Alpha Group International PLC Trading Update (0433N)

TIDMALPH

RNS Number : 0433N

Alpha Group International PLC

18 January 2023

18 January 2023

Alpha Group International plc

("Alpha" or the "Group")

Trading Update

Overview

Alpha Group International plc (AIM: ALPH), a high-tech, high-touch provider of financial solutions dedicated to corporates and institutions operating internationally, today announces a trading update for the financial year ended 31 December 2022.

Following our update in October 2022, trading has remained strong: we expect revenue for the full year to increase 27% to approximately GBP98m (2021: GBP77.5m), operating profit to be in-line with expectations and profit before tax (including interest) to be ahead. These results have been achieved alongside increased investment in our people, infrastructure, and technology, in particular within our Alternative Banking Solutions division, where client demand continues to exceed our expectations.

Since our inception, Alpha has carefully balanced its investment programme, delivering thirteen consecutive years of strong revenue growth and attractive profit margins. Moving into 2023, we find ourselves in the fortunate position of expecting exceptional growth in absolute earnings and cash generation, driven by a combination of expected strong revenue growth and interest income.

In light of this, we believe it would be a missed opportunity to not bring forward investment in our operations (in particular in our Alternative Banking Solutions division), originally planned for 2024/25 and beyond. This investment is already underway and is focused on accelerating future revenue growth and strengthening the long-term scalability and sustainability of our business. Furthermore, in the event our Operating Profit (which excludes interest) exceeds current market expectations for 2023, we will look to make additional investments in discretionary initiatives (e.g. marketing campaigns), designed to further accelerate growth, without becoming embedded into our cost base. From a presentational point of view, because of our decision in October 2022 not to classify interest income as revenue, any accelerated investment (whether ongoing or discretionary) which is charged to profit will be reflected in the operating margin in the short-term, but Group profit before tax margins and the absolute level of EPS will be significantly enhanced by the expected increase in interest income received.

We have adopted this strategy in the belief that it will lead to an exciting step change in our long-term growth prospects . We feel privileged that at a time when many companies are looking to cut back investment, our track record, strategy, and strong balance sheet allow us to act differently and accelerate our growth ambitions.

FX Risk Management ("FXRM")

Trading within our FXRM division has produced strong results, with revenues increasing to approximately GBP69m (2021: GBP57m) and client numbers increasing to 1,050. Underpinning this growth were some solid dynamics: a reduction in overall client concentration, a continued increase in average revenue per client, and further increases in the average revenue generated by our Front Office sales team in their first, second and third years - something we call the "learning curve". The increase in average revenue per client reflects our ability to grow wallet share with existing clients together with our ability to win increasingly larger clients as we build on our reputation and balance sheet.

We also look forward to launching our sixth FXRM office in Madrid later in the year. The Madrid team will be led by three highly experienced, long-term Alpha employees who have been successfully penetrating these markets from our London HQ since 2017, and therefore have already built up a sizeable Spanish speaking client base. Our presence in Spain is designed to enhance our growth prospects in Spanish-speaking markets by providing us with greater access to Spanish-speaking talent, as well as increasing our attractiveness to clients who prefer to do business with suppliers that have a local presence.

Attracting and retaining high-quality sales talent remains key to our long-term growth strategy in this division and our internal recruitment team has made excellent progress in the year across all our offices. As a result, global Front Office headcount increased to 111 (December 2021: 74) and we have a strong pipeline of candidates going into Q1. Importantly, with significant capacity within our existing Front Office team, and an ever-improving learning curve, the hires made in the year are not needed to deliver on short-term targets but are instead paving the way for sustainable growth in the years to come. This has always been Alpha's strategy and we will continue to recruit ahead of capacity to cement our future growth prospects and extend our runway.

Alternative Banking Solutions ("ABS")

Our Alternative Banking Solutions division continues to grow from strength to strength, with live accounts invoiced increasing to 4,200 and revenues increasing to approximately GBP29m (2021: GBP20m). Our ABS 2022 performance included a record month in December for both new accounts and revenue. This encouraging performance continued into 2023 with a very strong start to January. Importantly, there remains significant demand for our ABS services which we are yet to capitalise on, including increasing demand from corporate service providers and fund administrators. Such service providers typically open and manage many thousands of accounts on behalf of alternative investment funds and, in a number of instances, now wish to move from an informal trading relationship of new accounts to a formal partnership with Alpha.

These partnerships represent an exciting step change in our ABS growth opportunities. However, in order to scale with high levels of control, client service and healthy operating margins, it is imperative we ensure the right foundations are in place. Achieving this requires carefully managing our rate of growth, in line with our levels of investment in the scalability of our teams and technology. Many of the ABS partners only place a portion of their accounts with Alpha, and importantly, fully support our decision to take a measured and controlled approach to the growth of our capacity.

With the benefit of the additional interest income, a strong pipeline of client demand, and a clear line of sight from our decentralisation, we are now fortunate to be in a position where we can accelerate our investment with high levels of confidence in onboarding significant increases in accounts and generating significant increases in revenues in the coming years.

Whilst we remain vigilant to the potential for new entrants in this marketplace, we take confidence from significant barriers to entry and our strong competitive advantage. Accelerated investment in this division should cement this further. ABS today employs circa 170 people focused on the alternative investment market, underpinned by purpose-built processes and technology, as well as global blue-chip banking relationships. It has taken us many years to build a solution that can effectively and sustainably service this marketplace. Client appetite is also dependent on a balance sheet and track record that most new entrants simply do not have, whilst incumbent banks continue to retrench - a trend that speaks to the deep levels of specialisation required to service this marketplace effectively and profitably.

Income from interest

As outlined in our October trading update, the current increased interest rate environment has allowed the Group to benefit from additional interest income predominantly generated from its client balances, as well as a small proportion from its own. With our client balances growing, we now expect this to contribute circa GBP9m of interest income in the last four months of 2022, and for this benefit to continue into 2023 if the current interest rate environment remains. As outlined above, this increased interest income stream enables us to grow profits, whilst also producing the means to accelerate our investments in our ABS division. Additionally, it also allows us to help support our high-quality client base with more attractive hedging facilities.

It is worth noting that the Group is only able to obtain attractive interest rates on these overnight client cash balances because of our ability to aggregate numerous individual client balances, many of which are transitory in nature and typically only held for 24 hours.

Whilst the increased interest stream is a positive boost for the Group and a natural by-product of our increasingly diversified product offering, we are mindful that aspects of its dynamics are driven by macroeconomics beyond our control. As outlined in October, we have therefore chosen to recognise interest income on client balances as 'other operating income', not revenue from operating activities.

Morgan Tillbrook, Founder & Chief Executive Officer of Alpha said:

"2022 continued Alpha's thirteen consecutive years of strong organic and profitable revenue growth. Whilst there is no doubt the world has moved into a more challenging macro-environment, we have proven our resilience, even when faced with unprecedented challenges. Importantly, whether it's exchanging currency, holding accounts, or making payments, businesses will always need to carry out these activities. Indeed, managing them efficiently and effectively often becomes even more important in a challenging environment. As well as our business model benefitting from being largely non-discretionary, we also benefit from being highly diversified across two decentralised divisions, each with their own product lines and client bases that are sector agnostic and span over 50 countries. Meanwhile our service offering continues to grow from strength to strength in response to our continued and prudent investment, and is led by a team who, through carefully structured growth equity schemes and a client-centric culture, are deeply invested in delivering sustainable returns. As a business,

we are in the strongest position we have ever been in, and with our growing number of products and geographies still barely scratching the surface of our addressable market. Moving into 2023 and beyond, we have all the foundations in place to deliver predictable, defensible, long-term growth and I am therefore looking forward to the year ahead with confidence."

Market Abuse Regulation

This announcement is released by Alpha Group International plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("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 PR 
 Morgan Tillbrook, Founder and CEO 
 Tim Powell, CFO 
 
 Liberum Capital Limited                Tel: +44 (0) 20 
  (Nominated Adviser and Sole Broker)    3100 2000 
 Neil Patel 
 Cameron Duncan 
 Kate Bannatyne 
 Kane Collings 
 
 Alma PR (Financial Public Relations)   Tel: +44 (0) 20 
                                         3405 0205 
 Josh Royston 
 Andy Bryant 
 Kieran Breheny 
 

Notes to Editors

Alpha is a high-tech, high-touch provider of enhanced financial solutions dedicated to corporates and institutions operating internationally. Working with clients across 50+ countries, we blend intelligent human capabilities with new technologies to solve complex problems across three key areas: FX risk management, global accounts, and mass payments.

Key to our success is our team - nearly 300 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.

Despite being 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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