AFX.L Regulatory News (AFX)

Alpha FX Group plc

("Alpha FX", "Alpha" or the "Group")

Interim Report

Alpha FX (AIM: AFX), a UK-based foreign exchange and payments specialist working for corporates and institutions internationally, is pleased to announce its unaudited Interim Report for the six month period ended 30 June 2019.

Financial Highlights

·; Revenue up by 60% to £15.6m (H1 2018: £9.7m)

·; Underlying* operating profit increased by 70% to £6.7m (H1 2018: £3.9m)

·; Reported operating profit improved by 62% to £6.2m (H1 2018: £3.9m)

·; Underlying operating profit margin of 43%

·; Underlying basic earnings per share increased to 14.0p in the period (H1 2018: 9.4p) whilst diluted earnings per share increased to 12.8p (H1 2018: 9.2p)

·; Interim dividend increased by 16% to 2.2p (H1 2018: 1.9p) in line with progressive dividend policy

Operational Highlights

·; Client numbers increased during the period from 482 to 565**

·; Staff numbers increased from 82 to 97 in the period representing seven additional front office and eight back office staff

·; All established business lines demonstrated good growth

·; Newly launched operations in Canada and Alpha Pay are now contributing to revenue

·; Moved into permanent headquarters, post period end, on 27 August

* Underlying excludes the impact of exceptional property related costs 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 numbers for the purpose of these figures.

Outlook

Trading in the second half of the year has begun well and the Board remains very comfortable with market expectations for the full year outcome.

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

"I am pleased to report all aspects of the business are performing well. Our recently launched operations into new markets and products is exciting, and has enabled us to diversify our revenue streams without compromising our focus on high value clients and opportunities. To support this, we have enhanced our operational functions, governance and technology and will continue to do so.

We know that to sustain our growth, we must continue to attract, develop and retain high calibre people, whilst proportionately investing in our culture as the business scales. Culture is the cornerstone of our competitive advantage and we remain committed to the entrepreneurial roots that have got us to this point. We have cultivated a strong founders' mentality which is continuing to generate exceptional levels of performance across all areas of the business. The long-term incentive plans we have implemented have gone a long way to support and reward this mentality, and we look forward to providing more opportunities in order to maintain our high growth for many years into the future."

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 foreign exchange and payments specialist focused on helping organisations manage their currency exposures more effectively. 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 FX has been able to build and retain a high-quality client base that includes a number of highly respected household brands.

Chief Executive's Report

Introduction

I am pleased to report on another strong period for the Group, with excellent progress made across all aspects of the business.

Revenue for the first six months of the year was £15.6m, representing 60% growth against H1 2018, whilst underlying operating profit increased to £6.7m, a 70% increase against the prior period. These results are particularly pleasing given the ongoing high levels of investment made to support sustained future growth.

Revenue growth continues to be driven by our core UK Corporate market, European clients serviced through our London office, the broadening of our product base into providing currency options, and the Institutional division. Alpha Pay and the new Canadian operation have had some early success and represent significant growth drivers for Alpha in the future.

Business Overview

Client numbers have continued to increase, from 482 to 565 during the period, with the average revenue per client also showing a solid increase against H1 2018. These revenue trends follow the continued investment to increase the breadth and depth of our products, technology and expertise.

Penetration within our core UK Corporate market has continued to increase in the period, highlighting the strength and depth of the team. Pleasingly, this has been achieved despite senior sales staff diverting some of their time to mentor and develop the growing London-based European sales team - something that will naturally unwind during the second half of the year as the European team continues to mature.

The London-based European sales team has continued to grow in terms of headcount, client numbers and the countries where the Group's services are provided. Each individual country is assessed on the dynamics of its market, the size of that market and the ability to attract relevant fluent speakers who can thrive in the Alpha culture. We plan to continue our investment of funds and resources into penetrating markets that we determine offer the best returns for our shareholders and where the opportunities for consistent growth are strongest.

Whilst uncertainty around Brexit continues, planning has been ongoing within Alpha since the 2016 referendum and the Group has continued to grow in spite of this. The nature of our core services and products means that the Board remains confident in the Group's ability to continue transacting with clients across diverse revenue streams and geographies.

The currency options offering that was launched in August 2017 continues to prove valuable to a growing number of clients. The options desk allows us to to cater for a wider spectrum of client requirements and sectors, providing us with an even larger addressable market, whilst also where appropriate, enabling us to sell deeper into existing clients by better servicing their needs.

The Institutional division, launched in March 2018, is growing in line with expectations and more than doubled revenue in this period versus the first half of last year. The nature of clients' commercial activities means that transactions tend to be larger but more sporadic, which can lead to fluctuations on a quarterly basis. However, the overall trend within the business is positive and strong growth is expected to continue. The Institutional division was created using the Company's subsidiary model, attracting a highly talented team and implementing performance-based equity incentive mechanisms that align their interests with that of the Company and its shareholders. The success to date provides us with great confidence in replicating this model with the Canadian operation, Alpha Pay and other potential areas of new business in the future, further increasing our total addressable market.

The Canadian team based in Toronto, which began operations in late 2018, increased headcount in the period from five to eight people. This is already supporting client acquisition, reaffirming our belief that the Canadian market shares similar dynamics to the UK and therefore represents a significant opportunity for the Group.

Alpha Pay, which was launched towards the end of 2018, has performed well and is already contributing revenue. Alpha Pay is an online international payments platform designed to reduce the time, cost and administrative burden of making and receiving cross-border payments, by providing a simpler, faster and more reliable solution. The majority of the early adopters of Alpha Pay have been new clients, demonstrating the Group's ability to increase its overall target market, whilst also increasing wallet share and supporting the retention of existing customers. With increasing functionality and connectivity planned for the second half of the year and beyond, as well as additional significant bank partnerships agreed, we are looking forward to the opportunities Alpha Pay presents. Significantly, Alpha Pay is just the first of a number of innovative products in development under the Group's newly formed business division, 'Alpha Banking Solutions'. The growth potential from this division moving forward is therefore highly exciting.

Market Developments

As the results in the first half have proven, the potential for growth in Alpha's core UK corporate market remains significant. Furthermore, with the Group's diversification into the European market, the institutional market and the Canadian market, alongside increasing product offerings such as Alpha Pay and currency options, the Group's addressable market is becoming even larger, whilst remaining carefully targeted.

Office Relocation

Having initially relocated our Head Office in December 2017 to a temporary location in London, we were pleased to move into permanent headquarters in August of this year. The original move to London has proved critical in terms of attracting the right talent and being able to scale the business, particularly when attracting international speakers capable of establishing and growing our European offering.

Whilst serviced offices were appropriate initially, it soon became apparent that Alpha needed a stand-alone space that embodied our culture and gave us sufficient capacity to support our future growth plans. The investment in our office reflects our commitment to attracting and retaining exceptional people, whilst providing an environment within which they can thrive. It is no exaggeration to say that the response and atmosphere amongst the team since moving in has been unprecedented.

People & Culture

Overall headcount during the first half increased from 82 at the year end to 97, with front office staff numbers increasing by seven, to 58 and back office by eight, to 39. Given constraints on capacity at our previous office and the desire to provide new starters with the best introduction to our culture and environment, recruitment since the period end has been deliberately coordinated around the move into our new headquarters.

Culture remains the single most important differentiator for our business. The time and effort spent codifying our culture in order to instil the behaviours and principles that have driven our high levels of performance to date, is continuing to pay dividends. We are all proud of the foundations that we have built at Alpha and understand that we will only maximise the true potential that these afford us by continuing to protect and develop the culture that got us to this point.

Technology

Technology continues to be ever more important to the Group and it is encouraging that the strategic investments made during the course of last year are delivering the anticipated benefits. This provides further confidence in the ongoing investment planned for the rest of this financial year and beyond. Since inception, Alpha has had the benefit of leveraging cloud-based systems, providing the ability to quickly flex, adapt and add new functionality to its technology offering.

We have made further investment into the technology team, which will continue in line with our stated strategy. Our focus remains on improving and upgrading our technology well in advance of any capacity or functionality constraints, in order to provide our growing client base with the platform they require.

An excellent example of this is the continued development of Alpha Pay. Having been developed in-house using cutting-edge technology, and with scalability a key consideration at the outset, we have been able to create a high-performing payment platform which we believe to be superior in the market. The initial reaction to Alpha Pay has been highly encouraging and gives us the confidence to invest further in our innovative offering to maximise this opportunity. Bank connectivity and the integration of new banking partners, as well as back-end capabilities, are being significantly enhanced throughout the second half of the year.

Alongside client facing technology, ongoing improvements are being made to increase automation and improve straight through processing. These are driving greater efficiencies, by enabling the Group to process increased transaction volumes without a commensurate increase in costs.

Financial Review

In the six months to 30 June 2019 revenue for the period increased by 60% over the comparable prior period to £15.6m (H1 2018: £9.7m). Revenue growth during the period continues to be driven by increasing Corporate client numbers and revenue per client, both from the UK and overseas, as well as growth from the Institutional team. Alpha Pay and the new Canadian operation have started well. In the six month period to 30 June 2019 the Board saw no external pressures on client commission rates.

Underlying operating profit, that excludes the impact of non-cash share-based payments and exceptional property related costs, increased by 70% to £6.7m (H1 2018: £3.9m). The period represented one of continued investment, including ongoing investment in the Canadian operation that was launched in October 2018. We expect similar investment trends in our technology offering, new office and headcount to continue in the second half. Despite the ongoing investment in the first half, the underlying operating margin was 43% for the period.

The exceptional property costs in the period of £0.2m relate to initial double running and move related costs following the signing of a lease for the Group's new Head Office premises in London.

Underlying basic earnings per share increased to 14.0p in the period (H1 2018: 9.4p) whilst basic earnings per share increased from 9.2p to 12.9p.

Cash flow

On a statutory basis, cash and cash equivalents increased by £21.0m in the six months to 30 June 2019 to £59.4m. 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. In the six months to 30 June 2019 the increase in cash and cash equivalents was mainly due to the Group having called more clients for margin as a result of adverse foreign exchange movements in their outstanding forward contracts.

In addition to the statutory cash flow, the Group presents a cash summary below which excludes the above items, providing a better view of the Group's net cash resources. In the six months to 30 June 2019 adjusted net cash on this basis increased from £35.7m at 31 December 2018 to £36.1m. The increase in adjusted cash in comparison to 30 June 2018 is largely due to the proceeds of the equity placing in November 2018 that raised £20.0m before costs.

* Included within 'other payables' in the 'trade and other payables' note 8

** 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 period of 59% has been impacted by the payment of costs in advance of the office move in August 2019 that has impacted the conversion by approximately 9%.

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

Dividend

In our 2018 full year results, it was announced that 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 on a fixed percentage of profits. The Board is pleased to declare an interim dividend of 2.2 pence per share, representing 16% growth over the prior year (2018: 1.9 pence). The interim dividend will be payable on 11 October 2019 to shareholders on the register at 13 September 2019. The ex-dividend date is 12 September 2019.

Alpha Banking Solutions share scheme

In a similar vein to the Institutional division and Canadian operation, the Group announces its intention to put in place a share ownership incentive scheme for those individuals responsible for the Group's newly formed business division, Alpha Banking Solutions ("ABS").

ABS, which sits within Alpha FX Ltd (the Group's main operating subsidiary), will be led by Adam Dowling, who will report directly to the executive directors of the Group. Adam joined Alpha last year to lead the growth of Alpha Pay, and the development of other innovative products yet to be launched. Adam has spent more than 15 years working in banking and payments, most recently as Director of Product at Banking Circle, an innovative financial technology company, and prior to this as Vice President of Cash Management at Barclays.

In order to maximise the potential of ABS, the Group has recruited a number of key individuals with significant experience in supporting corporate clients with more effective and efficient strategies to make and receive cross-border payments (the "ABS Participants").

It is proposed that a new class of shares (D Shares), which will be subject to put options, will be issued to the ABS Participants in Alpha FX Ltd and their value linked to the performance of the ABS business. It is expected that the ABS share ownership incentive scheme will be structured in a similar way to the incentive schemes implemented for the recently launched Canadian operation and the Institutional division.

Commencing three years following issuance of the D Shares, it is expected that the ABS Participants will have the option to convert a percentage of their holding of D Shares into Alpha FX Group plc shares each year, subject to the ABS Participants meeting specified performance criteria. At conversion, and in exchange for converting their D shares into Alpha FX Group plc shares, the ABS Participants holding of D Shares in Alpha FX Ltd will commensurately decrease. A further announcement will be made once the terms of the scheme are finalised.

 Consolidated statement of comprehensive income

Consolidated statement of financial position

Notes to the financial statements

1. Corporate information

The Company, Alpha FX Group plc, 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). 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.

2. Basis of preparation

The basis of preparation of this financial information is consistent with the basis that will be adopted for the full year accounts which will be prepared in accordance with IFRS as adopted by the European Union.While the financial figures included in this half-yearly report have been computed in accordance with IFRS applicable to interim periods, this half-yearly report does not contain sufficient information to constitute an interim financial report as that term is defined in IAS 34.This interim financial information has not been audited and the financial information contained in this report does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The year to 31 December 2018 has been extracted from the audited financial statements for that year.

The Group's financial statements for the year ended 31 December 2018 have been reported on by auditors, BDO LLP, and have been delivered to the Registrar of Companies. The auditors report on those financial statements was unqualified and did not contain statements under Section 498(2) or Section 498(3) of the Companies Act 2006.

Accounting policies

The accounting policies adopted in these interim financial statements are identical to the those adopted in the Group's most recent annual financial statements for the year ended 31 December 2018 except as described below.

IFRS 16 Leases

On 1 January 2019 the Group adopted IFRS 16 Leases. The Group now recognises a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use. Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Group's estimated incremental borrowing rate.

The finance cost is charged to the Consolidated Statement of Comprehensive Income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Payments associated with leases with a lease term of twelve months or less and leases of low-value assets are recognised as an expense in profit or loss on a straight-line basis.

As at 1 January 2019 the only leases held by the Group were for a lease term of twelve months or less and accordingly the adoption of IFRS 16 has not required any adjustment to the opening balance sheet at that date. IFRS 16 has been applied to a new lease entered into in the period to 30 June 2019. The incremental borrowing rate used to measure lease liabilities at initial inception is based on the assessment of management of 4.5%.

2. Basis of preparation (cont'd)

IFRIC 23 Uncertainty over Income Tax Treatments

IFRIC 23 is effective for periods beginning on or after 1 January 2019 and requires:

₋ The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;

₋ The Group to consider if it is probable that the tax authorities will accept the uncertain tax

treatment; and

₋ If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty.

The Group does not believe that it is impacted by IFRIC 23 and therefore opening retained earnings remain unaffected.

3. 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.

The underlying operating profit for the Corporate segment includes £466,003 of losses for the 6 months to 30 June 2019 relating to Alpha Foreign Exchange (Canada) Limited, which was incorporated in October 2018.

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

In the six months to June 2018 the Group recognised exceptional property related costs amounting to £165,000. These costs related to the exit of an existing leased property and were treated as exceptional in anticipation of additional property related costs in the second half of 2018 in respect of a Head Office move. This move did not materialise in the year ended 31 December 2018 and Management did not deem the costs incurred significant enough to disclose separately. Therefore, no exceptional property related costs were disclosed in the financial statements for the year ended 31 December 2018. The figures for the six months to June 2018 have been restated to reflect this.

4. Earnings per share

Basic earnings per share is calculated by dividing the profit for the period by the profit attributable to equity holders of the parent by the weighted average number of ordinary shares during the period. 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 share-based payments, non re-curring costs 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:

5. Dividends

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

The Board has recommended the payment of an interim dividend to shareholders in respect of the year ended 31 December 2019 of 2.2p per share totalling £816,727 to shareholders on the register of members on 13 September 2019. The dividend is payable on 11 October 2019.

6. Trade and other receivables

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

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 primarily 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. Share capital

The following movements of share capital occurred in the 6 months to 30 June 2019.

10. Subsequent events 

As outlined in the Chief Executive's Report, on 4 September 2019 the Group announced a share ownership incentive scheme for those individuals responsible for the Group's newly formed business division, Alpha Banking Solutions.