AFX.L Regulatory News (AFX)

20 March 2019

Alpha FX Group plc

("Alpha FX" or the "Group")

Full Year results

for the year ended 31 December 2018

Alpha FX (AIM: AFX), the UK-based foreign exchange service provider, is pleased to announce its audited Full Year Results for the year ended 31 December 2018.

Financial Highlights

· Revenue up 73% to £23.5m (2017 £13.5m)

· Underlying operating profit* up 48% to £10.0m (2017 £6.8m)

· Reported operating profit up 72% to £9.7m (2017 £5.6m)

· Underlying operating profit margin for the period of 43% (2017: 50%) and on a reported basis 41% (2017: 42%)

· Underlying basic earnings per share up 30% to 22.7p (2017: 17.5p) and on a reported basis 21.8p (2017: 14.2p)

· Final dividend of 4.6 pence per share, payable on 15 May 2019 to shareholders on the register as at 12 April 2019

Operational highlights

· 55% increase in client numbers, from 310 to 482

· Staff numbers increased from 51 to 82

· 51% of employees now Partners in the business***

· New headquarters secured at the Brunel Building in Paddington, which will be ready for occupation in Q3 2019

· Launch of institutional division, expanding our service offering to cover funds and institutions.

· New office opened in Toronto, focusing on the Canadian market

· Launch of international payments platform, Alpha Pay

* Underlying excludes the impact of the one-off costs relating to the IPO 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 Partner as an employee who held an equity stake prior to the Company's IPO; or is a participant in either the Group's B or C growth share schemes; or owns shares directly in one of the Group's trading subsidiaries.

Outlook

Our strong performance to date demonstrates the appeal of our products and services in existing as well as new verticals and geographies. We are presently barely scratching the surface of the Group's potential, as our business volumes represent small proportions of every market in which we operate. Our new verticals and geographies increase the potential size of our addressable market further still and we will continue to invest accordingly to take full advantage of our growing market opportunity.

Q1 has begun well and with the dedication and focus of the high-quality team in place, the Board looks forward to another year of continued progress in all areas of the business.

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

"I'm very happy with the progress we have made during the year. As well as once again delivering strong revenue and profit growth, the impact of the investments made in the previous year highlight the strength of our strategy, and the returns that we are seeing give us great confidence for the future."

Clive Kahn, Non-Executive Chairman of Alpha FX, added:

"Alpha's success continues to be built on the passion, commitment and vision of its people, reinforced by the strength of its culture. On behalf of the Board, I would like to thank all our people for their contribution to Alpha's success, and look forward to building on it in 2019."

Dividend

At the time of the IPO, the Board announced a target dividend policy of approximately 30% of the Group's underlying profits after tax in each financial year. In line with this dividend policy and following the payment of the interim dividend of 1.9 pence per share in October 2018, the Board is pleased to declare a final dividend of 4.6 pence per share, equating to an annual payment of 6.5 pence per share (2017: 4.9p). Subject to shareholder approval, the final dividend will be payable to Shareholders on the register as at 12 April 2019 and will be paid on 15 May 2019. The ex-dividend date is 11 April 2019.

Management believe there are numerous investment opportunities for the Group that will deliver significant and sustainable future return to shareholders. Accordingly, with effect from the start of the year ended 31 December 2019, the Group intends to adopt a progressive dividend policy, targeted at growing dividends each year, rather than basing a dividend paid on a fixed percentage of profits.

Enquiries:

Market Abuse Regulation

This announcement is released by Alpha FX Group plc and contains inside information for the purposes of the Market Abuse Regulation (EU) 596/2014 ("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 is a UK-based foreign exchange service provider focused on managing exchange rate risk for corporates and institutions that trade internationally. The Group's primary client base consists of corporates and institutions that have a requirement to convert currency for a commercial purpose, such as buying or selling goods and services overseas, repatriating profits, or expatriating payroll. Since it was incorporated in 2010, Alpha has been able to build and retain a high-quality client base that includes a number of highly respected household brands.

Operational Review

2018 was another excellent year for Alpha. We saw impressive revenue growth and strong levels of profitability, particularly given our increased cost base and investment in infrastructure throughout the year, designed to deliver future growth.

During 2018 we increased our client numbers by 55%, bringing our total number of clients to 482. We also grew revenue by 73%. This performance continued to be spearheaded by the core UK corporate market and by increasing penetration into European markets being serviced from our London headquarters. One of the most pleasing aspects has been the impact of the investments made in the previous year, highlighting the strength of our strategy and execution. These included broadening our product base and investing in service delivery to ensure that our existing client relationships grow with us, investing in infrastructure and technology to provide the right platforms for scalable growth, and attracting new talent to exploit new market segments. The returns that we are seeing give us great confidence in our continuing planned investment. Headcount in the year grew from 51 to 82, with resources added to all areas of both Front and Back office.

Market Opportunity

Whilst we continue to represent less than 1% of the UK corporate market the successful move into new geographies is strategically important for our ambitions and provides an even larger total addressable market. The sales performance this year has demonstrated that accessing the European market from a UK base is more than viable and that both the UK and Europe continue to represent huge opportunities for sustained, long-term growth. As a result of the growth in international business, we have consequently seen a diversification of the range of currencies being traded.

New Products and Divisions

The derivatives products that were launched in August 2017 have already proved valuable to a number of clients, achieving revenues in excess of £1m. Providing derivatives has enabled us to service a proportion of clients with more complex exposures and is an example of how at Alpha we are able to tailor our approach to ensure we cater effectively to the individual needs of all our clients.

In March 2018 we launched the Institutional division, the first time that we had utilised our subsidiary model, to attract a highly talented team by rewarding them through performance-based equity incentive mechanisms aligning their interests to the Group. The Institutional team has grown from 5 at inception to 7 employees at the year-end. The performance has been ahead of our expectations in its first year.

Our Canadian office was launched in October 2018 following careful market analysis and a successful trial period of penetrating the market from the UK. We set up an office in Toronto due to the significant time difference and the initial signs are encouraging, with revenue generating clients already onboarded in the first quarter of 2019.

At the year-end the team consisted of 5 individuals who are familiar with the local market but, importantly are also engrained with the Alpha philosophy and culture. The Canadian operation has also been incorporated as a subsidiary along similar lines to the Institutional division.

Technology

Technology remains important to the continued success of the Group. We have invested strategically in this area during 2018 and will continue to do so in the current financial year in order to drive operational efficiencies and deliver revenue growth opportunities. As our offering broadens to meet evolving customer requirements, the underlying technology needs to become ever more sophisticated to deliver the required outcomes. By leveraging cloud-based systems early on, we have been able to customise our platform to the bespoke needs of our customers, allowing the freedom and agility to adapt and improve our systems without having to remedy significant legacy issues. An important technological development in the year was the launch of Alpha Pay, an online international payments platform designed to reduce the time, cost and administrative burden of making cross-border payments and receiving international receipts by providing a simpler, faster and more reliable solution. The market reaction to Alpha Pay has been very positive and over 25 customers are already transacting regularly, despite the platform only launching at the end of 2018.

People & Culture

In the second half of the year Adam Dowling joined Alpha as Managing Director of Alpha Pay. Adam has spent more than 15 years working in payments and receivables, most recently as Director of Product at Saxo Payments Banking Circle, an innovative financial technology company, and prior to this as Vice President of Cash Management at Barclays. His appointment is a further example of Alpha's growing reputation. Adam's expertise will enable us to maximise the potential for Alpha Pay by opening it up to a wider audience in the future.

In March 2018 we welcomed Henry Lisney to the Board of Directors as Chief Operating Officer. Henry has been with the business since 2013 progressing through a variety of different roles and his knowledge of our markets and understanding of the right products and technology to serve them best has already proved invaluable.

Our move to London in December 2017 has proved to be a considerable success. It has enabled us to attract 8 members of staff who are fluent in foreign languages and who have been integral in the significant growth in the number of European companies that we are able to service from our UK headquarters. Having spent the last year in temporary offices in Paddington, we are now looking forward to moving to our new permanent office at Paddington Basin, designed to create an environment that reflects and supports our culture.

Our status as a PLC has proved to be a significant catalyst in attracting, motivating and retaining the very best talent. As well as helping us to incentivise staff in our core business, it has allowed us to launch new businesses through subsidiaries, within which, employees hold a minority stake. The success of this approach is already being evidenced by our Institutional division and early success in Canada. We expect this model to be replicated in additional areas in the future.

Investment in our Team

It is important we continue to refine and develop our culture in order to retain the highly talented individuals that we have brought into Alpha. We have made great strides in this respect over the past twelve months. Investing in people will always be a priority and takes precedence over chasing short-term profits as it provides the platform for long-term sustainable growth and differentiates us from our competitors. We have invested time and effort in codifying our culture in order to promote the behaviours and principles that we must all strive to maintain as we continue to grow and evolve. By focusing on our culture, Alpha can best realise its growth ambitions without ever losing the agile, dynamic nature that has already got us this far. We have created an environment that challenges each individual to expect more of themselves and rewards them accordingly. Alpha has been built on meritocracy and the performance of the Group to date is a reflection of each individual's ability to contribute and share in the collective success.

We would like to thank all of our employees for their ongoing dedication as well our shareholders for their continued support and for sharing our vision of building an exceptional culture capable of delivering sustained growth. Moving forward, we will continue to stay true to our purpose of being an exceptional community full of opportunity, that works hard but lives well. Whilst this may seem like an internal facing statement, the reason for this is simple: we believe the quality of a business and the service it provides is a by-product of its people and culture. Get this right and, as our growth to date has shown, the results will follow.

Financial Review

2018 was another very strong year for the business in which revenue grew by 73% to £23.5m (2017: 60% revenue growth to £13.5m). Growth has been driven by increasing client numbers both from the UK and overseas as well as the promising start made by the Institutional team that launched in March 2018. In the year ended 31 December 2018 there were no structural changes in forward commission rates in comparison to the prior year.

Underlying operating profit increased by 48% to £10.0m (2017: £6.8m) whilst on a reported basis operating profit was up 72% to £9.7m (2017: £5.6m). The year was one of continued investment in headcount in the Front Office with the expansion of the UK-based Corporate team as well as the launch of the Institutional and Canadian operations in the year. Investment also continued in the Back Office to support revenue growth and drive the technology agenda. During the year total headcount increased from 51 to 82. Due to the continued investment, the Group delivered an underlying operating profit margin of 43% (2017: 50%).

The effective rate of taxation for 2018 was 20%. This is slightly higher than the standard rate primarily due to start-up losses of the Canadian business.

Underlying basic earnings per share that excludes share-based payments and the related deferred tax impact on them, increased from 17.5p in 2017 to 22.7p in 2018. Basic earnings per share increased from 14.2p in 2017 to 21.8p in 2018.

On 3 October 2018, the Group announced that it had completed a £20m share placing to capitalise on current growth opportunities by the issue of 3,218,602 new shares, raising net £19.2m after expenses.

In November 2018 the Group signed a lease for new premises for its Head Office in Paddington. It is anticipated that the Group will relocate from its existing temporary office in Q3-2019 following the completion and fit-out of the new building.

Cash flow

On a statutory basis, net cash and cash equivalents increased by £25.3m to £38.4m. However, the Group's cash position can fluctuate significantly from year to year 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 2018 net cash on the non-statutory basis increased by £22.0m to £35.7m, largely due to proceeds of the placing.

* 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 table below presents the operating cash conversion on a similar basis, which excludes collateral received from clients, early settlements and the unrealised mark to market profit or loss from client swaps. Cash conversion for the year ended 31 December 2018 increased to 73% from 47% in the prior year. The increase is due to a higher proportion of trades being derived from spot and options transactions where the revenue is immediately converted into cash, together with the average tenure of forward trades for the Institutional business being less than that for the Corporate business.

It is anticipated that the cash conversion will reduce in 2019 due to the impact of an increase in capitalised costs relating to the office move and the capitalisation of technology projects.

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

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 is 30% per annum, whilst vesting in years four and five requires 20% annual revenue growth.

Since Alpha FX Limited achieved revenue growth in excess of 30% in the year ended 31 December 2018, the second tranche of B shares has vested. The Company will issue 576,442 ordinary shares to employees under the B Share Growth Scheme.

Application has been made for the new ordinary shares to be issued under the B Share Growth Scheme to be admitted to trading on the AIM market of the London Stock Exchange and admission is expected to occur on or about 25 March 2019. Following the issue of the new ordinary shares, the issued share capital of the Company will comprise 37,122,410 ordinary shares, each with one voting right. This figure will represent the total voting rights in the Company and may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or change to their interest in, or a change to their interest in the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

C Share Growth Scheme

On 5 September 2018, the Company announced the terms of its C Share Growth Scheme, pursuant to which 863 C ordinary shares ("C Shares") were issued to full-time employees of the Company. 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 will vest in five tranches, occurring annually, starting on 31 December 2018 until 31 December 2022. The first tranche to vest will be equal to 10%. of the participant's C Share entitlement and thereafter will be equal to 22.5%. of the participant's C Share entitlement over the following four years. A participant may choose to roll each tranche of C Shares into the next year provided that no rollover is permitted after the final vesting date (March 2023).

Consolidated statement of comprehensive income

For the year ended 31 December 2018

Consolidated statement of financial position

As at 31 December 2018

Consolidated cash flow statement 

For the year ended 31 December 2018

Consolidated statement of changes in equity

For the year ended 31 December 2018

Notes to the consolidated financial statements

For the year ended 31 December 2018

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 2 Eastbourne Terrace, London, W2 6LG. The consolidated financial statements incorporate the results of the Company and its subsidiary undertakings, Alpha FX Limited, Alpha FX Institutional Limited and Alpha Foreign Exchange (Canada) Limited.

Statutory accounts for the year ended 31 December 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2018 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 2018 and 31 December 2017 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 Financial Reporting Standards as issued by the International Accounting Standards Board and adopted by the European Union ("IFRS").

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 2018 and 31 December 2017, 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 2018.

The preparation of 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 2018 except as described below.

On 1 January 2018 the Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. The adoption of these standards has had no impact on the results presented in the financial statements.

Segment reporting

The revenue for the Group is generated through the provision of commercial and wholesale foreign exchange services. The Group has two reportable segments based on the type of clients. In 2018, 70% of the Group's revenue derived from within the UK. Details of segmental reporting are shown in Note 4.

3. 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 during the 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 Group additionally discloses an underlying earnings per share calculation that excludes the impact of the one-off costs relating to the IPO in 2017, share-based payments and their tax effect, which better enables comparison of financial performance in the current year with comparative years.

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

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

4. Segmental reporting

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

The Group has two reportable segments, based on the type of clients, Corporate and Institutional. Revenue from Corporate clients represents the revenue generated by Alpha FX Limited and Alpha Foreign Exchange (Canada) Limited, whilst revenue from Institutional clients represents revenue from Alpha FX Institutional Limited.

5. Dividends

The Directors propose that a final dividend in respect of the year ended 31 December 2018 of 4.6p per share amounting to £1,681,115 will be paid on 15 May 2019 to all shareholders on the register of members on 12 April 2019. 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 'Event after the reporting period'.

6. Trade and other receivables

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

At 31 December 2018 and 31 December 2017, the receivables are shown net of the Credit Value Adjustment.

7. 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.

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

8. Trade and other payables

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.

9. Provisions

The onerous lease provision represents the present value of the estimated obligations under a lease where the unavoidable costs of the lease exceed the economic benefit expected to be received from it.

10. Share capital

Share capital

The following movements of share capital occurred during the year ended 31 December 2018:

On 26 March 2018, the Company issued 565,387 new shares following the vesting of shares under the Growth Share Scheme the B share scheme.

On 3 October 2018, the Company issued 3,218,602 new shares following a placing.

11. Subsequent events

 On 19 March 2019 the Company determined that following the vesting of shares under the Growth Share Schemes for the year ended 31 December 2018, it would be issuing 576,442 shares on 25 March 2019.

12. Availability of Annual Financial Report

The Group notes that the Annual Report & Accounts for the year ended 31 December 2018 will be posted to Alpha FX shareholders in the first week of April 2019. The document will also be available on the Group's website at www.alphafx.co.uk and in hard copy at 2 Eastbourne Terrace, Paddington London W2 6LG.