2019 Preliminary Results Announcement

RNS Number : 5724K

Alfa Financial Software Hldgs PLC

23 April 2020

Alfa Financial Software Holdings PLC

Alfa Financial Software Holdings PLC ("Alfa" or the "Company"), a leading developer of mission critical software for the asset finance industry, today publishes its audited results for the year ended 31 December 2019.

Business highlights:

· Revenue in line with 16 September 2019 guidance, H2 2019 boosted by contractual non-recurring revenue items.

· Year-on-year revenue decline, with operating profits down 39%, due to delays in implementation projects and reduced discretionary spend by customers.

· Strong implementation delivery across seven customer implementations.

· Robust balance sheet position with 59m of cash and no debt.

· Refreshed sales and business development approach delivering conversion of late-stage pipeline opportunities.

· Sustained investment in Alfa Systems' functionality and expansion of partner ecosystem.

· Cost pressures will continue, in competitive market for high-skilled delivery teams, reducing margins in 2020.

· Despite an encouraging start to the year and continued demand for products and services, Covid-19 dictates a conservative outlook for 2020.

Financial highlights:

	2019	2018
Statutory highlights	£million unless otherwise stated	£million unless otherwise stated	Movement %
Revenue	64.5	71.0	(9%)
Operating profit	13.7	22.4	(39%)
Profit for the period	10.2	18.2	(44%)
Earnings per share - basic	3.5 pence	6.3 pence	(44%)
Net cash	58.8	44.9	31%

	2019	2018
Financial highlights (1)	£million unless otherwise stated	£million unless otherwise stated	Movement %
Revenue - constant currency	64.5	72.5	(11%)
Adjusted EBIT	12.7	22.0	(42%)
Adjusted EBIT - constant currency	12.7	22.8	(44%)
Operating free cash flow conversion	142%	87%	63%

(1) See Definitions section for further information of the calculation of measures not specifically defined by IFRS

Post year-end highlights:

· Go-live of major US auto finance customer.

· First Alfa Start go-live for Hampshire Trust Bank.

· Announcement of global partnership with Accenture.

· Announcement of two new contract wins cementing market-leading position in US auto leasing industry.

· Announcement of implementation and hosting agreement with major South African bank.

Initial impact of Covid-19:

· Business in remote working mode since 13 March 2020 without significant impact to the business or its revenue.

· Management team ensuring our people, customers and suppliers receive appropriate support to minimise personal and business disruption.

· Cancellation of one of the new US auto contracts referred to above, which was lower tier in terms of value.

· Requests from some other customers to reschedule work.

· At this stage, we expect to be able to redeploy most of our people to satisfy other customer projects.

· Early stage pipeline affected by uncertainty but continued engagement from later stage opportunities.

· Implementation customers continue to see the benefits of installing Alfa Systems and our plans for 2020 remain substantially unchanged.

Andrew Denton, Chief Executive Officer of Alfa, said :

"I am pleased that we have been able to deliver revenue for the year in line with our Trading Update of 16 September 2019, although it was disappointing that revenue and operating profits declined year-on-year, because of delays in anticipated implementation projects, as well as reductions in discretionary spend by customers.

In addition to important implementation successes for a global OEM and for one of the largest US automotive finance companies, we have also announced a number of new contract wins with customers including a large German automotive finance provider and Hampshire Trust Bank PLC, the latter being our first Alfa Start sale in the UK. In 2020, we have announced further contract wins with an implementation and multi-year hosting agreement with a large South African bank, and a new agreement with an existing US auto customer. We also announced an Alfa Start sale to a fast-growing US-based automotive manufacturer, but this contract was cancelled by the customer due to the economic downturn precipitated by Covid-19.

The medium- and long-term prospects for Alfa remain compelling with a number of pipeline opportunities across our target markets. Those opportunities extend beyond our existing market segments and our pre-configured Alfa Start offering and cloud-hosted solutions have attracted significant interest. We remain committed to enhancing the performance and functionality of Alfa Systems to maintain our competitive advantage.

Covid-19 presents operational challenges, but these are being monitored and mitigated by careful resource allocation across our implementation projects. Our people have adapted superbly to working remotely and the management team has spent considerable time ensuring that our people, customers and suppliers receive appropriate support to minimise personal and business disruption. The exceptional quality of our people, software and customer base continues to give me every confidence that we have the fundamentals in place to benefit as the Covid-19 virus recedes and when macroeconomic conditions improve."

Presentation

There will be a presentation for analysts this morning at 9.30am via conference call. Please contact alfa@tulchangroup.com if you would like to dial in.

Enquiries

Alfa Financial Software Holdings PLC Andrew Denton, Chief Executive Officer John Miller, Interim Chief Financial Officer	+44 (0)20 7588 1800
Tulchan Communications LLP James Macey White Matt Low	+44 (0)20 7353 4200
Barclays Robert Mayhew Tom Macdonald Edward Hill	+44 (0)20 7623 2323
Numis Simon Willis Jonathan Abbott	+44 (0)20 7260 1000

Notes to Editors

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

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

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

Forward-looking statements

This report contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Alfa. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Alfa has no obligation to update the forward-looking statements or to correct any inaccuracies therein.

Definitions

Adjusted EBIT - Adjusted EBIT is defined as profit from continuing operations, before interest and income taxes, adjusted for capitalised costs relating to internally generated assets and the relevant amortisation costs on associated internally generated assets, with the Adjusted EBIT margin being Adjusted EBIT as a proportion of revenue. Management utilises this revised measure to monitor performance as it illustrates the underlying performance of the business by adding back capitalised costs, net of relevant amortisation, which management believes is reflective of the underlying cost base and overall trading operations.

Billings - Billings are amounts invoiced in the year.

Constant Currency - We provide percentage increases or decreases in revenue and Adjusted EBIT to eliminate the effect of changes in currency values because this shows the underlying trends in the business. When trend information is expressed herein "in constant currencies", the comparative results are derived by re-calculating non-GBP-denominated revenue and/or expenses using the average monthly exchange rates of this year and applying it to the comparative year's results, excluding gains, or losses, on derivative financial instruments. The average rates are as follows:

Average exchange rates for the year	2019	2018
USD	1.2771	1.3355
Euro	1.1407	1.1303
Swedish Krona	12.0708	11.5953
New Zealand Dollar	1.9379	1.9311
Australian Dollar	1.8365	1.7862

ODS - Ongoing development and services, which is one of Alfa's revenue segments.

Operating free cash flow conversion - Cash from operations, less gains and losses on settlement of derivative instruments and margin calls, less capital expenditures and less total lease payments in respect of IFRS 16 (which was applied for the first time in the year ended 31 December 2019). Operating free cash flow conversion represents Operating free cash flow generated as a proportion of Adjusted EBIT. Management uses Operating free cash flow conversion for monitoring and managing cash flows.

CHIEF EXECUTIVE'S REVIEW

CEO's review of the year - 2019

Trading performance and delivery

In line with our revised expectations, set out in our Trading Update issued on 16 September 2019, the Group recognised total revenue for the year ended 31 December 2019 of 64.5 million (2018 71.0 million). In securing £5.5m of contractual non-recurring revenue items in H2 2019, operating profit was boosted to 13.7 million (2018 22.4 million). Alfa operated in challenging business conditions throughout 2019 with macroeconomic and political uncertainty contributing to reduced capital expenditure by customers. That, in turn, led to slower than anticipated implementations of certain projects and a reduction in customer spend on optional upgrades and non-critical work.

During the year, we increased our focus on cash management. Our operating free cash flow conversion for the year was 142% (2018: 87%). We ended the year with a cash balance of £58.8m (2018: £44.9m) and a strong, unencumbered balance sheet.

We continued to provide implementation services for the four customers we were working on at the start of 2019. Of those, one OEM went live in three countries: Spain, in June 2019, Germany, in September 2019 and the UK, in November 2019. Separately, in September 2019, another OEM went live with an initial phase of their project, in Europe.

In November 2019, we signed a contract with one of the largest automotive finance providers in Germany where we had started implementation work, under a letter of engagement, early in 2019. In the same month, we announced an Alfa Start sale in the UK to Hampshire Trust Bank, a fast-growing challenger bank. In March 2020, Hampshire Trust Bank went live, just 19 weeks after we started implementation work.

Since March 2019, we have been working for one of the largest banks in South Africa, under successive letters of engagement. In October 2019, we progressed from design to implementation work, and in March 2020, we signed a contract to provide implementation and cloud hosting services.

The core phase of an implementation project, for one of the largest US automotive finance companies, went live in January 2020. The culmination of a substantial and significant systems replacement project, spanning five years, this achievement further positioned Alfa as a compelling software choice for retail auto firms in the US.

Hosting and subscription-based revenue streams, in connection with cloud-based installations, will be increasingly material in 2020 and beyond. In March 2020, we celebrated the hard launch of the global Alfa Start product line; and announced a new contract with an existing customer in the US auto industry. In the same month, we announced a second Alfa Start sale, to a fast-growing US-based automotive manufacturer, but this contract, which was lower tier in terms of value, was cancelled by the customer due to the economic downturn precipitated by Covid-19.

Product development and innovation

Investment in the Alfa platform will always be at the heart of our corporate strategy. During 2019, the principal advances were in respect of cloud hosting, digital investment, the performance and scalability of Alfa Systems and key new functional areas.

The company is generating returns on previous years' investment in cloud, which we continued in 2019. We have rebuilt our automated tooling for the management of customer environments to provide more security, scalability and simplification. This has generated significant additional capacity, which increases the number of production environments we are able to host.

Our cloud service also offers an accelerator for customers who want to manage our service for themselves. This is in line with our general objective of speeding up implementation projects.

The investment in digital solutions in 2018 and 2019 has resulted in the aforementioned go-lives in Spain, Germany and the UK of a React-based point of sale solution. This implementation was also the first deployment of a POSkit-based point of sale. POSkit is a toolkit of point of sale software components that allows customised applications to be built quickly and efficiently. This approach has proven to work well, and we are in the early stages of further POSkit projects. We expect digitalisation to remain an important factor in customer purchasing decisions.

Continued development has enhanced Alfa's library of APIs, as well as the development of mobile application functionality to support the full asset finance customer journey. We have partnered with industry-leading specialist suppliers to provide additional functionality such as customer identity verification, e-signing and direct payments. This development is an important part of ensuring the Alfa platform maintains its market-leading position.

Beyond these developments, a number of functional enhancements to the platform are in progress including:

· Measurable improvements to all users' experience;

· Development of Cash Accounts functionality;

· Development of usage-based billing - a key enabler for the industry trend towards servitisation and subscription models; and

· PostgreSQL support.

We have also invested in research in artificial intelligence. An accompanying thought leadership campaign launched in H2 2019, and this work will continue in 2020.

In 2020, we will continue to improve the user experience of the application, to maintain its leading position. We also have planned functional changes to support the replacement for LIBOR - including SONIA in the UK; and ESTER, EONIA and SOFR in the US - and improve the ease of system maintenance, reducing the total cost of ownership for our customers and improving the efficiency of our Alfa hosting service.

Alfa Start was first used in the US automotive finance sector in 2018. Building on this, in July 2019, we started small-scale development work to adapt Alfa Start to meet the requirements of the UK equipment finance market. This gave Alfa a ready-to-deploy repeatable solution based on a subscription-licensing model for smaller customers in our home market.

A major focus for 2020 is to deliver our software, more frequently, and at a lower cost, to our customers. We are increasing our investment in modularisation. In the short-term, this will make the platform easier for us to maintain, as well as supporting longer-term opportunities in adjacent markets.

We are also enhancing our software development lifecycle (SDLC). The tooling and process needed to make changes and deliver new, high-quality versions of Alfa needs to improve continuously. We will effect a number of changes to speed up feedback time, both of individual development changes, and from customers. This will ensure our development is more efficient by eliminating re-work and waiting times.

Alongside these improvements, the go-live in January 2020 for the large US automotive finance company, required the ability to manage 4.6 million active vehicle contracts. Through this implementation project, we delivered performance improvements and scalability of Alfa Systems. We anticipate this will provide substantial benefits to all of our current and future customers.

Partnerships

Our partnership programme is an important part of Alfa's growth strategy. Throughout 2019, we made good progress in training partner staff and co-bidding for new projects.

During 2019, we delivered induction training to 31 partner team members. At 31 December 2019, six resource augmentation partner staff (2018: one) were supporting our efforts across three discrete projects and the late-stage pipeline contained two co-bids with systems integrator partners, including one bid that was already underway at the end of 2018. We will continue to build our partner capability as these co-bids progress and as our partnership programme develops.

Our total partner ecosystem now comprises five (2018: three) partners (including Genpact, Teamwill Consulting, Tellox Finansservice, and Accenture - the latter being an agreement signed in February 2020). We are in discussions with further potential implementation partners.

Board changes and governance

Our initial Non-Executive Directors, Richard Longdon, Karen Slatford and Robin Taylor, stood down from the Board during the year, having provided invaluable support and guidance through our transition from private to public company status. Additionally, David Stead had to stand down as a Non-Executive Director, due to restrictions on his availability. We were pleased to be able to appoint Chris Sullivan and Steve Breach as new Non-Executive Directors, in 2019. In March 2020, we announced that Adrian Chamberlain and Charlotte de Metz had agreed to join the Board after the release of our 2019 financial results. Our Non-Executive Directors collectively provide a strong combination of industry, strategic planning, and financial management knowledge and experience.

We strengthened the Executive Director team with the appointment of Matthew White to the Board, as Chief Operating Officer in October 2019. Vivienne Maclachlan stepped down as Chief Financial Officer, in April 2019, having piloted Alfa through our IPO, with John Miller joining as Interim Chief Financial Officer, in May 2019. In March 2020, we announced that Duncan Magrath would join the Board as Chief Financial Officer after the release of our 2019 financial results.

In November 2019, BDO was selected to provide internal audit services. This followed a review by the Audit & Risk Committee (ARC) which concluded that the Company would be best served by engaging a new external provider to complement the work of the Company's Risk Manager. KPMG, the Company's previous external provider, resigned in August 2019.

The Board continues to review the Company's procedures to ensure the Directors have a reasonable basis for making proper judgments on a continuing basis regarding the financial position and prospects of the Group. As detailed in our H1 results announcement, as part of the Board's review process, in October 2019, the Company launched an improvement programme, led by John Miller. Good progress was made in the initial phase of the programme in the final quarter of 2019. Whilst prioritising short-term improvements in the timely provision, and extent, of financial and operational information to the Board, the Company is also in the process of expanding the functionality of the recently implemented Finance and HR system, which, in the medium-term, will improve the provision of management information.

Leadership and employees

In 2019, a new Company Leadership Team (CLT) was constituted. We took the opportunity to promote a number of staff with a deep understanding of their functional areas. The CLT has a combined total of 124 years of service at Alfa. We have supplemented this core Alfa and industry experience with selective external recruitment and, in March 2020, we were delighted to welcome Vicky Edwards as our new Chief People Officer.

We spent considerable time during the year ensuring that business development was given sufficient resource and leadership. As Chief Executive Officer, I provided this leadership directly for most of 2019 and business development will continue to be a key focus for me, through 2020. These efforts were reflected in the successful generation, progression and conversion of late-stage pipeline opportunities from late 2019, onwards.

Our exceptional people will always be central to our efforts. We recruit talented people across the Company and provide them with the skills and environment to develop and succeed. We support their efforts with a full Environmental, Social and Governance (ESG) programme, Innovation Days and Learning and Development opportunities. 2019 also saw the Company focus on communication of strategy at all levels of the business and, entering 2020, we benefit from greater engagement in and understanding of, the Company's goals.

Outlook for 2020

At the time of writing, the extent of the impact of Covid-19 is necessarily uncertain. Apart from the aforementioned contract cancellation, we have received requests from some other customers to reschedule work, but at this stage we expect to be able to redeploy most of our people to satisfy other customer projects. We will continue to monitor and actively mitigate any challenges by careful resource allocation. We are grateful to our people who have adapted with remarkable efficiency and professionalism to these unusual times.

The full year effect of remuneration increases for our people, in November 2019, will be fully reflected in 2020's financial performance. Taken together with the impact of investment in Alfa's future capabilities and one-off legal costs, there will be short-term pressure on Alfa's margins. Beyond this, we will maintain rigorous cost control such that expenditure is only incurred to the extent that it is business critical and/or supports the growth of the Company in the future.

Above all our priority is to support our people, customers, partners and suppliers through the current crisis. Our implementation customers continue to see the benefits of installing Alfa Systems and our plans for 2020 remain substantially unchanged. We benefit from having a strong net cash position with no debt. We are therefore in a position where we do not need to make reactive decisions, but can run the business to ensure that, when the crisis abates, we are in the strongest possible position for 2021 and beyond.

Andrew Denton

Chief Executive Officer

23 April 2020

FINANCIAL REVIEW

Group results	2019 £'000s	2018 £'000s	Movement %
Revenue	64,480	71,038	(9%)
Implementation and support expenses	(18,103)	(18,924)	(4%)
Research and product development expenses	(15,189)	(16,341)	(7%)
Sales, general and administrative expenses	(18,056)	(13,457)	34%
Other operating income	577	66	774%
Operating profit	13,709	22,382	(39%)
Finance income	143	74	93%
Finance expense	(852)	-	-
Profit before taxation	13,000	22,456	(42%)
Taxation	(2,818)	(4,306)	(35%)
Profit for the financial year	10,182	18,150	(44%)

2019 was a challenging year for the Group, with revenue decreasing by £6.5 million from £71.0 million in 2018 to £64.5 million in 2019. Whilst we fell short of our budgets for the year, revenue was in line with our revised expectations, as set out in our Trading Update issued on 16 September 2019. Excluding the impacts of gains and losses on derivative financial instruments, this represented an annual decrease of £6.7 million in revenue from customers, comprising a £4.3 million decrease in software implementation revenue, a £0.5 million decrease in ODS revenue and a £1.9 million decrease in maintenance revenue.

The decline in turnover, coupled with an increase in the Group's cost base, ultimately led to operating profit margin decreasing to 21% in 2019 from 32% in 2018. Operating profits included £5.5 million of contractual non-recurring ODS revenue in 2019, of which £3.5 million was outside of the revenue guidance of £63-65 million provided in our Trading Update.

As of 1 January 2019, Alfa updated its accounting policies to adopt IFRS 16 "Leases". This new standard was adopted in accordance with the transition provisions in the standard and the cumulative effect of the initial application has been recognised at the date of transition. IFRS 16 requires the recognition of a right‑of‑use asset and a lease liability at the start of the agreement, for all leases, except for short‑term leases and leases of low-value assets. Alfa is not party to any material leases where it acts as a lessor, but has various lease contracts relating to property and motor vehicles, where it acts as the lessee. The adoption of IFRS 16 resulted in the recognition of right-of-use assets of £18.0 million and lease liabilities of £20.5 million as at 1 January 2019, with the difference being recorded against opening retained earnings.

Revenue	2019 £'000s	2018 £'000s	Movement %
Software implementation	26,128	30,391	(14%)
ODS	23,460	23,920	(2%)
Maintenance	14,892	16,846	(12%)
Revenue from customers	64,480	71,157	(9%)
(Loss)/gain on derivative financial instruments	-	(119)	-
Group revenue from customers *	64,480	71,038	(9%)

*Revenue from customers is presented net of any losses or gains on derivative financial instruments. During 2018 we settled the final portion of our USD forward contract, with £0.1 million of losses recorded against revenue in that year.

Excluding the impact of gains or losses on financial instruments and restating our 2018 revenue using 2019 exchange rates, our 2019 constant currency revenue decline was 11%, in comparison to an actual decline of 9%. Excluding the impact of gains and losses on financial instruments and using 2019 exchange rates, our 2018 revenue would have been £72.5 million. Additional information on the calculation of constant currency can be found in the key financial metrics section below.

Software implementation revenue	2019 £'000s	2018 £'000s	Movement £'000s
New	8,839	36	8,803
Continuing	16,312	25,950	(9,638)
Completed	1,166	3,301	(2,135)
Paused	(189)	1,104	(1,293)
Software implementation revenue from customers	26,128	30,391	(4,263)

Software implementation revenue decreased by £4.3 million, or by 14%, to £26.1 million for the year ended 31 December 2019 (2018: £30.4 million). This was predominantly due to the deferral of go-live dates on certain projects, increasing the overall length of those projects, which resulted in write-backs to software licence revenue in the year. Although this decreased software implementation revenue in 2019, it is expected that the overall project value will increase due to the increased work effort in future periods. Additionally, the application of IFRS 15 has required the Group to write-back £3.3 million of its licence revenue in order to establish a material right to use liability. This liability reflects discounts in respect of the right to use renewal payments that customers will be required to pay in future years. While this also contributed to decreased implementation revenue in 2019, the relevant revenue will be recognised over the four years following a project's go-live date.

One implementation project was completed late in 2019 and further services to this customer will be classified as ODS revenue. Revenue in the prior year included amounts from the software implementation project that was paused midway through 2018.

These declines have been partially offset by £8.8 million of implementation revenue from the three new implementation customers in 2019. One of these new customers is one of the largest automotive finance providers in Germany. We had been carrying out pre-implementation work during 2018, and started implementation work from January 2019, under successive letters of engagement, before signing a full contract in November 2019. The second implementation is with one of the largest banks in South Africa, where we worked under successive letters of engagement, in advance of the finalisation of the related software and maintenance agreements in March 2020. Pre-implementation work began with this customer in April 2019, with implementation work starting in October 2019. The third customer addition during 2019 was Hampshire Trust Bank, a fast-growing UK challenger bank where the Group launched its first Alfa Start implementation in the equipment finance market. It should be noted that the Group recognises pre-implementation revenue within its ODS revenue segment.

The number of implementation customers therefore increased to seven during 2019 (2018: four), one of which completed its implementation in late 2019. These customer numbers exclude the customer that paused its implementation project in mid-2018. This project had not restarted during the course of 2019.

In 2019, 61% of implementation revenue was denominated in US dollars (2018: 88%), 34% was denominated in Euros (2018: 12%) and 5% in GBP (2018: nil). As such, the Group's implementation revenue continued to be affected by the varying USD and Euro rates during the year.

We completed software implementation work in respect of an initial portfolio of contracts at a large US auto finance organisation in January 2020 and at Hampshire Trust Bank in March 2020, which was delivered in 19 weeks.

At the date of the preliminary announcement, one software implementation customer is due to complete its initial phase in mid-2020, one implementation customer is due to complete later in 2020, two customers have go-live dates scheduled for 2021 and one customer has its second portfolio go-live scheduled for 2022. We will continue to work closely with our customers, through the current uncertain economic conditions and we are actively managing our resource allocations to mitigate the effects of Covid-19-related disruption.

ODS revenue	2019 £'000s	2018 £'000s	Movement £'000s
New	2,321	-	2,321
Pre-implementation	2,438	960	1,478
Continuing	13,118	19,917	(6,799)
Completed or contractual non-recurring	5,583	3,043	2,540
ODS revenue from customers	23,460	23,920	(460)

ODS revenue decreased by 2% in 2019 to £23.5 million (2018: £23.9 million).

The ODS revenue from ongoing ODS customers decreased by £6.8 million to £13.1 million during 2019 (2018: £19.9 million). This decrease reflected the reduction in discretionary customer spend on optional upgrades and non-critical work, which we identified in our Trading Update and half-year results both published in September 2019. In addition, fewer customers transitioned from implementation to ODS than in 2018.

This decline was offset by six new ODS projects, contributing £4.8 million of revenue, which included revenue from four new pre-implementation projects and two implementation customers who procured additional services, incremental to the services associated with their main implementation project.

Two contractual non-recurring revenue items totalling £5.5 million were recognised in 2019. The first of these amounting to £1.6 million, represented the amount due from a customer which exceeded the maximum number of contracts within the tier of its licence agreement. The second related to additional settlement amounts on right to use for Alfa Systems and maintenance contracts that were both terminated during the fourth quarter of 2018. The timing of the termination notice had been in line with expectations and resulted in the recognition, during 2018, of £2.5 million contractual non-recurring revenue covering the period until the expected termination date of the contract being October 2019. Prior year billings were wholly recognised in 2018 because the customer had no right of clawback on payments made. During 2019, the customer requested an extension to the termination period through to October 2020 and this resulted in the recognition, in 2019, of an additional £3.9 million of contractual non-recurring revenue. Again, there is no right of clawback, within the contractual amounts payable covering the extension period.

Maintenance

Maintenance revenue decreased by £1.9 million, or 12%, to £14.9 million (2018: £16.8 million), primarily due to a reduction of £2.5 million from customers who did not renew maintenance contracts, and £0.5m reduction from the impact of a key customer which paused its maintenance contract in 2018. Of the customers not renewing their maintenance contracts, a decrease of £2.3 million relates to the customer which served its termination notice in the fourth quarter of 2018 and which has been referred to in more detail in the paragraph, above.

These declines were offset by gains of £0.3 million through new maintenance revenue from an existing implementation customer, which went live with the first phase of their implementation project, during the second half of 2019; and additional hosting revenue of £0.2 million, largely from three of the new implementation customers. Maintenance revenue from existing contracts grew by £0.6 million in the year reflecting annual inflationary rate rises on the existing customer base.

Geographical overview

On a regional basis, 44% of the Group's revenue is generated from US-based customers (2018: 47%), 29% from UK customers (2018: 32%), 20% from the Rest of Europe (2018: 17%) and 7% from the Rest of World (2018: 4%).

Geographical split of revenue	2019 £'000s	2018 £'000s	Movement £'000s
UK	18,618	22,847	(4,229)
US	28,087	33,124	(5,037)
Rest of Europe	13,016	12,391	625
Rest of World	4,759	2,795	1,964
Revenue	64,480	71,157	(6,677)
(Loss)/gain on derivative financial instruments	-	(119)	119
Group revenue	64,480	71,038	(6,558)

UK revenue decreased by £4.2 million, or by 19%, to £18.6 million for the year ended 31 December 2019 (2018: £22.8 million) primarily due to a reduction in customer spend on optional upgrades and non‐critical work, driven by macroeconomic uncertainties, as explained in the Trading Update and half-year results, both published in September 2019.

In addition there was a decline in maintenance spend due to customers not renewing contracts, as referred to in the maintenance revenue paragraph, above.

This decline was offset by a year-on-year increase of £1.4 million in relation to contractual non-recurring settlement revenue from the customer which terminated its right to use Alfa Systems and maintenance contracts during the fourth quarter of 2018 and subsequently extended their termination period by an additional 12 months, from November 2019 through to October 2020, as noted above.

UK customers are predominately from the equipment sector, contributing 81% or £15.1 million of this revenue in 2019 (2018: 72%).

US revenue decreased by £5.0 million, or by 15%, to £28.1 million for the year ended 31 December 2019 (2018: £33.1 million). There was a reduction of £7.3 million in implementation revenue from existing clients. This was due to lower activity during the year; the deferral of go-live dates on certain projects, increasing the overall length of the projects, which in turn resulted in write-backs to software licence revenue in the period; and the write-back of certain amounts of licence revenue in order to establish a material right to use liability in accordance with IFRS 15. Additionally, the paused project from 2018 resulted in a year-on-year decreased revenue of £1.9 million. There was also a £0.5 million decline in ODS and maintenance revenue from US-based customers, primarily due to the reduction in discretionary customer spend on optional upgrades and non-critical work.

Offsetting this decline, the Group had new pre-implementation projects from US-based customers that contributed £0.8 million to revenue in 2019; contractual non-recurring licence revenue in 2019 of £1.6 million due to a US-based customer exceeding the maximum number of contracts in the tier of their licence agreement; and £2.3 million of additional ODS revenue from two US-based implementation customers who procured additional services, incremental to the services associated with their main implementation project.

US revenue is predominately derived from automotive customers, contributing 98% of revenue (2018: 100%).

Rest of Europe

Rest of Europe ("RoE") revenue grew by 5% to £13.0 million (2018: £12.4 million) predominately driven by a £6.6 million increase to £7.6 million (2018: £1.0 million) from our large automotive finance provider customer, in Germany, which formally started its implementation project at the beginning of 2019. This increase was offset by declines in revenue from other European implementation customers of £4.2 million; and revenue from other European ODS customers of £1.8 million. These declines were for the same macro reasons as outlined above for our US-based implementation and ODS customers.

In 2019, RoE revenue was derived primarily from customers in the automotive sector, contributing 70% of this revenue (2018: 37%).

Rest of World

Rest of World ("RoW") revenue during 2019 was generated principally in South Africa, Australia and New Zealand.

RoW revenue grew by 70% to £4.8 million (2018: £2.8 million) predominately driven by increased revenue of £3.0 million generated from our new large South African bank customer, where we started pre-implementation work in April 2019, followed by formal implementation work from October 2019. This increase was offset by a £1.0 million decline in ODS revenue from our Australasian customers, primarily due to a reduction in discretionary customer spend on optional upgrades and non-critical work.

In 2019, RoW revenue was derived primarily from customers in the equipment sector, contributing 82% of this revenue (2018: 67%).

Operating profit

The Group's operating profit decreased by £8.7 million, or 39%, to £13.7 million in the year ended 31 December 2019, from £22.4 million in 2018, with the operating profit margin decreasing to 21% (2018: 32%). This decline predominantly reflects the decrease in revenue in 2019, coupled with an increase in the Group's cost base.

Expenses by activity	2019 £'000s	2018 £'000s	Movement %
Implementation and support expenses	18,103	18,924	(4%)
Research and product development expenses	15,189	16,341	(7%)
Sales, general and administrative expenses	18,056	13,457	34%
Other operating income	(577)	(66)	774%
Total operating expenses	50,771	48,656	4%

Implementation and Support ("I&S") expenses decreased by £0.8 million, or by 4%, to £18.1 million (2018: £18.9 million). I&S expenses are predominately personnel costs, accounting for 77% of total activity costs (2018: 75%). In the year, average I&S headcount reduced slightly with average headcount of 108 (2018: 110), and a decrease in personnel-related costs of £0.1 million. In addition, there was a decrease in other costs of £0.7m.

Research and product development ("R&PD") expenses have fallen by £1.1 million, or 7%, to £15.2 million (2018: £16.3 million), however the total expenditure including amounts capitalised was £16.3 million (2018: £16.7 million), a decrease of £0.4 million or 3%. 96% of R&PD costs are personnel costs (2018: 89%). The key reason for the small decrease in R&PD costs is a decline in the number of engineers from 152 in 2018 to 134 in 2019, partially offset by increased remuneration following above inflation pay awards, in November 2019.

During 2019, our development efforts continued to focus on internal investment projects and we capitalised £1.1 million (2018: £0.4 million) of our costs in relation to:

· Continued investment in the digital capabilities of our product;

· Upgrades and improvements to usability and functionality of the Alfa Systems user interfaces;

· Investment in the functionality of the cloud-hosting platform offered by the Group;

· The adaptation of the existing Alfa Start technology to meet the requirements of the UK equipment finance market; and

· Specific functionality requested by existing clients for which the Group has invested time developing new modules and capabilities within Alfa Systems.

The increase in capitalised costs demonstrates our continued commitment to invest in our product with a number of components moving from research into a development phase in 2019.

Sales, general and administrative ("SG&A") expenses increased by £4.6 million, or by 34%, to £18.1 million (2018: £13.5 million). Depreciation and amortisation expenses were £2.8 million during 2019, an increase of £1.9 million from 2018, primarily in respect of the adoption of IFRS 16 from 1 January 2019, the new HR and finance system, which was capitalised in 2018, as well as increased computer hardware and internal development investments. Additionally, professional advisor costs increased by £1.5 million to £3.6 million during 2019 (2018: £2.1 million) due to increased legal fees, and advisor costs associated with the financial management improvement programme which started in the second half of 2019.

Profit after taxation

Profit after taxation decreased by £8.0 million, or by 44%, to £10.2 million (2018: £18.2 million). The effective rate of taxation in 2019 increased to 21.7%, (2018: 19.2%) primarily reflecting non-deductible expenses and higher tax rates outside of the UK.

Tax policy

The Group accounts for tax matters in accordance with the Group's code of conduct and ethical guidelines. It is the Group's obligation to pay the amount of tax legally due and to observe all relevant and applicable rules and regulations in the jurisdictions in which it operates. Whilst meeting this obligation, the Group also has an obligation to its shareholders to plan, manage and control tax costs. The Group seeks to achieve this by conducting business affairs in a way that is efficient from a tax perspective, such as implementing a robust transfer pricing policy and claiming available tax credits and incentives. The Group is committed to building a constructive working relationship with the tax authorities of the countries in which it operates.

Key financial metrics

The Group uses a number of key financial metrics which are not specifically defined by IFRS but which management use as key measures to assess financial performance. Adjusted EBIT and Adjusted EBIT margin are used by management to monitor performance because they illustrate the underlying performance of the business by adding back capitalised costs, net of relevant amortisation, which management believe is reflective of the underlying cost base and overall trading operations. The most directly comparable measure of Adjusted EBIT and Adjusted EBIT margin is profit from continuing operations.

Billings and Operating cash flow conversion are monitored by management as liquidity measures. The most directly comparable measure of Operating cash flow conversion is Cash generated from operations as a percentage of Operating profit.

These measures are not directly comparable to similarly referenced measures used by other companies and, as a result, investors should not consider these performance measures in isolation from, or as a substitute analysis for, our results of operations as determined in accordance with IFRS.

New customer revenue

New customer revenue comprises revenue generated by customers who have not previously generated revenue in the applicable segment in the prior year.

Constant currency

We provide percentage increases or decreases in revenue and Adjusted EBIT to eliminate the effect of changes in currency values as we believe it is helpful to the understanding of underlying trends in the business. When trend information is expressed herein "in constant currencies", the comparative results are derived by re-calculating non-pound sterling denominated revenue and/or expenses using the average monthly exchange rates of this year and applying them to the comparative year's results, excluding gains or losses on derivative financial instruments. The average rates are as follows:

	2019	2018
USD	1.2771	1.3355
Euro	1.1407	1.1303
Swedish Krona	12.0708	11.5953
New Zealand Dollar	1.9379	1.9311
Australian Dollar	1.8365	1.7862

Key financial metrics	2019 £'000s	2018 £'000s	Movement %
Revenue - as reported	64,480	71,038	(9%)
Revenue - constant currency	64,480	72,503	(11%)
EBIT - as reported	13,709	22,382	(39%)
EBIT - constant currency	13,709	23,205	(41%)
Adjusted EBIT - as reported	12,727	21,975	(42%)
Adjusted EBIT - constant currency	12,727	22,798	(44%)

Adjusted EBIT	2019 £'000s	2018 £'000s
Profit for the period	10,182	18,150
Adjusted for:
Taxation	2,818	4,306
Finance income	(143)	(74)
Finance expense	852	-
Adjusted EBIT - 2018 definition	13,709	22,382
Capitalised development costs	(1,135)	(407)
Amortisation of capitalised development costs	153	-
Adjusted EBIT - 2019 definition	12,727	21,975

Adjusted EBIT

Adjusted EBIT in 2019 is defined as profit from continuing operations before interest and income taxes, adjusted for capitalised costs relating to internally generated assets and the relevant amortisation costs on associated internally generated assets, with the Adjusted EBIT margin being Adjusted EBIT as a proportion of revenue. Adjusted EBIT decreased by £9.3 million, or 42%, to £12.7 million (2018: £22.0 million). Adjusted EBIT margin in 2019 decreased to 20% (2018: 31%), reflecting a decline in revenue of £6.5 million and an increase in costs of £2.7 million. Excluding the impacts of currency, Adjusted EBIT, on a constant currency basis, decreased by 44%.

Previously management defined Adjusted EBIT as profit from continuing operations before income taxes, finance income, pre-IPO share-based compensation and IPO-related expenses, with the Adjusted EBIT margin calculated as Adjusted EBIT as a proportion of revenue. In 2019, management updated this definition, because IPO share-based compensation and IPO-related expenses were only relevant to the year in which the Company undertook its IPO, being 2017. Management utilises this revised measure to monitor performance as it illustrates the underlying performance of the business by adding back capitalised costs, net of relevant amortisation, which management believe is reflective of the underlying cost base and overall trading operations.

Billings

These are amounts invoiced in year. This differs from revenue, as defined by IFRS 15, due to the deferral of customised licence revenue recognition during 2019, the release of deferred income in relation to maintenance agreements, the recognition of accrued income in relation to work in progress and certain contractual non-recurring amounts. Billings increased by £4.6 million, or 13%, to £71.1 million (2018: £66.5 million), which was £6.6 million more than revenue recognised in 2019.

Operating free cash flow conversion

Operating free cash flow conversion increased to 142% (2018: 87%), reflecting an increased focus on working capital management and the recovery of receivables where the related revenue was recognised in previous years.

Operating free cash flow generation	2019 £'000s	2018 £'000s
Cash generated from operations	22,548	20,954
Adjusted for:
Settlement of derivative financial instruments and margin calls	-	(108)
Capital expenditure	(2,076)	(1,638)
Total lease payments in respect of Right-of-Use Assets	(2,462)	-
Operating free cash flow	18,010	19,208
Adjusted EBIT - 2019 definition	12,727	21,975
Operating free cash flow conversion	142%	87%

Funding and liquidity

At 31 December 2019, the Group had cash reserves of £58.8 million (2018: £44.9 million). Cash balances were denominated predominately in Pounds Sterling, being 82% of the total cash and cash equivalents balance (2018: 46%).

Cash flow	2019 £'000s	2018 £'000s
Cash generated from operations	22,548	20,954
Interest element on lease payments (IFRS 16)	(852)	-
Settlement of derivative financial instruments and margin calls	-	(108)
Income taxes paid	(4,074)	(5,846)
Net cash generated from operating activities	17,622	15,000
Net cash (used in) by investing activities	(1,933)	(1,564)
Cash used in financing activities	(1,610)	-
Effect of exchange rate changes	(162)	219
Movement in year	13,917	13,655
Cash and cash equivalents at the beginning of the year	44,922	31,267
Cash and cash equivalents at the end of the year	58,839	44,922

Net cash generated from operating activities

Net cash generated from operating activities increased by £2.6 million to £17.6 million during the year ended 31 December 2019 (2018: £15.0 million) primarily due to the increase in cash generated from operations of £1.6 million to £22.5 million, and a decrease in tax paid of £1.8 million.

The increase of £1.6 million in cash generated from operations was primarily due a positive movement in working capital of £8.0 million. Movements in working capital and other balance sheet items during 2019 resulted in a net cash inflow of £5.3 million (2018: £2.7 million outflow), as shown in the table below. This positive movement was offset by the decrease of £6.4 million in operating profit, after non-cash items of depreciation, amortisation, share based payment charge and unrealised gains and losses on derivative instruments.

Movements in working capital and other balance sheet items	2019 £'000s	2018 £'000s

Movement in provisions	515	65
Movement in contract liabilities	3,110	(1,379)
Movement in working capital:
Movement in trade and other receivables	2,532	(1,237)
Movement in trade and other payables and provisions (excluding derivative financial instruments and contract liabilities)	(858)	(179)
Movement in working capital and other balance sheet items	5,299	(2,730)

Trade and other receivables in 2019 generated an inflow of £2.5 million. This movement comprises a £0.6 million decrease in trade receivables, due to an increased focus on cash management by the Group, and a decrease in accrued income of £1.9 million. Accrued income represents unbilled work in progress in relation to our ODS customers and certain non-recurring revenue items where there is a contractual agreement to invoice in the following year. Of the accrued income balance at 31 December 2019, 68% had been invoiced and 66% collected as at 31 March 2020.

The movement in contract liabilities relates to deferred licence fees and maintenance amounts. The inflow in 2019 was £3.1 million, due to:

· An increase in maintenance contract liabilities of £0.2 million primarily due to general inflationary increases in annual amounts chargeable, as well as one maintenance customer which commenced paying maintenance during 2019, when the first phase of their implementation project went live; and

· An increase in software implementation contract liabilities of £2.9 million as a result of, the deferral of go-live dates on certain projects, which increased the overall length of the projects resulting in write-backs to software licence revenue in the year, and the application of IFRS 15 which has required the Group to write-back certain amounts of its licence revenue, in order to establish a material right to use liability.

Net cash flows used in investing activities of £1.9 million in the year ended 31 December 2019 related to investment in internal systems and other computer equipment. We capitalised £1.1 million of development costs relating to internally generated intangible assets during 2019 (2018: £0.4 million).

Net cash outflows from financing activities related to the principal element of lease payments, following the adoption of IFRS 16. In addition, the interest element of the lease payments has been included within the reconciliation from Operating profit to the net cash generated from operations in the year. Prior to the adoption of IFRS 16 on 1 January 2019, the payments made in respect of operating leases held by Alfa were included within Operating profit. The cash generated from operations has therefore increased because of the reclassification of cash flows under IFRS 16, even though there is no impact on the overall cash flows.

Currency hedging

The Group entered into US dollar forward contracts in 2016. These were fully settled by 31 December 2018. In 2019 there were no currency movements from these arrangements (2018: loss of £0.1m) and no further instruments were utilised.

Capital expenditure and contractual obligations

The Group's capital expenditure is primarily invested in the UK and related to £0.4 million of equipment (2018: £0.6 million), £0.6 million on the new HR and finance system (2018: £0.6 million) and capitalised development costs of £1.1 million (2018: £0.4m) for internally generated intangible assets.

Capital allocation

Alfa seeks to deliver high-quality visible earnings, future earnings growth and maintain a strong balance sheet. The Group's capital allocation policy includes the following elements aimed at supporting the achievement of strategic objectives:

• Reinvestment in people and technology; and

• Maintaining strong liquidity.

The Directors have not declared a dividend for 2019 (2018: nil), instead focussing on retaining the strong cash balance and continuing to invest in people and technology developments.

In making investment decisions regarding our people, the Directors considered the Group's financial performance and position as well as investor and analyst feedback; dialogue and feedback from employees, covering employee engagement and retention rates; requirements for training and professional development; and appropriate reward structures in the context of the current labour market. The allocation of capital towards our people will support the Group in achieving its strategic objective, to maintain a high-performance organisation with a culture of continuous improvement.

In making investment decisions to develop our technology, the Directors considered the Group's financial performance and position; the feedback and requirements of customers; the operational efficiency of the existing technology; and the efficacy and expected return on investment of certain development and enhancement work. The allocation of capital to technological development will support the delivery of our strategic objectives to grow market share, to extend our best in class digital agenda, and to promote and grow value and develop resilience.

Distributions to shareholders

In 2019, there were no distributions to shareholders. No final dividend has been declared.

Related party transactions

The ultimate parent undertaking is CHP Software and Consulting Limited (the "Parent"). There was no trading between the Group and the Parent. There were no balances outstanding from, or to, the Parent at 31 December 2019 and 31 December 2018.

An arms-length transaction with Classic Technology Limited, a company in which the Chairman holds an interest, was undertaken, for the rental of property. These transactions amount to £0.04 million (2018: £0.04 million) with no outstanding receivable balances at the end of each reporting period.

Going concern

The Group continues to be cash-generative and the Directors believe that the Group has a resilient business model. In making their assessment of going concern, the Directors have considered the current financial projections and facilities available to the Group as well as the principal risks and uncertainties, including the impact of Covid-19.

In line with FRC guidance issued on 26 March 2020, additional downside stress testing has been performed for a period of 12 months from the date of approval of the financial statements which demonstrates that, given the existing level of cash held by the Group, even in the most extreme downside conditions considered reasonably possible, the Group would continue to be able to meet its obligations as they fall due, without the need for substantive mitigating actions.

On this basis, whilst it is acknowledged that there is a great deal of uncertainty regarding the future impacts of Covid-19, the Directors are satisfied that the Group remains well placed to manage its business risks successfully and therefore they have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of 12 months from the date of approval of the financial statements. Accordingly, the financial statements continue to be prepared on a going concern basis.

Subsequent events

The Directors note that the outbreak of Covid-19 during early 2020 may have a significant impact on the Group and the environment in which it operates. These events are considered to be non-adjusting events after the reporting date, and accordingly no adjustments have been made to the financial performance and position of the Group as of the reporting date. The events have been considered within the assessment of going concern and viability.

There have been no other reportable subsequent events since the balance sheet date.

John Miller

Interim Chief Financial Officer

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019

The disclosed figures are not statutory accounts in terms of section 434 of the Companies Act 2006. The statutory accounts give full disclosure of the Group accounting policies and are scheduled to be posted to shareholders in the first week of May 2020 and will be filed with the Registrar of Companies in due course. On the statutory accounts for the year ended 31 December 2019, the auditor gave an unqualified opinion that did not contain an emphasis of matter and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Condensed consolidated statement of profit or loss and comprehensive income for the year ended 31 December 2019

£'000s	Note	2019	2018
Continuing operations
Revenue	2/3	64,480	71,038
Implementation and support expenses	4/5	(18,103)	(18,924)
Research and product development expenses	4/5	(15,189)	(16,341)
Sales, general and administrative expenses	4/5/6	(18,056)	(13,457)
Other operating income		577	66
Operating profit		13,709	22,382
Finance income	7	143	74
Finance expense	7/19(d)	(852)	-
Profit before taxation		13,000	22,456
Taxation	8	(2,818)	(4,306)
Profit for the financial year		10,182	18,150
Other comprehensive income:
Items that may be subsequently reclassified to profit and loss
Exchange differences on translation of foreign operations	11(b)	(350)	376
Other comprehensive (expense)/income, net of tax		(350)	376
Total comprehensive income for the period		9,832	18,526
Earnings per share (in pence) for profit attributable to the ordinary equity holders of the company
Basic	17	3.5	6.3
Diluted	17	3.4	6.1
Weighted average no. of shares - basic	17	290,554,694	285,962,898
Weighted average no. of shares - diluted	17	298,812,270	300,000,000

The above consolidated statement of profit or loss and comprehensive income should be read in conjunction with the accompanying notes.

At 1 January 2019 the Company adopted IFRS 16 "Leases". This new standard supersedes IAS 17 'Leases', IFRIC 4 'Determining whether an Arrangement contains a Lease', SIC-15 'Operating Leases-Incentives' and SIC-27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease'. The accounting standard has been applied retrospectively, in line with the guidelines of the standard, and consequently the comparatives have not been restated but the impact of the adoption of the new standard has been recorded directly to the opening equity balance of the 2019 financial year. See note 19 for the details on the first time application of this standard.

Consolidated statement of financial position as of 31 December 2019

£'000s	Note			2019	2018
Assets
Non-current assets
Goodwill	10(b)			24,737	24,737
Other intangible assets	10(c)			2,255	1,203
Deferred tax assets	10(d)			596	8
Property, plant and equipment	10(a)			1,166	1,455
Right-of-use lease assets	19(d)			16,402	-
Total non-current assets				45,156	27,403
Current assets
Trade and other receivables	9(a)			4,050	4,651
Accrued income	9(b)/16			7,214	9,162
Prepayments	9(b)			1,613	1,452
Other receivables	9(b)			1,020	947
Cash and cash equivalents		9(c)		58,839	44,922
Total current assets			72,736		61,134
Total assets			117,892		88,537
Liabilities and equity
Current liabilities
Trade and other payables		9(d)		5,884	7,588
Corporation tax		9(d)		1,355	2,448
Lease liabilities		19(d)		1,672	-
Contract liabilities - software implementation		3(e)/16		4,581	1,662
Contract liabilities - deferred maintenance		3(e)		4,060	3,772
Total current liabilities				17,552	15,470
Non-current liabilities
Lease liabilities		19(d)		17,330	-
Provisions for other liabilities		9(d)		667	152
Total non-current liabilities				17,997	152
Total liabilities				35,549	15,622
Capital and reserves
Ordinary shares		11(a)		300	300
Translation reserve		11(b)		26	376
Retained earnings				82,017	72,239
Total equity				82,343	72,915
Total liabilities and equity				117,892	88,537

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

The consolidated financial statements were approved and authorised for issue by the Board of Directors on 23 April 2020 and signed on its behalf.

Andrew Denton

Chief Executive Officer

Matthew White

Chief Operating Officer

Alfa Financial Software Holdings PLC - Registered number 10713517

Consolidated statement of changes in equity for the year ended 31 December 2019

£'000s	Note		Share capital	Translation reserve	Retained earnings	Equity attributable to owners of the parent
Balance as at 1 January 2018			300	-	53,821	54,121
Profit for the financial year			-	-	18,150	18,150
Other comprehensive income			-	376	-	376
Total comprehensive income for the year			-	376	18,150	18,526
Employee share schemes - value of employee services		6	-	-	268	268
Balance as at 31 December 2018			300	376	72,239	72,915
Effect of initial application of IFRS 16		19(d)	-	-	(1,459)	(1,459)
Deferred tax impact of initial application of IFRS 16					419	419
Adjusted balance at 1 January 2019			300	376	71,199	71,875
Profit for the financial year			-	-	10,182	10,182
Other comprehensive expense			-	(350)	-	(350)
Total comprehensive (expense)/income for the year			-	(350)	10,182	9,832
Employee share schemes - value of employee services	6		-	-	636	636
Balance as at 31 December 2019			300	26	82,017	82,343

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated statement of cash flows for the year ended 31 December 2019

£'000s		Note	2019	2018
Operating profit			13,709	22,382
Adjustments:
Depreciation	10(a)/19(d)		2,388	623
Amortisation	10(c)		428	253
Employee share scheme charge	6		724	305
Loss on disposal of property, plant and equipment			-	2
Unrealised loss on derivative financial instruments	2(a)/9(e)		-	119
Movement in provisions	9(d)		515	65
Movement in contract liabilities	9(d)		3,110	(1,379)
Movement in working capital:
Movement in trade and other receivables		9(a)	2,532	(1,237)
Movement in trade and other payables (excluding derivative financial instruments and contract liabilities)		9(d)	(858)	(179)
Cash generated from operations			22,548	20,954
Interest element on lease payments		7/19(d)	(852)	-
Settlement of derivative financial instruments and margin calls			-	(108)
Income taxes paid		8	(4,074)	(5,846)
Net cash generated from operating activities			17,622	15,000
Cash flows from investing activities
Payments for property, plant and equipment		10(a)	(376)	(622)
Payments for software intangible assets		10(c)	(565)	(609)
Payments for software development costs		10(c)	(1,135)	(407)
Interest received		7	143	74
Net cash (used in)/generated by investing activities			(1,933)	(1,564)
Cash flows from financing activities
Principal element on lease payments		19(d)	(1,610)	-
Cash used in financing activities			(1,610)	-
Net increase in cash			14,079	13,436
Cash and cash equivalents at the beginning of the year		9(c)	44,922	31,267
Effect of exchange rate changes			(162)	219
Cash and cash equivalents at the end of the year		9(c)	58,839	44,922

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Notes to the consolidated financial statements for the year ended 31 December 2019

1. Summary of significant accounting policies

This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements to the extent they are not disclosed in the other notes below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the Group, consisting of Alfa Financial Software Holdings PLC (Alfa) and its subsidiaries.

A list of subsidiaries is contained in note 15(b). Alfa is a public company limited by shares and is incorporated and domiciled in England. Its shares are listed on the London Stock Exchange.

The registered office is Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, United Kingdom. Alfa's registration number is 10713517.

These financial statements were authorised for issue by the Directors on 23 April 2020. All press releases, financial reports and other information are available on our website in the Investor Relations section at www.alfasystems.com/investors

The principal activity of the Group is to provide software solutions and consultancy services to the asset finance industry in the United Kingdom, United States of America, Europe and Australia.

1 (a) Basis of preparation

Compliance with IFRS - The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") and interpretations issued by the IFRS Interpretations Committee ("IFRIC") as adopted by the European Union and with the Companies Act 2006 as applicable to companies reporting under IFRS.

Historical cost convention - The consolidated financial statements have been prepared under the historical cost convention, other than the revaluation of financial assets and financial liabilities (including derivative instruments) recorded at fair value through profit or loss.

Going concern - The financial statements are prepared on the going concern basis. The Group continues to be cash-generative and the Directors believe that the Group has a resilient business model. The Group meets its day-to-day working capital requirements through its cash reserves generated from operating activities. Within the ordinary course of business, there may be uncertainty in relation to operations, particularly over (a) the level of demand for the Group's software, and (b) the ability to retain existing customers. The going concern assessment also takes into account the principal risks and the other matters discussed in connection with the viability statement, which include the impact of Covid-19. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group has sufficient cash reserves to operate for a period of not less than 12 months.

In line with FRC guidance issued on 26 March 2020, additional downside stress testing has been performed which demonstrates that, even in the most extreme downside conditions considered reasonably possible, given the existing level of cash held, the Group would continue to be able to meet its obligations as they fall due, without the need for substantive mitigating actions.

On this basis, whilst it is acknowledged that there is a great deal of uncertainty surrounding the future impacts of Covid-19, the directors consider it appropriate to adopt the going concern basis of accounting in preparing its consolidated financial statements. Further information on cash and cash equivalents is given in note 9(c) to the consolidated financial statements.

New and amended standards adopted by the group

In the current year, the Group has applied a new International Financial Reporting Standards and a new International Financial Reporting Interpretations issued by the International Accounting Standards Board that are effective for an annual period that begins on or after 1 January 2019, being IFRS 16 " Leases" and IFRIC "23 Uncertainty over Income Tax Treatments".

IFRS 16 Leases

In the current year, Alfa updated its accounting policies as a result of adopting IFRS 16 "Leases". This new standard supersedes IAS 17 'Leases', IFRIC 4 'Determining whether an Arrangement contains a Lease', SIC-15 'Operating Leases-Incentives' and SIC-27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease'. See note 19 for the details on the first time application.

IFRIC 23 Uncertainty over Income Tax Treatments

The Group has adopted IFRIC 23 for the first time in the current year. IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The Interpretation requires the Group to:

· determine whether uncertain tax positions are assessed separately or as a group; and

· assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings.

The Group has determined its accounting tax position to be consistent with the tax treatment used and planned to be used in its income tax filings without any material impact on the current or prior period recognition of tax charges or any related accounts.

New standards, amendments and interpretations not yet adopted

There are no standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

1(b) Principles of consolidation

The accounting policy and list of subsidiaries consolidated are contained in note 15(b).

1(c) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the CODM, as disclosed in note 2.

1(d) Foreign currency translation

(i) Functional currency - Items included in the consolidated financial statements of each of the Group's subsidiaries are measured using the currency deemed to be their functional currency. Significant subsidiaries are deemed to have a functional currency similar to the currency in which they operate. Certain smaller subsidiaries are deemed to be operating as an extension of the UK trading subsidiary, and therefore have a functional currency of pounds sterling.

(ii) Presentation currency - The consolidated financial statements are presented in pounds sterling. Alfa's functional and presentation currency is pounds sterling,

(iii) Foreign currency transactions - Transactions in foreign currencies are translated into the respective functional currencies using the exchange rates prevailing at the dates of the transactions. Foreign exchange differences arising from the settlement of such transactions and from the translation at the reporting date of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. The average annual rate for the US dollar used was 1.2271 in 2019 (2018: 1.3355). The closing rate for the US dollar used was 1.3186 in 2019 (2018: 1.2736).

(iv) Group companies - the results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

- Assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate at the date of that consolidated statement of financial position;

- Income and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

- All resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognised in other comprehensive income. When a foreign operation is sold the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.

1(e) Revenue recognition

The accounting policies for the Group's revenue from contracts with customers are explained in note 3.

1(f) Income tax

The accounting policies for income tax and deferred tax are explained in note 8 and 10(d).

1(g) Leases

Due to the adoption of IFRS 16 in the current year, the accounting policy for operating leases in 2019 is explained in note 19. Prior year accounting policy for operating lease is disclosed in note 14 (b).

1(h) Impairment of assets

The accounting policy for impairment of long-life assets is explained in note 10 (b).

Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

1(i) Cash and cash equivalents

The accounting policy for cash and cash equivalents is explained in note 9(c).

1(j) Trade receivables

The accounting policy for trade receivables is explained in note 9(a).

1(k) Investments and other financial assets

The accounting policy for financial assets is explained in note 9.1.

Impairment of financial assets is explained in note 13(b).

1(l) Derivative financial instruments

The accounting policy for derivative financial instruments is explained in note 9(e). Hedge accounting has not been applied.

1(m) Property, plant and equipment

The accounting policy for property, plant and equipment is explained in note 10(a).

1(n) Goodwill and other intangible assets

The accounting policies for goodwill and other intangibles, including the amortisation methods and periods, are explained in note 10 (b) and 10(c) respectively.

Research and development which does not meet the criteria set out in 10(c) is recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in subsequent periods.

1(o) Trade and other payables

The accounting policy for trade and other payables is explained in note 9(d).

1(p) Provisions

The accounting policy for provisions is explained in note 9(d).

1(q) Employee benefits

Short term obligations - See accounting policy in note 5.

Long-term benefits - See accounting policy in note 5.

Pension obligations - See accounting policy in note 5.

Employee share scheme expense - See accounting policy in note 6.

1(r) Equity

The accounting policies for ordinary shares and other reserves are explained in note 11.

1(s) Earnings per share

The accounting policies for basic, diluted and adjusted earnings per share are explained in note 17.

2. Segments and principal activities

2.1 Segments: Operating segment and reporting segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker ("CODM"). The Group's Chief Executive Officer ("CEO"), who is responsible for allocating resources and assessing performance, has been identified as the CODM.

The CODM regularly reviews the Group's operating results in order to assess performance and to allocate resources. The CODM considers the business from a product perspective and, therefore, recognises one operating and reporting segment, being the sale of software and related services. The Group is choosing to present revenue segmentation by type of project and a consolidated adjusted Earnings Before interest and taxation ("Adjusted EBIT") measure, as presented to the CODM, as additional information in this note, along with the required entity wide disclosure.

The Group discloses revenue split by type of project being Software implementation, Ongoing development and services ("ODS") and Maintenance.

(i) Software implementation projects - An implementation process contains three types of billing streams, being the recognition of a licence, fees in relation to implementation tasks and fees for additional development. Software implementation projects can take from a few months to several years depending on the complexity of the implementation and the size of customer.

The licence element is generally invoiced and collected at the beginning of the project and the licence amount is banded by the number of geographies, modules taken by the customer and the number of contracts or agreements to be written and managed on Alfa Systems.

Implementation and development fees are invoiced based on a daily rate basis.

(ii) ODS revenue - represents the ongoing development and services efforts which are either ad hoc projects with existing customers or relate to development or services delivered after a new implementation. The services can be: support immediately after an implementation, further development for customer specific functionality, or change management assistance. Such services are generally provided on a shorter contractual term.

(iii) Maintenance revenue is invoiced periodically in advance. Maintenance amounts are linked to the volumes of contracts or agreements being written through Alfa Systems and therefore increase if the customer's portfolio increases.

See note 3 for details of our revenue recognition accounting policy and related critical accounting judgements and estimates in relation to revenue recognition.

2.2 Adjusted EBIT: The CODM analyses the financial performance of the business on this adjusted profit measure. Adjusted EBIT is not a measure defined by IFRS. The most directly comparable IFRS measure to Adjusted EBIT is operating profit for the relevant period.

Adjusted EBIT is defined as profit from continuing operations before interest and income taxes, adjusted for capitalised costs relating to internally generated assets and the relevant amortisation costs on associated internally generated assets. Management utilises this measure to monitor performance as it illustrates the underlying performance of the business by adding back costs which management believes are reflective of the underlying cost base and overall trading operations.

Management uses Adjusted EBIT to (i) provide senior management with a monthly report of operating results that is prepared on an adjusted earnings basis and (ii) prepare strategic plans and annual budgets on an adjusted earnings basis. Senior management's annual compensation may also be reviewed, in part, using adjusted performance measures.

2(a) Revenue by type

The Group assesses revenue by type of project, being Software implementation, ODS and Maintenance, as summarised below:

£'000s	2019	2018
Software implementation	26,128	30,391
ODS	23,460	23,920
Maintenance	14,892	16,846
Operating revenue	64,480	71,157
(Loss) on derivative financial instruments	-	(119)
Total revenue	64,480	71,038

2(b) EBIT and Adjusted EBIT

The following tables reconcile profit for the period attributable to equity holders to EBIT and Adjusted EBIT for the periods presented:

£'000s	2019	2018
Profit for the year	10,182	18,150
Adjusted for:
Taxation	2,818	4,306
Finance income	(143)	(74)
Finance expense	852	-
EBIT	13,709	22,382

£'000s	2019	2018
EBIT	13,709	22,382
Adjusted for:
Capitalised development costs *	(1,135)	(407)
Amortisation of capitalised development costs	153	-
Adjusted EBIT	12,727	21,975

*Capitalised salary costs and third party partner costs relating to the capitalisation of internally generated assets in both 2018 and 2019.

2(c) Non-current assets geographical information

Non-current assets (other than financial instruments and deferred tax assets) attributable to each geographical market:

£'000s	2019	2018
UK	44,276	27,096
USA	220	269
Rest of World	64	30
Total non-current assets (other than financial instruments and deferred tax assets)	44,560	27,395

Revenue by geographical market is contained within note 3.

3. Revenue from contracts with customers

3.1 Revenue

The Group derives revenue from the following sources:

(1) software implementation revenue which includes software licences, software development and other software implementation services;

(2) software maintenance (help desk and other support services); and

(3) ongoing development and support services.

The Group provides the right to use, software development services, core implementation services and ongoing support of its product, Alfa Systems. The Group's contractual arrangements contain multiple deliverables or services, such as the development or customisation of the software to the customer's requirements, implementation services such as migration of data and testing and certain project management services.

Alfa assesses whether there are distinct performance obligations at the start of each contract and throughout the performance of the implementation, development and services projects and maintenance period. These performance obligations are laid out below.

3.2 Accounting policy, performance obligations and critical accounting judgements and key sources of estimation uncertainty

The Group has identified that the following separate performance obligations exist within its revenue contracts. Any one contract may include a single performance obligation or a combination of those listed below:

(i) Software implementation services - Where implementation services are considered to be distinct, i.e. when relatively straightforward, do not require additional development services and could be performed by an external third party, the implementation services are accounted for as a separate performance obligation from any development services. The transaction price is allocated to each performance obligation based on the stand-alone selling prices, derived from day rates and is recognised monthly based on the effort incurred, limited to the amount to which Alfa has a right to payment.

(ii) Development services - The second performance obligation is the granting of a right to use Alfa Systems, which includes the delivery of the related software licence and any development efforts which change the underlying code. The total revenue attributable to this performance obligation is estimated at the outset of the relevant software implementation project and recognised as the effort is expended, on a percentage of completion basis, limited to the amount to which Alfa has the right to payment. A percentage-of-completion basis has been used because customers obtain the ability to benefit from the product from the start of the implementation project, the development or customisation of the asset has no alternative use to the Group; and the customer is entitled to the benefits of the efforts as at the date the efforts are delivered, so recognition over time is appropriate.

Development services are valued using the residual value method as there are no stand-alone selling prices which are observable as each project is customised.

(iii) Option over the right to use Alfa Systems - In the event that customers have to pay periodic maintenance fees in order to keep using Alfa Systems, a component of these future maintenance fees is attributable to the right to use the software. In these circumstances the licence granted by Alfa is considered to renew in future periods. There may be a material right in respect of discounts in future periods. In order to ascribe a value to this option management initially determine the periodic value of the development services during the software implementation period and estimate the remaining expected customer life.

(iv) Periodic right to use Alfa Systems - This represents the stand-alone selling price of the periodic option to renew the right to use Alfa Systems. If there is the right of clawback of the annual right to use, such amounts are recognised throughout the annual period. If there is no right of clawback, then the annual right to use amount is recognised in full when there is a right of collection.

(v) Periodic maintenance amounts - This represents the stand-alone selling price of the ongoing support or maintenance of Alfa Systems which is recognised throughout the period over which the services are delivered.

(vi) Subscription amounts - Certain of the Group's implementation and service contracts include a subscription payment mechanism. This represents a monthly fee charged to the customer covering the following performance obligations; the provision of monthly hosting services; the monthly periodic right to use Alfa Systems and, the provision of monthly maintenance services (when this becomes applicable to the customer). The monthly payments are recognised as revenue in the period to which they relate. This reflects the underlying performance obligations of the Group and termination rights of the customer.

Critical judgements in applying the Group's accounting policies

Revenue recognition - Assessing performance obligations - The Group is required to make an assessment as to whether the implementation process, which includes licence, implementation and development revenue streams as well as any maintenance fees during this phase, forms one or a number of performance obligations. In addition, the Group is also required to make an assessment as to whether each contract contains an expectation to deliver multiple separate instances of the customised licence which may form separate groups of distinct performance obligations. In doing the above, the Group assesses each software implementation contract as to whether the underlying software requires significant modification or customisation by the Group in order to meet the customer's requirements before Alfa Systems can be utilised by the customer. Therefore judgement is required in determining which efforts relate to the implementation process and which efforts could be determined to be development services which change or enhance the underlying code. In making this judgement, the Group assesses the contractual terms and the original project plan for the implementation but also uses historical evidence of what constitutes core implementation work.

Key sources of estimation uncertainty

Revenue recognition - Assigning a stand-alone selling price for implementation services day rates - The Group assesses the value of the implementation services delivered by assessing the effective day rate for an implementation contract, taking into account all revenue streams from implementation contracts against day rates of similar projects in the same geographies. If the stand-alone selling price in relation to the implementation day rate decreased by 5%, this would result in a cumulative increase to revenue of £0.8 million in 2019.

Other sources of estimation uncertainty

Revenue recognition - Percentage of completion estimate - The Group estimates the number of days required to complete the relevant software customisation effort at the outset of each project and on an ongoing basis including at each consolidated statement of financial position date. Estimates of total project days required for a relevant project are based on historical evidence of past implementations, knowledge of the customer's systems being replaced and scope of customisation being requested. The Group applies the percentage-of-completion method when calculating development services revenue and updates estimates at each quarter end accordingly. At 31 December 2019, if the Group's estimates of development days to complete increased by 20% in relation to ongoing software implementation projects, this would result in development services revenue decreasing by £0.2 million in 2019.

3.3Unrealised gains or losses on derivative financial instruments. The Group has made an accounting policy election to recognise unrealised gains or losses on derivative financial instruments within revenue, therefore such gains or losses are shown net of revenue where instruments have been entered into match the US dollar denominated projected cash flows. There are no unrealised gains or losses on derivative financial instruments recognised in the year ended 31 December 2019 (2018: £0.1 million of unrealised losses).

Disaggregation of revenue from contracts with customers

3(a) Customer concentration - Customers with revenue accounting for more than 10% of total revenue are as follows:

£'000s	2019	2018
Customer A	20%	21%
Customer B	13%	10%
Customer C	12%	1%
Customer D	9%	13%

See note 9(a) for outstanding trade receivables from those customers with revenue accounting for more than 10% of total revenue.

3(b) Timing of revenue - The Group derives revenue from the transfer of goods and services over time and at a point in time in the following revenue segments:

2019 - £'000s	Software implementation	ODS	Maintenance	Total revenue
At a point in time - time and materials	-	17,926	-	17,926
At a point in time - fixed price	-	5,534	-	5,534
Over time - time and materials	26,033	-	-	26,033
Over time - fixed price	95	-	14,892	14,987
Total revenue	26,128	23,460	14,892	64,480

2018 - £'000s	Software implementation	ODS	Maintenance	Total revenue
At a point in time - time and materials	-	21,459	-	21,459
At a point in time - fixed price	-	2,461	-	2,461
Over time - time and materials	30,391	-	-	30,391
Over time - fixed price	-	-	16,846	16,846
Total revenue**	30,391	23,920	16,846	71,157

All goods and services are sold directly to the customer.

3(c) Revenue geographical information - Revenue attributable to each geographical market based on where the licence is sold or the service is as follows:

£'000s	2019	2018
UK	18,618	22,847
USA	28,087	33,124
Rest of Europe	13,016	12,391
Rest of World	4,759	2,795
Total revenue**	64,480	71,157

* Revenue from customers is presented before any losses or gains on derivative financial instruments. During 2018 we settled the final portion of our USD forward programme, with £0.1 million of losses recorded against revenue in the period.

3(d) Revenue by currency - Revenue by contractual currency is as follows:

£'000s	2019	2018
GBP	21,644	23,608
USD	29,398	36,532
Euro	9,429	5,830
Other	4,009	5,187
Total revenue**	64,480	71,157

** Revenue from customers is presented before any losses or gains on derivative financial instruments. During 2018 we settled the final portion of our USD forward programme, with £0.1 million of losses recorded against revenue in the period.

3(e) Assets and liabilities from contracts with customers

£'000s	2019	2018
Contract liabilities - deferred licence	4,581	1,662
Contract liabilities - deferred maintenance	4,060	3,772
	8,641	5,434

4. Operating profit

Operating profit is calculated after items such as personnel costs (including training and recruitment), the cost of software not capitalised, research and development costs and other infrastructure expenses.

Implementation and support expenses - Such expenses relate to the remuneration of personnel assigned to software implementation services, in addition to project-related travel and accommodation expenses and an appropriate portion of relevant overheads.

Research and product development expenses - The Group invests a substantial part of its time in research and product development work in relation to the enhancement of its product platform and capabilities. Research and product development work is charged to the customer where it is linked to specific customer projects, such as initial software implementations or customisation of the software to the customer's requirements. The Group's research and product development costs include remuneration costs and an appropriate portion of relevant overheads.

Internally generated research and product development costs only qualify for capitalisation if the Group can demonstrate all of the criteria explained in note 10(c), where capitalised development costs are disclosed as internally generated intangible assets. If the criteria are not met, such expenditure is recognised as an expense in the period in which it is incurred. The Group continues to assess the eligibility of development costs for capitalisation on a project by project basis.

All other operating costs are recorded through "Sales, general and administrative expenses."

The following items have been included in arriving at operating profit:

£'000s	2019	2018
Personnel costs ***	32,586	34,795
Training and recruitment	1,027	516
Other personnel related expenses	3,234	2,639
Advertising, sponsorship and marketing expenses	566	822
Depreciation and amortisation (note 10(a), 10(c), 19(d))	2,816	876
Property costs	1,449	2,750
Travel costs***	2,100	2,254
IT expenses	1,586	1,498
Professional advisor costs***	3,589	1,844
Insurance	232	216
Foreign currency differences	269	(523)
Employee share schemes (note 6)	636	268
Other	1,258	767

A further split by nature is set out below:

£'000s	2019	2018
Personnel costs ***	14,003	14,100
Travel costs***	2,100	2,254
IT expenses	1,468	1,213
Overhead allocation	532	1,357
Implementation and support expenses	18,103	18,924

Personnel costs	14,558	14,509
Overhead allocation	631	1,832
Research and product development expenses	15,189	16,341


Personnel costs***	8,286	8,825
Advertising, sponsorship and marketing expenses	566	822
Professional advisor costs***	3,589	2,128
Depreciation (note 10(a))	2,388	623
Amortisation (note 10(d))	428	253
Foreign currency differences	269	(523)
Employee share schemes (note 6)	636	268
Overhead allocation	1,894	1,061
Sales, general and administrative expenses	18,056	13,457

5. Personnel costs

Employee benefits - The Group provides a range of benefits to employees, including paid holiday arrangements and defined contribution pension plans.

Short term benefits - Short-term benefits, including health cover and other similar non-monetary benefits, are recognised as an expense in the period in which the service is received.

Post-employment benefits - The Group operates various defined contribution plans for its employees. A defined contribution plan is a pension plan where the Group pays fixed contributions into a separate independent entity. The Group has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to the employee's service in the current and prior periods.

Employee share schemes -Expense in relation to employee share schemes is recognised in line with the accounting policy in note 6.

Personnel costs £'000s	2019	2018
Wages, salaries and short-term benefits***	27,687	29,681
Training and recruitment	1,027	516
Social security	4,013	4,322
Post-employment benefits	2,575	2,094
Other employee expenses	1,545	1,336
Employee share schemes	636	268
Total personnel costs	37,483	38,217

*** Following a detailed review during 2019 of the nature of expenses, management made changes to the groupings of the line items disclosed under operating expense. This was done in order to better reflect the nature of the expenses. In order to keep comparatives in line with current year disclosure, the 2018 figures have been amended as follows: £1.6 million "Travel cost" was reallocated to "Personnel expenses" and (£0.2) million relating to capitalised salary costs was reallocated from "Professional advisor costs" to "Personnel costs". Total expenses have not changed.

Average monthly number of people employed (including Directors)	2019	2018
UK	236	235
US	61	72
RoW	16	20
Total average monthly number of people employed	313	327

Average monthly number of people employed (including Directors)	2019	2018
Implementation and support	108	110
Research and product development	134	152
Sales, general and administrative	71	65
Total average monthly number of people employed	313	327

6. Employee share schemes

Employee share schemes are schemes in which the Group receives services as consideration for its own equity instruments. These are accounted for as equity-settled share-based payments. The grant date fair value of the employee share scheme is recognised as a personnel cost, with a corresponding increase in equity, over the period that the employee becomes unconditionally entitled to the awards. The fair value of the awards granted is measured using an options valuation model where required, taking into account the terms and conditions upon which the awards were granted and is charged to the consolidated statement of profit or loss and comprehensive income on a straight-line basis over the vesting period of the award. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.

The group has two schemes in existence, being the 2014/2015 pre-IPO plan, and the Company LTIP plan, under which LTIPs were granted in October 2018 and November 2019.

£'000s	2019	2018
Employee share schemes - value of services	636	268
Expense in relation to fair value of social security liability on employee share schemes	88	37
Total cost of employee share schemes	724	305

	Year of grant	Vesting date	2019 Number of shares	2018 Number of shares
Company LTIP plan	2019	1 November 2022	1,205,036	-

Company LTIP plan	2018	1 June 2021	1,474,225	1,733,375

2014/2015 pre-IPO plan	2014/2015	4 annual tranches from 1 June 2018	3,803,689	11,627,878

Number of shares	2019 LTIP awards	2018 LTIP awards		2014/2015 pre-IPO plan
	2019	2019	2018	2019	2018
Issued and outstanding at the beginning of the year	-	1,733,375	-	11,627,878	16,744,191
Granted during the year	1,205,036	-	1,745,250	-	-
Vested during the year	-	-	-	(4,206,093)	(4,867,716)
Forfeited during the year	-	(259,150)	(11,875)	(3,618,096)	(248,597)
Issued and outstanding at the end of the year	1,205,036	1,474,225	1,733,375	3,803,689	11,627,878

2019 LTIP awards - Conditional awards over ordinary shares in Alfa were granted, on 1 November 2019, to selected employees in accordance with the Company's Long-Term Incentive Plan approved by shareholders at the Annual General Meeting on 24 April 2018. Shares in the Company will be transferred to participants at the end of the three-year service period if they continue to be employed by the Group throughout the period.

Calculation of the fair value of the 2019 LTIP awards- The 2019 LTIP awards have been valued using the grant date share price as a proxy for fair value, adjusted for any dividends over the period. There are no market or non-market performance conditions attached to the LTIP scheme, other than awardees must be employed by the Group at the time of vesting, and as such no performance conditions are included in the fair value calculations. The grant date share price used, which was £0.834, was calculated as the average market price in the five working days before the grant of these conditional awards. Assumptions used in calculating the fair value include: no dividends are expected to be paid on the shares over the three-year vesting period; and the expected attrition rate of those eligible employees over the remainder of the vesting period is estimated to be 16.32%.

2018 LTIP awards - Conditional awards over ordinary shares in Alfa were granted on 31 May 2018 to selected employees in accordance with the Company's Long-Term Incentive Plan approved by shareholders at the Annual General Meeting on 24 April 2018. Shares in the Company will be transferred to participants at the end of the three-year service period if they continue to be employed by the Group throughout the period.

Calculation of the fair value of the 2018 LTIP awards - The 2018 LTIP awards have been valued using the grant date share price as a proxy for fair value, adjusted for any dividends over the period. There are no market or non-market performance conditions attached to the LTIP scheme, other than awardees must be employed by the Group at the time of vesting, and as such no performance conditions are included in the fair value calculations. The market price of the shares at the award date, which was £1.43, is the weighted average fair value of these conditional awards at the measurement date. Assumptions used in calculating the fair value include: no dividends are expected to be paid on the shares over the three-year vesting period; and the expected attrition rate of those eligible employees over the vesting period is estimated to be 15.38%.

2014/2015 pre-IPO plan - The Group granted 91,020 Ordinary A shares and 75,689 Ordinary A1 shares to employees in 2014 and 2015, which were subsequently re-measured to fair value when a listing event became probable in the fourth quarter of 2016. The share-based compensation charge in relation to these grants was recognised in full in the year ended 31 December 2017.

7. Finance income and expense

Finance income is recognised on short term bank deposits as earned.

Finance expense is recognised on lease liabilities see note 19 for detail.

£'000s	Note		2019	2018
Finance income Interest income on cash or short-term bank deposits			143	74


£'000s		Note	2019	2018
Finance expense
Interest on lease liabilities	19(d)		(852)	-

8. Income tax expense

Taxation expense for the year comprises current and deferred tax recognised in the reporting period. Tax is recognised in profit and loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. Current or deferred taxation assets and liabilities are not discounted.

i) Current tax - The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where the Group and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

ii) Deferred tax - Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Group's consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Analysis of charge for the year £'000s	2019	2018
Current tax
Current tax on profit for the year	2,159	3,800
Adjustment in respect of prior years	(23)	(73)
Foreign tax on profit of subsidiaries for the current year	851	605
Current tax	2,987	4,332
Deferred tax
Origination and reversal of temporary differences	(189)	(29)
Adjustment in respect of prior years	-	3
Effect of changes in tax rates	20	-
Deferred tax	(169)	(26)

Total tax charge in the year	2,818	4,306

The effective tax rate for the year is higher (2018: higher) than the standard rate of corporation tax in the UK. The effective tax rate for the year ended 31 December 2019 was 21.7% (2018: 19.1 %). The differences are explained below:

Analysis of charge for the year £'000s	2019	2018
Profit on ordinary activities before taxation	13,000	22,456
Profit on ordinary activities at the standard rate of corporation tax Tax effects of:	2,470	4,267
Effect of different tax rates of subsidiaries operating in other jurisdictions	274	84
Expenses not deductible for tax purposes	260	51
Income not taxable for tax purposes	(1)	(26)
Share-based payments	(152)	-
Adjustment in respect of prior years	(23)	(70)
Impact of tax rate changes	20	-
Other	(30)	-
Total tax charge for the year	2,818	4,306

9. Financial assets and liabilities

This note provides information about the Group's financial instruments, including:

• An overview of all financial instruments held by the Group;

o Trade receivables (note 9(a));

o Other financial assets at amortised cost (note 9(b));

o Cash and cash equivalents (note 9(c));

o Trade and other payables (note 9(d)); and

o Derivative financial liabilities (note 9(e))

• Specific information about each type of financial instrument;

• Accounting policies; and

• Information about determining the fair value of the instruments, including judgements and estimation uncertainty involved.

The Group holds the following financial assets and liabilities:

£'000s	Notes	2019	2018
Financial assets at amortised cost
Trade receivables	9(a)	4,050	4,651
Other financial assets at amortised cost	9(b)	9,847	11,561
Cash and cash equivalents	9(c)	58,839	44,922
Total financial assets		72,736	61,134
Financial liabilities at amortised cost
Trade and other payables	9(d)	5,884	7,588
Contract liabilities	16	8,641	5,434
Total financial liabilities		14,525	13,022

9.1 Financial assets and liabilities are recognised in the statement of financial position when the Group becomes party to the contractual provision of the instrument.

9.2Financial assets

Recognition and derecognition

Financial assets are derecognised when the contractual rights to the cash flows from the financial

asset expire, or when the financial asset and substantially all the risks and rewards are transferred.

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Classification and initial measurement of financial assets

Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:

• Amortised cost;

• Fair value through profit or loss (FVTPL);

• Fair value through other comprehensive income (FVOCI).

In the periods presented the Group does not have any financial assets categorised as FVTPL or FVOCI.

The classification is determined by both:

• The entity's business model for managing the financial asset;

• The contractual cash flow characteristics of the financial asset.

All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

Subsequent measurement of financial assets

Financial assets at amortised cost

Financial assets are measured at amortised cost if the assets meet the following conditions (and

are not designated as FVTPL):

• They are held within a business model whose objective is to hold the financial assets and collect

its contractual cash flows; and

• The contractual terms of the financial assets give rise to cash flows that are solely payments of

principal and interest on the principal amount outstanding.

After initial recognition, these are measured at amortised cost using the effective interest method.

Discounting is omitted where the effect of discounting is immaterial. The Group's trade and most other receivables (note 9 (a)) and cash and cash equivalents (note 9 (c)) fall into this category of financial instruments.

Financial assets at fair value through profit or loss (FVTPL)

Financial assets that are held within a different business model other than 'hold to collect' or 'hold to collect and sell' are categorised at fair value through profit and loss. Further, irrespective of business model financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVTPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply (see below).

The category also contains equity investments. The Group accounts for investments at FVTPL and did not make the irrevocable election to account for investments in subsidiaries and listed equity securities at fair value through other comprehensive income (FVOCI). The fair value was determined in line with the requirements of IFRS 9, which does not allow for measurement at cost.

Assets in this category are measured at fair value with gains or losses recognised in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists.

Financial assets at fair value through other comprehensive income (FVOCI)

The Group accounts for financial assets at FVOCI if the assets meet the following conditions:

• They are held under a business model whose objective it is "hold to collect" the associated cash flows and sell; and

• The contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Any gains or losses recognised in other comprehensive income (OCI) will be recycled upon derecognition of the asset.

Impairment of financial assets

Under IFRS 9 the requirements are to use forward-looking information to recognise expected

credit losses - the 'expected credit loss (ECL) model'. The Group considers a broad range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the

instrument.

In applying this forward-looking approach, a distinction is made between:

· Financial instruments that have not deteriorated significantly in credit quality since initial

recognition or that have low credit risk ('Stage 1');

· Financial instruments that have deteriorated significantly in credit quality since initial recognition

and whose credit risk is not low ('Stage 2'); and

· 'Stage 3' would cover financial assets that have objective evidence of impairment at the reporting date.

'12-month expected credit losses' are recognised for the first category while 'lifetime expected

credit losses' are recognised for the second category.

During the current period result of the above was immaterial and no impairment recognised.

9.3 Financial liabilities - The Group's financial liabilities include trade and other payables.

Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction

costs unless the Group designated a financial liability at fair value through profit or loss.

Subsequently, financial liabilities are measured at amortised cost using the effective interest

method. All interest-related charges and, if applicable, changes in an instrument's fair value that are

reported in profit or loss are included within finance costs or finance income.

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or expired.

9.4 Fair value measurement - The Group measures certain financial instruments at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal market or the most advantageous market must be accessible to or by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the Group's consolidated financial statements are categorised within the fair value hierarchy, as follows:

• Level 1 inputs: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2 inputs: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs: Inputs for the asset or liability that are not based on observable market data.

The Group's policy is to recognise transfers into and out of fair value hierarchy levels at the end of the reporting period when the event or change in circumstances occurred.

9 (a) Trade receivables

9.5 Trade receivables are amounts due from customers for licences sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days of the invoice date and are therefore all classified as current. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. An impairment loss is recognised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. The Group considers information developed internally or obtained from external sources that indicates that a debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collateral held by the Group) as an indication that a financial asset is not recoverable.

The amount of the impairment charge is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The impairment loss is recognised in the consolidated statement of profit or loss and comprehensive income within other expenses and subsequent recoveries are credited to the same account previously used to recognise the impairment charge.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The credit qualities of these receivables are periodically assessed by reference to external credit ratings (if available) or to historical information about their default rates. The Group does not hold any collateral as security.

As the total carrying amount of the current portion of the trade and other receivables is due within the next 12 months after the reporting date, the impact of applying the effective interest method is not significant and, therefore, the carrying amount equals the contractual amount or the fair value initially recognised.

£'000s	2019	2018
Trade receivables	4,050	4,651
Provision for impairment	-	-
Trade receivables - net	4,050	4,651

Ageing of trade receivables

Ageing of net trade receivables £'000s	2019	2018
Less than 30 days	3,641	3,976
Past due 31-90 days	152	643
Past due 91+ days	257	32
Trade receivables - net	4,050	4,651

The Group believes that the unimpaired amounts that are past due are fully recoverable as there are no indicators of future delinquency or potential litigation.

Currency of trade receivables £'000s	2019	2018
GBP	1,319	1,109
USD	2,073	2,993
Other	658	549
Trade receivables - net	4,050	4,651

Trade receivables due from significant customers - Customers with revenue accounting for more than 10% of total revenue have outstanding trade receivables as follows:

£'000s	2019	2018
Customer A	737	2,228
Customer B	353	542
Customer C	-	-
Customer D	-	-

As at issuance of these financial statements, all amounts relating to customers accounting for more than 10% of total revenue had been collected.

Impairment and risk exposure - Information about the impairment of trade receivables and the Group's exposure to market risk (specifically foreign currency risk) and credit risk can be found in note 13(a) and (b).

9 (b) Other receivables held at amortised cost

£'000s	2019	2018
Accrued income	7,214	9,162
Prepayments	1,613	1,452
Other receivables	1,020	947
Total other receivables held at amortised cost	9,847	11,561

9.6 Accrued income represents fees earned but not yet invoiced at the reporting date which has no right of offset with contract liabilities - deferred licence amounts.

Accrued income decreased by £1.9 million. The current year balance represents unbilled work in progress in relation to our ODS customers and £3.5m of certain non-recurring revenue items where there is contractual agreement to invoice in 2020. As at 31 March 2020 68% of the accrued income balance had been invoiced and 66% had been received.

9 (c) Cash and cash equivalents

9.7 Cash and cash equivalents include cash at bank and in hand as well as short-term deposits with original maturities of three months or less.

£'000s	2019	2018
Cash at bank and in hand	58,839	44,922
Cash and cash equivalents	58,839	44,922

Currency of cash and cash equivalents

£'000s	2019	2018
GBP	48,222	20,882
USD	5,730	16,877
SEK	82	206
AUD	2,335	1,813
Euro	2,105	4,751
Other	365	393
Cash and cash equivalents	58,839	44,922

9(d) Current and non-current liabilities

9.8 Trade payables are obligations to pay for goods or services which have been acquired in the ordinary course of business from suppliers. Trade payables are recognised initially at fair value and subsequently measured at amortised costs using the effective interest rate method. As the total carrying amount is due within the next 12 months from the consolidated statement of financial position date, the impact of applying the effective interest method is not significant and, therefore, the carrying amount equals the contractual amount or the fair value initially recognised.

Trade and other payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

9.9 Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. When the effect of the time value is material, provisions are measured at the present value of the expenditures expected to be required to settle the obligation.

£'000s	2019	2018
Trade payables	5,884	7,588
Corporation tax	1,355	2,448
Contract liabilities - software implementation	4,581	1,662
Contract liabilities - deferred maintenance	4,060	3,772
Lease liabilities (note 19(d))	19,002	-
Provisions for other liabilities	667	152
Total current and non-current liabilities	35,549	15,622
Less non-current portion	(17,997)	(152)
Total current liabilities	17,552	15,470

See note 8 for further information on corporation tax liabilities

See note 3 and 16 for further information on contract liabilities

£'000s	Provision for other liabilities
At 1 January 2018	87
Provided in the period	65
At 31 December 2018	152
Provided in the period	515
At 31 December 2019	667

9(e) Derivative financial instruments

9.10 Derivative financial instruments are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at fair value at each reporting date. The method of recognising the gains and losses depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the hedged item. The Group designates derivatives as held for trading. While providing effective economic hedges under the Group's risk management policies, certain derivatives are not designated as hedging instruments according to IFRS 9 'Financial Instruments'. They are classified as held for trading and the changes in the fair value are immediately recognised within 'Revenue'. See note 3 for further information. Related cash-flows are reported as cash flows from investing activities. Derivatives not designated for hedge accounting are classified as a current asset or liability.

The Group has nil foreign currency financial instruments outstanding at 31 December 2019 (2018: nil). The Group has used Level 2 inputs for determining and disclosing the fair value of financial instruments.

10. Non-financial assets and liabilities

This note provides information about the Group's non-financial assets and liabilities, including:

· Specific information about each type of non-financial asset and non-financial liability:

· Property, plant and equipment (note 10(a));

· Goodwill (note 10(b));

· Other intangible assets (note 10(c)); and

· Deferred tax balances (note 10(d)).

· Accounting policies; and

· Information about determining the fair value of the assets and liabilities, including judgements and of estimation uncertainty involved.

10(a) Property, plant and equipment

10.1 Property, plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the item. Depreciation on assets is calculated using the straight-line method to allocate their cost over their estimated useful lives, as follows:

Furniture and fittings:	3 - 10 years
IT equipment:	2 - 5 years
Motor vehicles:	10 years

The assets' residual values and useful lives are reviewed and adjusted if necessary at each reporting date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Repairs and maintenance are charged to the consolidated statement of profit or loss and comprehensive income as incurred. Any gains or losses on disposals are recognised within 'Sales, general and administrative expenses' in the consolidated statement of profit or loss and comprehensive income unless otherwise specified.

10.2 Impairment of finite life non-financial assets - Finite life non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount, which is the higher of an asset's fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.

10 (a) Property, plant and equipment

£'000s	Fixtures and fittings	IT equipment	Motor vehicles	Total
Cost
At 1 January 2018	1,041	2,511	40	3,592
Additions	95	527	-	622
Disposals	(1)	(254)	-	(255)
Foreign exchange	12	75	-	87
At 31 December 2018	1,147	2,859	40	4,046
Depreciation
At 1 January 2018	389	1,709	31	2,129
Charge for the year	121	494	8	623
Disposals	(1)	(252)	-	(253)
Foreign exchange	13	79	-	92
At 31 December 2018	522	2,030	39	2,591
Net book value
At 31 December 2018	625	829	1	1,455
Cost
At 1 January 2019	1,147	2,859	40	4,046
Additions	4	372	-	376
Foreign exchange	67	(54)	-	13
At 31 December 2019	1,218	3,177	40	4,435
Depreciation
At 1 January 2019	522	2,030	39	2,591
Charge for the year	107	565	1	673
Foreign exchange	25	(20)	-	5
At 31 December 2019	654	2,575	40	3,269
Net book value
At 31 December 2019	564	602	-	1,166

Sub-lease rentals

One of the leased properties is sub-leased to tenants under long-term operating leases, with rentals payable quarterly. Minimum lease payments receivable on these sub-leases of property are as follows:

£'000s	2019	2018
Within one year	427	427
Later than one year but not later than 5 years	473	900
Later than 5 years	-	-
Total sub-lease payments receivable	900	1,327

10 (b) Goodwill

10.3 Goodwill arose on the acquisition of subsidiaries in 2012 as part of a group reorganisation and represents the excess of the consideration transferred and the amount of any non-controlling interest in the investment over the fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed.

Goodwill is tested annually for impairment. The carrying amount is allocated to the cash-generating unit ("CGU") that is expected to benefit from investment and which represents the lowest level at which the goodwill is monitored for internal management purposes. The carrying value of the CGU is then compared to the higher of its fair value less costs of disposal and its value in use. Any impairment attributed to the goodwill is recognised immediately as an expense and is not subsequently reversed.

£'000s	2019	2018
Cost
At 1 January	24,737	24,737
At 31 December	24,737	24,737

Impairment of goodwill -The Group tests annually whether goodwill has suffered any impairment on an annual basis in accordance with the accounting policy stated above. There is one CGU, being the Group, as its geographical operations do not have separate or distinct cash inflows. The recoverable amount of goodwill has been determined based on value-in-use calculations using cash flow projections from financial budgets and forecasts for a three-year period using a discount rate of 12%. Cash flows beyond these periods have been extrapolated using a steady 2% average growth rate in both the US and Europe. This growth rate does not exceed the long-term average growth rate for the markets in which the Group operates.

Budgeted cash flow projections are based on the expectation of signing new customers in the Group's sales pipeline as well as ongoing projects or ODS projects with existing customers. Budgeted gross margin is based on historical evidence and the expectations of market development and efficiency leverage. Management believes that any reasonable change in any of the key assumptions on which the recoverable amount is based would not cause the reported carrying amount to exceed the recoverable amount of the CGU. The discount rate used reflects the Group's pre-tax weighted average cost of capital (WACC), as adjusted for region specific risks and other factors as required by IFRS.

10 (c) Other intangible assets

Internally generated research and product development costs only qualify for capitalisation if the Group can demonstrate all of the following:

· The technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete the intangible asset and use or sell it;

· Its ability to use or sell the intangible asset, including how the intangible asset will generate probable future economic benefits;

· The existence of a market or, if it is to be used internally, the usefulness of the intangible asset;

· The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;

· Its ability to measure reliably the expenditure attributable to the intangible asset during development.

Generally, commercial viability of new products, modules or capabilities is not proven until all high-risk development issues have been resolved through testing of the specific development. Development expenditure incurred on minor or major upgrades, or other changes in software functionality, does not satisfy the criteria, where it is considered that the product is not substantially new in its design or functional characteristics. Such expenditure is therefore recognised as an expense. See note 10(c) for disclosure of development costs which have met the criteria of IAS 38.

The Group continues to assess the eligibility of development costs for capitalisation on a project-by-project basis.

The Group amortises intangible assets with a limited useful life, using the straight-line method over the

following periods:

Computer software: licence period or 10 years as applicable

Internally generated software: 3 - 5 years

10 (c) Other intangible assets

£'000s	Computer software	Internally generated software		Total
Cost
At 1 January 2018	-	-	-
Additions	1,049	407	1,456
At 31 December 2018	1,049	407	1,456
Depreciation
At 1 January 2018	-	-	-
Charge for the year	253	-	253
At 31 December 2018	253	-	253
Net book value
At 31 December 2018	796	407	1,203
Cost
At 1 January 2019	1,049	407	1,456
Additions	345	1,135	1,480
At 31 December 2019	1,394	1,542	2,936
Depreciation
At 1 January 2019	253	-	253
Charge for the period	275	153	428
At 31 December 2019	528	153	681
Net book value
At 31 December 2019	866	1,389	2,255

Significant movement in other intangible assets - During 2019, Alfa developed new internally generated software at a cost of £1.1 million. This software will be amortised over 3 to 5 years.

Critical judgements in applying the Group's accounting policies

Internally generated software development - Assessing whether a project meets criteria of IAS 38 - The Group is required to make an assessment of each ongoing project in order to determine at what stage a project meets the criteria outlined in the Group's accounting policies. Such assessment may, in certain circumstances, require significant judgement. In making this judgement, the Group evaluates, amongst other factors, the stage at which technical feasibility has been achieved, management's intention to complete and use or sell the product, the likelihood of success, the availability of technical and financial resources to complete the development phase and management's ability to measure reliably the expenditure attributable to the project. Research and product development expenditure incurred on minor or major upgrades, or other changes in software functionality, does not satisfy the criteria where it is considered that the product is not substantially new in its design or functional characteristics. Such expenditure is therefore recognised as an expense.

The total research and product development expense for the period was £15.2 million (2018: £16.3 million) and there was £1.07 million capitalised personnel costs in the year (2018: £0.2m) and £0.1 million of capitalised external agency costs (2018: £0.2m).

10 (d) Deferred income tax

The provision for deferred tax consists of the following deferred tax assets/(liabilities) relating to accelerated capital allowances and short-term timing differences in relation to unpaid pensions accruals and share-based payments.

£'000s	2019	2018
Balance as at 1 January	8	(17)
Adjustments in respect of prior period	419	(1)
Deferred income taxes recognised in the consolidated statement of profit or loss and comprehensive income	169	26
Balance as at 31 December	596	8
Consisting of:
Depreciation in excess of capital allowances	359	(22)
Other timing differences	237	30
Balance as at 31 December	596	8

Deferred income tax liabilities have not been recognised for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries as the Group is able to control the timing of these temporary differences and it is probable that they will not reverse in the foreseeable future. Unremitted earnings totalled £8.9 million at 31 December 2019 (2018: £7.6 million).

11. Equity

11 (a) Ordinary shares

Ordinary shares are classified as equity. There are no restrictions on the distribution of capital and the repayment of capital.

Issued and fully paid	2019		2018
	Shares	£'000s	Shares	£'000s

Ordinary shares - 0.1 pence	300,000,000	300	300,000,000	300
Balance as at 31 December	300,000,000	300	300,000,000	300

No additional shares have been issued or cancelled in the year ended 31 December 2019.

11 (b) Other reserves

Cumulative translation reserve
£'000s	2019	2018
At 1 January 2019	376	0
Currency translation of subsidiaries	(350)	376
At 31 December 2019	26	376

Exchange differences arising on translation of the foreign controlled entity are recognised in OCI and accumulated in a separate reserve within equity. The cumulative amount would be reclassified to profit or loss if the net investment is disposed of.

12. Critical judgements and estimates

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the group's accounting policies.

This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Detailed information about each of these estimates and judgements is included in other notes, together with information about the basis of calculation for each affected line item in the financial statements

The Group's areas involving significant judgements or estimates are as follows:

· Critical judgement - Revenue recognition - Assessing performance obligations (note 3)

· Key sources of estimation uncertainty - Revenue recognition - Assigning the transaction value to performance obligations (note 3)

· Other sources of estimation uncertainty - Revenue recognition - Percentage of completion estimate (note 3)

· Critical judgement - Internally generated software development - Assessing whether the project meets the criteria of IAS 38 (note 10(c))

13. Financial risk management

This note explains the Group's exposure to financial risks and how these risks could affect the Group's future financial performance. Current year profit and loss information has been included where relevant to add further context.

Area	Exposure arising from	Measurement	Management
Market risk - foreign exchange	Contracted revenue and costs denominated in a currency other than the entity's functional currency; and monetary assets and liabilities denominated in a currency other than the entity's functional currency.	Cash flow forecasting	Natural hedging from localised cost base
Credit risk - cash balances	Cash and cash equivalents	Credit ratings	Diversification of bank deposits
Credit risk - customer receivables	Trade receivables and contract assets	Ageing analysis Credit ratings	Diversification of credit limits and letters of credit
Liquidity	Cash and cash equivalents	Cash flow forecasting	Collection of up-front licence fees, ageing analysis of customer receivables

The Group's overall risk management policy focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The Group has used financial instruments to hedge certain risk exposures in the past. Risk management is carried out by the finance function under policies approved by the Chief Financial Officer. The finance function identifies, evaluates and mitigates financial risks when deemed necessary.

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, so that they can provide returns for shareholders and benefits for other stakeholders and maintain an optimal capital structure.

13 (a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currencies, primarily with respect to those described below. Revenue is predominantly denominated in pounds sterling and US dollars. Operating costs are influenced by the currencies of the countries where the Group's subsidiaries are based and pounds sterling and the US dollar are the currencies in which most operating costs are denominated.

The split by currency in relation to trade receivables is set out in note 9(a).

The Group's exposure to foreign currency risk in relation to revenue is set out in note 3.

During the current period the Group has not entered into or utilised any form of hedging against foreign currency exposure. All instruments were settled as of 31 December 2018. The notional principal amounts of the outstanding commercial foreign exchange contracts at 31 December 2019 was nil (2018: nil).

A 10% movement in the USD GBP exchange rate in the year ended 31 December 2019 would impact revenue and operating profit (excluding share-based payments) by 5% and (14%) respectively.

13 (b) Credit risk

(i) Credit risk related to transactions with financial institutions

Credit risk with financial institutions is managed by the Group's finance function in accordance with a Board approved policy. Management is not aware of any significant risks associated with financial institutions as a result of cash and cash equivalents deposits (including short-term investments) and financial derivative transactions.

(ii) Credit risks related to customer trade receivables

Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, change of strategy and default or delinquency in payments are considered indicators that a trade receivable could be impaired. Given the complexity, the size and the length of certain software implementation of service-related projects, a delay in the settlement of an open trade receivable does not constitute objective evidence that the trade receivable is impaired.

The Group has a relatively diverse customer base geographically and by industry. The responsibility for customer credit risk management rests with management of the Group. Payment terms are set in accordance with practices in the different geographies and end-markets served, typically being 30 days from the date of the invoice. Trade receivables are actively monitored and managed. Collection risk is mitigated through the use of upfront payments of licences and maintenance. Historically, there has been a de minimis level of customer default as a result of the long history of dealing with the Group's customer base and an active credit monitoring function. Where applicable, credit limits may be established based on internal or external rating criteria, which take into account such factors as the financial condition of the customers, their credit history and the risk associated with their industry segment.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts, other than where the Group has collected upfront payments in the form of licence fees at the start of a software implementation contract. The Group has therefore concluded that the expected loss rates for trade receivables are less than the loss rates for the contract assets.

The expected loss rates of trade receivables are based on the payment profiles of customer invoices over a period of 36 months before 31 December 2019 or 31 December 2018 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates would then be adjusted to reflect current or forward looking information in relation to any macroeconomic factors affecting the ability of the customers to settle the receivables.

The Group has not identified any current factors or forward looking information which would be relevant to the historical loss rates as all trade receivables have been collected in the past 24 months. Therefore on this basis, the loss allowance as at 31 December 2019 and 31 December 2018 was nil, for both trade receivables and contract assets.

See note 9(a) - Trade and other receivables for the ageing of trade receivables and significant customer credit risk exposure.

13 (c) Liquidity risk

The Group's principal objective when managing capital is to safeguard the Group's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders.

The capital structure of the Group consists of cash and cash equivalents (note 9(c)) and equity attributable to equity holders of the parent.

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Group manages its exposure to liquidity risk through short and long-term forecasts and by seeking to align the maturity profiles of its financial assets with its financial liabilities. The Group's policy is to maintain an adequate level of liquidity to meet its liabilities expected to be settled in the short or near term, under both normal and stressed conditions.

The following table details the remaining contractual maturity of the Group's derivative and non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

	31 December 2019
£'000s	Less than 6 months	Between 6-12 months	Between 1-2 years	Between 2-5 years	More than 5 years
Trade and other payables	5,884	-	-	-	-
Provisions	-	-	400	125	142
	31 December 2018
£'000s	Less than 6 months	Between 6-12 months	Between 1-2 years	Between 2-5 years	More than 5 years
Trade and other payables	7,588	-	-	-	-
Provisions	-	-	-	-	152

14. Unrecognised items

14 (a) Contingencies and commitments

The Group has no capital commitments, no material contingent liabilities and no contingent assets.

14 (b) Non-cancellable operating leases

In the current year, Alfa has updated its accounting policies as a result of adopting IFRS 16 "Leases". This new standard supersedes IAS 17 'Leases'. The Group has applied IFRS 16 'Leases' from 1 January 2019 and, in accordance with the transition provisions in the standard, has recognised the cumulative effect of initially applying the new standard at that date. The comparatives for the prior twelve-month period have not been restated, under the specific transitional provisions in the standard, and are presented under IAS 17. The amounts disclosed in this note below relate specifically only to the comparatives. Refer to note 19 to see the impact of the adoption of IFRS 16 from 1 January 2019.

Under IAS 17, where a significant portion of the risks and rewards of ownership are retained by the lessor, leases are classified as operating leases. Various buildings, machinery and equipment from third parties are leased under operating lease agreements. Under such operating lease agreements, the total lease payments are recognised as rent expense on a straight-line basis over the term of the lease agreement, and are included in "Sales, general and administrative expenses," reflecting the nature of the leased assets. Lease incentives received to enter into an operating lease are credited to the consolidated statement of profit or loss and comprehensive income, to reduce the lease expense, on a straight-line basis, over the period of the lease. The Group's property lease in respect of its London headquarters has a lease term of ten years, with a five year extension.

Operating lease commitments relate to property and motor vehicle leases. Operating lease payments in the year amounted to £2.3 million in 2018. Future operating lease payments, in respect of non-cancellable leases, are set out below at the applicable dates:

£'000s	2018
Within one year	2,465
Later than one year but not later than 5 years	9,306
Later than 5 years	7,856

14 (c) Events occurring after the reporting period

The Directors note that the outbreak of Coronavirus (Covid-19) during early 2020 may have a significant impact on the Group and the environment in which it operates. This is discussed in more detail within the Strategic report and Directors' report. However these events are considered to be non-adjusting events after the reporting date, and accordingly no adjustments have been made to the financial performance and position of the Group as of the reporting date. The events have been considered within the assessment of going concern and viability, as set out in Note 1(a) and in the Directors' report.

There have been no other reportable subsequent events.

15. Related parties

15 (a) Controlling shareholder

The ultimate parent undertaking is CHP Software and Consulting Limited (the "Parent"), which is the parent undertaking of the smallest and largest group in relation to these consolidated financial statements. The ultimate controlling party is Andrew Page.

15 (b) Subsidiaries

Subsidiaries - Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.

Unless otherwise stated, subsidiaries have share capital consisting solely of ordinary shares, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also each subsidiary's principal place of business.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation. All subsidiaries have a 31 December year end and all trading subsidiaries act as sales offices for the Company's principal activity. The below percentages held by Company and Group refer to ordinary shares held.

			Held by Company	Held by Group	Held by Company	Held by Group
	Registered address and country of incorporation	Principal activity	2019	2019	2018	2018
Alfa Financial Software Group Limited	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Holding company	100%	100%	100%	100%
Alfa Financial Software Limited	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Software and services	-	100%	-	100%
Alfa Financial Software Inc	350N Old Woodward Avenue, Birmingham, MI 48009, USA	Software and services	-	100%	-	100%
Alfa Financial Software Australia Pty Limited	Level 57 MLC Centre, 19-29 Martin Place, Sydney, NSW 2000, Australia	Software and services	-	100%	-	100%
Alfa Financial Software NZ Limited	Level 1 Building B, 600 Great South Road, Greenlane, Auckland 1051,NZ	Software and services	-	100%	-	100%
Alfa Financial Software GmbH	Bockenkheimer Landstraße 20, 60323 Frankfurt am Main, Germany	Software and services	-	100%	-	100%

Alfa Financial Software GmbH was established in 2017 and has started trading in 2019.

15 (c) Transactions with related parties

There was no trading between the Group and the Parent.

The balances outstanding from the Parent at 31 December 2019 and 2018 were nil and nil respectively.

During the period, the Group made arms-length transactions with Classic Technology Limited, a company in which the founder holds an interest. These transactions amounted to £0.04 million (2018: £0.04 million) in relation to fees paid for rental of property. There were no outstanding receivables balances at the end of the reporting period.

15 (d) Key management

Key management compensation (including Directors) £'000s	2019	2018
Wages, salaries and short-term benefits	2,428	1,651
Social security	223	229
Post-employment benefits	61	63
Share-based payments	19	-
Total key management compensation	2,731	1,943

15 (e) Directors

Aggregate Director compensation £'000s	2019	2018
Aggregate emoluments	1,305	1,366
Post-employment benefits	32	22
Total aggregate director compensation	1,337	1,388

For further details on Directors' remuneration, see the Report on Directors' Remuneration in the Governance section of the Annual Report. Key management includes Directors and members of the Company Leadership Team.

16. Offsetting assets and liabilities

Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position where Alfa currently has a legally enforceable right to offset the recognised amounts, and there is an intention to realise the asset and settle the liability simultaneously.

The following table presents the recognised financial instruments that are offset as at 31 December 2019 and 31 December 2018.

2019 £000's	Gross amounts	Gross amounts offset in the consolidated statement of financial position	Net amounts presented in the consolidated statement of financial position
Financial assets
Accrued income	15,763	(8,549)	7,214

Financial liabilities
Contract liabilities - software implementation	(13,130)	8,549	(4,581)

2018 £000's	Gross amounts	Gross amounts offset in the consolidated statement of financial position	Net amounts presented in the consolidated statement of financial position
Financial assets
Accrued income	12,301	(3,139)	9,162

Financial liabilities
Contract liabilities - software implementation	(4,801)	3,139	(1,662)

17. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of Alfa by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share, for the periods presented, the ordinary shares which are held in an employee trust on behalf of employees are treated as having a potentially dilutive effect as these shares have service conditions attaching to them. Should the service conditions not be met, the shares will be forfeited. The shares have no right to voting or to dividends while held in trust.

	2019	2018
Profit attributable to equity holders of Alfa (£'000s)	10,182	18,150
Weighted average number of shares outstanding during the year	290,554,694	285,962,898
Basic earnings per share (pence per share)	3.5	6.3
Weighted average number of shares outstanding including potentially dilutive shares	298,812,270	300,000,000
Diluted earnings per share (pence per share)	3.4	6.1

18. Auditor's remuneration

The Group obtained the following services from the Group's auditor as detailed below:

£'000s	2019	2018
Audit of the consolidated financial statements	165	117
Audit fees relating to prior year	48	-
Audit of subsidiaries	150	108
Total audit fees	363	225
Audit-related assurance fees	135	77
Total assurance fees	498	302
Non-audit services	-	-
Total audit and non-audit related services	498	302

19. IFRS 16

This note explains the impact of the adoption of IFRS 16 Leases on the Group's financial statements and discloses the new accounting policies that have been applied, from 1 January 2019.

In the current year, Alfa has updated its accounting policies as a result of adopting IFRS 16 "Leases". This new standard supersedes IAS 17 'Leases', IFRIC 4 'Determining whether an Arrangement contains a Lease', SIC-15 'Operating Leases-Incentives' and SIC-27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease'.

The Group has applied IFRS 16 'Leases' from 1 January 2019 and, in accordance with the transition provisions in the standard, has recognised the cumulative effect of initially applying the new standard at that date. Comparatives for the prior twelve-month period have not been restated, under the specific transitional provisions in the standard. Alfa has also elected not to apply IFRS 16 to contracts that were not identified as containing a lease under IAS 17 and IFRIC 4, 'Determining whether an Arrangement contains a Lease'.

IFRS 16 introduces new or amended requirements with respect to lease accounting, along with significant changes to lessee accounting by removing the distinction between operating and finance leases. The standard requires the recognition of a right‑of‑use asset and a lease liability at commencement for all leases, except for short‑term leases and leases of low value assets. The Group does have various lease contracts relating to property and motor vehicles, where it acts as the lessee.

Details of Alfa's accounting policies under IFRS 16 are set out below, followed by a description of the financial impact of adopting IFRS 16.

19 (a) The Group's leasing activities and how these are accounted for

Alfa enters into lease contracts in respect of various properties and motor vehicles. These rental contracts are typically made for fixed periods of two to 10 years, and sometimes have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In accordance with IFRS 16, leases are recognised as right-of-use assets with corresponding liabilities, at the date at which the leased asset is available for use by Alfa. These assets and liabilities are initially measured on a present value basis (as set out in more detail below), with each subsequent lease payment allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use assets are depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Alfa assesses whether a contract is, or contains a lease, at inception of the contract,or at the point of transition to IFRS 16 if this was later than the commencement date of the lease. The Group recognises right‑of‑use assets and corresponding lease liabilities, with respect to all lease arrangements in which it is the lessee, except for short‑term leases (defined as leases with a lease term of 12 months, or fewer) and leases of low-value assets. For these leases, the Group recognises the lease payments as an expense on a straight‑line basis over the term of the lease, unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

The lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liabilities comprise:

• Fixed lease payments (including in substance fixed payments), less any lease incentives;

• Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

• The amount expected to be payable by the lessee under residual value guarantees;

• The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and

• Penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The lease liabilities are presented as a separate line in the consolidated statement of financial position. It is subsequently measured by increasing the carrying amount to reflect interest on the lease liabilities (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group re-measures the lease liabilities (and makes a corresponding adjustment to the related right‑of‑use assets) whenever:

• The lease term has changed, or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate.

• The lease payments change due to changes in an index, or rate, or a change in expected payment under a guaranteed residual value. In these cases, the lease liabilities are re-measured by discounting the revised lease payments, using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).

• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liabilities are re-measured by discounting the revised lease payments using a revised discount rate.

During the period, one of the Group's property leases was subject to a market review of the lease payment. As a result, the right-of-use assets and corresponding lease liabilities were re-measured and increased by £0.01 million to reflect the present value of the additional lease payments to be paid over the remaining lease term.

The right‑of‑use assets comprise:

· The initial measurement of the corresponding lease liabilities;

· Lease payments made at, or before, the commencement day;

· Any initial direct costs; and

· Restoration cost.

The right‑of‑use assets are presented as a separate line in the consolidated statement of financial position.

The right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses (if applicable). They are depreciated from the commencement date of the lease and over the shorter period of the lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset, or the cost of the right‑of‑use asset reflects an expectation that the Group will exercise a purchase option, the related right‑of‑use asset is depreciated over the useful life of the underlying asset. Currently, the Group does not have any leases that include a purchase option, or transfer ownership of the underlying asset.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located, or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37.

Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee. During the current financial period, there have been no changes in such assessments.

Variable rents that do not depend on an index, or rate, are not included in the measurement of the lease liabilities and the right‑of‑use assets. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included as an expense in the consolidated statement of profit or loss and comprehensive income.

19 (b) Approach to transition

The Group has applied IFRS 16 using the modified retrospective approach, without restating the comparative information. In respect of those leases that the Group previously treated as operating leases, the Group has:

· Recognised the lease liabilities as the present value of the remaining lease payments, discounted using the borrowing rate at the date of initial application; and

· Elected to measure its right-of-use assets using the approach set out in IFRS 16.C8(b)(i) to calculate the carrying value as if the Standard had applied at the lease commencement date, but discounted using the borrowing rate at the date of initial application.

The Group's weighted average incremental borrowing rate applied to lease liabilities as at 1 January 2019 is 4.43%.

The Group does not recognise leases under 12 months or leases of low-value assets on the consolidated statement of financial position.

19 (c) Practical expedients adopted on transition

The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is, or contains, a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered into, or modified, before 1 January 2019.

As part of the Group's adoption of IFRS 16 and application of the modified retrospective approach to transition, the Group also elected to use the following practical expedients:

· The use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

· Accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases;

· The exclusion of initial direct costs for the measurement of the right-of-use assets at the date of initial application; and

· The use of hindsight in determining the lease term, where the contract contains options to extend, or terminate, the lease.

19 (d) Financial impact of applying IFRS 16

IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off‑balance sheet. The main changes are detailed below:

· All leases (except as noted above) are now recognised as right‑of‑use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments as described above;

· Extension options (or periods after termination options) are included in the lease term if the lease is reasonably certain to be extended (or not terminated).

· Lease incentives (e.g. rent-free periods) are recognised as part of the measurement of the right‑of‑use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expenses on a straight-line basis;

· Right‑of‑use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application;

· The Group recognises depreciation of right‑of‑use assets and interest on lease liabilities in the consolidated statement of profit or loss and comprehensive income, whereas, under IAS 17, operating leases previously gave rise to a straight‑line expense included in operating expenses; and

· The Group separates the total amount of cash paid for leases that are on the consolidated statement of financial position into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated cash flow statement. Under IAS 17, operating lease payments were presented as operating cash outflows.

In addition, IFRS 16 requires changes with respect to the accounting for assets formerly held under a finance lease. The main difference between IFRS 16 and IAS 17 is the measurement of the residual value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Group recognises as part of its lease liabilities only the amount expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by IAS 17. This change did not have a material effect on the Group's consolidated financial statements at 31 December 2019, because the Group did not have any assets formerly held under finance leases at the date of transition.

The following table sets out the impact on the statement of financial position at 1 January 2019:

£'000	31 December 2018	Impact of IFRS 16	Adjusted 1 January 2019
Non-current assets
Property plant and equipment	1,455	-	1,455
Right-of-use assets	-	17,990	17,990
Other non-current assets	25,948	-	25,948
Total non-current assets	27,403	17,990	45,393

Current assets
Total current assets	61,134	70	61,204
Total assets	88,537	18,060	106,597
Current liabilities
Lease liabilities	-	1,478	1,478
Other current liabilities	15,470	(961)	14,509
Total current liabilities	15,470	517	15,987
Non-current liabilities
Lease liabilities	-	19,002	19,002
Other non-current liabilities	152	-	152
Total non-current liabilities	152	19,002	19,154
Total liabilities	15,622	19,519	35,141

Shareholders' equity	72,915	(1,459)	71,456
Total liabilities and equity	88,537	18,060	106,597

Of the total right‑of‑use assets of £18.0 million recognised at 1 January 2019, £17.9 million related to leases of property and £0.1 million to leases of motor vehicles.

At the date of transition, Alfa had no finance leases recognised. The table below presents a reconciliation from operating lease commitments disclosed at 31 December 2018 to lease liabilities recognised at 1 January 2019.

£'000s
Operating lease commitments disclosed under IAS 17 at 31 December 2018	19,627
Short‑term and low-value lease commitments straight‑line expensed under IFRS 16	(41)
Payments due in periods covered by extension options that are included in the lease term	6,652
Operating lease commitments recognised on adoption of IFRS 16	26,238

Discounted using the incremental borrowing rate at 1 January 2019	20,480
Finance lease liabilities recognised under IAS 17 at 31 December 2018	-
Lease liabilities recognised at 1 January 2019	20,480

The following table sets out the reconciliation of the lease liabilities from the 1 January 2019 to the amount disclosed at 31 December 2019:

£'000s	2019
Lease liabilities recognised at 1 January 2019	20,480
Additions	132
Disposals	-
Interest charge	852
Payments made on lease liabilities	(2,462)
At 31 December 2019	19,002

The following table sets out the reconciliation of the right-of-use assets from the 1 January 2019 to the amount disclosed at 31 December 2019:

£'000s	Motor vehicles	Property	Total
Cost
Adjusted opening balance at 1 January 2019:	92	17,898	17,990
Additions	128	4	132
Foreign exchange	(8)	3	(5)
At 31 December 2019	212	17,905	18,117
Depreciation
At 1 January 2019	-	-	-
Charge for the year	(67)	(1,648)	(1,715)
At 31 December 2019	(67)	(1,648)	(1,715)
Net book value	145	16,257	16,402

In terms of the consolidated statement of profit or loss and comprehensive income impact, the application of IFRS 16 resulted in a decrease in rental expenses and an increase in depreciation and interest expense compared to IAS 17. The Group recognised the following amounts in the consolidated statement of profit or loss and comprehensive income in relation to leases under IFRS 16:

£'000	2019
Depreciation	(1,715)
Interest expense	(852)
Short‑term lease expense	(47)
Low‑value lease expense	-

If IFRS 16 had been applied from 1 January 2018, it would have increased operating profit by £0.4 million and decreased profit before taxation by £0.5 million for the year ended 31 December 2018. Operating cash flows would have been higher by £1.4 million for the full year ended 31 December 2018, because cash payments for the principal portion of the lease liabilities are classified within financing activities. Only the interest part of repayments is presented within operating cash flows under IFRS 16.

Below is the maturity analysis of the lease liabilities as per requirement of paragraphs 39 and B11 of IFRS 7:

£'000s	2019
Non-current	17,330
Current	1,672
Total lease liabilities	19,002

No later than one year	2,456
Between 1 year and 5 years	11,504
Later than 5 years	9,409
Total future lease payments	23,369
Total future interest payments	(4,367)
Total lease liabilities	19,002

The Group does not face a significant liquidity risk with regard to its lease liabilities.

INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF ALFA FINANCIAL SOFTWARE HOLDINGS PLC ON THE PRELIMINARY ANNOUNCEMENT OF ALFA FINANCIAL SOFTWARE HOLDINGS PLC

As the independent auditor of Alfa Financial Software Holdings PLC we are required by UK Listing Rule LR 9.7A.1(2)R to agree to the publication of Alfa Financial Software Holdings PLC's preliminary announcement statement of annual results for the period ended 31 December 2019.

The preliminary statement of annual results for the period ended 31 December 2019 includes disclosures required by the Listing Rules and any additional content such as highlights, the Chief Executive's review, financial review, narrative disclosures, management commentary and press release. We are not required to agree to the publication of presentations to analysts, trading statement, interim management statement or half-yearly financial report.

The directors of Alfa Financial Software Holdings PLC are responsible for the preparation, presentation and publication of the preliminary statement of annual results in accordance with the UK Listing Rules.

We are responsible for agreeing to the publication of the preliminary statement of annual results, having regard to the Financial Reporting Council's Bulletin "The Auditor's Association with Preliminary Announcements made in accordance with UK Listing Rules".

Status of our audit of the financial statements

Our audit of the annual financial statements of Alfa Financial Software Holdings PLC is complete and we signed our auditor's report on 23 April 2020. Our auditor's report is not modified and contains no emphasis of matter paragraph.

Our audit report on the full financial statements sets out the following key audit matters which had the greatest effect on our overall audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those key audit matters and the key observations arising from our work:

REVENUE RECOGNITION

Total group revenue recognised for the year ended 31 December 2019 was £64.5 million (2018: £71.0 million).

We have focused our work on the potential inappropriate recognition of revenue where there is:

i) risk of incorrect identification of the different performance obligations;

ii) risk that the transaction price is incorrectly allocated to the different performance obligations; and

iii) recognition of out of period items, contract modifications and the timing of right to use licence revenues.

Given the level of judgement involved in the identification of distinct performance obligations, we identified this as a potential fraud risk area. There are also judgements in respect of the timing of recognition of contract modifications or other out of period items.

We consider the key estimates to be in respect of the standalone selling price of a customised licence in the material right calculations and the allocation of time spent between development and implementation days.

Further details are included in the revenue note 3.1 and critical accounting estimates and judgements note 3.2 to the consolidated financial statements and the Audit and Risk Committee Report.

How the scope of our audit responded to the key audit matter

In response to this key audit matter, we performed the following procedures:

· Obtained an understanding of controls regarding revenue recognition;

· Reviewed trends in monthly revenue recognised by customer to identify any large deviations from expectations;

· Performed a customer circularisation during the year and at the year end to obtain confirmation over completeness of the contracts in place and the completeness of any side agreements;

· Reviewed a sample of new and key ongoing contracts to determine whether revenue has been appropriately recognised in terms of allocating transaction price to different performance obligations;

· Held discussions with the project managers to check for completeness of contracts and other contractual arrangements outside the usual terms and/or any contract modifications;

· Reviewed minutes of meetings and Project Finance Review Reports to assess whether the accounting treatment is consistent with the commercial substance of the agreements and assessed revenue contracts for completeness;

· Made enquiries of project managers by challenging their estimates of the projected costs to complete through assessing historical accuracy, including the allocation of effort between development and implementation performance obligations;

· Considered the evidence available for standalone selling prices by reference to day rates offered to post go-live customers for consultancy services;

· Tested a sample of accrued and deferred income amounts for valuation and accuracy respectively; and

· Reviewed the disclosures in the financial statements to evaluate whether: i) changes to revenue policies are clearly described and explained, ii) performance obligations are identified and explained, and iii) critical judgements and key sources of estimation uncertainty are disclosed along with appropriate sensitivity analysis.

Key observations

We identified immaterial uncorrected differences in judgement included within management's allocation of the transaction price to different performance obligations, the allocation of time between implementation and development activity, and on the timing of recognition of items relating to post go-live contract modifications. From the procedures performed, we are satisfied that the amounts recorded and the associated disclosures are appropriate.

CAPITALISATION OF DEVELOPMENT COSTS

The group expends time in research and product development work in relation to the enhancement of its product. In total internally generated software costs of £1.4m (2018: £0.4m) were capitalised during 2019. In accordance with IAS 38: Intangible assets internally generated research and development costs can only qualify for capitalisation if the group can demonstrate all of the recognition criteria are met. The group considers the eligibility of development costs for capitalisation on a project by project basis.

There is a judgement over the point at which work moves from the research phase to the development phase and over whether development costs are creating an asset which is substantially new in functionality or design. There is a risk that development costs are not capitalised for projects that create an enduring enhancement to the software capabilities available for sale to other customers.

Further details are included in the critical accounting estimates and judgements note 10(c) and operating profit note 4.1 to the consolidated financial statements and the Audit and Risk Committee Report.

How the scope of our audit responded to the key audit matter

In response to this key audit matter, we performed the following procedures:

· Obtained an understand of the controls surrounding the classification of development costs and the assessment of these costs against IAS 38;

· Tested Management's assessment of the customisation and costs incurred on client specific costs, against the criteria set out in the accounting standard, to determine whether an asset is generated for future use with other customers and should be capitalised;

· Made enquiries of the development team as to the activities of both the client specific and the non-client specific costs and assessed whether the criteria for capitalisation as per IAS 38 have been met;

· Reviewed minutes of the company's Investment Committee during the year;

· Performed tests of details on the allocation and valuation of costs capitalised by testing both the associated third party and employee salary costs;

· Performed procedures to assess whether the time sheet data inputs included are complete and accurate;

· Performed procedures over the allocation of central Product Engineering team time in order to assess whether the time has been appropriately allocated to customer projects; and

· Reviewed both the numerical and narrative disclosures in the financial statements to assess whether there is a fair and balanced presentation of the development costs incurred which is consistent with the accounting judgements applied.

Key observations

From the procedures performed, whilst we consider management's assessment of those development costs that should be capitalised to be conservative, we are satisfied that the amounts recorded and the associated disclosures are appropriate.

GOING CONCERN - COVID-19

Covid-19 presents considerable uncertainty and may have a significant impact on the group. There has been focus and time spent by both management and the audit team with judgement required to assess the impact on going concern, considering the key assumptions within the group's forecasts, the level of uncertainty inherent in the group's markets and operations, the group's cash reserves of £58.8m at 31 December 2019 (2018: £44.9m) and the nature and extent of any mitigating actions which could be taken by management if required.

Management considered business resilience and continuity plans, financial modelling and stress testing of liquidity and financial resources of the group. The downside scenarios considered non-conversion of sales pipeline, the termination of a significant implementation project and the majority of maintenance customers, and the cessation of all ongoing development and services ("ODS") work from June 2020.

Further details are included in the Strategic Report, the Audit and Risk Committee report and note 1(a) to the financial statements.

How the scope of our audit responded to the key audit matter

In response to this key audit matter, we performed the following procedures:

· Obtained an understanding of management's process for assessing the impact on the group posed by Covid-19;

· Evaluated the assessment in the context of the uncertainty and risks to the business including stress test modelling and the group's liquidity;

· Performed additional stress testing of management's forecasts including reverse-stress testing;

· Considered whether the judgement taken by management that Covid-19 is a non-adjusting subsequent event is appropriate; and

· Assessed the disclosures in the financial statements against applicable accounting standards and evaluated the consistency of the disclosures with our knowledge of the group.

Key observations

From the procedures performed we concur with management, based on the evidence available and the cash reserves held by the group, that it is reasonable to adopt the going concern basis. We consider the disclosures presented in the financial statements to be appropriate.

Procedures performed to agree to the preliminary announcement of annual results

In order to agree to the publication of the preliminary announcement of annual results of Alfa Financial Software Holdings PLC we carried out the following procedures:

(a) checked that the figures in the preliminary announcement covering the full year have been accurately extracted from the audited or draft financial statements and reflect the presentation to be adopted in the audited financial statements;

(b) considered whether the information (including the management commentary) is consistent with other contents of the annual report;

(d) considered whether the preliminary announcement includes a statement by directors as required by section 435 of CA 2006 and whether the preliminary announcement includes the minimum information required by UKLA Listing Rule 9.7A.1;

(e) where the preliminary announcement includes alternative performance measures ("APMs"), considered whether appropriate prominence is given to statutory financial information and whether:

· the use, relevance and reliability of APMs has been explained;

· the APMs used have been clearly defined, and have been given meaningful labels reflecting their content and basis of calculation;

· the APMs have been reconciled to the most directly reconcilable line item, subtotal or total presented in the financial statements of the corresponding period; and

· comparatives have been included, and where the basis of calculation has changed over time this is explained.

(f) read the management commentary, any other narrative disclosures and any interim period figures and considered whether they are fair, balanced and understandable.

Use of our report

Our liability for this report, and for our full audit report on the financial statements is to the company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.

Richard Howe FCA (Senior Statutory Auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, UK

23 April 2020

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties which could have a material impact on the long-term performance of Alfa Financial Software Holdings PLC and its subsidiaries are set out in our 2018 Annual Report available on our website. Two additional risks have been added in 2019 which will be included in our 2019 Annual Report and are as below:

Principal risk and uncertainty

How it impacts us

Brexit and the uncertainty surrounding trading arrangements after the transition period

There is continuing uncertainty surrounding the trade, immigration, legal and regulatory relationships between the UK and the EU, and between the UK and other regions once the transition period ends on 31^st December 2020. It is possible that we will face:

• Difficulty recruiting staff from EU countries, reducing our recruitment market;

• Difficulty in retaining staff who originate from EU countries;

• Difficulties in providing consultancy staff for EU customers;

• Difficulties providing consultancy staff for USA and other countries, if trade agreements are not in place or are in transition periods;

• Enforced changes in trading relationships and regulatory regimes, impacting our commercial relationships, tax and accounting treatments; and

• Economic uncertainty, risk of downturn, and impact on our customers' and prospects' IT budgets.

What are we doing about it?:

The steps being taken to protect against "Risk C - Socio-economic, geo-political risk" are relevant here. In addition, we are taking a variety of Brexit-specific steps:

• We have monitored the Brexit process as it has evolved, and will continue to do so during 2020, to identify actions we need to take.

• We have subsidiary German and French companies, and have an established presence in the EU through business development and continuing implementation and ODS activities.

• We are providing advice and support for our EU staff residing in the UK, including in respect of the process of applying for the right to stay in the UK after 20 June 2021.

Our Alfa partner organisations have an established presence in the EU and the USA, extending our implementation capabilities in these regions.

Pandemic outbreak in Alfa and/or client geographies

• Covid-19 was declared a pandemic by the World Health Organisation on 11 March 2020.

• We treat the health and wellbeing of our staff, their families and other stakeholders as of the utmost importance, and we respond to this risk, accordingly.

• Base- and worst-case scenarios anticipate significant infection levels at the peak of the virus outbreak. This could temporarily reduce the resource capacity of our business and our professional services fee-earning capacity, potentially resulting in deferred or lost revenue.

• Similarly, customers and potential customers may become temporarily resource-constrained, limiting their capacity to manage large-scale IT projects and run sales processes, respectively.

• Travel is being restricted by our own policy, customer policy and government policy, and this will temporarily reduce our ability to operate at some of our geographically diverse customer sites.

• Remote working relies on third party cloud-based services such as video calling and chat software. Such services may experience problems during peak remote working times, impacting the efficiency of our staff.

• We may experience a slowdown in supply for our IT equipment needs.

What are we doing about it?:

• We have an established, and recently reviewed pandemic response plan, as part of our business continuity procedures.

• We have created a Coronavirus Incident Response Team (IRT), which is managing and coordinating our actions. This team is chaired by our Chief People Officer, and contains representatives from across our business units and geographies.

• The IRT monitors the World Health Organisation updates and advice, and takes action on that advice, on a daily basis. The team also monitors and acts upon government advice in our each of our geographies.

• Guidance and advice is being communicated regularly to all of our employees. We also liaise with customer organisations to ensure that we abide by their policies, for example with respect to business travel.

• As part of our pandemic plan, we have instructed our staff to work remotely. Remote working is already an established practice in our organisation, with the majority of our staff, including all of our consultants and engineers, using laptops, remote connections and remote working tools. We tested the capacity and resilience of these tools before instructing staff to work remotely.

• Our essential customer services - Alfa support, Alfa hosting and Technical Operations - are run by globally-distributed teams, using cloud infrastructure, providing resilience against business continuity risks.

• We have been in contact with the providers of our key remote working tools who have confirmed that they have suitable business continuity and capacity planning in place.

• We have ensured that we have ordered sufficient stock of essential IT equipment, particularly laptops, for our staff for the remainder of 2020.

Directors' responsibilities statement

The responsibility statement below has been prepared in connection with the annual report and financial statements for the year ended 31 December 2019. Certain parts thereof are not included within this Preliminary Announcement.

The Directors confirm that to the best of their knowledge:

- the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

- the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

- the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

This responsibility statement was approved by the Board of Directors and is signed on its behalf by:

Andrew Denton

Chief Executive Officer

23 April 2020

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

FR DBGDSLDDDGGD

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