27,046
Spot and payment transactions**	5,795	1,457	60	1,020	8,332
Total revenue	27,217	6,286	855	1,020	35,378
Underlying operating profit/(loss)	12,624	3,635	(664)	(860)	14,735
Share-based payments	(466)	(31)	-	-	(497)
Finance costs	(193)	(15)	-	(8)	(216)
Finance income	81	-	-	-	81
Exceptional property related costs***	(555)	(3)	-	-	(558)
Profit/(loss) before taxation	11,491	3,586	(664)	(868)	13,545

*FX hedging represents revenue derived from clients hedging cashflows for a commercial purpose using both foreign exchange forward transactions and option contracts.

** Spot and payments transactions relate to foreign exchange spot transactions and fees received from payments, collections and currency accounts.

***Exceptional items in the prior year relate to initial double running and move related costs following the signing of a lease for new premises for the Group's Head Office.

4. Operating profit

Operating profit is stated after charging:

	31 December 2020	31 December 2019
	£'000	£'000
Depreciation of owned property, plant and equipment	449	204
Amortisation of internally generated intangible assets	496	248
Depreciation of right-of-use assets	805	485
Rental costs for short term leases	286	587
Loss on disposal of fixed assets	1	47
Staff costs	16,175	12,804
Estimated probability of default in relation to Norwegian client	270	-
Initial recognition of discount relating to the Norwegian client*	1,275	-
Net foreign exchange losses	711	38
Exceptional property related costs	-	558
Audit fees
Audit fees in respect of the Group and Company financial statements	110	78
Audit fees in respect of the subsidiary accounts	71	65
Non-Audit fees
Other assurance services	-	3

*The provision of £1,275,066 (2019: £nil) represents the initial recognition of the difference between the nominal value of future payments from the Norwegian client and their net present value. As the provision unwinds, the reversal is recorded within finance income, £712,639 (2019: £nil) was reversed in the year, as a result, the net impact in the consolidated statement of comprehensive income in the year was a charge of £562,427 (2019: £nil). This balance will reverse in full in finance income as the remaining repayments are received in the period to June 2022.

5. Finance income and expenses

	31 December 2020	31 December 2019
	£'000	£'000
Finance income
Interest on bank deposits	-	62
Other interest receivable	34	19
Finance income to reverse the -discount relating to the Norwegian client (note 4)	713	-
Total	747	81
Finance costs
Interest on bank deposits	(43)	-
Finance cost on lease liabilities (note 8)	(327)	(216)
Total	(370)	(216)

6. Earnings per share

Basic earnings per share is calculated by dividing the profit for the year attributable to equity holders of the parent, by the weighted average number of ordinary shares in issue during the financial year. Diluted earnings per share additionally includes in the calculation, the weighted average number of ordinary shares that would be issued on conversion of any dilutive potential ordinary shares. The dilutive effect is calculated on the full exercise of all potentially dilutive Ordinary share options granted by the Group.

The Group additionally discloses an underlying earnings per share calculation that excludes the impact of share-based payments, non-recurring costs and their tax effect, which better enables comparison of financial performance in the current year with comparative years.

	31 December 2020	31 December 2019
	pence	pence
Basic earnings per share	31.7p	27.7p
Diluted earnings per share	30.5p	26.9p
Underlying - basic	32.8p	30.1p
Underlying - diluted	31.6p	29.2p

The calculation of basic and diluted earnings per share is based on the following number of shares:

	31 December 2020	31 December 2019
	No.	No.
Basic weighted average shares	39,286,578	36,990,813
Contingently issuable shares	1,541,006	1,093,530
Diluted weighted average shares	40,827,584	38,084,343

The earnings used in the calculation of basic, diluted and underlying earnings per share are set out below:

	31 December 2020	31 December 2019
	£'000	£'000
Profit after tax for the year	13,804	11,020
Non-controlling interests	(1,335)	(760)
Earnings - basic and diluted	12,469	10,260
Exceptional property related costs	-	558
Tax effect	-	(96)
Share-based payments	389	497
Taxation impact on share-based payments	136	(81)
Earnings - underlying	12,994	11,138

7. Dividends

	31 December 2020	31 December 2019
	£'000	£'000
Final dividend for the year ended 31 December 2018 of 4.6p per share	-	1,708
Interim dividend for the year ended 31 December 2019 of 2.2p per share	-	816
	-	2,524

All dividends paid are in respect of the ordinary shares of £0.002 each.

On 30 March 2020 the Company announced that the Board had decided to cancel payment of the final dividend for the year ended 31 December 2019 that was due to be paid on 13 May 2020.

The Directors propose that a final dividend in respect of the year ended 31 December 2020 of 8.0p per share amounting to £3,209,885 14 May 2021 to all shareholders on the register of members on 16 April 2021. This dividend is subject to approval by shareholders at the AGM and has not been included as a liability in these Financial Statements in accordance with IAS 10 'Events after the reporting period'.

8. Right-of-use assets and lease liabilities

In May 2019, the Group signed a ten-year lease for the Head Office Premises in London expiring in May 2029.  The rent is subject to a rent review after five years and the lease does not contain any break clause. The incremental borrowing rate used to discount lease liabilities at initial inception is based on the assessment of management of 4.5%. 

Right-of-use assets

	31 December 2020	31 December 2019
	£'000	£'000
At 1 January	7,750	-
Additions	-	8,235
Depreciation charge for the year	(805)	(485)
At 31 December	6,945	7,750

Lease liabilities

	31 December 2020	31 December 2019
	£'000	£'000
At 1 January	7,931	-
Additions	-	8,071
Finance cost	327	216
Payments in the year	(775)	(356)
At 31 December	7,483	7,931

Analysis:
Current (note 12)	293	293
Non-current	7,190	7,638
Total lease liabilities	7,483	7,931

9. Trade and other receivables

	31 December 2020	31 December 2019
Current:	£'000	£'000
Trade receivables (derivative financial assets)	53,992	42,539
Financial assets at amortised cost	11,804	-
Other receivables	3,335	2,434
Prepayments	1,345	480
	70,476	45,453
Non-current:
Financial assets at amortised cost	5,832	-
Total trade and other receivables	76,308	45,453

Trade receivables represent the fair value of derivative financial assets arising as a result of matched principal transactions.  At 31 December 2020 and 31 December 2019, the receivables are shown net of the Credit Value Adjustment.

10. Cash

Cash and cash equivalents comprise cash balances and deposits held at call with banks.

Other cash balances comprise cash held as collateral with banking counterparties for which the Group does not have immediate access.

	31 December 2020	31 December 2019
	£'000	'000
Cash and cash equivalents	82,972	73,960
Variation margin called by counterparties*	17,734	1,127
Other cash balances	4,025	3,867
Total cash	104,731	78,954

Cash balances included within derivative financial assets relate to the variation margin called against out of the money trades with banking counterparties.

*Included within trade receivables and trade payables

11. Share Capital

	At 31 December		At 31 December
	2020		2019
	No.	£'000	No.	£'000
Authorised, issued and fully paid
Ordinary shares of £0.002 each	40,123,568	80	37,123,956	74

Number of shares	Ordinary shares
At 1 January 2019	36,545,968
Shares issued on vesting of share option schemes	577,988
At 31 December 2019	37,123,956
Shares issued on vesting of share option schemes Shares issued on placing	58,435 2,941,177
At 31 December 2020	40,123,568

The following movements of share capital occurred during the year ended 31 December 2020:

On 9 April 2020, the Company issued 2,941,177 new shares following a placing.

On 18 August 2020, the Company issued 1,038 new shares in respect of shares issued following the early exercise by an employee of the SAYE share scheme.

On 17 September 2020, the Company issued 57,397 new shares following the exercise of the unapproved share option scheme.

The following movements of share capital occurred during the year ended 31 December 2019:

On 26 March 2019, the Company issued 576,442 new shares following the vesting of shares under the B Growth Share Scheme.

On 25 April 2019, the Company issued 1,546 new shares in respect of shares exercised following the initial vesting of shares under the C Growth Share Scheme for the year ended 31 December 2018.

12. Trade and other payables

	31 December 2020	31 December 2019
	£'000	£'000
Trade payables (derivative financial liabilities)	17,591	22,282
Other payables	51,621	41,873
Other taxation and social security	974	1,084
Lease liability (note 8)	293	293
Accruals	3,831	2,524
	74,310	68,056

Trade payables represent the fair value of derivative financial liabilities arising as a result of matched principal transactions.

Other payables consist of margin received from clients and client held funds. The carrying value of trade and other payables classified as financial liabilities measured at amortised cost, approximates fair value.

13. Events after the reporting period

On 17 March 2020, the Company determined that following the vesting of shares under the Growth Share Scheme for the year ended 31 December 2019, it would be issuing 822,873 shares on or around 31 March 2020. Due to the impact of COVID-19, the issuing of these shares was deferred and will now be issued on or around 22 March 2021.

Following the vesting of the B Growth Share Scheme for the year ended 31 December 2020, the Company will be issuing 648,921 shares in March 2022.

As part of a settlement agreement to a former employee of Alpha Institutional Limited, the Company will be issuing circa 12,800 shares, the number will be finalised once the audit of Alpha FX Institutional Limited has been completed and the shares will be issued shortly thereafter.

Additionally, as part of the SAYE scheme, 2,403 shares will be issued to a former employee on or around 22 March 2021.

14. Availability of Annual Financial Report

The Group notes that the Annual Report & Accounts for the year ended 31 December 2020 will be posted to Alpha FX shareholders in the second week of April 2021. The document will also be available on the Group's website at www.alphafx.co.uk and in hard copy at Brunel Building, 2 Canalside Walk, London, W2 1DG.

 

END

 

 

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