Pre-close trading update & rev disclosure change
6 July 2021
Alfa Financial Software Holdings PLC
Pre-close trading update and change to revenue disclosure
Alfa Financial Software Holdings PLC ("Alfa" or the "Company"), a leading developer of mission-critical software for the asset finance industry provides this update on trading and also announces a change in revenue disclosure in order to provide investors and equity analysts with a clearer picture of the Company's financial performance in line with the evolution of the business model. This new revenue disclosure approach will be used on an ongoing basis from the announcement of the half-year results for the six months ended 30 June, 2021. The half-year results are expected to be announced on Wednesday 22 September 2021.
Trading update
Since the AGM trading update on 10 May 2021, we have continued to see strong revenue performance with good utilisation of our people driving higher revenues, along with growth in maintenance and Cloud Hosting subscription revenues.
At the time of the announcement of our 2020 results on 23 March 2021 we had 10 prospects in our late stage pipeline. In recent days we have signed full contract packs with three prospects:
· One contract is for a new Alfa implementation for a large European automotive OEM;
· One is for a new Alfa wholesale finance implementation for a large US automotive dealer services customer; and
· One is for an upgrade from Alfa Systems v4 to v5 for a UK merchant bank.
We still have all seven of the remaining prospects in our late-stage pipeline. Of these, we are in discussions with four customers for Alfa Systems v4 to v5 upgrades and we are currently working with two new prospects under letters of engagement which has contributed to our continuing revenue growth.
Our revenue expectations for H1 remain unchanged, however the increased contractual cover for the second half as a result of these recent contract wins, along with further statements of work for existing customers, means that our revenue expectations for the second half have increased. We now expect revenues for the full year to be circa 5% higher than our previous expectations, with most of the increase benefiting our operating profit performance. As a consequence we now expect to exceed 2020 underlying revenues (excluding 2020 one-off licence income) despite the negative impact of currency.
Background on revenue disclosure
At the time of the IPO in 2017, Alfa's revenues were dominated by large services based revenues associated with implementation projects, including both upfront perpetual licence payments and professional services revenue relating to development and consulting services supporting implementation projects. At that time and since then the Group's revenue was split into three categories: -
· Software Implementation revenue (principally for new customers);
· Maintenance revenue; and
· Ongoing Development Services revenue ("ODS") (principally for existing customers).
Since the IPO, our sources of revenue have evolved and our customer base has broadened. We see this process continuing into the future and in particular the success of Alfa Start and Cloud Hosting has added new and growing recurring subscription revenue streams which are becoming an increasingly important part of our business. In addition, the increasing trend for customers to start work quickly on projects ahead of signing a full set of contracts has resulted in some implementation project revenue being shown in ODS. More recently we have also seen growth in implementation projects for customers upgrading from Alfa Systems v4 to v5 with these revenues shown exclusively in ODS. These changes in our business and feedback from investors and analysts have made us review how we disclose the breakdown of our revenues.
New revenue disclosure
Having conducted a review we have concluded that for reporting periods starting on or after 1 January 2021 we will split revenues into three categories, Software, Subscription and Services:
· Software - Revenue from selling or developing software for new or existing customers
o Software revenue will follow the Group's customised licence revenue recognised under IFRS 15 (the accounting standard for revenue recognition). It will therefore include the software perpetual licence granted to the customer along with revenue from any development efforts required to customise the software during the implementation period to meet the customer's specific requirements, and any maintenance fees for the period during which the Alfa software is being implemented. It will also include any unwinding of the option over the right to use the Alfa software following completion of the implementation period. In addition, it will include any additional licence payments from existing customers for new modules or additional licence payments triggered by customers exceeding agreed contract numbers. It will also include any development services provided to existing customers. It will not however include the revenues from implementing the software as this will now be included in the Services category.
· Subscription - All revenue charged to clients on a subscription basis
o Subscription revenue is the Group's recurring revenue and includes all revenue charged on a subscription basis, including subscription licence fees, production (i.e. post implementation) maintenance, Alfa Start and Cloud Hosting.
· Services - Revenue for professional services to implement software for clients
o Services revenue will include all other sources of revenue, principally based on charging clients on a day rate basis for professional services. This will include pre-implementation revenues, software implementation revenues at the stand alone selling price, any additional consulting work for customers post go-live (but excluding any work for customers on developing software), and any expenses revenue charged to our customers.
Comparison with previous presentation
The table below shows the revenues for 2020 as they were originally presented, and how they will be presented in the new format.
|
|
|
|
|
|
2020 Revenues as previously presented |
H1 |
H2 |
FY |
|
£k |
|
|
|
|
Software implementation |
16,194 |
11,134 |
27,328 |
|
Maintenance |
8,223 |
10,956 |
19,179 |
|
Ongoing Development Services |
13,757 |
18,606 |
32,363 |
|
Total - originally presented |
38,174 |
40,696 |
78,870 |
|
|
|
|
|
|
2020 Revenues in new presentation format £k |
|
|
|
|
Software |
7,937 |
12,051 |
19,988 |
|
Subscription |
7,752 |
10,384 |
18,136 |
|
Services |
22,485 |
18,261 |
40,746 |
|
Total - in new presentation format |
38,174 |
40,696 |
78,870 |
|
|
|
|
|
Reporting in the new format relies on detailed information from our timesheet system which was implemented in January 2020, and so we are unable to provide historic revenue splits prior to 2020 in the new format.
New revenue disclosure summary
We believe the new format will be easier for investors and research analysts to understand and provide more useful information in tracking our strategic progress, with our Software and Subscription revenues reflecting the strong and growing IP in the business and the Services revenue reflecting the quality of our implementation capability as evidenced by our delivery record.
Andrew Denton, Chief Executive Officer of Alfa, said:
"We have had a good first half to the year both operationally and financially. We have also secured three new contract wins, improving our contractual cover for the second half and enabling us to increase our estimates for the full year.
Today we have also announced a change in the way we disclose our revenues. Analysing our revenue into Software, Subscription and Services will align with our strategy, simplify the way we describe our performance and help investors understand the key components of our business. The new analysis will allow stakeholders to see the increasing predictability of our business through subscription revenues and focus on the opportunity for revenue growth from the extensive and growing IP in our class leading Alfa Systems software."
Enquiries
|
Alfa Financial Software Holdings PLC Andrew Denton, Chief Executive Officer Duncan Magrath, Chief Financial Officer
|
+44 (0)20 7588 1800 |
|
Tulchan Communications LLP James Macey White Matt Low |
+44 (0)20 7353 4200
|
Notes to Editors
Alfa has been delivering software 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 delivery of large software implementations and highly complex business change projects. With an excellent delivery track record spanning three decades, Alfa's experience and performance is unrivalled in the industry.
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 customer systems with our 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.
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