TIDMALPH
RNS Number : 0676A
Alpha Group International PLC
18 January 2024
18 January 2024
Alpha Group International plc
("Alpha" or the "Group")
Trading Update
Alpha Group International plc, a high-tech, high-touch provider
of financial solutions to corporates and institutions, today
provides a trading update for FY 2023.
Unaudited Financial highlights[1]
- Revenue up 12% to GBP110m (FY 2022: GBP98.3m)
- Profit before tax up over 140% to c. GBP115m (FY 2022: GBP47.2m)
- Underlying profit before tax grew 10% to c. GBP42m (FY 2022:
GBP38.6m)
- Consistent underlying profit margins of 39% (FY 2022: 39%)
- Other operating income from interest on client balances
of over GBP73m (FY 2022: GBP9.3m)
- Very strong balance sheet, cash and liquidity position with
adjusted net cash increasing by over GBP60m to over GBP177m
- Alternative Banking Q4 2023 client balances increased by
31% against the same quarter last year, at GBP2.1bn (Q4
2022: GBP1.6bn)
Business highlights
- Benefits of diversification strategy clearly evidenced in
resilient revenue and strong profit growth
- Disciplined approach to credit and risk reflected in the
lowest level of client defaults in the past five years
- Investment programme yielding substantial efficiencies,
with operational gearing opportunity in 2024 and beyond,
and hiring now predominantly focused on Front Office
- Launch of new Fund Finance division in May 2023
- Launch of new Corporate FXRM offices in Madrid and Munich
- Completed the Group's first acquisition, of Cobase, in December
2023
[1] Numbers exclude Cobase, which was acquired on December 1
2023, and during the month generated revenue of GBP0.2m, EBITDA of
GBP0.0m, and a PBT loss of GBP0.2m.
Overview
The interest rate environment throughout 2023 drove exceptional
levels of client balance interest income, profit, and cash.
However, this same environment has also suppressed the activity
levels of both our corporate and institutional clients, resulting
in a more challenging trading environment. We describe this dynamic
internally as our 'natural interest rate hedge'. Overall, revenue
and underlying profit both continued to grow, demonstrating the
appeal and resilience of our offering, albeit the rate of
underlying growth was marginally lower than expected due to
prevailing economic headwinds throughout the year. Q3 was our most
challenging sales quarter in the year, coinciding with peak levels
of macro uncertainty around interest rates and inflation. In Q4
however, we were pleased to end the year with a record revenue
quarter for the Group, as we started to see activity levels
increase.
For FY23, Group revenue is expected to have grown by circa 12%,
underlying PBT by circa 10%, and statutory PBT (which includes
interest income from client balances) by over 140%.
Throughout the year, we made significant investments in
operational scalability, product, risk and governance. This should
significantly reduce our requirement for operational headcount
growth in 2024 compared to previous years. Furthermore, with the
operational scalability in place, a growing portfolio of
market-leading solutions, and average sales productivity[2]
increasing, we will continue to invest with confidence in growing
our Front Office teams across our global locations in 2024, in
order to capitalise on the vast market opportunity in front of
us.
Whilst the macro environment could remain challenging in 2024,
we remain confident in our strategy to take advantage of the vast
growth opportunity. Our full-year results statement will be
published w/c 18(th) March 2024. Ahead of this, we have also
provided an initial summary of our performance across our key
product lines below.
(2) Front Office productivity is measured by dividing our Group
FXRM revenue by the cumulative tenure of our FXRM sales team.
FX Risk Management
Throughout 2023, the challenging macro conditions described in
our Interim Report resulted in a noticeably more conservative
approach to forecasting and, thus, FX hedging amongst our client
base. At the same time, these macro conditions meant we chose to
tighten our own credit appetite, particularly in the first nine
months of the year when central banks were continually increasing
interest rates and we were still seeing high levels of inflation
globally. This created significant uncertainty around how high
rates could go, and therefore, when taking into consideration our
clients' ability to service their debts, we chose to take a more
conservative approach, resulting in a number of clients having
hedging facilities reduced or removed. This disciplined approach
ensured we had no significant defaults during the year but also
meant we walked away from revenue opportunities. Additionally,
despite the challenging sales environment, our team upheld Alpha's
high selling standards, guiding clients towards what they need,
rather than what they sometimes want, and in particular,
discouraging clients from using more complex derivative products.
Such products tend to tempt clients with immediate short-term
benefits of a more favourable exchange rate today, at the expense
of committing the client to a potentially more undesirable exchange
rate in the future, therefore serving no logical purpose in a
genuine risk management strategy. Guiding clients away from these
products resulted in a 68% reduction in complex options revenue in
the year, and whilst unfortunately we are currently seeing a trend
within our industry of more complex products being sold, we believe
upholding our principles will serve to support higher quality
revenue growth in the long-term, and protects the best interests of
our clients as well as our reputation in the market. As referenced
in our last annual report, we changed our team's commission
structure at the end of 2022, deliberately paying significantly
lower rates of commission on more complex products, whilst
celebrating and incentivising scenarios where they successfully
talk clients down from more complex ones, to using simpler
ones.
Our diversification strategy has also paid dividends, with
growth from our Institutional FXRM business and our overseas
offices offsetting the economic headwinds being felt in our UK
Corporate business. These factors have contributed towards overall
revenue growth of 10% to GBP76m for the year (FY 2022: GBP69.5m),
and client numbers growing by 2% to 1071. Average revenue per
client also continued to increase, reflecting our continued focus
on working with larger businesses as well as increasing wallet
share with existing clients, as our reputation continues to grow.
To understand the performances across our different offices, we
have provided a breakdown as follows.
Our UK Corporate office experienced a decline in revenue this
year and has remained the most impacted by the economic
environment. This is primarily because it has the largest and
longest-standing client base and has therefore also been affected
the most by the adjustments to our credit appetite. Additionally,
our UK office has historically served as the talent incubator for
cultivating leaders to spearhead the establishment of overseas
offices, and, therefore, during this more challenging period, the
team have missed some of this talent. With our current overseas
offices now established, there is no further need to export talent
from the UK for the time being, and we are confident this
marketplace remains an enormous growth opportunity within its own
right.
In Europe, our Corporate offices in Amsterdam and Milan
continued to deliver strong year-on-year growth, whilst our Madrid
office, setup in H1 2023 by a team of four with 15 years' combined
Alpha experience pitching from the UK, is already trading strongly.
I n Q4, we also launched a new office in Munich, Germany, creating
our fifth growth runway into Europe.
Beyond Europe, our Corporate Australia office has continued to
deliver good revenue growth and has been established by a core team
with over 30 years' combined experience working at Alpha. This has
created excellent foundations from which to grow in Australia,
whilst also providing the Group with the ability to service its
global client base 24/7.
Our Corporate Toronto office remains profitable but ended the
year with revenues slightly down. Those who have followed our
updates over the last 18 months will know we have been rebuilding
in Toronto, and at the end of 2023 we introduced new leadership.
The early performance and feedback from the team since making these
changes has been encouraging, and we are confident that we are
starting 2024 with stronger foundations in Toronto.
Our Institutional FXRM office (based in the UK) continued to
show particularly strong growth in the period, with revenue
increasing over 55%. Given the contraction in the alternative
investment market as a whole, this has been an outstanding
performance and, alongside the team's hard work, reflects the
growing reach of the division, as well as the increasing
cross-selling opportunities through our Alternative Banking
solution and, more recently, Fund Finance. Launching in 2018, the
Institutional FXRM team has quickly established a strong reputation
and loyal client base within the Institutional space, and given the
growth they've delivered in a suppressed market, we are excited
about their potential once market activity picks up again.
Outlook for FXRM
The macro backdrop to 2023 certainly provided challenges to the
growth of our FXRM revenues. The growth prospects for FXRM heading
into 2024 however remain exciting. Prior to the start of 2023, we
had a large runway and robust strategy to continue delivering
long-term growth with our existing FXRM teams, markets and
products. Throughout 2023, we have continued to make significant
investments to further enhance the FXRM division's potential,
including the opening of two new offices, an 18% increase in Front
Office headcount to 120 people (FY 2022: 102), investment in our
online platform, and the exciting acquisition of the
treasury-focused fintech, Cobase, in December 2023. At the same
time, average revenues per client continue to increase, alongside
Front Office Productivity, and we have built in significant amounts
of operational scalability through our investments in people and
technology.
At our IPO in 2017, we set a strategy to "land and expand". The
first part of this strategy (the "landing") has very much been
focused on establishing our overseas offices, and ensuring we have
the operational foundations in place to scale. With six overseas
FXRM offices across three continents launched, and the investment
required to scale reaching its "cruising altitude", we are now
looking forward to doubling down on the "expansion" phase of our
strategy and benefitting from more operational leverage as a result
of the investment made in the year. We will now place a particular
focus in 2024 on scaling our Front Office sales teams in our
current offices, whilst continuing to uphold our selling standards,
in order to deliver strong and sustainable revenue growth.
Alternative Banking
Within the alternative investment market, the decline in deal
activity experienced in the first half of 2023 continued throughout
the rest of the year, with deal volumes and flows significantly
down on 2022 across all of the key asset classes served by our
Alternative Banking division. Despite the macro-economic headwinds,
revenues increased by 18% to GBP34m, and in addition to this
revenue, our Alternative Banking solution has enabled us to
generate over GBP73m in Other Operating Income from interest on
client balances (2022 GBP9.3m), which grew from an average of
GBP1.6bn in Q4 2022 to GBP2.1bn in Q4 2023.
Reduced deal activity in the alternative investment market
impacted demand for new accounts, payments and FX spot
transactions. Consequently, growth in account numbers was lower
than expected, with the team ending the year with just under 6,500
accounts against our updated forecast of 7,000 - a growth rate of
c. 50% against the 4,200 accounts we had in FY 2022.
Despite the temporary downturn in investment activity within our
core markets, it is encouraging that we have been able to continue
to grow, and we are excited about the prospects for Alternative
Banking as this slowdown unwinds and normal business activity
resumes, which we feel will likely follow interest rate cuts. Our
growing market presence and scale means we are well-positioned to
capitalise on any unwind, and can do so with increasing levels of
operational efficiency. Our product remains highly attractive, and
our strategic investments in technology and automation made
throughout the year will not only lead to a better service for our
clients but also reduce our time and cost to serve them - enabling
us to do more with less. This step-change in scalability and
efficiency will also likely reduce the level of operational
headcount growth we need in Alternative Banking from this point,
whilst giving us the confidence to significantly grow our Front
Office teams in 2024 within this division.
Alternative Banking also plays an important role in providing a
whole product solution to the alternative investment market, acting
as a gateway product that facilitates cross-selling with our FXRM
and (more recently) Fund Finance divisions.
Net Interest Income from Client Balances
As previously outlined, our average client balances grew by 31%
between 2022 and 2023, as we continued to open more accounts and
grow wallet share with clients. The interest rates we received on
these balances meanwhile averaged 3.6% for the year. Together this
resulted in over GBP73m of other operating income for the year - an
increase of over eight times against FY 2022. A quarter-on-quarter
breakdown of our average client balances and the interest rates we
received is shared below.
Quarter in 2023 Average Balance Average Interest
Rate
Q1 GBP1.6bn 2.8%
----------------- -----------------
Q2 GBP1.9bn 3.8%
----------------- -----------------
Q3 GBP1.9bn 3.8%
----------------- -----------------
Q4 GBP2.1bn 3.8%
----------------- -----------------
Fund Finance
Launched in May 2023, our fund finance offering had an excellent
start, ending the year with the launch of the industry's first
online platform for connecting borrowers with lenders.
Our fund finance offering embodies Alpha's hallmark 'high-tech,
high-touch' approach to business, combining specialist expertise
with smart technology to disrupt industries that are both outdated
and have high barriers to entry. This is evidenced in the early
success of the division. We are excited to report that our solution
is already proving popular. Despite this, we have further
medium-term ambitions for the technology, providing an exciting
roadmap for the future.
With its focus on the alternative investment market, our fund
finance offering has, and will continue to, benefit from
cross-selling opportunities with clients that come from Alpha's
Institutional FXRM and Alternative Banking teams. At the same time,
the Fund Finance team is already reciprocating by creating new
business opportunities of their own, which can then be sold Alpha's
other services.
Our expansion into fund finance is another important part of our
vision to become a global leader of financial solutions for the
alternative investment market - a bank alternative, dedicated to
Alternatives.
Cobase
The process to acquire Cobase began in September 2023 and was
completed in December 2023 (see announcement here ). Despite the
fact that the acquisition process can be fairly disruptive, Cobase
grew revenues by c. 67% to EUR2m(3) in FY 2023, with all revenues
derived through SaaS subscription fees. In addition, the client
base has increased by c. 67% during the year, to end 2023 with over
130 clients.
Cobase's solution has proven highly attractive amongst medium to
large corporates. Its SaaS model lends itself to scaling a valuable
and integrated client base with excellent levels of retention. Our
initial strategy focuses on helping Cobase to accelerate client
acquisition; we then plan to explore how we can complement these
SaaS revenues through cross-selling of products from our other
divisions via our sales teams and digital integration.
With Cobase's bank-connectivity technology added to Alpha's
stable of products, the Group is now able to offer our corporate
client base a comprehensive and flexible portfolio of
treasury-focused products covering FX, payments, accounts, and bank
management. This is expanding the Group's addressable market,
providing us with the opportunity to become more integrated with
our clients, and also enabling us to engage with new clients, who
may not have engaged us without the Cobase solution, but can still
utilise Alpha's other offerings further down the line. In addition,
Cobase has historically worked with a small number of institutional
clients, and having conducted some further research across our own
institutional clients, we believe there are opportunities for
Cobase within our institutional marketplace too.
Having only recently completed the acquisition, it remains
relatively early days; the focus of 2024 is to determine how we can
maximise the synergies between the two businesses in the long
term.
(3) Only revenue delivered by Cobase after it was acquired in
December 2023 is attributable to the Group, which was c. EUR200k;
however, in order to show a like-for-like comparison with 2022 this
has not been included in the numbers reported in this update.
Morgan Tillbrook, CEO, commented:
"Despite a challenging trading environment in 2023, our team
have continued to work hard to deliver profitable revenue growth,
whilst also making excellent progress on our long-term growth
strategy. At the same time, our previous diversification into
Alternative Banking has enabled us to benefit from exceptional
levels of interest income. Whilst we have opted to exclude these
numbers from our underlying profit for transparency, the fact
remains that this is very much a by-product of our diversified
business model and is providing us with transformative levels of
capital from which we can significantly enhance our long-term
growth prospects. We have already started to show this in 2023 with
the acquisition of Cobase, the launch of our new Fund Finance
division, and new offices in Spain and Germany.
The higher interest rate environment has created economic
headwinds which have impacted our underlying revenue momentum.
However, the additional operating income of over GBP73m that we
have generated as a result of this same environment has more than
compensated for this, and highlights the resilience of our
diversified business model. In simple terms, 2023 showed that in a
higher interest rate environment, underlying growth becomes more
challenging, but the cash and statutory profit from interest income
becomes exceptional - a trade-off that, in reality, creates
significant opportunities for Alpha's long-term growth
prospects.
Nonetheless, as a business that strives for high levels of
performance, we very much remain focused on delivering strong
underlying growth, and so whilst this additional income is a boost,
as a team, it is not one by which we will be measuring our own
success.
I would like to thank our team for all of their hard work and
commitment throughout the year, and look forward to updating
shareholders in more detail on all of the progress we've made in
our full-year report in March."
This announcement is released by Alpha Group International plc
and contains inside information for the purposes of the Market
Abuse Regulation (EU) 596/2014 ("MAR") and is disclosed in
accordance with the Company's obligations under Article 17 of MAR.
The person who arranged for the release of this announcement on
behalf of Alpha Group International plc was Tim Powell, Chief
Financial Officer.
Enquiries:
Alpha Group International plc Via Alma Strategic Communications
Morgan Tillbrook, Founder and CEO
Tim Powell, CFO
Liberum (Nominated Adviser and Joint
Broker)
Max Jones
Ben Cryer
Kane Collings +44 (0) 20 3100 2000
Peel Hunt (Joint Broker)
Neil Patel
Paul Gillam
Richard Chambers +44 (0) 20 7418 8900
Alma Strategic Communications
(Financial Public Relations)
Josh Royston
Andy Bryant
Kieran Breheny +44 (0) 20 3405 0205
Notes to editors
Alpha is a high-tech, high-touch provider of enhanced financial
solutions dedicated to corporates and institutions globally.
Working with clients across 50+ countries, we blend intelligent
human capabilities with new technologies to provide clients with an
enhanced alternative to their bank, with solutions covering: FX
risk management, global accounts mass payments, fund finance and
bank management.
Key to our success is our team - over 400 people based across
seven global offices, brought together by a high-performance
culture and a partnership structure that empowers them to act as
owners of our business.
Whilst we are an established business listed on the London Stock
Exchange, we remain relentlessly focused on maintaining the same
level of operational agility and client focus we had when we first
started in 2009. This dynamic, combined with the passion of our
people, have enabled us to make a substantial and enduring
difference to our clients, and deliver a growth story to match.
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END
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