TIDMAFM
RNS Number : 9780T
Alpha Fin Markets Consulting plc
20 November 2019
Alpha Financial Markets Consulting plc
("Alpha", the "Company" or the "Group")
Alpha Financial Markets Consulting plc (AIM:AFM), a leading
global provider of specialist consultancy services to the asset and
wealth management industry, is pleased to report its reviewed
interim results for the six months ended 30 September 2019 (H1
20).
20 November 2019
INTERIM RESULTS
Financial Highlights
-- Group revenue increased by 8.9% to GBP42.4m (H1 19: GBP39.0m)
-- Group adjusted EBITDA increased by 12.4% to GBP9.5m (H1 19: GBP8.5m)
-- Group adjusted operating profit increased 6.0% to GBP8.9m (H1
19: GBP8.4m); Group operating profit was GBP5.2m
-- Adjusted profit before tax rose to GBP8.8m (H1 19: GBP8.3m);
Group profit before tax reduced to GBP4.9m (H1 19: GBP6.7m)
reflecting increased non-underlying Axxsys related acquisition
costs
-- Improved Group adjusted cash conversion of 70.4% (H1 19:
55.6%); with cash generation from operating activities of GBP6.2m
(H1 19: GBP4.8m)
-- Group adjusted basic earnings per share increased to 6.82p (H1 19: 6.20p)
-- Interim dividend of 2.10p per share declared (H1 19: 1.91p)
-- Robust balance sheet with GBP17.1m net cash at 30 September
2019 (30 September 2018: GBP10.6m)
6 months to 6 months to
30-Sep-19 30-Sep-18 Change
---------------------------- ------------ ------------ --------
Revenue GBP42.4m GBP39.0m 8.9%
Gross Profit GBP16.3m GBP15.1m 7.5%
Adjusted EBITDA GBP9.5m GBP8.5m 12.4%
Adjusted Profit before Tax GBP8.8m GBP8.3m 5.2%
Adjusted EPS 6.82p 6.20p 10.0%
Interim Dividend per Share 2.10p 1.91p 9.9%
---------------------------- ------------ ------------ --------
Operating Highlights
-- Successful acquisition of Axxsys (announced 5 June 2019)
expands the Group's geographic footprint and strengthens further
its service proposition
-- Strong performance by North America including revenue growth
of 38.8% to GBP6.9m (H1 19: GBP5.0m) and improved gross margin
-- Addition of offices in Denmark and Canada, taking the Group to 12 offices globally
-- Extension of the Group's business practices with launch of Pensions & Retail Investments
-- Continued investment in the highest calibre of people: number
of consultants increased by 19% to 418 (30 September 2018: 352)
-- Expansion of the Group's director team through the addition of 12 directors globally
-- Growth in new clients globally; the number of clients that
the Group has supported now stands at 350 (H1 19: 252)
-- Post balance sheet date acquisition of Obsidian Solutions
Limited, a specialist provider of investment management software
products (announced 11 November 2019)
Commenting on the results, Euan Fraser, Global Chief Executive
Officer said:
"Since the Group's admission to AIM in October 2017, we have
remained committed to growing the business in scale and strength
across our service proposition and to investing in our people. In
the course of those two years, we have delivered strong revenue and
adjusted EBITDA growth of over 45% and 60% respectively, while
significantly increasing headcount and expanding the business
practices from nine to 13.
That strategy, together with a strong global business model and
growing client base, has enabled the Group to deliver a good set of
results for the six months ended 30 September 2019 in a global
environment of sustained political uncertainty. We are pleased to
be reporting on a period in which we have continued to make great
strategic progress: acquiring a new business in Axxsys, which added
new offices in Copenhagen and Toronto, launching a Pensions &
Retail Investments practice and growing our highly skilled team of
consultants by 19%; and completing recently a further acquisition
of Obsidian Solutions Limited.
Trading is in line with Board expectations for the full year and
we see multiple opportunities to create further growth ahead. We
look forward confidently to progressing our objectives through the
remainder of the financial year and beyond."
Enquiries:
+44 (0)20 7796
9300
Alpha Financial Markets Consulting plc
Euan Fraser, Global Chief Executive Officer
John Paton, Chief Financial Officer
+44 (0)77 9542
Temple Bar Advisory (Financial Public Relations) 5580
Alex Child-Villiers +44 (0)78 2796
William Barker 0151
Sam Livingstone +44 (0)77 6965
5437
Grant Thornton UK LLP (Nominated Adviser)
Philip Secrett +44 (0)20 7383
Richard Tonthat 5100
Harrison Clarke
Seamus Fricker
Berenberg (Broker)
Chris Bowman
Toby Flaux +44 (0)20 3207
Alix Mecklenburg-Solodkoff 7800
Analyst Presentation
A results presentation from Alpha will take place today at 11:00
a.m. at Berenberg's offices, 60 Threadneedle Street, London EC2R
9HP. Those wishing to attend should email
alpha@templebaradvisory.com or call 0207 975 1415.
A copy of this announcement and the presentation slides will be
available on Alpha's website: http://
https://alphafmc.com/investors/reports-presentations/.
INTERIM MANAGEMENT REPORT
We are pleased to report that the Group continues to make
positive progress on its strategic objectives and has performed
well in the first half of the financial year. The Group's strategy
aims to grow and differentiate the business through the development
of its very high-quality service offering, the extension of its
geographic footprint and through the acquisition of complementary
businesses. During the six months ended 30 September 2019, Alpha
has continued to build scale both globally and across a number of
domestic markets, in spite of global political and economic
uncertainty. In line with the strategy, this growth has been both
organic, driven by client demand for Alpha's attractive proposition
and deep expertise; and acquisitive, through the successful
completion of the Group's purchase of Axxsys Limited ("Axxsys") in
June 2019 and, after the period end, the acquisition of Obsidian
Solutions Limited ("Obsidian").
Half Year Review(1)
Alpha delivered growth in revenue and adjusted(2) EBITDA in the
half year to 30 September 2019. Group revenue grew by 8.9% to
GBP42.4m in the first six months of the financial year (H1 19:
GBP39.0m). At constant exchange rates, revenue grew by 6.7%.
Adjusted EBITDA increased by 12.4% to GBP9.5m (H1 19: GBP8.5m),
including the Axxsys contribution since its June 2019 acquisition
and the adoption this year of IFRS 16.
Before adjusting for non-underlying items, statutory operating
profit was GBP5.2m (H1 19: GBP6.8m) and, on an adjusted basis, rose
6.0% to GBP8.9m. The basic earnings per share were 3.54p (H1 19:
4.91p). When adjusted for non-underlying items, adjusted basic
earnings per share were 6.82p (H1 19: 6.20p), representing a 10.0%
increase.
(1) All rounding and percentage change calculations are from the
basis of the financial statements, in GBP'000s. All comparisons are
to H1 19 period (six months ended 30 September 2018) unless
otherwise specified
(2) For a reconciliation of all adjusted alternative performance
measures, please see note 3. H1 20 adopts IFRS 16 Leases for the
first time; further details are set out below and in note 5
Operational and Geographical Review
The underlying asset and wealth management industry trends of
cost reduction, changing regulation and increasing assets under
management remain firmly in place, driving change programmes
globally. Alpha offers a compelling, quality-driven consulting
service and continues to be very well positioned to advise and
assist clients with their needs and priorities. Consequently, the
Group's growth objectives have remained unchanged from those
previously stated: to extend the depth and range of services, and
to increase Alpha's footprint in all markets, with a model that
serves both to address current demand and promote new client
demand.
As the markets change, and our business grows, we continue to
extend the Group's capabilities to best cater to our clients'
evolving profiles and needs. We strategically aim to identify and
launch new practices where there is client-led demand, while
pursuing growth in the existing practice areas. During the period,
Alpha's well-established practices, including Investments
(previously Front Office)(3) , M&A Integration and Operations
& Outsourcing, continued to be successful across the Group's
key markets. Meanwhile, business practices that the Group has newly
established, such as Regulatory Compliance, Digital and Alpha Data
Solutions, are progressing well; and there were a number of key
client wins for the ETF & Indexing practice, which was launched
in the second half of FY 19.
In addition to investing in our existing business practices, we
have expanded the proposition with the launch of a new practice,
Pensions & Retail Investments, welcoming two additional
directors to the team to lead it. The new practice responds to the
growing demand for consulting support from clients in this area
across such topics as market participation strategy, distribution
transformation, platform implementations, cost reduction,
regulation and client experience. It offers our clients focussed
expertise in the life and pensions space, allied to Alpha's deep
understanding and experience of managing complex challenges and
opportunities across the industry.
Most notably, in the period, we have invested in our service
lines through acquisition. The addition of Axxsys has brought a
strong, complementary technology-focussed service to the Group's
client proposition, consolidating and extending the Group's
expertise in SimCorp and investment management platforms.
We are pleased to see clients placing their confidence in Alpha
as their consulting partner of choice; and to have worked with 47
new clients in the 12 months since H1 19, taking the number of
clients that we have now worked with 350(4) (H1 19: 252). We have
continued to gain clients across the globe, including in the more
recently launched markets, Singapore and Switzerland. The addition
of offices in the Nordics (Copenhagen) and North America (Toronto),
through the Group's acquisition of Axxsys, has enabled strong local
introductions and cross-selling opportunities in those
jurisdictions.
(3) Investments practice re-branded from Front Office practice
during the period
(4) A total of 350 clients includes client relationships
acquired from the acquisition of Axxsys of 51 as at H1 19.
Geographic performance in the period can be summarised as
follows:
6 months to 6 months to
30-Sep 2019 30-Sep 2018 Change
------------------ -------------- -------------- --------
Revenue
UK(5) GBP24.7m GBP24.3m 2.0%
North America(6) GBP6.9m GBP5.0m 38.8%
Europe & Asia(5) GBP10.8m GBP9.7m 11.1%
------------------ -------------- -------------- --------
GBP42.4m GBP39.0m 8.9%
-------------- --------------------------------- --------
(5) Alpha Data Solutions ("ADS") revenue, previously shown
within Europe & Asia, in the current year is included in the UK
segment, in line with the ADS business growth and focus. To allow
for easier comparison, this has been restated in the comparative
period
(6) North America replaces previously used "US" as a geographic
segment, taking into consideration an office in Canada through the
acquisition by the Group of Axxsys
30-Sep 2019 30-Sep 2018 Change
------------------------- ------------ ------------ --------
Consultant Headcount(7)
UK(8) 225 185 21.6%
North America 59 59 -
Europe & Asia(8) 134 108 24.1%
------------------------- ------------ ------------ --------
Period-end totals 418 352 18.8%
------------------------- ------------ ------------ --------
(7) Consultant Headcount refers to fee-generating consultants:
employed consultants plus utilised contractors
(8) ADS headcount, previously shown within Europe & Asia, in
the current year is included in the UK segment in-line with the ADS
business growth and focus. To allow for easier comparison, this has
been restated in the comparative period
The Board is satisfied with the performance of the Group's
regional businesses in terms of growth in revenue and consultant
headcount. Organic revenue growth progressed when compared to both
the previous six months ended 31 March 2019 and to the very strong
first half in FY 19, which was driven by utilisation ahead of the
Group's long-term budget expectations. The Board is pleased with
the domestic client base in all geographies as well as a growing,
scaled capability that covers all key asset management
jurisdictions, meaning that Alpha remains very well placed to
support clients with their most challenging projects and increase
further its market penetration.
The UK remains the largest geography within the Alpha Group and
we are proud to be supporting some of the highest profile projects
in the UK marketplace. In a complex market of prolonged uncertainty
over the UK's exit from the European Union, which has impacted
decision making within some of our clients, revenues eased against
the comparative half (H1 19) on an organic basis. However, we are
pleased to report that the six months ended 30 September 2019 was a
period of organic growth when compared to the previous six months
(H2 19: GBP21.0m). The Group's newest practices including Digital,
FinTech & Innovation and ETF & Indexing are contributing
well in this market, which bodes very well for the future. We are
confident that Alpha's exceptional reputation in the UK, together
with a focussed expansion strategy, will enable sustainable growth
over the long term.
Europe & Asia grew 11.1% including the Axxsys contribution,
while, on an organic basis, there was a flat comparative revenue
performance. This reflects softer European market conditions and,
as a result, lower than expected utilisation levels in a number of
those European geographies. The six months ended 30 September 2019
saw some good individual country performances, including Singapore
and Luxembourg; with a more mixed picture in other geographies that
has resulted in targeted recruitment, including a senior director
hire in France. We are pleased that Alpha's high-quality service
offering and expertise continues to resonate with those local
markets, attracting new clients and enabling the Group to make
strategic new hires.
In June 2019, with the acquisition by the Group of Axxsys, we
added a new Copenhagen office into Alpha's European footprint and
we believe the Nordics and Central Europe to be a key area of
growth ahead. We have strengthened the team there with the
recruitment of an Axxsys CEO of Central Europe, to drive further
growth in this important SimCorp market. With exciting client
opportunities arising across the Asia-Pacific region, we also
continue to build our Singapore team, and were delighted to welcome
a new director there. At the start of the second half of FY 20, our
Europe & Asia pipeline is good, and we expect to achieve
further progress in the latter part of the year.
We have previously reported that the US market represents a
significant opportunity for growth within the Group. We are very
happy with the performance of the business in the first half of the
financial year, with 38.8% growth in revenues and a significant
improvement in gross margin, which were mostly organic. We are
delivering against our growth plan, which, as noted in the Group's
Annual Report & Accounts 2019, included identifying the right
director candidates to build out our internal capability and
develop talent within the Alpha US offices. We are delighted to
have added three directors to the team during the period; two
through key hires and one through internal promotion. The US market
is promising, project sales have increased and we have a strong
local business model based upon attracting and growing raw talent.
The strategic acquisition of Axxsys brings an office in Canada,
thus extending the geographical reach of this region to North
America and representing opportunities to accelerate growth in that
region even further.
Our People
Alpha's competitive advantage stems from its people. It is due
to Alpha's highly skilled, hugely committed global teams that we
are able to deliver unrivalled outcomes for our clients, which in
turn drives client loyalty and repeat business. Consequently,
investing in our people is a key component of the growth strategy
and we continue to develop our exceptional group of
consultants.
As an organisation built upon the integrity, indispensable
experience and personal credentials of our consultants, we are
committed to hiring and retaining the very best people in the
industry, as well as maintaining the capacity to deliver
sustainable growth. We therefore constantly review the Group's
market-leading proposition for attracting the best consulting
talent. We have increased the headcount of consultants by 19% to
418 globally (September 2019: 352), which evidences the ongoing
appeal of the Group's unique culture and offering to both internal
and external candidates.
We continue to reward our people's contributions through salary,
profit share and equity schemes; and are delighted that the equity
of the business remains strong across our employees. The Group
facilitates employee equity ownership through its Employee
Incentive Plan ("EIP") and Management Incentive Plan ("MIP").
During the reporting period, 3,318,807 share options were awarded
to employees and, as at 30 September 2019, approximately 17% of the
Company's share capital with voting rights was held by
employees.
We have a fabulous track record and strong reputation at our
clients for identifying outstanding performers both in the market
and at graduate level. We are very proud of our internship and
graduate programmes. Many of our graduates have progressed quickly,
achieving very senior grades within the organisation, which is a
wonderful testament to both the quality of the people as well as
our focus on maintaining the most supportive and progressive
environment for our teams to work in. We are delighted that the
first US-based graduate scheme last year was very successful, and
that the US business was able to welcome its second graduate class
in September 2019.
In the period, we have also expanded the director team through
the addition of 12 directors, including seven director hires across
the UK, Europe, North America and Singapore; and the promotion of
five excellent existing employees to director grade. Reinforcing
our local and global director teams is a key factor in ensuring
that our consultants and our values are supported, and that we can
support future growth in all locations. We work very hard to ensure
that all our consultants, but especially at director level, have
the appropriate blend of asset and wealth management expertise and
cultural values to lead the business; and we are very pleased with
these additions to the global director team.
We would like to take the opportunity to thank all the Group's
employees for their continued commitment, enthusiasm and
professionalism in pursuing our strategic goals and addressing our
clients' requirements to the highest of standards.
Growth Strategy
Alpha's strategic aim is consistent with that reported
previously: to be recognised as the leading global asset and wealth
management consultancy, and as the leading consultancy in all the
domestic asset and wealth management markets in which it operates.
We have a dedicated focus on achieving this aim through organic and
targeted non-organic growth.
Alpha has developed a proven track record for supporting clients
globally through deep subject matter expertise and a commitment to
the highest delivery standards. Alpha's strategy is premised upon
leveraging the multiple growth opportunities that it sees across
the industry, while using this compelling blueprint to expand
further through organic and inorganic growth.
The asset and wealth management industry exhibits ongoing growth
and the structural drivers of change represent clear opportunities
for the Group to continue developing its service offering to
support clients across the spectrum of their operating models, both
in terms of capabilities and jurisdictional footprint. The addition
of two new offices in Copenhagen and Toronto, the integration of a
new business (Axxsys) and a 19% increase in global headcount align
to this strategic growth focus. We will continue to broaden our
service offering and extend the number of business practices to
meet evolving client needs and demand. In addition, we remain
committed to strengthening and deepening Alpha's existing practices
across all regions, and it is the building out of this practice
structure across North America, Europe and, ultimately, Asia that
will help to drive our future growth organically.
We have previously stated that the Board supports the view that
the strategy includes moving into additional parts of the asset and
wealth management chain. The Group has achieved a globally
recognised service offering and the same highly successful business
model can be replicated in new areas of the industry. We are very
pleased to announce that the Group has established a proposition
within Pensions & Retail Investments, thus extending Alpha's
addressable market into life and pensions investments. We look
forward to developing and growing this new practice further.
Acquisitions
Acquisitions remain a key part of the Group's growth strategy,
alongside organic growth, with a continued focus on acquiring
businesses that offer complementary services to our clients in both
existing and target markets. Our objective remains to extend our
consulting and service proposition, and to broaden our reach both
across and into additional parts of the asset and wealth management
industry.
Since the admission to AIM, we have incorporated two new
businesses into the Group, TrackTwo GmbH ("TrackTwo") and Axxsys,
thus strengthening and extending our already considerable
expertise. The integration of Axxsys, acquired in June 2019, is
largely complete and the business has contributed positively to the
Group's trading results since acquisition. The addition of Axxsys
to the Alpha Group brings a strong technology-focussed service to
the client proposition; and the teams are already collaborating
very successfully on the delivery of a number of strategic client
projects in the UK and North America with multiple cross-selling
opportunities developing across Europe. The integration of Axxsys
demonstrates the Group's ability to execute successfully against
its strategy of making value enhancing acquisitions.
We were delighted to announce recently that the Group has
acquired Obsidian, a specialist software solutions business for the
investment management industry, during the third quarter of FY 20.
This acquisition brings a globally-recognised suite of technology
and data analytics solutions to the Group's service proposition. As
well as enhancing the Alpha Data Solutions product offering, the
addition of Obsidian to the Group creates additional recurring
revenue opportunity. The Group has gained confidence from its
acquisition experiences to date and will continue to add to its
service offering through selectively investing in new products and
services that provide diversified and established revenues and,
where possible, are underpinned by strong data or technology
components.
Governance and the Board
The Alpha Board meets regularly to oversee the Group's corporate
and operational activities, and to manage the progression of its
strategic objectives. The Board is committed to the core values of
strong governance, integrity and business ethics, which we believe
are key to reducing risk, adding value and, in turn, bringing
long-term benefits to the Group's shareholders and
stakeholders.
As part of this commitment, we continue to review and evolve the
Board governance framework. Having altered the composition of the
Board committees in order to enhance independence in the previous
financial year, as was reported in the Annual Report & Accounts
2019, the Board continues to consider and prepare for the
appointment of an additional independent Non-Executive Director
before the 2020 Annual General Meeting ("AGM"). The Board has also
taken the decision to appoint Prism CoSec as Company Secretary from
October 2019. This change makes the Company Secretary a fully
dedicated function and separate from the role of Chief Financial
Officer. We look forward to updating on these key governance points
as part of the Corporate Governance disclosure of our Annual Report
& Accounts 2020.
The Board was pleased with its second AGM on 4 September 2019,
at which all the resolutions proposed were successfully passed.
During the period, we have engaged with shareholders through
various channels, including through the AGM and results roadshows.
We welcome opportunities to talk to all our shareholders; and we
will continue to maintain a regular and constructive dialogue,
while seeking to broaden our shareholder base.
Financial Performance Review
Change
Change vs H1
H1 20 H1 20 H1 19 vs H1 19 19 IAS
IFRS 16 IAS 17 IAS 17 IFRS 16 17
------------------------ --------- --------- -------- --------- --------
Revenue GBP42.4m GBP42.4m GBP39.0m 8.9% 8.9%
Gross profit GBP16.3m GBP16.3m GBP15.1m 7.5% 7.5%
Adjusted EBITDA GBP9.5m GBP9.1m GBP8.5m 12.4% 7.2%
Adjusted EBITDA margin 22.5% 21.4% 21.8% 0.7% (0.4%)
------------------------ --------- --------- -------- --------- --------
Adjusted profit before
tax GBP8.8m GBP8.7m GBP8.3m 5.2% 4.9%
------------------------ --------- --------- -------- --------- --------
The UK business, the Group's largest geographical region,
increased revenue 2.0% in the first six months. On an organic
basis, UK revenue grew compared to H2 19, with good consulting
demand mitigating a weaker contractor environment. The core Alpha
practices of Operations & Outsourcing, Investments and M&A
Integration continued to perform well, with increased contribution
from Compliance & Regulation and Digital in the period. The
North America business increased revenue by 38.8%, driven by
improved utilisation rates benefitting from a wider domestic client
base and several longer duration client implementation projects.
Europe & Asia revenues improved by 11.1%. On an organic basis,
the region reported continued good double-digit growth in Asia,
with a more mixed European result. In Europe, French consultant
utilisation fell compared to the strong utilisation levels seen
throughout FY 19, while the other European offices mainly
progressed along with an increased consulting headcount overall.
The Alpha Data Solutions practice, incorporating the TrackTwo 360
SalesVista software product, doubled revenues compared to H1 19 as
new clients were onboarded. The Axxsys business, acquired in June
2019, has performed well and contributed GBP2.5m revenues in the
first half.
Group gross profit margin of 38.4% edged up compared to the
38.3% FY 19 gross margin and eased from 38.9% in the comparative H1
19, reflecting principally revenue mix improvement offset by lower
comparative consultant utilisation levels in key markets and
Alpha's investment in a number of key senior hires in recent
months.
Administration expenses, before non-underlying items, rose 9.4%
in the six months, reflecting an increase in Group management team
resource, higher spend associated with being a quoted company,
increased technology security and infrastructure expense and the
addition of Axxsys, offsetting lower consultant recruitment spend
in the period. Including non-underlying items, administrative
expenses rose to GBP11.1m compared to GBP8.4m, reflecting the
increase in one-off transaction costs related to the Axxsys
acquisition and Axxsys acquisition accounting.
Adjusted EBITDA grew 12.4% to GBP9.5m (H1 19: GBP8.5m). The
Group adopted the new accounting standard IFRS 16 Leases for the
first time in the period as set out in note 5. On a comparable
basis, adjusted EBITDA margin eased from 21.8% in H1 19 to 21.4%,
mainly reflective of the lower consultant utilisation levels
overall compared to H1 19 and increasing administration costs
offset by an improved revenue mix. Operating profit was GBP5.2m (H1
19: GBP6.8m) after non-underlying expenses, including acquisition
costs, deferred consideration and earn-out expenses and share-based
payment charges. Further detail of these non-operating expenses is
set out in note 3.
Pre-tax profit, after non-underlying items, was GBP4.9m (H1 19:
GBP6.7m). Taxation charges for the period were GBP1.3m (H1 19:
GBP1.7m) reflecting the blended tax rate of the jurisdictions in
which the Group operates, while benefiting from utilising historic
group losses in the period.
Net assets at 30 September 2019 totalled GBP90.6m (31 March
2019: GBP89.1m). This increase principally arises from GBP3.7m in
retained earnings, foreign translation gains offset by an increase
in share-based payment reserves and the GBP4.1m payment of
dividends in the period. Net cashflow generated from operations
increased to GBP6.2m (H1 19: GBP4.8m). The Group's net cash
position decreased to GBP17.1m at 30 September 2019 (31 March 2019:
GBP18.6m) after payment of the FY 19 employee profit share, the
initial consideration for Axxsys and the final dividend for the
year ended 31 March 2019, which was paid to shareholders on 11
September 2019.
Basic earnings per share were 3.54p (H1 19: 4.91p). Adjusted
basic earnings per share grew 10.0% to 6.82p (H1 19: 6.20p). In
line with the previous year and the Group's 50% of post-tax profits
dividend policy, the Board today declares an interim dividend for
the current year of 2.10p per share, which will be paid on 23
December 2019 to shareholders on the register at the close of
business 13 December 2019.
Risk Management and the Year Ahead
The Group remains cognisant that there are a number of potential
risks and uncertainties that could have a material impact on the
Group's performance over the remaining six months of the financial
year and that could cause actual results to differ materially from
expectations. These risks include political and economic
uncertainty, and market volatility. The Board does not consider
that these principal risks and uncertainties differ from those
published in the Annual Report & Accounts for the year ended 31
March 2019.
The Directors and the executive team continue to monitor the
geopolitical developments surrounding the UK's decision to leave
the European Union ("Brexit") closely. The Group has assessed that
it does not expect Brexit to have a material direct impact on its
ongoing growth and development of the business, given arrangements
between the UK and EU countries, and its network of offices across
Europe. The most likely impact of Brexit on the business is a
potential short-term delay to client decision making, which is not
expected to have any adverse effects over the medium term. The
Group is conscious that this position may change, and unexpected
new challenges could arise that affect this risk assessment,
including the broader impact that Brexit has on the UK economy as a
whole.
Outlook
The Group's strategy remains focussed on identifying
opportunities and creating a platform for both organic and
inorganic growth; and we have continued to make progress against
our strategic objectives in the first half of the financial year.
We are cognisant of the geopolitical and economic environment
creating uncertainties in the short term, but the medium to
long-term outlook remains unchanged.
The structural drivers in the asset and wealth management
industry, which will drive ongoing demand for Alpha's services,
remain prevalent. We are pleased with our client base that we have
established in all the Group's locations; and the continued
development and scaling of our global capability, which enables us
to be very well placed to support clients with their most
challenging change projects. The quality of our people, which we
continue to reinforce, an excellent delivery track record, and
multiple new business opportunities to develop and extend the
service offering ensure a strong position from which to deliver
future growth.
Moving into the second half, there is a good pipeline of new
projects and we expect results for the full year to be in line with
the Board's expectations.
Ken Fry Euan Fraser
Chairman Global Chief Executive Officer
Interim condensed consolidated statement of comprehensive
income
For the six months ended 30 September 2019
Restated
Reviewed six months ended 30 Sep reviewed
2019 six months
ended
30 Sep 2018(9)
Note GBP'000 GBP'000
Continuing operations
Revenue 2 42,440 38,957
Cost of sales (26,160) (23,812)
Gross profit 16,280 15,145
Administration expenses (11,076) (8,381)
Operating profit 5,204 6,764
Depreciation 522 126
Amortisation of capitalised 156 -
development costs
Adjusting items 3 3,659 1,599
Adjusted EBITDA 3 9,541 8,489
Net finance expense 6 (286) (28)
Profit before tax 4,918 6,736
Taxation (1,338) (1,741)
Profit for the period 3,580 4,995
Exchange differences on translation of
foreign operations 1,624 3,059
Total comprehensive income for the
period 5,204 8,054
Basic earnings/(losses) per ordinary
share (p) 7 3.54 4.91
Diluted earnings/(losses) per ordinary
share (p) 7 3.42 4.81
Adjusted basic earnings per ordinary
share (p) 7 6.82 6.20
Adjusted diluted earnings per ordinary
share (p) 7 6.58 6.07
Interim condensed consolidated statement of financial
position
As at 30 September 2019
Restated reviewed six months ended
Reviewed six months ended 30 Sep 2019 30 Sep 2018(9)
Note GBP'000 GBP'000
Assets
Non-current assets
Goodwill 9 58,737 55,709
Intangible fixed assets 9 25,602 21,724
Property, plant and equipment 550 433
Right of use asset 5 2,892 -
Total non-current assets 87,781 77,866
Current assets
Trade and other receivables 23,462 23,670
Cash and cash equivalents 17,144 10,628
Total current assets 40,606 34,298
Current liabilities
Trade and other payables (26,987) (21,091)
Lease liabilities 5 (750) -
Total current liabilities (27,737) (21,091)
Net current assets 12,869 13,207
Non-current liabilities
Deferred tax provision (4,703) (3,215)
Other non-current liabilities (3,171) (454)
Lease liabilities 5 (2,195) -
Total non-current liabilities (10,069) (3,669)
Net assets/(liabilities) 90,581 87,404
Equity
Issued share capital 11 78 76
Share premium 89,396 89,396
Capital redemption reserve (1) -
Foreign exchange reserve 3,719 2,649
Other reserves 1,136 714
Retained earnings (3,747) (5,431)
Total Shareholders' equity 90,581 87,404
The attached notes form part of these interim condensed
consolidated financial statements.
(9) Prior period restatement relates to the cumulative foreign
exchange gains on goodwill allocated to foreign operations. Please
see note 9 for further details
Interim condensed consolidated statement of cash flows
For the six months ended 30 September 2019
Reviewed six months ended 30 Sep Reviewed six months ended 30 Sep
2019 2018
GBP'000 GBP'000
Cash flows from operating
activities:
Operating profit for the period 5,204 6,764
Depreciation of property, plant and
equipment 522 126
Loss on disposal of fixed assets 11 5
Amortisation of intangible fixed
assets 1,700 1,270
Acquisition related costs 430 295
Share-based payment charge 399 386
Operating cash flows before movements
in working capital 8,266 8,846
Working capital adjustments:
(Increase)/decrease in trade and
other receivables (2,149) (2,428)
Increase/(decrease) in trade and
other payables 1,391 (935)
Tax paid (1,269) (634)
Net cash generated from operating
activities 6,239 4,849
Cash flows from investing
activities:
Interest received - -
Acquisition of subsidiary (2,582) -
Capitalised development costs (876) (82)
Additions to property, plant and
equipment (272) (167)
Net cash used in investing activities (3,730) (249)
Cash flows from financing
activities:
Issue of ordinary share capital - -
Interest paid (23) (22)
Lease liability payments (438) -
Dividends paid (4,135) (3,749)
Net cash used in financing activities (4,596) (3,771)
Net increase in cash and cash
equivalents (2,087) 829
Cash and cash equivalents at
beginning of the period 18,581 9,774
Effect of exchange rate fluctuations
on cash held 650 25
Cash and cash equivalents at end of
the period 17,144 10,628
==================================== ====================================
Interim condensed consolidated statement of changes in
equity
For the six months ended 30 September 2019
Capital Foreign
Share Share Redemp-tion exchange Other Retained
capital premium Reserve reserves reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 April
2018 77 89,396 - (410) 267 (6,677) 82,653
Comprehensive
income
Profit for the
period - - - - - 4,995 4,995
Foreign exchange
differences on
translation of
foreign
operations - - - 3,059 - - 3,059
Transactions with
owners
Shares issued
(equity) (1) - - - - - (1)
Share-based
payment
reserves - - - - 386 - 386
Consideration
to be settled
in equity - - - - 61 - 61
Dividends - - - - - (3,749) (3,749)
----------- ------------- ------------- ------------- ----------- ------------- ------------
As at 30
September
2018 76 89,396 - 2,649 714 (5,431) 87,404
----------- ------------- ------------- ------------- ----------- ------------- ------------
As at 1 April
2019 76 89,396 1 2,095 737 (3,165) 89,140
IFRS 16 modified
retrospective
adjustments - - - - - (27) (27)
As at 1 April
2019 - restated 76 89,396 1 2,095 737 (3,192) 89,113
Comprehensive
income
Profit for the
period - - - - - 3,580 3,580
Foreign exchange
differences on
translation of
foreign
operations - - - 1,624 - - 1,624
-
Transactions with
owners
Shares issued
(equity) 2 - (2) - - - -
Share-based
payment
reserves - - - - 399 - 399
Consideration - - - - - - -
to be settled
in equity
Dividends - - - - - (4,135) (4,135)
------------- ------------- ----------- ------------- ------------
As at 31 March
2019 78 89,396 (1) 3,719 1,136 (3,747) 90,581
=========== ============= ============= ============= =========== ============= ============
Share capital
Share capital represents the nominal value of share capital
subscribed.
Share premium
The share premium account is used to record the aggregate amount
or value of premiums paid when the Company's shares are issued at a
premium, net of associated share issue costs.
Capital redemption reserve
The capital redemption reserve is a non-distributable reserve
into which amounts are transferred following the redemption or
purchase of the Company's own shares.
Foreign exchange reserve
The foreign exchange reserve represents exchange differences
that arise on consolidation from the translation of the financial
statements of foreign subsidiaries.
Other reserves
The other reserves represent the cumulative fair value of the
IFRS 2 share-based payment charge to be recognised each year and
equity-settled consideration reserves.
Retained earnings
The retained earnings reserve represents cumulative net gains
and losses recognised in the consolidated statement of
comprehensive income.
Notes to the interim condensed consolidated financial
statements
1. Basis of preparation and significant accounting policies
1.1. General information
The principal activity of the Group is the provision of
consulting and related services to clients in the asset and wealth
management industry, principally in the UK, North America, Europe
and Asia.
Alpha Financial Markets Consulting plc is incorporated in
England and Wales with registered number 09965297. The Company's
registered office is 60 Gresham Street, London, EC2V 7BB. The
Company is a public limited company and is listed on the AIM of the
London Stock Exchange.
The consolidated financial statements were authorised for issue
in accordance with a resolution of the Directors on 20 November
2019.
1.2. Basis of preparation
These interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting and should be
read in conjunction with the Group's last annual consolidated
financial statements, as at and for the year ended 31 March 2019.
They do not include all of the information required for a complete
set of IFRS financial statements, however, selected explanatory
notes are included to explain events and transactions that are
significant to an understanding of the changes in the Group's
financial position and performance since the last annual financial
statements.
Statutory accounts
Financial information contained in this document does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006 ("the Act"). The statutory accounts for the
year ended 31 March 2019 have been filed with the Registrar of
Companies. The report of the auditors on those statutory accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Act.
The financial information for the six months ended 30 September
2018, the comparative period, is unaudited.
The presentational currency of these financial statements and
the functional currency of the Group is pounds sterling. All
amounts in these financial statements have been rounded to the
nearest GBP1,000.
1.3. Basis of consolidation
These financial statements consolidate the financial statements
of the Company and its subsidiary undertakings as at 30 September
2019.
Subsidiaries are fully consolidated from the date of
acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date that such control
ceases. The financial statements of subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies.
All intra-group balances, income and expenses and unrealised
gains and losses resulting from intra-group transactions are
eliminated in full.
1.4. Going concern
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operation for the
foreseeable future. The Group's forecasts and projections, taking
into account reasonable possible changes in trading performance,
show that the Group has sufficient financial resources, together
with assets that are expected to generate cash flow in the normal
course of business. Accordingly, the Directors have adopted the
going concern basis in preparing these consolidated financial
statements.
1.5. Principal accounting policies
Please refer to the Group's Annual Report & Accounts 2019
for full disclosures of the principal accounting policies that have
been adopted in the preparation of these interim condensed
consolidated financial statements. The key accounting policies that
affected the Group in the period are documented below.
1.5.1. Significant judgements and estimates
The preparation of financial information in accordance with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and reported
amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are deemed to be
reasonable under the circumstances. The results form the basis of
making the judgements about carrying values of assets and
liabilities that are not apparent from other sources. Actual
results can differ from these estimates.
The key judgements or estimates that have a significant impact
in the period ended 30 September 2019 are noted below:
Business combinations - valuation and asset lives of separately
identifiable intangible assets (see note 10)
In determining the fair value of intangible assets arising in a
business combination, management are required to make judgements
regarding the timing and amount of future cash flows applicable to
the intangible assets being acquired, discounted using an
appropriate discount rate. Such judgements are based on current
budgets and forecasts, extrapolated for an appropriate period
taking into account growth rates and expected changes to selling
prices and operating costs. Management estimates the appropriate
discount rate using post-tax rates that reflect current market
assessments of the time value of money and the risks specific to
the businesses being acquired.
Earn-out (see note 10)
The Axxsys earn-out expense calculation under IFRS 3 contains
estimation uncertainty as it relates to future performance.
Management has assessed the potential future cashflows of the
Axxsys business, the likelihood of an earn-out payment being made
and discounted using an appropriate discount rate.
Share-based payments (see note 8)
Management have estimated the share-based payments expense under
IFRS 2. In determining the fair value of share-based payments,
management have considered several internal and external factors in
judging the probability that management and employee share
incentives may vest. Such judgements involve estimating a number of
future performance and other factors. The fair value calculations
have been externally assessed for reasonableness in the current and
prior period.
1.5.2. Business combinations and goodwill
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group. Identifiable assets acquired,
and liabilities assumed in a business combination, are measured at
their fair values at the acquisition date.
Goodwill arises when the fair value of the consideration for a
business exceeds the fair value of the net assets acquired.
Goodwill is initially recognised and measured as set out above.
Goodwill is not amortised but is reviewed for impairment at least
annually.
1.5.3. Intangible assets
Intangible assets acquired in a business combination are
initially recognised at their fair value at the acquisition date
(which is regarded as their cost). Subsequent to initial
recognition, intangible assets acquired in a business combination
are reported at cost less accumulated amortisation and any
impairment losses.
Intangible assets acquired as part of a business combination
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset under IAS 38. Such
assets are only recognised if either:
-- They are capable of being separated or divided from the company and sold, transferred, licensed, rented or
exchanged, either individually or together with a related contract, identifiable asset or liability, regardless
of whether the company intends to do so; or
-- They arise from contractual or other legal rights, regardless of whether those rights are transferrable or
separable from the entity or from other rights and obligations.
The cost of such intangible assets is their fair value at the
acquisition date. All intangible assets acquired through business
combination are amortised over their estimated useful lives. The
significant intangibles recognised by the Group, their useful
economic lives and the methods used to determine the cost of the
intangibles acquired in business combinations are as follows:
Intangible asset Useful economic Valuation method
life
Customer relationships 11-12 years Multi-Period Excess Earnings
method
Intellectual property 7 years Relief from Royalty method
Trade name 15 years Relief from Royalty method
Order backlog 1-2 years Relief from Royalty method
---------------- -----------------------------
Acquisition costs
Costs related to acquisition, other than those associated with
the issue of debt or equity securities that the Group incurs in
connection with a business combination, are expensed as incurred.
If the contingent consideration is classified as equity, it is not
re-measured, and settlement is accounted for within equity.
Otherwise, subsequent changes to the fair value of the contingent
consideration are recognised in the statement of comprehensive
income.
1.5.4. Foreign exchange
Transactions in foreign currencies are translated to the Group
companies' functional currency at the foreign exchange rate ruling
at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are
retranslated to the functional currency at the foreign exchange
rate ruling at that date. Non-monetary assets and liabilities that
are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction.
Foreign exchange differences arising on translation are recognised
in the consolidated statement of income.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation, are
translated to the Group's presentational currency, pound sterling,
at foreign exchange rates ruling at the balance sheet date. The
revenues and expenses of foreign operations are translated at an
average rate for the year where this rate approximates to the
foreign exchange rates ruling at the dates of the transactions.
Foreign exchange differences arising on retranslation are
recognised in other comprehensive income.
1.6. Earnings per share and adjusted earnings per share
The Group presents basic and diluted EPS on an IFRS and adjusted
basis.
The calculation of diluted EPS assumes conversion of all
potentially dilutive ordinary shares which arise from share options
outstanding, adjusted for management's best estimate for the
effects of non market-based performance conditions and employee
attrition; and shares held in treasury. A calculation is performed
to determine the number of share options that are potentially
dilutive based on the number of shares that could have been
acquired at fair value, considering the monetary value of the
subscription rights attached to outstanding share options.
Adjusted EPS has been calculated after allowing for adjusting
items explained in notes 3 and 4 to the financial statements.
1.7. Alternative performance measures
In order to provide better clarity to the underlying performance
of the Group, Alpha uses alternative performance measures. The
measures are not defined under IFRS and they may not be directly
comparable with other companies' adjusted measures. These non-GAAP
measures are not intended to be a substitute for, or superior to,
any IFRS measures of performance, but have been included as the
Directors consider them to be key measures used within the business
for assessing the underlying performance of the Group's ongoing
business across periods.
1.8. New accounting standards and interpretations
IFRS 16 Leases (effective for periods commencing on or after 1
January 2019)
IFRS 16 Leases is effective for periods beginning on or after 1
January 2019, and is therefore applicable to the current period.
This standard replaces accounting treatment for leases previously
depicted in IAS 17. IFRS 16 introduced a single lessee accounting
model whereby a lessee is required to recognise a right--of--use
asset and a lease liability for all leases with a term of more than
12 months. The depreciation on the right--of--use asset will be
accounted for separately from the interest expense incurred on the
lease liability in the income statement.
The Group has adopted IFRS 16 on a modified retrospective
approach for transition and has not restated comparative amounts.
The lease liability is measured at the present value of the
remaining lease payments, discounted using the incremental
borrowing rate at transition date. Right--of--use assets will be
measured as if the standard has always been applied. The Group will
recognise the cumulative effect of initially applying the new
standard as an adjustment to the opening balance of retained
earnings at 1 April 2019. Please see note 5 for further details on
the impact of the adoption of this new standard.
The Group accounts for lease payments by allocating them to a
finance cost element and against the lease liability. The finance
cost is charged to profit or loss over the lease 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.
On initial recognition of a new lease, the lease liability is
recognised as the present value of future payments, discounted
using the incremental borrowing rate (unless the interest implicit
to the lease is available for use).
The right--of--use asset for lease agreements entered into after
transition date is measured on initial recognition as the amount
equal to the lease liability on initial measurement, less any lease
incentives, plus any initial direct costs.
2. Segment information
The Group's management has determined the operating segments by
considering the segment information that is reported internally to
the chief operating decision maker, the Board of Directors. For
management purposes, the Group is currently organised into three
geographical operating divisions: UK, North America and Europe
& Asia. The Group's operations all consist of one type of
operation: consultancy and related services to the asset and wealth
management industry.
30 September UK North America(10) Europe & Total
2019 Asia(11)
=============== ================== ================== ==================
GBP'000 GBP'000 GBP'000 GBP'000
=============== ================== ================== ==================
External revenue 24,756 6,856 10,828 42,440
=============== ================== ================== ==================
Cost of sales (13,930) (4,511) (7,719) (26,160)
--------------- ------------------ ------------------ ------------------
Gross profit 10,826 2,345 3,109 16,280
=============== ================== ================== ==================
30 September UK North America Europe & Total
2018(11) Asia
GBP'000 GBP'000 GBP'000 GBP'000
External revenue 24,275 4,939 9,743 38,957
Cost of sales (13,500) (3,736) (6,576) (23,812)
--------------- ------------------ ------------------ ------------------
Gross profit 10,755 1,203 3,167 15,145
=============== ================== ================== ==================
(10) Alpha Data Solutions ("ADS") revenue, previously shown
within Europe & Asia, in the current year is included in the UK
segment in-line with the ADS business growth and focus. To allow
for easier comparison, this has been restated in the comparative
period (11) North America replaces previously used "US" as a
geographic segment, taking into consideration an office in Canada
through the acquisition by the Group of Axxsys
3. Reconciliation of adjusted profit before tax, adjusted operating profit and adjusted EBITDA
Period ended Period ended
30 Sep 2019 30 Sep 2018
GBP'000 GBP'000
Profit before tax 4,918 6,736
Amortisation of acquired intangibles 1,544 1,270
Loss on disposal of fixed assets 11 5
Share-based payments charge 654 386
Earnout & deferred consideration 1,257 295
Acquisition costs 266 -
Foreign exchange (gains)/losses (73) (357)
Adjusting items 3,659 1,599
Non-underlying finance expenses 192 -
Adjusted operating profit before tax 8,769 8,335
Net underlying finance expenses 94 28
Adjusted operating profit 8,863 8,363
Depreciation of plant and equipment 522 126
Amortisation of capitalised development 156 -
costs
Adjusted EBITDA 9,541 8,489
==================== ====================
Alpha uses alternative performance measures, including adjusted
EBITDA, to allow a clearer understanding of the underlying
performance of the Group. Adjusted EBITDA is a commonly used
measure in which earnings are stated before intangible asset
amortisation, depreciation and non-underlying expenses, used by the
Board to assess performance. The Board considers that this
alternative performance measure is the most appropriate measure by
which users of the financial statements can assess the ongoing
performance of the Group. Non-underlying expenses excluded from
adjusted EBITDA comprise share-based payments, earn out and
deferred consideration, acquisition related costs, and gains and
losses arising from foreign exchange.
The employee share-based payments charge to remove the inherent
volatility in share-based payment expense calculations and more
closely align to the operational activities. Note 8 sets out
further details of the employee share-based payments expense
calculation under IFRS 2.
As per note 10, the acquisition of Axxsys in the period involved
a one-off completion bonus payment and future non-contingent
deferred consideration payments, which, in accordance with IFRS 3,
will be expensed annually to 2022 dependent on the ongoing
employment by Alpha of one of the Axxsys' selling shareholders.
This cost has been removed to calculate adjusted EBITDA as, whilst
it will recur in the short term, it represents additional
non-operational payments linked to the Axxsys acquisition. In
addition to these adjustments to administrative expenses, the
related unwinding of the discounted contingent and non-contingent
consideration within finance expenses is also considered a
non-underlying adjusting item to adjusted profit before tax.
Other non-recurring acquisition costs expensed in the current
period relate to the Axxsys acquisition transaction and have also
been excluded from adjusted EBITDA as they are not directly
attributable to the ongoing performance of the Group.
Adjusted EBITDA excludes foreign exchange gains or losses used
by the Board to assess the Group's performance whilst removing the
effects of foreign exchange fluctuations in the income
statement.
Adjusted profit before tax is a new alternative performance
measure shown in the period, to allow for clearer understanding of
the Group's underlying performance after the adoption of IFRS 16
(see note 5).
4. Reconciliation to adjusted profit after tax
Adjusted profit after tax is also shown to allow a clearer
understanding of the underlying performance of the Group. Adjusted
profit after tax is stated before adjusting items and their
associated tax effects.
Restated
Period ended period ended
30 Sep 2019 30 Sep 2018(12)
GBP'000 GBP'000
Adjusted profit before tax 8,769 8,335
Tax charge (1,338) (1,741)
Tax impact of adjusting items (540) (283)
Adjusted profit after tax 6,891 6,311
(12) Adjusted profit after tax and adjusted basic and diluted
EPS have been restated in the prior period to reflect the addition
of interest costs to allow for better comparability following the
adoption of IFRS 16 in the current period.
5. IFRS 16 Leases
On adoption of IFRS 16, the group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee's incremental borrowing
rate as of 1 April 2019. The weighted average lessee's incremental
borrowing rate applied to the lease liabilities on 1 April 2019 was
4.2%.
Leases with a remaining lease term of less than 12 months as at
1 April 2019, will be accounted for as a short--term lease.
Consequently, no lease liability or right--of--use asset was
calculated. The Group defines low value assets as those assets with
a purchase price, for a new and unused asset, of $5,000 or lower.
The discounted remaining lease payments are reconciled to the lease
liability recognised on initial application as follows:
1 April 2019
GBP'000
Operating lease commitments disclosed as at
31 March 2019 (restated)(13) 3,640
Discounted using the average incremental borrowing
rate (264)
Less: short--term leases recognised as an expense
on a straight--line basis (72)
Other (finance lease commitments) 11
Lease liability recognised as at 1 April 2019 3,315
Of which are:
Current lease liabilities 726
Non--current lease liabilities 2,589
3,315
(13) Opening operating lease commitments as at 31 March 2019
have been restated to reflect a prior period correction
The associated right--of--use assets were measured on a
retrospective basis as if the new rules had always been applied.
The impact on 1 April 2019 is set out below:
30 Sep 2019 1 April 2019
GBP'000 GBP'000
Right-of-use assets 2,892 3,289
Lease liabilities 2,945 3,315
The change in accounting policy affected the following items in
the balance sheet on 1 April 2019:
Right--of--use assets Increase by 3,289
Lease liabilities Increase by 3,315
Deferred tax assets Increase by 6
Retained earnings Decrease by (27)
In order to provide numbers on a comparable basis, the table
below shows the income statement captions as at 30 September 2019
as if IFRS 16 had not been adopted:
H1 20 IFRS 16 H1 20
under IAS adjustments under IFRS
17 GBP'000 16
GBP'000 GBP'000
Continuing operations
Revenue 42,440 - 42,440
Cost of sales (26,160) - (26,160)
Gross profit 16,280 - 16,280
Administration expenses (11,117) 41 (11,076)
Operating profit 5,163 41 5,204
Depreciation 125 397 522
Amortisation of capitalised
development costs 156 - 156
Adjusting items 3,659 - 3,659
Adjusted EBITDA 9,103 438 9,541
----------------------------- ----------- ------------- ------------
Net finance expenses (218) (68) (286)
Profit before tax 4,945 (27) 4,918
=========== ============= ============
The Group leases office space in various jurisdictions. Leases
are negotiated for a variety of terms over which rentals are fixed
with break clauses and options to extend for a further period at
the then prevailing market rate. Rental agreements to which IFRS 16
was applied, span between 18 months to 10 years.
6. Finance costs and finance income
Period ended Period ended
30 Sep 2019 30 Sep 2018
GBP'000 GBP'000
Bank interest receivable - -
------------------- -------------------
Interest payable on bank loans and overdraft (26) (28)
Interest on lease liabilities (68) -
Net underlying finance expenses (note 3) (94) (28)
Unwinding of discounted deferred consideration (192) -
Non-underlying finance expenses (note 3) (192) -
Net finance expenses (286) (28)
Finance costs comprise charges payable on the Group's Revolving
Credit Facility, interest accrued on lease liabilities under IFRS
16 (see note 5) and the unwinding of net present value discounting
on the deferred consideration and earn-out payable in relation to
the acquisition of Axxsys (see note 10). This discount unwinding is
considered a non-underlying cost in adjusted profit before tax (see
note 3).
7. Earnings per share and adjusted earnings per share
The Group presents basic and diluted EPS data, both adjusted and
non-adjusted for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss for the period attributable to ordinary
shareholders by the weighted normalised average number of ordinary
shares outstanding during the period.
Diluted EPS takes into consideration the Company's dilutive
contingently issuable shares, as well as shares held in treasury.
The weighted average number of ordinary shares used in the diluted
EPS calculation is inclusive of the number of share options that
are expected to vest subject to performance criteria as
appropriate, being met. Potential ordinary shares are only treated
as dilutive when their conversion to ordinary shares would decrease
EPS (or increase loss per share).
In order to reconcile to the adjusted profit for the financial
period, the same adjustments as in notes 3 and 4 have been made to
the Group's profit/(loss) for the financial period. The
profits/(losses) and weighted average number of shares used in the
calculations are set out below:
Period ended Restated
30 Sep 2019 period ended
30 Sep 2018
Basic & diluted EPS
Profit/(loss) for the period used in calculating
basic and diluted EPS (GBP'000) 3,580 4,995
Weighted average number of ordinary shares
in issue ('000) 101,040 101,723
Number of dilutive shares ('000) 3,770 2,163
Weighted average number of ordinary shares,
including potentially dilutive shares
('000) 104,810 103,886
Basic EPS (p) 3.54 4.91
Diluted EPS (p) 3.42 4.81
------------------- ------------------------
Adjusted EPS
Adjusted profit for the period used in
calculating adjusted basic and diluted
EPS (note 4) (GBP'000) 6,891 6,311
Weighted average number of ordinary shares
in issue ('000) 101,040 101,723
Number of dilutive shares ('000) 3,770 2,163
Weighted average number of ordinary shares,
including potentially dilutive shares
('000) 104,810 103,886
Adjusted EPS (p) 6.82 6.20
Adjusted diluted EPS (p) 6.58 6.07
------------------- ------------------------
8. Share-based payments
The Group has adopted a globally consistent share incentive plan
approach, which is implemented using efficient jurisdiction
specific plans, as appropriate.
The Management Incentive Plan ("MIP")
The Group has a MIP to retain and incentivise the Directors and
senior management. The MIP consists of four parts: part A of which
will enable the granting of enterprise management incentive and
non-tax advantaged options to acquire shares; part B of which will
enable the awarding of JSOPs; part C of which will enable the
awarding of restricted stock units ("RSUs") for participants in the
US; and Part D of which will enable the awarding of RSUs in France
(together the "options").
Options granted in the current and prior years to the Directors
and senior management of the Company are subject to the fulfilment
of two or more of the following performance conditions (a) a
specific business unit EBITDA, or other personal targets and goals,
(b) the Group achieving a total shareholder return for the 3 years
from date of award, in excess of the average total shareholder
return of a peer group of comparable companies, and (c) the Group
to achieve at least 10% EPS growth against the comparative
financial year.
MIP awards have either nil exercise price payable (or there
shall be no more than a nominal purchase price payable) in order to
acquire shares pursuant to options. MIP awards have either 3- or
4-year vesting periods from the date of grant and can be equity
settled only.
The Employee Incentive Plan ("EIP")
In addition to the MIP, in the year ended 31 March 2018, the
Board put in place a medium-term EIP. Under the EIP, a broad base
of the Group's employees have been granted share options or share
awards over a small number of shares. The EIP will be structured as
is most appropriate under the local tax, legal and regulatory rules
in the key jurisdictions and therefore varies between those
jurisdictions.
At 30 September 2019 a total of 3,318,807 share option and award
grants were made to employees and senior management during the
period (H1 19: 267,190).
Details of the share option awards made are as follows:
Period ended 30 Sep
19
Number of Weighted
share options average
exercise
price
Outstanding at the beginning of the period 3,198,286 -
Granted during the period 3,318,807 -
Exercised during the period - -
Forfeited during the period (54,513) -
Expired during the period - -
Outstanding at the period end 6,462,580 -
==================== =======================
Exercisable at the period end - -
==================== =======================
No share options were exercisable in the year.
The options outstanding at 30 September 2019 had a weighted
average remaining contractual life of 4 years and a nil or nominal
exercise price.
During the period ended 30 September 2019, options were granted
on 18 June 2019 to employees and certain senior management. The
weighted average of the estimated fair values of the options
outstanding is GBP0.76 per share. Options were also granted in
previous years.
The MIP share options were valued at award using the Monte Carlo
option pricing model. The model simulates a variety of possible
results, across 10,000 iterations for each of the options, by
substituting a range of values for any factor that has inherent
uncertainty over a number of scenarios using a different set of
random values from the probability functions. The model takes any
market-based performance conditions into account and adjusts the
fair value of the options based on the likelihood of meeting the
stated vesting conditions.
The inputs into the model were as follows:
Period ended
30 Sep 2019
GBP'000
Weighted average share price at grant
date 2.27
Exercise price -
Volatility 22%
Weighted average vesting period 3
Risk free rate 0.53%
Expected dividend yield 3.00%
Expected volatility was determined by calculating the historic
volatility of the market in which the Group operates. The expected
expense calculated in the model has been adjusted, based on
management's best estimate, for the effects of non market-based
performance conditions and employee attrition.
The EIP share options outstanding were valued using a
Black-Scholes model using the same inputs as above.
The Group recognised a total expense of GBP654,000 related to
equity settled share-based payment transactions in the current
year, including relevant social security taxes (H1 19: GBP386,000).
Given the estimation, were the future performance conditions for
all outstanding share options assumed to be met, the charge in the
year would increase by GBP299,000.
9. Goodwill and intangible fixed assets
Goodwill
As at As at
30 Sep 2019 30 Sep 2018
GBP'000 GBP'000
Cost at beginning of the period 55,162 52,626
Additions 2,601 -
Gains/(losses) from foreign exchange 974 3,083
Cost at end of the period 58,737 55,709
================= =================
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group's share of the net identifiable
assets of the acquired subsidiary at the date of acquisition.
Goodwill was recognised upon the acquisition of Axxsys on 5 June
2019 and is the difference between the consideration paid and the
fair value of assets acquired and liabilities assumed. Goodwill
acquired and liabilities assumed represent the potential synergy
benefits of combining the Alpha and Axxsys intellectual property
and talents of the team into the Group. In line with IAS 36, the
carrying value of goodwill is not subject to systematic
amortisation but is reviewed at least annually for impairment. The
review assesses each cash-generating unit ("CGU") to which goodwill
has been allocated for impairment, by comparing the carrying amount
of the unit, including the goodwill, with the recoverable amount of
the unit. The impairment reviews completed have calculated the
recoverable amount of goodwill through a Value in Use
calculation.
The CGUs that have been considered are UK, North America and
Europe & Asia, in line with our operating segments and the
goodwill allocated to the CGUs as follows:
As at As at
30 Sep 2019 30 Sep 2018
GBP'000 GBP'000
UK(14) 33,077 31,241
North America 8,547 7,798
Europe & Asia(14) 17,113 16,670
At end of the period 58,737 55,709
================= =================
(14) Alpha Data Solutions ("ADS") goodwill, previously shown
within Europe & Asia, in the current year is included in the UK
CGU in-line with the ADS business growth and focus. To allow for
easier comparison, this has been restated in the comparative
period
In considering this position, the estimated adjusted weighted
average cost of capital ("WACC") for the Group was determined to be
12.4% (FY 19: 12.4%). This discount rate has been applied to the
Group's future cash flow forecasts allowing for annual assessment
at each balance sheet date.
As in the prior period, the base actuals have been inflated in
line with a 3-year plan, and by 1% then onwards, for each CGU,
which management believes does not exceed the long-term average
growth rate for the industry, with a terminal value calculated on a
perpetuity basis. The recoverable amounts of all CGUs are based on
the same key assumptions, including limited customer attrition, no
significant change in the competitor landscape, no negative events
impacting the Group's brand or reputation, and no legal or
regulatory changes impacting the Group's offering.
These cash flows are reviewed annually by discounting at a
post-tax discount rate of 12.4% and adjusted for specific risk
factors that take into account the sensitivities of the projection.
The Group has conducted a sensitivity analysis on the impairment
test for all CGUs individually. If the assumed growth rate was
reduced to 0%, the receivable amount for each CGU would remain
greater than their carrying values. Further increasing the post-tax
discount rate to 13.5% resulted in positive headroom remaining for
all CGUs compared to the carrying value of goodwill.
The Directors do not therefore believe there to be any
impairment indicators.
As disclosed in the Annual Report & Accounts 2019, the
Directors identified that, following the Group's transition to IFRS
in the period ended 31 March 2018, the requirement under IAS21.47
to treat goodwill allocated to foreign operations as if it were an
asset of the foreign operations to which it relates, and to
retranslate the balance at the year end, had not been applied. At
30 September 2019, goodwill has been appropriately retranslated
with the cumulative impact on the financial statements being an
increase in goodwill and foreign exchange reserves of GBP3.5m. Of
this amount, gains of GBP1.0m and GBP0.7m relate to the periods
ended 30 September 19 and 30 September 18, respectively. There is
no impact in either the current or prior year on reported or
adjusted profits and earnings per share.
Intangible fixed assets
As at 30 September 2019
Order Backlog Customer Intellectual Trade name Capitalised Total
relation- property develop-ment
ships costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At the start
of the period - 20,068 2,086 5,630 441 28,225
Additions
in the period - - - - 876 876
Recognised
on acquisition
(see note
10) 1,308 4,067 284 - 5,659
At the end
of the period
- total 1,308 24,135 2,086 5,914 1,317 34,760
-------------- ----------- ------------- ----------- -------------- --------
Amortisation
At the start
of the period - (5,234) (759) (1,414) (51) (7,458)
Charge for
the period (254) (950) (156) (184) (156) (1,700)
At the end
of the period
- total (254) (6,184) (915) (1,598) (207) (9,158)
Net book
value 1,054 17,951 1,171 4,316 1,110 25,602
-------------- ----------- ------------- ----------- -------------- --------
As at 30 September 2018
Customer Intellectual Trade name Capitalised Total
relation-ships property develop-ment
costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At the start
of the period 20,068 2,086 5,630 - 27,784
Additions
in the period - - - 81 81
At the end
of the period
- total 20,068 2,086 5,630 81 27,865
---------------- ------------- ----------- -------------- --------
Amortisation
At the start
of the period (3,442) (499) (930) - (4,871)
Charge for
the period (923) (157) (188) (2) (1,270)
At the end
of the period
- total (4,365) (656) (1,118) (2) (6,141)
Net book
value 15,703 1,430 4,512 79 21,724
---------------- ------------- ----------- -------------- --------
Customer relationships
Customer relationships primarily represent the fair value at the
3 February 2016 acquisition date of the customer relationships that
were owned by, but not previously recognised as assets of, Alpha
FMC Group Holdings Limited. The fair value has been determined by
applying the Multi-Period Excess Earnings method to the cash flows
expected to be earned from customer relationships. The key
management assumptions are around forecast revenues, operating
margins, discount factors and contributory asset charges used.
Additions in the current period represent the fair value of the
customer relationships acquired from Axxsys. Please see note
10.
A useful economic life of 11-12 years has been deemed
appropriate based on the average realisation rate of cumulative
cash flows and benchmarked data. Projected cash flows have been
discounted over this period. The amortisation charge is recognised
in administrative expenses within the statement of comprehensive
income. There are 8.3 years, 8.8 and 11.7 years remaining to be
amortised for the customer relationships in relation to Alpha FMC
Group Holdings Limited, TrackTwo and Axxsys respectively.
Intellectual property
Intellectual property represents the fair value at the 3
February 2016 acquisition date of the intellectual property that
was owned by, but not previously recognised as assets of, Alpha FMC
Group Holdings Limited.
The fair value has been determined by applying the Relief from
Royalty method to the cash flows earned from the intellectual
property. The key management assumptions are around growth
forecasts, discount factors and royalty percentage utilised. A
useful economic life of 7 years has been deemed appropriate based
on previous acquisitions and benchmarking data and projected cash
flows have been discounted over this period.
There were no additions in the current period. Please see note
10.
The amortisation charge is recognised in administrative expenses
within the statement of comprehensive income. There are 3.3 years
and 4.8 years remaining to be amortised for the intellectual
property in relation to Alpha FMC Group Holdings Limited and Track
Two respectively.
Trade name
Trade name represents the fair value at the 3 February 2016
acquisition date of the trade name which was owned by, but not
previously recognised as assets of, Alpha FMC Group Holdings
Limited.
The fair value has been determined by applying the Relief from
Royalty method to the cash flows earned from the trade name. The
key management assumptions are around growth forecasts, discount
factors and royalty percentage utilised. A useful economic life of
15 years has been deemed appropriate based on benchmarking reviews
and projected cash flows have been discounted over this period.
The additions in the current period represent the fair value of
the trade name acquired with Axxsys. Please see note 10.
The amortisation charge is recognised in administrative expenses
within the statement of comprehensive income. There are 11.3 years
and 14.7 years remaining to be amortised for the trade name in
relation to Alpha FMC Group Holdings Limited and Axxsys
respectively.
Order backlog
The fair value has been determined by applying the Relief from
Royalty method to the cash flows earned from the order backlog
acquired with Axxsys. The key management assumptions are around
growth forecasts, discount factors and royalty percentage utilised.
A useful economic life of 1-2 years has been deemed appropriate
based on benchmarking reviews. Projected cash flows have been
discounted over this period.
The amortisation charge is recognised in administrative expenses
within the statement of comprehensive income. There is a weighted
average of 1.5 years remaining to be amortised for the order
backlog in relation to Axxsys.
Capitalised development costs
Capitalised development costs represent the costs incurred in
the development enhancements to the 360 SalesVista software in
Alpha Data Solutions.
A useful economic life of 3 years has been deemed appropriate
based on expected project lifecycle in development of new
software.
The amortisation charge is recognised in administrative expenses
within the statement of comprehensive income. There is an average
of 2.9 years remaining to be amortised for the capitalised
development costs in relation to the development of new
software.
10. Acquisition of business
On 5 June 2019, the Group acquired 100% of the share capital and
voting interests of Axxsys Limited and subsidiaries for GBP9
million cash in base consideration, payable in non-contingent
instalments over the two years following acquisition, plus an
earn-out which may be become payable in cash after the third
anniversary of completion, contingent on Axxsys meeting certain
earnings growth targets. The maximum earn-out payable is GBP5
million.
This acquisition has been accounted for under the acquisition
method of accounting. The fair value adjustments relate to the
identification of separately identifiable intangibles and
associated deferred tax liabilities. For the remaining assets and
liabilities acquired, no fair value adjustments were identified.
The table below sets out the book and fair values of the
identifiable assets and liabilities acquired. Goodwill represents
the excess of the cost of the acquisition over the fair value of
the Group's share of the net identifiable assets of the acquired
subsidiary at the date of acquisition.
Fair value adjustments Values on acquisition
Book values
GBP'000 GBP'000 GBP'000
Acquiree's net assets at the acquisition date:
Customer relationships - 4,067 4,067
Order backlog - 1,308 1,308
Trade name - 284 284
Cash 375 - 375
Trade and other debtors 1,572 - 1,572
Trade and other creditors (1,220) - (1,220)
Deferred tax liability - (1,166) (1,166)
Net identifiable assets and liabilities acquired 727 4,493 5,220
-------------- ----------------------- ----------------------
Cash consideration relating to acquisition 7,821
Goodwill on acquisition (see note 9) 2,601
======================
Of the GBP7.8m discounted cash consideration, GBP2.6m was paid
on completion, GBP2.9m is shown in current liabilities and GBP2.3m
is in non-current liabilities.
As part of the purchase negotiations, part of the non-contingent
deferred consideration payable is subject to ongoing employment of
an Axxsys selling shareholder until 31 March 2022. In accordance
with IFRS 3, GBP3.4m deferred consideration fair value will be
expensed proportionately as an employment-linked cost until 2022. A
completion bonus was also paid to one Axxsys employee. These costs
have been treated as non-underlying expenses as per note 4.
The earn-out payments have been estimated by the Directors based
on anticipated future earnings and discounted to current values.
The unwinding of this earn-out discount annually shall be
recognised as a finance cost, refer note 6. Given this expense
includes estimation, were assumptions adjusted for performance to
be 10% better than anticipated, the earn-out expense for the year
would increase by GBP3,000 or performance 10% worse than
anticipated, the earn-out expense for the year would decrease by
GBP7,000.
If the acquisition of Axxsys had been completed on 1 April 2019,
Group revenues for the period would have been GBP43.7m and Group
profits before tax would have been GBP5.1m. Axxsys contributed
GBP2.5m to the Group's revenue and GBP0.4m to the Group's profit
before tax for the period from the date of acquisition to the 30
September 2019.
11. Called up share capital
30 Sep 2019 30 Sep 2018
Number Number
Allotted, called up and fully paid
Ordinary 0.075p shares (1 vote per share) 103,607,638 101,974,874
30 Sep 2019 30 Sep 2018
GBP GBP
Allotted, called up and fully paid
Ordinary 0.075p shares (1 vote per share) 77,706 76,481
Balance at 1 April 2019 76,481
101,974,874 ordinary shares of 0.075p
each
Issued shares (i) 1,255
Balance at 30 September 2019 77,706
103,607,638 ordinary shares of 0.075p
each
===================
(i) During the period, 1,632,764 shares were issued by the
Company in relation to its joint share ownership plan ("JSOP")
awards. At 30 September 2019 the total number of shares in issue
was 103,607,638, of which none are held in treasury.
The total number of voting rights in the Company at 30 September
2019 was 100,986,690.
Alpha Employee Benefit Trust
The Group held 2,620,948 (31 March 2019: 476,206) shares in an
employee benefit trust ("EBT") to satisfy share awards granted
under its joint share ownership plan ("JSOP"). Unvested shares held
in the EBT do not hold voting rights.
Treasury shares
The Group held nil (31 March 19: 387,740) shares in treasury at
30 September 2019.
12. Post balance sheet event
On 9 November 2019, the Group acquired 100% of the issued share
capital of Obsidian Solutions Limited and its wholly owned
subsidiaries ("Obsidian"), a financial services cloud-based SaaS
business incorporated in the United Kingdom.
Obsidian provides specialised software products to the
investment management industry. It was founded in 2015 with the aim
of unlocking the potential of operational data in financial
services by leveraging the latest in cloud computing and modular
software design principals. Its established product suites include
advanced business intelligence for sales and investment data,
client portals, fund and client reporting, and an automated
subscription/KYC management module. Obsidian's cloud framework that
ties the suites together was recognised as the Best Cloud Solution,
and Most Disruptive Technology Solution in 2019.
Obsidian has offices in the UK and in Serbia and its team of 14
primarily consists of computer scientists with specialised industry
knowledge and product delivery expertise. Obsidian has
approximately 30 clients across its product suite.
The addition of Obsidian generates further recurring revenue and
provides complementary, technology-focussed products to the ADS
proposition. The acquisition will expand the ADS 360 SalesVista
product with additional reporting capability, adds a highly skilled
technology development team with proven financial sector experience
and expands Alpha's North American client base.
The Group acquired Obsidian for GBP5.7 million cash in base
consideration, payable in two instalments over six months following
acquisition, plus a contingent earnout designed to maximise
long-term recurring earnings, which may become payable, in cash or
equity, at milestones over the four years following completion.
Obsidian should be earnings enhancing to the Group in FY 21, the
first full financial year of ownership.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FFLEDUFUSEDF
(END) Dow Jones Newswires
November 20, 2019 02:01 ET (07:01 GMT)
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