Alfa Financial Software Holdings Regulatory News (ALFA)

 25 August 2020

Alfa Financial Software Holdings PLC

Trading update

Alfa Financial Software Holdings PLC ("Alfa" or the "Company"), a leading developer of mission-critical software for the asset finance industry, is pleased to announce that, as a result of strong year to date trading along with good progress on securing revenue, that the Board's expectation of results for the year ending 31 December 2020 are now ahead of current market expectations. Alfa's Half Year results for the six months ended 30 June 2020 will be announced on 29 September 2020.

2020 Half Year results

On 13 July 2020 we announced that our trading in the first half had been better than expected and that demand had been largely resilient to the COVID-19 pandemic. Revenues in the first half benefited from fewer holidays being taken by our people and therefore a higher number of billable days were worked, although we expect this to reverse in the second half. 

Underlying revenue was also better than expected as we successfully managed changing customer work schedules whilst maintaining good utilisation. The Half Year results will also benefit from the impact of remote working which has resulted in reduced travel and marketing costs. This was partly offset by higher overall staff costs driven by continued recruitment and lower than normal attrition rates. At the time of the 13 July trading update we remained cautious about the expected client workload and prospects for the second half of the financial year ending 31 December 2020. Whilst the Half Year results are yet to be finalised, and are still subject to review by our new auditor, the impact of the reduced holidays taken by our people has increased billings by c.£3m. That, together with a stronger than forecast first half performance, means that we now expect to report total revenues of c.£38m with an EBIT of c.£10m and a net cash balance of c.£68m.

Current trading and full year expectations

As a result of the ongoing impact of the pandemic, there remains a higher degree of uncertainty than normal and this impacts our ability to forecast accurately. Our forecasts can be impacted not only by the likelihood of converting opportunities into secured work, but also because changing customer plans means that contracted revenue can slip into later periods with consequential write-back in licence fee income due to revenue recognition rules.

The strong performance from the first half has continued into July. We have also made good progress in contract discussions, in both extending existing work and securing late stage pipeline opportunities. This, combined with the year-to-date performance, means our expectations of revenue for the full year have now increased.

At the time of our 2019 Full Year results we highlighted that there would be short-term pressure on our margins, but that we would continue to invest in our business and recruit new people due to our strong balance sheet and confidence in the medium-term outlook for the Company. We continue to believe that this is the right approach and are therefore prepared that in the short-term we may, at times, have a mismatch between secured revenue and our cost base. 

At the current time, whilst we are making good progress, we do not have secured cover for all of our available billable time in the remainder of the year. With the impact of additional holidays, we are currently forecasting to make a loss in the second half. However, despite this, and combined with our strong year-to-date trading, we now expect our revenues and profits for the full year to be ahead of current market expectations. Consensus market expectations are currently for revenue of £60m and EBIT of £4m. We now expect revenues to exceed this by about 5% with the vast majority of this improvement also falling through to EBIT.

Outlook

The good progress in converting our late stage pipeline reinforces our belief in our strategy, and if it continues we will have a solid base for 2021. However, as previously mentioned, as a result of the pandemic, the early stage pipeline remains weaker than we would like and the medium-term economic outlook is uncertain. This may impact our revenues in the second half of 2021 and into 2022. So whilst we have seen an encouraging performance so far in 2020, until we have secured more future work, we remain cautious for 2021.

Enquiries

Notes to Editors

Alfa has been delivering systems and consultancy services to the global asset and automotive finance industry since 1990. Our best practice methodologies and specialised knowledge of asset finance facilitates our delivery of large software implementations and highly complex business change projects. With an excellent delivery history over nearly three decades in the industry, Alfa's experience and performance is unrivalled.

Alfa Systems, our class-leading technology platform, is at the heart of some of the world's largest asset finance companies. Key to the business case for each implementation is Alfa Systems' ability to replace multiple client systems on a single platform. Alfa Systems supports both retail and corporate business for auto, equipment, wholesale and dealer finance on a multijurisdictional basis, including leases/loans, originations and servicing. An end-to-end solution with integrated workflow and automated processing using business rules, Alfa Systems provides compelling solutions to asset finance companies.

Alfa Systems is currently used by customers or has live implementations in 26 countries and Alfa has offices in Europe, Australasia and North America. For more information, visit www.alfasystems.com