12 January 2021
Alpha FX Group plc
("Alpha FX" or the "Group")
Alpha FX Group plc (AIM: AFX), a provider of FX risk management and alternative banking solutions to corporates and institutions internationally, today announces a trading update for the financial year ended 31 December 2020.
Following the last trading update on 3 December 2020, trading has continued to be strong, with revenue for the full year expected to be approximately £46m and underlying operating profit slightly ahead of most recent expectations. Growth for the year came from both our FX risk management and alternative banking divisions, despite the former seeing a significant impact in the first half from businesses delaying their trading activity because of the slowdown in global trade as a result of COVID-19. Despite the backdrop, client numbers increased by 16% during the year from 648 to 754.
FX Risk Management
Our FX risk management division focuses on supporting corporates and institutions across the UK, Europe and Canada that trade currency for commercial purposes, such as buying or selling goods and services overseas or hedging the underlying value of an asset. We service this marketplace through our corporate and institutional sales teams in London, Canada and Amsterdam.
Whilst revenue growth from FX risk management solutions slowed in H1 as businesses delayed their trading activity, H2 saw much stronger growth, with our corporate and institutional teams in London performing well and a strong performance from our corporate team in Canada leading to that office posting a profit for the year. Our team in Amsterdam (launched at the start of the pandemic in March and now fully operational) also performed well in its first year, achieving consecutive quarterly revenue growth.
Alternative Banking Solutions
Our alternative banking solutions division focuses on providing corporates and institutions across the UK, Europe and Canada with a suite of alternative banking solutions covering payments, collections and accounts. Serviced primarily by a specialist team within Alpha Platform Solutions (formerly named Alpha Payment Solutions), the team also benefits the Group from cross-selling to and from our corporate and institutional sales teams.
Our alternative banking solutions division also delivered strong growth throughout the year, with Alpha Platform Solutions increasing its traction and stickiness with clients by delivering not just payments but an increasingly wider range of solutions. As a result of the growing traction of our alternative banking solutions, we are seeing an increase in cash conversion, since the offering typically involves transactions such as spot trades and invoicing.
Investments & People
Since our IPO in 2017, we have continued to invest in the breadth and depth of our offering and the quality of our team to ensure we can deliver sustainable, long-term growth. Our ability to remain a growth business in 2020, despite the impact of COVID-19, is a testament to this strategy. Accordingly, the Group continued its investment in Back Office headcount, which grew from 50 to 69 during the period to support the ongoing technological development of our alternative banking solutions, and the increase in support required across Compliance, Risk, and Settlements as the business scales.
Our Front Office team meanwhile saw a small increase in headcount from 74 to 78. This was largely down to employee attrition rates remaining stable, but new hiring being reduced, owing to the challenge of inducting new salespeople remotely and at a time where people were naturally more reluctant to move from known job security. Ultimately, while the size of the team has not grown as much as we would have liked, we are confident the 'talent density' within the team has, with many of our more recent starters now making significant traction. Whilst we will continue to grow the team to support the rate of client acquisition, we are confident there also remains significant capacity within the existing team to support considerable growth long into the future.
The Group has proven its resilience and ability to adapt to the challenges posed by COVID-19. We are also mindful however that at the height of the pandemic, when lockdown measures were at their peak, growth slowed, particularly on the FX risk management side of the business.
With a full lockdown once again in place and infection rates rising, we are now returning to an environment similar to that at the height of the pandemic and naturally anticipate conditions to be more challenging than they were in H2 of last year when restrictions were lower, and infection rates were on the decline. Nonetheless, with COVID-19 now a more familiar challenge than it was in Q2 2020 and due to the roll-out of vaccinations, we are cautiously optimistic for the year ahead.
The Group has been preparing for a no-deal Brexit for a considerable length of time and is therefore able to continue servicing the vast majority of its European clients. However, the limited scope covering financial services within the Free Trade Agreement means the Group will now be concluding the final set up of a wholly-owned subsidiary established in Malta, with completion expected by the end of Q1 at the latest. Until this time, the business will service European derivative clients through reverse solicitation and operating on an execution only basis. Due to reverse solicitation not being uniformly implemented across EU Member States, the Group will not be servicing derivative clients in certain EU Member States and so a small number of existing clients representing less than 1% of the Group's revenue will not be able to place new derivative trades with us until Malta is operational.
Whilst reverse solicitation means we can only offer our European clients derivative services when they request them, we are confident the revenue impact will be minimal during the short period that we are concluding the setup of our European base. Indeed, due to the sophisticated nature of derivative products, Alpha has always made the conscious decision to only provide them to professional clients who have requested them, and these clients are therefore typically covered by the concept of reverse solicitation.
The vast majority of preparations were complete prior to 2021, with an in-principle no objection letter obtained from the Maltese financial services regulator. However, the Group chose not to initiate the final setup until a Brexit outcome was confirmed, conscious that requirements were vulnerable to change, and that the process could even have proven unnecessary.
We continue to stay abreast of any developments but do not anticipate any further material impact arising from the EU-UK Trade and Cooperation Agreement.
Cash & Liquidity
Alpha remains profitable, debt-free, and extremely well capitalised, with circa £48m in own free cash immediately available on its balance sheet. Due to the growing traction of our alternative banking solutions, we are naturally seeing an increase in the proportion of products sold that are readily convertible into cash, in particular spot transactions, which is providing accelerated cash conversion to support our growth.
As announced previously, the Board intends to reinstate a dividend policy at the time of the release of the full-year results in March.
Morgan Tillbrook, Founder & Chief Executive Officer of Alpha said:
"Despite the challenges faced, the team ensured 2020 was another consecutive year of strong growth across all divisions of the business. The lifeblood of Alpha's success is our people and I am extremely proud of our team for rising to the challenge to deliver in the way they have. It is a real privilege to lead the Group and I believe the progress made this year will set us in very good stead long into the future."
Alpha FX Group plc via Alma PR
Morgan Tillbrook, Founder and CEO
Tim Kidd, CFO
Liberum Capital Limited (Nominated Adviser and Sole Broker) Tel: +44 (0) 20 3100 2000
Alma PR (Financial Public Relations) Tel: +44 0203 405 0205
Notes to Editors
Alpha provides FX risk management and alternative banking solutions to corporates and institutions across the UK, Europe and Canada. Combining leading expertise and technology, the Group partners with a small number of high value clients, to provide enterprise-level solutions across four key areas: FX risk management, international payments, accounts and collections.
Since it was incorporated in 2010, Alpha FX has been able to build and retain a high-quality client base that includes a number of highly respected brands.
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.