Alfa Financial Software Holdings Annual Report 2019

FY2019 Annual Report · Alfa Financial Software Holdings

Loading PDF…

Delivering
our strategy

Annual Report
and Accounts 2019

Alfa is a leading
provider of software
and services to
the global auto
and equipment
finance industries.

Our software platform combines three
decades of expertise with the best in
modern enterprise technology.

Live across four continents, our
class-leading software platform is
at the heart of some of the world’s
largest and most innovative asset
finance companies.

Our implementations transform
our customers’ businesses, and our
delivery track record is exceptional.

Contents

Strategic report

2019 highlights

At a glance

CEO business review

Alfa investment case

Our strategy

Our differentiators

Market overview

Delivering our strategy
– People
– Investment
– Partnership
– Our market

Our business model

Key performance indicators
– Financial
– Operational

Risks and uncertainties

Principal risks and uncertainties

Viability statement

Financial review

Environment, social and governance

Engaging with our stakeholders

Governance

Corporate governance introduction

Corporate governance report

Board of Directors

Company Leadership Team

Report of the Nomination Committee

Report of the Audit and Risk Committee

Report of the Remuneration Committee

22
24
26
28

32
34

Summary of the Directors’ remuneration policy 101

Statement of Directors’ responsibilities

Directors’ report

Financial statements

Independent auditor’s report

Consolidated statement of profit or loss and
comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated statement of cash flows

105

106

110

117

118

119

120

Notes to the consolidated financial statements 121

Company statement of financial position

Company statement of changes in equity

Company notes to the financial statements

Additional information
Glossary of terms

Useful information

151

152

153

158

160

2019
highlights

Group revenue

£64m

£71 million in 2018

Operating profit

£14m

£22 million in 2018

Cash balance

£59m

£45 million in 2018

Adjusted EBIT margin(1)

Alfa team at 31 December 2019

20%

31% in 2018

316employees

312 at 31 December 2018

(1) 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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 1

Strategic reportFinancial statementsAdditional informationGovernanceAt a glance

Where we operate

49%

of 2019 revenue
(2018: 49%)

44%

of 2019 revenue
(2018: 47%)

of 2019 revenue
(2018: 4%)

Americas
We primarily operated and
served customers in Michigan,
Georgia and Virginia, generating
£28 million of revenue in 2019.
We have deep experience of the
US automotive finance sector.

Rest of World
We have operations in
Australia, New Zealand
and South Africa, and have
13 team members in this
region specialising in
both automotive and
equipment finance.

Europe (including UK)
We had 18 customers based in Europe,
including three implementation
customers as at 31 December 2019.
Alfa Systems has been implemented and
is live in ten European countries, with a
further expansion underway into eight
countries over the next two years. We
have further expanded our European
operations recently by setting up a
subsidiary in France.

Our revenue streams

41%

of 2019 revenue
(2018: 43%)

36%

of 2019 revenue
(2018: 34%)

23%

of 2019 revenue
(2018: 23%)

Ongoing development
and services
ODS represents additional services
or development provided to
customers after the go-live
of the software implementation.

Maintenance
At 31 December 2019, we had
25 maintenance customers.
Maintenance pricing is based on
countries or geographical areas in
which Alfa Systems is being used,
the number of finance contracts
managed on Alfa Systems and
types of assets.

Software implementation
We had six ongoing implementations at
31 December 2019 with an additional
implementation having been completed in the
later part of 2019. Software implementations
vary in length and size depending on the complexity
of the lending portfolio, the number of systems
being replaced and the level of change management
required. During a software implementation,
there may be a number of go-live events as
different portfolios are migrated. Software
implementation includes both implementation
and development services. Implementation
services include data migration, testing,
configuration of customer-specific automated
processes and reporting. Development services
include delivery of the related software licence and
also the work to customise the underlying code for
a customer’s requirements.

2 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Our customer types

63%

of 2019 revenue
(2018: 50%)

21%

of 2019 revenue
(2018: 27%)

16%

of 2019 revenue
(2018: 23%)

Banks
Customers classified as banking
institutions are finance entities
associated with regulated
banking groups.

Original equipment
manufacturers
OEMs include both equipment and
automotive manufacturers, whose main
purpose is the sale of the asset rather
than the provision of financing.

Independents
Independent customers are
customers who are neither part
of a regulated banking group nor
manufacturers of the asset being
financed. Independent customers
tend to be smaller, both in portfolio
volumes and personnel using
Alfa Systems.

Our industries

64% of 2019 revenue

(2018: 62%)

36% of 2019 revenue

(2018: 38%)

Automotive finance
The automotive finance industry
provides a range of financial products
to fund the acquisition of new and used
vehicles. Our customers are banking
institutions, OEMs and independent
finance companies providing finance
directly to consumers as well as
through dealers.

Equipment finance
Equipment finance covers a myriad of
asset types – from vending machines,
which are high volume, low value, to power
plants which are low volume, high value.
Alfa’s equipment finance offering is
predominately a service lending for
agriculture, manufacturing, mining,
construction and transportation
equipment. Historically, lending products
on offer have been relatively traditional,

yet the equipment industry is
seeing significant evolution towards
consumption-based and subscription
models. Generally, lenders classified as
equipment financiers have a variety of
assets under finance in their portfolios
and may have some automotive
finance as well but this is not the
predominant asset.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 3

Strategic reportFinancial statementsAdditional informationGovernanceCEO business review

Andrew Denton
Chief Executive Officer

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 already
attracted significant interest. At the
time of writing, the extent of the impact
of Covid-19 is necessarily uncertain.
Implementation customers continue
to see the benefits of installing Alfa
Systems and our plans for 2020 remain
substantially unchanged.”

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.

4 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 5

Strategic reportFinancial statementsAdditional informationGovernanceCEO business review continued

We strengthened the Executive Director
team with the appointment of Matthew
White to the Board, as Chief Operating
Officer in October 2019.

implemented Finance and HR
system, which, in the medium-term,
will improve the provision of
management information.

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.

On pages 66 and 67, we provide
an assessment of the Company’s
performance against the UK Corporate
Governance Code 2018 (the “Code”)
since 1 January 2019.

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

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.
Further details of the CLT can be found
at pages 78-79.

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

Turn to page 8 to read
more about our plan for
growth and how this fits
within our strategy

1.
People at the heart
of our business

Page 22

2.
Investment in our leading edge
software to grow our market share

Page 24

3.
Partnership an important part
of our ongoing growth strategy

4.
Our market offering future growth
for our leading digital solutions

Page 26

Page 28

6 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Alfa investment case

Alfa Systems is a leading software platform purpose-built
for asset finance enterprises globally, developed to meet the
current and future needs of the global asset finance industry.

Uniquely positioned
in a large addressable
market with
clear structural
growth drivers

We have an established position of
leadership in the asset finance software
market, underpinned by our experience
and in-depth understanding of the
asset finance industry.

Europe and the USA remain key
markets for Alfa, contributing 49%
and 46% to revenue over the last three
years, respectively.

We are committed to growing our
market share by maintaining and
developing our leading-edge
technology, surpassing customer
expectations and winning new
business in our target markets.

We have a number of late-stage
pipeline opportunities across our
target markets.

Our differentiated
business model

With an excellent delivery history
over three decades in the industry,
Alfa’s track record is unrivalled.

Our business model typically involves
the sale and deployment of our asset
finance software platform into large
enterprises, which have highly
complex and varying requirements.

We are able to leverage our
understanding of these complexities
to enhance Alfa Systems – a significant
selling point for new prospects.

Our Alfa Start methodology enables
us to deliver a subscription-based
service rapidly to smaller, less
complex customers.

We have established a partner
network that enables us to extend
our operational capacity to integrate
customers’ existing technology
solutions and processes with
Alfa Systems.

Alfa Systems’ comprehensive
functionality enables customers to
automate critical business functions
and enhance business agility.

Leading-edge technology
and consultancy
proposition, reflected
by deep long-term
relationships and
blue-chip customer list

Alfa has invested significantly in
the development of its technology
platform to ensure it is secure, reliable,
resilient and scalable to grow with our
customers’ business ambitions.

Our suite of integrated modules can
be deployed and configured as a full
end-to-end solution covering the entire
asset finance life cycle or alternatively
to provide standalone support for
functional or product areas.

Our hosted solution adds further value
by reducing the need for customer
IT training and infrastructure.

Our strong, long-term customer
relationships underpin Alfa’s significant
revenue visibility as well as providing
references for new prospects.

Customers include Bank of America,
Santander, Mercedes-Benz and
Nordea.

A strong balance sheet
and financial position
that supports all
investment plans

Alfa has a robust balance sheet
position with £58.8m of cash
(2018: £44.9m) and no debt
(2018: £nil).

We are highly cash-generative with
impressive cash conversion of 142%
(2018: 87%).

We have healthy recurring
maintenance income and
implementation and ODS revenues
contracted under long-term
statements of work.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 7

Strategic reportFinancial statementsAdditional informationGovernanceOur strategy
Our strategy

Our strategy for creating long-term
sustainable business value

Our vision
To grow our company size naturally, but grow our
impact rapidly, whilst maintaining our underlying
culture. We will deliver more concurrent Alfa
implementations, more efficiently, with a world-class
product. We will have a big company impact, but a
small company feel.

Our purpose
To deliver our leading-edge technology with smart,
diverse people, making our customers future-ready.

Our values

Challenge without being challenging
We do the right thing in service of the bigger picture.
Use your knowledge and expertise to benefit others.

Create a positive impact
We want to make a difference for each other, our
customers, and the communities we work within.
Give something back.

Let great ideas grow
We believe that great things can come from anywhere.
Have the confidence to share your ideas – they will
always be received.

Make it better together
We believe everything can be improved through
critical questioning. Whatever it is, ask yourself
“how can it be better?”

Our strategic priorities

Grow market share
by maintaining
leading-edge
technology,
increasing customer
loyalty and winning
new business

We will retain our market-
leading position and grow
our share of the enterprise
asset finance sector

Develop our
partner ecosystem
to increase
operational
capacity and sales
opportunities

We will work with a select
group of partners to
increase our delivery
capabilities whilst
maintaining quality

Related KPIs

– Group revenue

Related KPIs

– Group revenue

– New implementation

projects

– Revenue on a constant

currency basis

– R&D expense

currency basis

– Number of customers

– Number of partner

– Headcount

relationships

Related Risks

A B C D E
F G H I J

A B C D E
F

8 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

G H J
Read more in Key
performance indicators
Page 32

Read more in Risks and
uncertainties
Page 36

Extend our
best-in-class
digital agenda

Establish Alfa Start
as the leading
solution for the
volume market

We will remain a market
leader for digital solutions
in the asset finance sector

We will become a market
leader in the volume
market of the asset
finance industry

Maintain a high-
performance
organisation
with a culture
of continuous
improvement

Promote and
grow value and
develop resilience

We will continue to offer a
supportive, diverse and
collaborative working
environment and be
considered to be an
employer of choice

We will deliver value to
shareholders by building
and extending long-term
profitability in a cash-
efficient manner

Related KPIs

– R&D expense

Related KPIs

– New implementation

– Headcount

– Retention rate

– Operating profit margin

– Adjusted EBIT margin

– New implementation

projects

– R&D expense

– Employee engagement

– Billings

– Greenhouse gas emissions

– Operating free cash flow

conversion

– R&D expense

Related Risks

A
F

A B C
F

D E
I

C D E
A
F G H I J

Risks

A Failure to retain or increase
market share in our strategic
target markets

B High customer

concentration risk

C Socio-economic,
geo-political risk

D Risk to people, skills, location
and working environment

E Failure to deliver on our

existing implementation or
ODS business

F Failure to develop Alfa

Systems to ensure it remains
relevant in the market, to
lower the cost of development
in the future and to allow
competitive technological and
product development

G IT security and cyber risks

H Business interruption or

continuity

I Brexit and uncertainty
surrounding trading
arrangements after the
transition period

J Pandemic outbreak in Alfa

and/or customer geographies

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 9

B C D G H IJD E G H IJA B C G H JB Strategic reportFinancial statementsAdditional informationGovernance

Our strategy continued

Our strategic priorities
and objectives

Objectives

Progress in 2019

Focus for 2020

Grow market share by
maintaining leading-edge
technology, increasing
customer loyalty and
winning new business

Win in our existing markets by demonstrating
capability of product and best-in-class delivery

Maintain our leading position as partner to the
US automotive finance sector

Grow in target markets

• Hosted EMEA and US User groups.

• Maintain and increase focus on continuous improvement.

• Improvements to sales process.

• Continued product roadmap enhancements

• Continuation of the roadmap.

(Integrations, Workflow, Performance).

• Incorporate further feedback from implementations into

delivery approach.

• Commenced three new implementation projects.

• Deliver Alfa implementations and ODS projects.

• Developed multiple sales opportunities and

• Win new implementation projects.

Drive innovation in our existing solutions

• Planned pieces used to maintain position as key

• Monitor and increase take-up of innovation time.

• Generate pipeline of value-add work for existing customers.

Lead with our cloud-first offering

• Used a cloud-first sales strategy with all prospects.

• Continued improvements to hosting, tooling and monitoring.

Embed partners into our sales and customer
relationship processes

Select preferred partners and establish
engagement terms

Deliver training to partners and establish ongoing
information exchange

Focus on Alfa as a platform

Develop our partner
ecosystem to increase
operational capacity and
sales opportunities

Extend our best-in-class
digital agenda

Develop value-adds to the platform

• Used a cloud-first sales strategy with all prospects.

• Support customers in move to Docker or Alfa hosting

Thought leadership to demonstrate Alfa as
a leading technology partner to the asset finance industry

• Published position paper on AI and engineering

• Continue AI tooling development and collaborate with

blogs on React.

customers on practical use of AI.

• Assess and develop future business models in asset finance.

10 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

progressed some to late-stage pipeline.

• Further analysis performed confirming target

markets.

thought leader.

• Continued research and development in relation

to application of artificial intelligence (AI), machine

learning and IoT.

• Engaged in three joint sales proposals.

• Deliver projects based on joint bids.

• Partners utilised on four customer projects.

• Participate in further joint bids.

• Continued strengthening of our partner relationships.

• Scale and leverage our existing partner ecosystem for staff

• Established engagement terms with new partners.

• Add to our partner ecosystem (Global agreement with Accenture

augmentation.

signed in February 2020).

• Four large partner intakes successfully onboarded.

• Provide further technical materials to partners for system

• Partner portal set up.

integration efficiency.

• Delivered further POS and self-serve applications.

• Develop improvements to our integration capabilities.

• Investment in APIs, the user interface and target

• Further develop always-on, always-available strategy.

• Delivery of processing efficiency improvements

• Further develop materials to support partner implementations

• Continue investment in user experience and tooling.

market features.

at high-volume.

and customers.

deployment model.

in an SME market.

• Evaluate the potential for a new software-as-a-service product

Objectives

Progress in 2019

Focus for 2020

Grow market share by

maintaining leading-edge

technology, increasing

customer loyalty and

winning new business

Win in our existing markets by demonstrating

capability of product and best-in-class delivery

Maintain our leading position as partner to the

US automotive finance sector

Grow in target markets

• Hosted EMEA and US User groups.

• Maintain and increase focus on continuous improvement.

• Improvements to sales process.

• Continued product roadmap enhancements

• Continuation of the roadmap.

(Integrations, Workflow, Performance).

• Incorporate further feedback from implementations into

delivery approach.

• Commenced three new implementation projects.

• Deliver Alfa implementations and ODS projects.

• Developed multiple sales opportunities and

• Win new implementation projects.

progressed some to late-stage pipeline.

• Further analysis performed confirming target

markets.

Drive innovation in our existing solutions

• Planned pieces used to maintain position as key

• Monitor and increase take-up of innovation time.

thought leader.

• Continued research and development in relation

to application of artificial intelligence (AI), machine
learning and IoT.

• Generate pipeline of value-add work for existing customers.

Lead with our cloud-first offering

• Used a cloud-first sales strategy with all prospects.

• Continued improvements to hosting, tooling and monitoring.

Embed partners into our sales and customer

relationship processes

Select preferred partners and establish

engagement terms

Deliver training to partners and establish ongoing

information exchange

Focus on Alfa as a platform

Develop our partner

ecosystem to increase

operational capacity and

sales opportunities

Extend our best-in-class

digital agenda

• Engaged in three joint sales proposals.

• Deliver projects based on joint bids.

• Partners utilised on four customer projects.

• Participate in further joint bids.

• Continued strengthening of our partner relationships.

• Scale and leverage our existing partner ecosystem for staff

augmentation.

• Established engagement terms with new partners.

• Add to our partner ecosystem (Global agreement with Accenture

signed in February 2020).

• Four large partner intakes successfully onboarded.

• Provide further technical materials to partners for system

• Partner portal set up.

integration efficiency.

• Delivered further POS and self-serve applications.

• Develop improvements to our integration capabilities.

• Investment in APIs, the user interface and target

• Further develop always-on, always-available strategy.

market features.

• Delivery of processing efficiency improvements

at high-volume.

• Continue investment in user experience and tooling.

• Further develop materials to support partner implementations

and customers.

Develop value-adds to the platform

• Used a cloud-first sales strategy with all prospects.

• Support customers in move to Docker or Alfa hosting

deployment model.

• Evaluate the potential for a new software-as-a-service product

in an SME market.

Thought leadership to demonstrate Alfa as

a leading technology partner to the asset finance industry

• Published position paper on AI and engineering

• Continue AI tooling development and collaborate with

blogs on React.

customers on practical use of AI.

• Assess and develop future business models in asset finance.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 11

Strategic reportFinancial statementsAdditional informationGovernance

Our strategy continued

Establish Alfa Start as
the leading solution for
the volume market

Objectives

Progress in 2019

Focus for 2020

Promote simplification of delivery through our
Alfa Start proposition

• Extended Alfa Start proposition to new volume

• Maintain and increase a continuous improvement to Alfa Start

market segment.

delivery process and documentation. Utilise feedback from

Promote product simplification

• Continuation of modularisation programme.

implementations.

• Utilise feedback from first implementations and support

to inform further changes.

Win customers in the volume market, based on
Alfa Start proposition

• Developed pricing, sales and support model for

• Deliver for Alfa Start customers.

volume market.

• Won a new Alfa Start customer.

• New sales of Alfa Start.

• Continued development of sales approach.

Continue investment model for volume market

• Developed process for assessing and managing

• Conduct further market analysis to inform strategic investment.

investment return.

• Evaluate the potential for a new software-as-a-service product in

the SME market.

Maintain a high-performance
organisation with a culture
of continuous improvement

Retain and attract the best people via a compelling
value proposition

Provide career development and learning opportunities

Encourage inclusivity and diversity

Foster innovation throughout the company

• Continued innovation days and hackathons.

• Renew innovation team charter, on-boarding and training.

Encourage open communication and strategic alignment

Promote and
grow value and
develop resilience

Improve operational efficiencies

• Continued focus on operating cost efficiencies to

• Focus on improvements to project margins and capitalise on

ensure that we have the capacity to invest in new skills

appropriate tactical opportunities.

to drive future growth.

• Increase proportion of income from licence revenues.

Improve management information and control

• Assigned further devolved budget holders.

• Implement improvements to internal systems to improve metrics

Reinvestment in the product to increase value for customers
and prospects

• Invested in the user interface, expanded digital

• Maintain and increase focus on continuous improvement.

API and continuous improvement.

Align our global locations with our growth potential

12 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

• Successfully reviewed and revised experienced

• Continue balanced recruitment for key geographies.

engineering recruitment.

• Reviewed total reward package.

• Fill open executive team positions.

• Monitor working hours and increase take-up of training time,

innovation time and ESG.

• Implemented new learning and development

• Increase relevance, timeliness and take-up of training.

framework. Monitored uptake.

• Engage further senior staff in training delivery across Alfa.

• Developed a set of activities to improve diversity

• Develop, execute and monitor plan to introduce diversity into

within Alfa.

leadership team and board.

• Embedded inclusivity/diversity in company events.

• Expand discussions on inclusivity and diversity.

• Provided recommendations for carbon offsetting

• Use UN Sustainable Development Goals to inform Alfa ESG efforts.

following investigation of approaches that do not

encourage us to “greenwash”.

• Decide on carbon-offsetting approach and integrate into

operating plans.

• Continued to use the Company’s Purposes and Values

• Establish a team structure for strategy, including change

as the foundations for strategic thinking.

management, to facilitate the upkeep of our strategy.

• Regular communication e.g. from Investment

• Continue to engage through regular blogs, company meetings and

Committee.

open Q&A sessions. Review and revise based on engagement.

and information.

• Implement additional monitoring and feedback for budgeting.

• Revise the software development lifecycle (SDLC ) to improve

engineering efficiency.

• Continue to evolve the user interface and user experience.

• Review our physical presence in line with market focus and add to

our current office network if necessary.

Establish Alfa Start as

the leading solution for

the volume market

Objectives

Progress in 2019

Focus for 2020

Promote simplification of delivery through our

Alfa Start proposition

• Extended Alfa Start proposition to new volume

market segment.

• Maintain and increase a continuous improvement to Alfa Start
delivery process and documentation. Utilise feedback from
implementations.

Promote product simplification

• Continuation of modularisation programme.

• Utilise feedback from first implementations and support

to inform further changes.

Win customers in the volume market, based on

Alfa Start proposition

• Developed pricing, sales and support model for

• Deliver for Alfa Start customers.

volume market.

• Won a new Alfa Start customer.

• New sales of Alfa Start.

• Continued development of sales approach.

Continue investment model for volume market

• Developed process for assessing and managing

• Conduct further market analysis to inform strategic investment.

investment return.

• Evaluate the potential for a new software-as-a-service product in

the SME market.

Maintain a high-performance

organisation with a culture

of continuous improvement

Retain and attract the best people via a compelling

value proposition

Provide career development and learning opportunities

Encourage inclusivity and diversity

• Successfully reviewed and revised experienced

• Continue balanced recruitment for key geographies.

engineering recruitment.

• Reviewed total reward package.

• Fill open executive team positions.

• Monitor working hours and increase take-up of training time,

innovation time and ESG.

• Implemented new learning and development

• Increase relevance, timeliness and take-up of training.

framework. Monitored uptake.

• Engage further senior staff in training delivery across Alfa.

• Developed a set of activities to improve diversity

• Develop, execute and monitor plan to introduce diversity into

within Alfa.

leadership team and board.

• Embedded inclusivity/diversity in company events.

• Expand discussions on inclusivity and diversity.

Foster innovation throughout the company

• Continued innovation days and hackathons.

• Renew innovation team charter, on-boarding and training.

Encourage open communication and strategic alignment

• Provided recommendations for carbon offsetting
following investigation of approaches that do not
encourage us to “greenwash”.

• Use UN Sustainable Development Goals to inform Alfa ESG efforts.

• Decide on carbon-offsetting approach and integrate into

operating plans.

• Continued to use the Company’s Purposes and Values

as the foundations for strategic thinking.

• Establish a team structure for strategy, including change
management, to facilitate the upkeep of our strategy.

• Regular communication e.g. from Investment

• Continue to engage through regular blogs, company meetings and

Committee.

open Q&A sessions. Review and revise based on engagement.

Promote and

grow value and

develop resilience

Improve operational efficiencies

• Continued focus on operating cost efficiencies to

• Focus on improvements to project margins and capitalise on

ensure that we have the capacity to invest in new skills
to drive future growth.

appropriate tactical opportunities.

• Increase proportion of income from licence revenues.

Improve management information and control

• Assigned further devolved budget holders.

• Implement improvements to internal systems to improve metrics

and information.

• Implement additional monitoring and feedback for budgeting.

Reinvestment in the product to increase value for customers

• Invested in the user interface, expanded digital

• Maintain and increase focus on continuous improvement.

and prospects

API and continuous improvement.

Align our global locations with our growth potential

• Revise the software development lifecycle (SDLC ) to improve

engineering efficiency.

• Continue to evolve the user interface and user experience.

• Review our physical presence in line with market focus and add to

our current office network if necessary.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 13

Strategic reportFinancial statementsAdditional informationGovernance

Our differentiators

This is why our customers
choose Alfa Systems

Delivery track
record

Our best practice methodologies and specialised
knowledge of asset finance enable us to deliver large
system implementations and highly complex business
change projects. With an excellent delivery history
over three decades in the industry, Alfa’s track record
is unrivalled.

Innovate and
challenge
in multiple
markets

Multi-entity, multi-regulatory, multi-currency
and multilingual. We react quickly in a complex
and changing market and adapt to match
business requirements and customer needs
as they evolve.

Create an
omnichannel
experience

We empower customers, dealers and vendors
through enhanced self-service and omnichannel
technology. We operate with a clear and
complete picture of the customer journey, from
onboarding, throughout in-life management
to end of term and retention.

Perform through
leading-edge
tech

Alfa Systems has a comprehensive service-
oriented architecture, 100% web user interface
alongside reliable, scalable performance, proven
for a 10 million contract portfolio.

Achieve
operational
agility

Alfa Systems helps streamline operations
through process automation, across different
functions and geographies. Customers achieve
greater control, connected processes and a
seamless flow of information.

Unify
systems

Alfa Systems helps customers avoid systems
spaghetti – consolidating disparate legacy
systems, integrations and workarounds. Alfa
Systems removes inefficiency and complexity
by using a single platform with a single database.

14 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Market overview

A complex and highly regulated
market with many challenges
and opportunities

Global
trends

Alfa’s global market remains attractive
even in times of political and economic
uncertainty. Asset finance has increased
security compared to unsecured loans,
and the stability this provides means
that the fundamentals of the industry
tend to remain strong regardless of the
short-term macro environment.

Even so, change is a constant in today’s
commercial world, and asset finance is
no exception. New regulations, such as
GDPR, WLTP, US Banking regulations
and the drive for limiting dealer
commission all mean that auto and
equipment financiers must move
quickly to protect their operations.

At the same time, Brexit and global
trade disputes have undoubtedly
increased business uncertainty.
Additionally the worldwide spread of
Coronavirus (Covid-19) will undoubtedly
have far-reaching effects on all parts of
the economy, and the full impact of the
virus on the asset finance industry
remains uncertain.

Nevertheless, businesses must continue
to plan even through this uncertain
future, and put themselves in the best
possible position to operate effectively
when Covid-19 has run its course.

In order to succeed in an even more
competitive future market, asset
finance businesses must respond to
an increasingly demanding customer
base, and advances in technology that
happen on an ever-shortening cycle.
Demand for cloud solutions, a fully
digitised offer and use of artificial
intelligence and machine learning are
creating multiple opportunities for
Alfa. In the automotive sector,
the race towards electric and
autonomous vehicles is well
underway, forcing financiers to
introduce new products and services.
In the equipment sector, financiers
are also looking to find competitive
advantage through innovative
offerings such as pay-per-use billing.

Despite increased uncertainty,
including the uncertain impact of
Covid-19, business decisions cannot
be delayed indefinitely. The Alfa
late-stage sales pipeline was
increasingly healthy over the course of
2019, with appetite for large-scale IT
implementations returning across our
markets, and we view prospects in the
post-pandemic world with optimism.

The full impact of the spread of Covid-19 on the asset
finance industry remains uncertain. Nevertheless,
businesses must continue to plan even through
this uncertain future, and put themselves in the
best possible position to operate effectively when
Covid-19 has run its course.”

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 15

Strategic reportFinancial statementsAdditional informationGovernanceMarket overview continued

Technology
trends

10%

of new cars could be offered
as a subscription by 2025(a)

Alfa has been a leading
voice in the industry on
digitalisation, releasing
two white papers to give
meaningful definition
to the term and explain
how its power can
be harnessed”

Cloud
Cloud deployments have become
increasingly popular and on-premise
deployment is now the exception rather
than the rule. Cloud offers a wealth of
benefits in terms of speed of set up,
flexibility and cost management.
Having more parts of the solution in the
cloud also provides additional options
to ease integration, and this is an
increasingly significant factor in
customers’ digital strategies.

Larger finance providers have been
slower to move to this new platform,
often due to the perceived additional
data governance risk. Improvements
in security from cloud providers have
mitigated these concerns and we
expect that the movement to cloud will
continue. Use of Alfa’s hosting services
is growing among customers, although
some finance providers with mature
IT servicing offerings are engaging
directly with cloud providers like AWS
or Azure to manage public cloud
infrastructure themselves.

Alfa’s approach
Alfa Systems can be deployed on any
cloud platform, improving customer
experience and mitigating risks
associated with being tied to a single
provider. This, in turn, helps mitigate
the risk that disruptors could become
competitors in our customers’ markets.
For three years, Alfa’s recommended
deployment has been via its hosted
solution, and this offering provides a
quick and easy option for customers
to realise the benefits of cloud hosting
without the need for significant
technical skills.

16 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Digitalisation
Digitalisation continues to be a popular
theme, being discussed with increasing
frequency at industry conferences
and in conversations with customers
and prospects. An industry-wide
agreed definition of the term remains
elusive, though.

In many cases, we see that prospective
customers see “digitalisation” as a
traditional systems’ uplift, replacing
manual processes across multiple
different legacy systems with a modern
integrated solution like Alfa Systems.
Others, including those who have
already implemented Alfa Systems,
are increasingly looking to achieve the
next-level benefits of more integrated
technology to solve business problems
more efficiently. These customers are
seeking seamless digital connectivity,
allowing for transformative solutions
such as self-service mobile applications,
customer portals and real-time links to
third party providers.

Ever-closer integration also requires
systems to be easily connected, with
a minimum of difficulty for those
managing the process. Developer
Experience (“DX”) is therefore becoming
as important as Customer Experience
(“CX”) in choosing a system.

Alfa’s approach
Alfa has been a leading voice in the
industry on digitalisation, releasing two
white papers to give definition to the
term and explain how its power can be
harnessed. Alfa’s digital strategy allows
Alfa Systems to be deployed either as
part of a connected systems landscape,
or as a standalone system, as required.
In particular, our continued investment
in the open-platform API for Alfa
Systems positions us well for a greater
level of customer ownership of the
digital journey and to create a positive
Developer Experience.

Mobility and
autonomous vehicles
Mobility solutions remains an industry
buzzword in the auto finance sector, but
also stretches into equipment finance
with OEMs exploring similar techniques.

‘Car as a service’ is an increasingly likely
future model in the medium term, with
analysts suggesting that 10% of new cars
could be offered via a subscription by
2025.(a) Typically, this will be for a
specified car – a monthly fee will
provide the paying customer access
to a car, with quick and easy options
to change, or terminate, at any point.
In comparison, we expect that there will
be a slower take-up of ’car clubs’, where
a subscription would provide access to
a fleet of cars and the ability to use any
car, at any time.

Autonomous cars remain in some ways
the end-state for mobility solutions, as
this would even allow the ‘driver’ to be
provided as a service. While initial
estimates of when autonomous vehicles
will be on the road have been pushed
back as understanding of AI and machine
learning has increased, all the major
OEMs are putting significant investment
into this technology and ‘driver-assisted’
cars remain likely in the next five years.

In the equipment space, Daimler Trucks
has recently become the first provider
to launch a usage-based lease, with its
Dynamic Lease offering. This is an
exciting development in an industry that
typically lags auto finance in innovation.
While the business-to-business nature

of equipment finance means a direct
equivalent to ‘car as a service’ is less
likely, Dynamic Lease is likely to be the
first of many such offerings.

Alfa’s approach
The flexible nature of Alfa Systems
has always positioned us well to manage
new and complex product offerings.
Structures like the Dynamic Lease
product are already fully supported,
and Alfa features such as variable billing
cycles, customisable contract lengths,
simply-effected changes of contract
and independent views of the asset all
enable support not just for the products
of today, but for future innovations.

As with all ventures into new technology,
there are risks and uncertainties
involved in mobility solutions, and the
timing and exact balance of future trends
is uncertain. Alfa will continue to stay
abreast of technological developments,
provide thought leadership and
innovative solutions to our customers
and potential customers.

AI and machine learning
Artificial Intelligence and machine
learning are increasingly common tools
within business and their use and
sophistication is likely to increase.

In the asset finance industry, pilots
and proofs of concept using AI and
machine learning techniques abound,
but production instances are limited.
Efforts remain focussed on some
‘traditional’ machine learning areas,

such as data analytic techniques for
BPO and credit decisioning. Partly,
this is due to the complexity of
preventing the encoding of systemic
biases: apparent bias in card credit
decisions made the news recently
in the USA, and avoiding bias is
regulated under GDPR in Europe.

Nevertheless, the prize for achieving
successful machine learning
application is as great in asset finance
as in other industries, and we expect
to see continued investment in this
area over the coming years.

Alfa’s approach
In 2019, Alfa released its first position
paper: ‘Balancing Risk and Reward:
AI in Equipment and Auto Finance’.
This covers some of the challenges
of introducing machine learning into
a business environment, whilst
recognising the obvious benefits
it can bring. Alfa will continue to
perform its own research into how
AI can be used successfully within
asset finance during 2020, with a
focus on launching applications that
provide true value to Alfa and the
asset finance industry.

(a)

Frost & Sullivan – Future of Vehicle Subscription

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 17

Strategic reportFinancial statementsAdditional informationGovernanceGreyscale no circle

Market overview continued

Europe

€183bn

European total leasing volumes
in first half of 2019(b)

49%

Of Alfa’s revenue over the
last three years

Colour / No Circle

Nevertheless, the demand for asset
finance in the UK remains strong, with
total new business growing in all but
one month in 2019, and while Covid-19
will have an effect, the need for asset
finance to help revive the economy
should help drive the requirement
for IT projects.

Alfa’s approach
Europe is a key market for Alfa,
contributing 49% of revenues over
the last three years. Alfa’s experience
of cross-border implementations
and Alfa Systems’ flexibility
positions us well for pan-European
implementations for larger European
automotive and equipment finance
companies. Additional mainland
European subsidiaries in Germany
and more recently France, increase
our proximity to customers.

Overall
The European asset finance market is
heavily influenced by a small number of
major economies, with the five largest
European economies (UK, France,
Germany, Italy, Spain) accounting for
around 63% of vehicle and equipment
finance originations(a). Growth across
this market slowed in 2019 after several
years of sustained growth.

Growth was modest in H1 2019, with
only real estate leasing bucking the
trend. Total new leasing volumes in the
first half of 2019 were €183.1 billion,
higher by 3.4%(b) than the same period
of 2018. Until the outbreak of Covid-19,
the outlook for the European industry
overall remained positive, but growth
will undoubtedly be impacted by the
measures taken to combat the virus.

In Alfa’s home market of the UK, the
exit from the EU has been confirmed,
but the specific impacts of Brexit
are still being worked through and
uncertainty continues to dominate.
Brexit-related uncertainty continues
to impact customers appetite for
capital expenditure.

Automotive / Fleet

4.3%

Expansion of automotive leasing
volumes in first half of 2019(b)

3.1%

Expansion of equipment leasing
volumes in first half of 2019(b)

Agility

Analytics

Attention

Business Insight

Calendar

/ Events

Clarity

Automotive
Vehicle leasing volumes expanded by
4.3% in the first half of 2019, although
new passenger vehicle registrations
were more static, with only a 1.2%
growth compared to 2018(c). New
business volumes in 2020 look certain
to be impacted by Covid-19, although
to what extent is unclear. Manufacturers
are increasingly looking to exploit the
shift towards electric and autonomous
cars, with companies joining forces
where necessary to navigate this change.

Communications

Diesel engines are particularly at risk,
with the UK stating that these will be
phased out by 2035. Outside the
UK, consumers are particularly
uncertain about the future of diesel
engines: their poor green credentials
are in direct opposition to their current
economic benefits to the user, leaving
buyers conflicted. However, this
uncertainty could be a positive for
the finance industry, as consumers
potentially shy away from long-term
ownership of assets in order to avoid
committing to a choice of fossil fuels
or less-proven emerging technologies.

Compliance

Customer

Experience

Digital / Channels

18 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Documentation

Education / Training

Equipment

Financials

Innovation

Partnerships / Collaboration

Profile

Raise

Awareness

Recruitment

Systems

Consolidation

Greyscale no circle

Colour / No Circle

Agility

Analytics

Attention

Automotive / Fleet

Business Insight

Calendar

/ Events

Clarity

Communications

Compliance

Customer

Greyscale no circle

Experience

Digital / Channels

Documentation

Colour / No Circle

Agility

Analytics

Attention

Automotive / Fleet

Education / Training

Equipment

Business Insight

Calendar

/ Events

Clarity

Communications

Compliance

Customer
Experience

Digital / Channels

Documentation

Financials

Education / Training

Equipment

With a proven track record in equipment finance,
both in the UK and across Europe, Alfa continues
to see great potential in this market.”

Profile

Innovation

Partnerships / Collaboration

Financials

Raise

Awareness

Recruitment

Innovation

Systems

Consolidation

Across the globe, captives are
increasingly focused on mobility,
enabling car buyers to finance vehicles
in a way that best meets their individual
needs. End user expectations are
constantly evolving, with customers
becoming increasingly tech-savvy.
Alfa’s customers and prospects
report that the ability to provide
these customers with a slick and
simple customer experience will prove
invaluable in retaining brand loyalty.

Alfa’s approach
The strength of the Alfa Systems
offering to the automotive finance
industry is evident both in its work
with UK and German auto finance
companies, and in its market-leading
status in the equivalent US market.
Regional variations make multi-country
implementations difficult, but the
configurable nature of Alfa Systems and
its ability to support multiple products,
verticals and jurisdictions on a single
platform make it an excellent fit for
large companies looking for economies
of scale.

Alfa’s positioning as a modern digital
platform gives customers the ability to
integrate easily into a complex systems
landscape, providing end users with the
ease of use that they require.

through 2020 and beyond, with
customers across Europe seeking
to gain competitive advantage by
offering tailored solutions to brokers,
vendors and direct customers.

Equipment
Equipment leasing expanded by 3.1%
in the first half of 2019(b), continuing a
pattern of single-digit growth over the
past five years. This increase masks
significant variations, with markets
such as the Baltics contracting by
double-digits but markets as varied
as Denmark, Greece and Ukraine
experiencing significant growth.
Covid-19 is likely to have a negative
impact on the market, but businesses
will need help in order to recover, and
equipment financing may contribute
towards this.

Equipment finance is historically more
conservative than automotive finance,
but end users in the business-to-
business sector increasingly demand the
same kinds of products and solutions as
consumers in the auto finance sector.
Alfa expects this trend to continue

Alfa’s approach
With a proven track record in equipment
finance, both in the UK and across
Europe, Alfa continues to see great
potential in this market, despite present
uncertainty. Alfa’s ability to cover both
auto finance and equipment finance
on a single platform also positions us
well to support demand for auto-style
products and solutions in the equipment
finance sector. In addition to continued
support for large-scale pan-European
implementations, Alfa is also placing a
focus on providing a pre-packaged
solution for smaller equipment finance
players, starting with the UK market.

Profile

(a) Leaseurope – 2018 Statistical Enquiry
(b) Leaseurope – 2019 Biannual Statistical Survey
(c)

Europe Automobile Manufacturers Association
press release

Partnerships / Collaboration

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 19

Raise

Awareness

Recruitment

Systems

Consolidation

Strategic reportFinancial statementsAdditional informationGovernanceMarket overview continued

USA

17.0m

Number of US vehicle sales in 2019(b)

Growth in equipment
finance in 2019(d)

Overall
The US administration remains
business-friendly and the economy
continued to grow through 2019 and
early 2020. Consumer spending, the
foundation of the US economy,
improved significantly and is a key
driver of this economic growth. GDP
has expanded by 2.1% over the past
year(a) and the stock market finished
2019 near a record high. The industry
benefitted from a 25-basis-point
interest rate cut by the Federal Reserve
at the end of October 2019, the third
time the Fed cut rates during the year,
leaving the central bank’s benchmark
rate at 1.5% to 1.75% at the end
of the year.

These positive signs were set against
a backdrop of trade frictions with
China and a pull-back in the US
manufacturing sector; along with
geopolitical uncertainty caused by
Syria, Hong Kong and Brexit. As such,
most measures of US business
confidence were already well below
2018 highs and trending downward.
Covid-19 has now increased those
challenges significantly, and the risk
of recession that was already present
has increased significantly.

Whilst there will be storms to be
weathered, Alfa’s customers will
need to continue to invest in their
businesses. This will put them in a
good position to recover once the
threat of Covid-19 has eased, and
insulate them from any potential
future further downturn.

Alfa’s approach
The USA remains a key market for Alfa,
contributing 46% to turnover for Alfa for
the past three years. In 2020, our focus
will be to continue working with the
largest and most prestigious auto
finance companies in the region. We will
also expand and diversify our customer
base by working increasingly with US
equipment finance companies and by
servicing smaller portfolios in the auto
finance market.

Automotive
Annual US vehicle sales had stabilised
at around 17.2m vehicles in the past few
years. However, 2019 sales dropped to
17.0m, and pre-Covid-19 projections for
2020 and beyond showed a reduced level
of 16.5m – 16.8m vehicles(b): this will
undoubtedly drop further unless a rapid
exit from Covid-19 restrictions can create
a bounce in H2 2020. Alternatively-
powered vehicles remain a likely growth
area but, at around 5% of total sales,
this is not currently a major segment.

Auto finance volumes in 2019 remained
at similar levels to 2018(c), with increased
finance penetration driving a slight
increase in finance volumes. The list
of the top 100 auto finance providers
has been fairly stable, but for the first
time we are seeing disruptors rise up
the table: providers such as Tesla and
Carvana are growing fast with over
50% growth in portfolio value(c).

The challenge for finance providers will
be to keep auto finance volumes healthy
in the face of reducing car sales volumes.
Finance product diversification

continues in order to tackle this, driven
largely by consumer buying habits and
the large providers’ efforts to future-
proof their portfolio offering. Current
trends include: an increase in demand
for white-labelling to drive efficiency;
mobility and telematics; commercial
fleet offerings; and second-life
fleet solutions.

Alfa’s approach
Alfa is deeply entrenched in this market
and we are the premium solution in the
region. To cement our position as the
market leader, Alfa continues to invest
in implementation accelerators such as
a best-in-class pre-configured solution
and a cloud-first offering. The reduced
implementation effort opens
opportunities for partnering and enables
Alfa to target a larger section of the auto
finance market.

The flexibility of Alfa Systems means we
are able to support new products offered
by customers. We already have solutions
for leases, loans, white-labelling,
commercial fleet, usage-based contracts,
second-life fleet and many others. As the
range of products diversifies further, Alfa
will continue to be an attractive option for
large, medium and disruptor customers.

Equipment
Equipment finance volumes are
expected to have grown by over 6% in
2019, from $894bn to over $950bn(d).
This demonstrates the strength of the
industry and confidence that businesses
had to invest in equipment in the year.

20 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Greyscale no circle

Colour / No Circle

Agility

Analytics

Attention

Automotive / Fleet

Business Insight

Calendar

/ Events

Clarity

Communications

Compliance

Customer

Experience

Digital / Channels

Documentation

Education / Training

Equipment

Financials

Innovation

However, trade frictions with China
could dent equipment sales in areas
such as farming and machinery.
Further, the full impact of Covid-19 is
not yet known and equipment finance
is likely to experience at least a short-
term slowdown until the virus
countermeasures are relaxed.

Partnerships / Collaboration

Equipment finance has been very
slow to embrace digitalisation, but
the industry is starting to transition,
driven by end-customer demand.
Digitalisation is much more extensive
than app-based customer service
solutions, and includes connectivity
of the lender’s systems with the asset,
other systems, and end-customer
information, to create the quality
of customer journey demanded.

Raise

Awareness

Recruitment

The competitive landscape for
equipment finance systems is being
affected by one of the largest
software providers in the market
enforcing an upgrade to their
extensive customer base. This is
forcing customers to make a choice
between upgrading or changing
systems, creating opportunities
for Alfa in 2020 and beyond.

Systems
Consolidation

Alfa’s approach
With digitalisation requiring a modern
real-time platform, the 70% of the
market currently on legacy systems,
or internally developed solutions,
will need to make changes to remain
competitive. Alfa therefore anticipates
acceleration in a software market that
has remained slow for the past few
years, once the effects of Covid-19
have been ameliorated. Our modern
technical stack and digitalisation
initiative positions us well to serve
this market. We also have a proven
migration path from the systems of the
aforementioned competitor enforcing
an upgrade, meaning we are well placed
to take advantage of this disruption.

Australia
and New
Zealand

58%

Australia’s CEOs are ‘very
confident’ about their company’s
prospects over the next three years(f)

NZD4.7bn
Profile

NZ leasing industry estimated
turnover in 2017(e)

Overall
General business confidence in Australia
remained high through 2019, with the
2019 KPMG Global CEO outlook survey
finding that 58% of Australia’s CEOs
were ‘very confident’ about their
company’s prospects over the next
three years. However, although in 2019
Australia entered its 28th consecutive
year without a recession, bushfires and
Covid-19 will have a significant impact on
the economy, at least in the short-term.

A rebound in the natural resources
sector has driven up house prices in
mining towns and also generated
renewed activity in equipment leasing
for yellow goods. At the same time
new car sales have fallen consistently
in the past two years, with finance
penetration rates remaining largely
static. The leasing market itself could
change considerably over the

next twelve months, as this period
may see an increase in M&A activity
among significant market players.

In New Zealand much focus in
financial services has been on the
Official Cash Rate (OCR), with a larger
than expected 50bps reduction in
August 2019: against this backdrop
bank profits are flat.

The leasing industry in NZ is estimated to
have generated NZD4.7bn in turnover in
2017(e), with consistently rising revenues
year on year. Rising tourism numbers and
an increase in construction, attributed
to post-earthquake recovery activity in
Christchurch, continues to drive turnover,
although, as with other countries,
Covid-19 will have a material impact
on the local economy.

Alfa’s approach
Industry leaders in Australia and
New Zealand have highlighted
potential disruption from start-ups
and the rise of peer-to-peer lending.
Alfa’s strong commitment to R&D
enables our customers to meet these
challenges though product innovation
and take advantage of changes in an
increasingly dynamic market.

As the leasing market gets more
competitive it is apparent that a number
of lenders are feeling constrained by
legacy systems, and are unable to take
advantage of market opportunities.
Alfa expects that this will drive an
increase in software refresh activity
over the next two to five years.

US Bureau of Economic Analysis

(a)
(b) MarkLines data center
(c) Big Wheels Report 2019
(d)

Equipment Leasing and Finance Foundation –
2019 Horizon Report
Westpac Industry Insight report into Equipment
Rental and Leasing, May 2019
2019 KPMG Global CEO outlook survey

(e)

(f)

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 21

Strategic reportFinancial statementsAdditional informationGovernanceDelivering our strategy

People

at the heart of
our business

Staff development
and training is key
to our future success
and ensuring
staff retention

Once we find and recruit talented
staff, it is important that we retain
them by developing them to their full
potential. One way we do this is to
provide opportunities for innovation.
We run a number of company events
throughout the year where time and
space are given to work on projects
people are passionate about. This is
great for the business, as fantastic
ideas grow from these events, and
for our people as they have the
chance to develop their ideas and
then have a platform to present
them to the rest of the company,
from teammates to Directors.

We have witnessed excellent levels
of engagement at these events which
produce business benefits and, of equal
importance, are fun for all involved. Visit
alfasystems.com/innovation to view a
video of our 2019 Hackathon.

The development of our people never
stops. For instance, in 2019 we made a
number of internal promotions to our
Company Leadership Team. In order to
accelerate this transition, each person
entered into a coaching programme with
an external provider, helping them to
adapt quickly to their new roles.

22 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Recruitment

2019 has been a challenging year for recruiting
software engineers in London. We are proud
to have recruited 59 new employees over the
course of 2019. A buoyant jobs market, coupled
with associated wage inflation, resulted in
Alfa exploring alternative options for sourcing
candidates. We started working with Makers
Academy, a software development boot camp,
and this has provided an excellent way to
source a highly motivated and diverse pool
of talented individuals.

It is well documented that the tech industry lacks
gender balance. Alfa is committed to greater
female representation across the company.
Within our product engineering team, Makers
Academy is a valuable partner helping us move
towards that goal.

We have also worked on enhancing our
employer brand in the London tech market.
Our aim is to build a high-quality candidate pool
of potential employees, whilst reducing external
recruitment agency fees.

Retention

A reduction in retention levels and an increase
in salaries in the tech market in the past year
led to a rigorous salary benchmarking exercise.
This resulted in the company awarding salary
increases that were above inflation in November
2019. This is an investment in our future. If we want
to attract and retain the best staff, we must offer
a competitive remuneration package. This sits
alongside the other things that make Alfa a
great place to work: opportunities for varied
and challenging work, a good work-life balance,
our focus on learning and development and
inclusive events.

Link to strategy
5. Maintain a high-

performance organisation
with a culture of
continuous improvement

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 23

Strategic reportFinancial statementsAdditional informationGovernance
Delivering our strategy

Delivering a faster
Alfa Systems, more
efficiently, enabling our
customers to generate
value earlier
As customers drive their businesses
harder and expect more access to
information, Alfa Systems’ performance
has been improved, continuing our
journey to an always-available system.
Simple deployment models, such as
cloud hosting and Docker containers,
enable us to deliver Alfa Systems more
efficiently and earlier, allowing our
customers to focus on their business
differentiators rather than infrastructure.
Meanwhile, the same hardware handles
more users and processes portfolios
faster, improving the user experience.

Investing in our whole engineering
process, including our people, ensures
that our onboarding, tools and
infrastructure enable us to scale teams
efficiently, whilst benefiting more from
external expertise and leading-edge
technology. Initial system modularisation
effort has separated components and
re-used them in new contexts.

Our future investments will continue
to focus on shortening the cycle from
requirements to delivery ensuring that
our customers receive the best service
and are kept future-ready.

Investment

in our leading-edge software
to grow our market share

24 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Digital agenda

Expectations for connectivity continue to
increase and we are accelerating our system
integration partners and customers use of Alfa
Systems to support the whole customer journey.
POSKit now supports new use-cases and has been
delivered for both equipment and auto finance
providers; Alfa Systems has expanded to include
webhooks and simpler alternatives for using
existing APIs; and the platform’s rich feature-set
has been leveraged for further in-life interactions,
including with online payment processors.

Investment will further standardise our
documentation to provide ready-to-use examples
and develop support for more use-cases.

Our artificial intelligence tooling is already guiding
our engineers’ efforts and we will continue to
collaborate with customers to provide further
value from the rich data Alfa Systems provides.

Concise, responsive,
clearer user interface

The Alfa Systems user interface continues to
evolve, using end-user feedback from our close
customer relationships to prioritise investment.
The refresh to leading-edge technology has
improved user experience and eased training
requirements, while the faster, more seamless
transitions have increased productivity.

Alfa is committed to continuing collaborations
with our customers, including through hosted
user groups, identifying opportunities to create
meaningful improvements and a seamless
experience on the platform.

Link to strategy
1. Grow market share by

maintaining leading-edge
technology, increasing
customer loyalty and
winning new business

6. Promote and grow value
and develop resilience

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 25

Investment

Strategic reportFinancial statementsAdditional informationGovernanceDelivering our strategy

Partnership

enhancing our operational capacity

Our partnership
programme is a key
part of Alfa’s strategy

Strategic alliances increase our operational
capacity allowing us to deliver more Alfa
Systems implementations, as well as enhance
our ability to target new customers and markets.

Our initial approach has been to augment our
teams with partner staff and also work with
Systems Integrator partners, with Alfa retaining
ownership of the customer relationship and
delivery. This ensures our high standards of
quality are maintained. We work with a small,
carefully selected partner ecosystem of like-
minded organisations with geographical spread
and complementary delivery capabilities.

In 2019, we have scaled our partner relationships,
successfully embedding partners in our project
teams and our sales process. We have continued
to invest in partner training, as well as providing
onboarded partners with access to the latest
information about Alfa Systems and our delivery
methodology via a partner portal. We have also
grown our partner ecosystem, agreeing
engagement terms with a specialist automotive
finance consultancy and in 2020, with Accenture,
the latter opening up opportunities for joint sales
and collaboration on software implementations
in multiple regions.

In 2020, we will continue to scale our existing
partnerships and evaluate other potential
partners to strengthen further our partner
ecosystem and core market coverage.

26 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Onboarding partners

In 2019, we developed our partner training
and learning programme and have significantly
increased our partner onboarding. Through four
intakes, partner staff have been taken through
our comprehensive training schedule, including
Alfa Systems training, our delivery methodology
and simulation-based implementation
workshops. Alfa subject matter experts and
experienced practitioners have provided
high-quality training and the best possible
introduction to the company.

In total we have onboarded 31 people
from across our partner ecosystem in 2019.
These partners have now assisted on four
Alfa projects, for customers both currently
live and at implementation stage, and they
will enable us to scale up as we convert sales
pipeline prospects.

Sales collaboration helping
to secure long-term growth
in our project pipeline

We have two significant late-stage sales
opportunities (one each in EMEA and the USA)
where we are co-bidding with our partners, a
very important step towards implementing
side-by-side at scale and securing long-term
operational growth.

Partners continue to provide local language
and market expertise which is invaluable in the
sales process, particularly with regards to new
market entry opportunities.

We have also benefited from increased
sales channel opportunities via our partner
relationships and the extended global reach
and credibility they provide.

Partner
relationships

(2018: 3)

Partner staff
trained in 2019

(2018: 0)

Link to strategy
2. Develop our partner

ecosystem to increase
operational capacity and
sales opportunities

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 27

Strategic reportFinancial statementsAdditional informationGovernance
Delivering our strategy

Our
market

offering future growth for our
leading digital solutions

Continuing to deliver
to our core customers

In 2019, Alfa continued to deliver
implementations across a broad range
of customers and markets. Alfa’s largest
projects are among the most high-
profile and complex in our industry and
we continued to meet major milestones
on time during the year. The Alfa team’s
unique industry knowledge has enabled
us to develop and deliver a range of
innovative products and technology
solutions, generating operational
efficiencies for our customers.

Alfa’s commitment to regular product
upgrades allows customers to benefit
from new features and develop new
capabilities to innovate in their markets.

This platform for digitalisation
is providing Alfa customers,
unencumbered by the integration
challenges of legacy technology, with
significant competitive advantages.

Along with these core projects our
investment in project delivery for
smaller customers has borne fruit,
with Hampshire Trust Bank going
live 19 weeks after the start of
implementation work. Further
investment and experience in this
area in 2020 will lead to an even more
compelling, feature-rich product for
the volume market.

28 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Volume market

Smaller finance companies often have the same
requirements as larger customers for industry-leading
technology and breadth of functionality. Through
Alfa investment in developing preconfigured Alfa Start
positions and hosting capabilities, we are now able to
offer such companies a highly streamlined deployment
of Alfa Systems with rapid delivery timescales.
Our implementation at Hampshire Trust Bank was
completed in March 2020, after just 19 weeks.

Market leadership

Alfa’s long-term market leadership was further
consolidated in 2019 as we worked with customers
to deliver projects of unique scale and challenge.
The platform continues to prove itself year after year,
demonstrating its capabilities on the largest, most
complex portfolios in the world. In addition, our
approach to integrating with customer project teams
has allowed us to see challenges from the inside and
help develop holistic solutions to complex problems
which could not be achieved with a traditional external
supplier relationship model. The commitment,
knowledge and collaborative approach of Alfa team
members, customers and partners is a true enabler
for these super-large projects.

Link to strategy
3. Extend our best-in-class

digital agenda

4. Establish Alfa Start as

the leading solution for the
volume market

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 29

Strategic reportFinancial statementsAdditional informationGovernanceOur business model

We create value by delivering and supporting
Alfa Systems which provides an end-to-end, smart
and sophisticated solution for operators spanning
the breadth of the asset finance industry

Our resources

How we create value

Technology
Alfa’s continued product
development and innovation
creates opportunity. We provide
a unique software platform that
combines modern, disruptive
technology with industry-leading
functionality and reliability.

People
Our team works collaboratively
with our customers’ teams to
meet their business needs and
strategic aspirations. Expanding
our partner network will
accelerate the evolution of our
implementation capabilities and
complement our continued
focus on delivery.

Culture
Our focus on excellence,
agility and innovation ensures
we are always at the forefront
of the industry, providing
solutions to regulatory and
business challenges, digital
needs and hosting solutions.

Experience
Our software is built specifically
for the asset finance industry
and this, coupled with nearly
30 years of proven delivery
capabilities, has given us deep
experience and know-how. We
work with a wide variety of
customers, across geographies,
cultures and markets – delivering
excellence in everything we do.

Financial
We aim to create stable
commercial relationships which
do not put our funding and
liquidity at risk.

Building long-term relationships
The life of an Alfa customer spans the initial needs assessment through to go-live,
continued maintenance services and ongoing development and services work,
across a myriad of asset types, geographies and lending products. But it does not
stop there – customers often return to a needs assessment as their portfolio
increases, their asset types expand and geographical reach increases.

Innovation

Assessment

Implement,
develop
and train

From proposal
to end of term,
across many
asset types
and financing
structures.

REVENUE STREAMS

Software
implementation
Includes implementation
and development work
for new customers and
upgrades and geographical
or asset type roll-outs
for existing customers.

UPGRADING AND

INCREASING PORTFOLIOS

R&PD and innovation

All supported by strong governance and robust risk management

30 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

International Integrated Reporting Council’s capitals
This key provides a mapping to the “capitals” of the IIRC’s Integrated
Reporting (IR) Framework. You can find out more at: theiirc.org

Financial

Human

Manufactured

Intellectual

Social

Natural

Reinvestment

Maintain

Continued
value
creation

Maintenance
Ongoing support for
existing customers’
portfolios, including
upgrades available on
a monthly, quarterly
or biannual basis at a
customer’s choosing, help
desk support and other
maintenance services.

Ongoing
development and
services (ODS)
Includes further functionality,
development or process
changes in response to new
regulation and further
change management as
businesses grow.

Reinvestment

The value we create
for stakeholders

Shareholders
EPS (basic)
3.5p
(2018: 6.3p)

Customers
Delivery over
last 3 years
7 software

implementations

(2018: 6)

Alfa team
Retention
83%
(2018: 88%)

Product
Investment in Research & Development
£15.2 million
(2018: £16.3 million)

Brand coverage
Countries
26
(2018: 26)

Communities and society

Money raised
£35,000
(2018: £47,000)

Carbon emissions
821 tCO2e
(2018: 890 tCO2e)

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 31

Strategic reportFinancial statementsAdditional informationGovernanceKey performance indicators

Measuring our performance

Alfa measures a range of financial and
non-financial metrics to help manage
business performance

Our strategic priorities

Risks

Grow market share by
maintaining leading-edge
technology, increasing
customer loyalty and
winning new business

Develop our partner
ecosystem to increase
operational capacity and
sales opportunities

Extend our best-in-class
digital agenda

Establish Alfa Start as the
leading solution for the
volume market

Maintain a high-
performance organisation
with a culture of
continuous improvement

Promote and grow value
and develop resilience

G IT security and cyber risks

H Business interruption or continuity

I Brexit and uncertainty surrounding
trading arrangements after the
transition period

J Pandemic outbreak in Alfa

and/or customer geographies

A Failure to retain or increase market
share in our strategic target markets

B High customer concentration risk

C Socio-economic, geo-political risk

D Risk to people, skills, location and

working environment

E Failure to deliver on our existing
implementation or ODS business

F Failure to develop Alfa Systems to
ensure it remains relevant in the
market, to lower the cost of
development in the future and to
allow competitive technological
and product development

Financial

Group revenue

£64.5m

2019 performance
Group revenue has been impacted by delays to
anticipated implementation projects and reduced
discretionary spend by customers.

2019

2018

2017

64.5

71.0

Focus in 2020
• Convert late-stage sales pipeline opportunities

87.7

in Europe and USA;

Why do we measure this?
Revenue and customer base
growth. Growing revenue is a
measure of customer success.
It is central to our objective
of becoming the number
one supplier to the asset
finance industry.

• Continue implementation activities

at existing customers; and

• Hosting and cloud opportunities.

New
implementation
projects

2019

2018

2017

Revenue
on a constant
currency basis

(11%)

2019

2018

2017

(11)

(16)

2019 performance
Three customers began new implementation
projects in 2019, of which two signed up to our new
subscription-based invoicing model, including one
utilising our Alfa Start proposition.

Focus in 2020
• Convert late-stage sales pipeline opportunities

in Europe and USA.

Why do we measure this?
Revenue and customer base
growth. New sales is a measure
of success with customers and is
an indication of future growth.
New customers defined as
implementation work started
in year.

2019 performance
Constant currency decline is marginally higher than
actual revenue reduction, following devaluation of
GBP against USD and EUR during 2019.

Focus in 2020
• Growing Group revenue as described above; and

• Managing the impacts of foreign exchange

fluctuations.

Why do we measure this?
Revenue and customer base
growth. Demonstrates
underlying organic growth
excluding the impacts of
currency movements.

Linked to remuneration:
Yes

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Linked to remuneration:
No

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Linked to remuneration:
No

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

32 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Operating profit
margin

21%

2019

2018

2017

Adjusted EBIT
margin

20%

2019

2018

2017

47*

* The 2017 Adjusted EBIT was
calculated before one-off
pre-IPO related expenses and
pre-IPO share scheme cost.
Refer to the reconciliation on
page 35 for further details.

Billings

£71.1m

2019

2018

2017

71.1

66.5

76.8

Operating free cash
flow conversion

142%

2019

2018

2017

2019 performance
Operating profit margin affected by revenue
decreases and a higher cost base, including
increased staff costs in a competitive market
for software engineers.

Why do we measure this?
Promote and grow value and
develop resilience. Operating
profit is a measure of how
effectively we sell Alfa Systems
and manage our cost base.

Linked to remuneration:
No

Links to strategic
priorities:

Focus in 2020
• Control margin erosion by ensuring costs are

incurred only to the extent necessary to support
future business growth.

2019 performance
Adjusted EBIT margin affected by revenue
decreases and a higher cost base, including
increased staff costs in a competitive market for
software engineers. Adjusted EBIT also adjusts for
capitalised costs relating to internally generated
assets and the relevant amortisation costs on
associated internally generated assets. This explains
why this KPI is slightly lower than the related
Operating Profit margin.

Focus in 2020
• Control margin erosion by ensuring costs are

incurred only to the extent necessary to support
future business growth.

Why do we measure this?
Promote and grow value and
develop resilience. Adjusted
EBIT margin shows the full
underlying cost of developing
Alfa Systems, whilst removing
the impact of non-recurring
expenditure to assess how
effectively we are delivering
Alfa Systems and related
services to customers.

Link to risk:

A B C D E F G H I J

Linked to remuneration:
Yes

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Why do we measure this?
To seek to maintain a strong
balance sheet position (initially
through trade and other
receivables and subsequently
through cash following
collection) – ability to turn
billings into cash demonstrates
cash flow and growth in the
underlying business.

Why do we measure this?
A strong, unencumbered
balance sheet position is key to
growing the business in the
future. Our business has always
been cash-generative and this
KPI allows us to monitor cash
flows throughout the year before
investment in capital projects.

Why do we measure this?
Product investment.
Quantification of the cost spent
investing in research and
development of Alfa Systems,
demonstrating continued
evolution and focus on change.

Linked to remuneration:
No

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Linked to remuneration:
Yes

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Linked to remuneration:
No

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

2019 performance
Billings are higher than revenue due to the deferral of
customised licence revenue recognition and certain
contractual settlement and termination amounts
being billed during 2019 which related to revenue
recognised in prior years.

Focus in 2020
• Maintain billings of 95% of revenue

2019 performance
Cash conversion ratio improved through increased
focus on cash management by the Group and higher
billing amounts compared to the Group revenue
for 2019.

142

Focus in 2020
• Cash flow conversion of 100%

R&D expense

£15.2m

2019 performance
Alfa capitalised £1.1 million in 2019 in relation to:

• Continued investment in our products digital

capabilities;

2019

2018

2017

15.2

16.3

• Upgrades and improvements to usability and

functionality of the Alfa Systems user interfaces;

14.0

• 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
customers for which the Group has invested
internally generated time developing new modules
and capabilities within Alfa Systems.

Focus in 2020
• Continue to deliver on modularisation, our digital
agenda and improve user experience along with
functional changes to support the replacement for
LIBOR in both the UK and the US and to improve
the efficiency of our Alfa hosting service.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 33

Strategic reportFinancial statementsAdditional informationGovernance

Key performance indicators

Operational

Number of
customers

2019

2018

2017

Headcount

316

2019

2018

2017

2019 performance
Two new customers signed in 2019, being a South
African bank and Hampshire Trust Bank, our first
Alfa Start implementation in the UK.

Metric removes customers who terminated in year or
who have given notice to terminate in 2020.

Focus in 2020
• Grow customer numbers and broaden

diversification across geographies and industries.

Why do we measure this?
Revenue and customer base
growth. Increasing the number
of customers helps to grow our
share of the total addressable
market and also protects us
against customer concentration
risk in the medium term.

2019 performance
Headcount increased due to recruitment across the
business in anticipation of expected 2020 activity
levels.

316

312

329

Focus in 2020
• Increase headcount as we close out late-stage

pipeline opportunities.

Why do we measure this?
Revenue and customer base
growth. Our growth and ability
to win new business is partially
dependent on the number
and deep expertise of our
people and therefore growing
our team for the future
is key to this goal.

Why do we measure this?
Engagement of people. Our
deep expertise in the industry
and our ability to service our
customer relationships is driven
by the quality of our people.
A higher retention rate
demonstrates sustained
engagement and retention
of key skills and knowledge.

Why do we measure this?
Measures levels of employee
engagement because there
is a positive correlation with
business performance and the
metric should be a lead indicator
for retention rate performance.

Retention rate

83%

2019 performance
Retention rate fell as the market for software
engineers became more competitive. Metric
excludes any managed attrition.

2019

2018

2017

Focus in 2020
• Retention of 90%.

Employee
engagement

45.7%

2019

2018

45.7

61.2

Number of partner
relationships

2019

2018

2017

2019 performance
This KPI was added in 2018 as employee engagement
is a positive indicator of culture and has an impact on
business performance. Extracted from bi-monthly
employee Pulse survey, questions asked are “Would
I recommend Alfa to a friend as an employer”, “I am
happy with Alfa’s strategy and business goals” and
“Alfa has an excellent atmosphere and culture.”
The decrease in the average employee engagement
during 2019 has been a focus by senior management
in the second half of 2019 and employee engagement
levels have grown significantly from Q4 2019 to the
date of this report.

Focus in 2020
• Increased engagement from employees by
providing a stimulating, challenging and
appropriately rewarded working environment.

2019 performance
Discussions with a further three potential partners
continued, in anticipation of joint working
relationships from sales pipeline.

Focus in 2020
• Successfully announced new global partnership

agreement with Accenture. Continue to grow and
utilise partner ecosystem.

Linked to remuneration:
No

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Linked to remuneration:
No

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Linked to remuneration:
Yes

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Linked to remuneration:
No

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Why do we measure this?
Revenue and customer base
growth. The profitable growth of
our business is also linked to our
ability to increase operational
capacity. Our relationships with
partner organisations provides
introductions to potential
customers and also provides
resource augmentation and
system integration capabilities.

Linked to remuneration:
No

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

Greenhouse gas
emissions per 1,000
square feet (tCO2E)

2019 performance
We have continued to monitor our level of carbon
emissions and seek opportunities for further
reductions.

821

2019

2018

2017

Focus in 2020
• Move towards neutral environmental impact

through comprehensive review of total carbon
emissions and identify and implement strategies
for reduction.

See our ESG section for more info on page 58.

821

890

690

Why do we measure this?
Responsible operations. We are
committed to a position of
carbon neutrality through
assessing our carbon footprint
and emissions to include a review
of flights and energy usage.

Linked to remuneration:
No

Links to strategic
priorities:

Link to risk:

A B C D E F G H I J

34 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Definition and method
of calculation of KPIs
In considering the financial performance
of the business, the Directors and
management use key performance
indicators, some of which are defined by
IFRS and some of which are not
specifically defined by IFRS.

We believe that Billings, Adjusted EBIT,
Adjusted EBIT margin and Operating
free cash flow conversion are the key
measures required to assess our
financial performance. They are used
by management to measure liquidity,
in the case of Billings and Operating free
cash flow conversion, and profitability in
relation to Adjusted EBIT and Adjusted
EBIT margin.

These measures are not defined by IFRS.
The most directly comparable IFRS
measure for Adjusted EBIT is our Profit
from continuing operations and for
Operating free cash flow conversion
it is Cash flows from operations. These
measures are not necessarily comparable
to similarly referenced measures used by
other companies. 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.

The method of calculation for each
metric is as follows.

(1) Headcount
Represents the number of Alfa
employees under contracts of
employment as at 31 December
of each year.

(2) Retention rate
Represents the retention of
Alfa employees over the previous
12-month period, excluding any
managed staff attrition.

(3) Billings
These are amounts invoiced in year. This
differs from revenue as defined by IFRS
due to the release of deferred income in
relation to licence payments and
maintenance agreements and accrued
income in relation to work in progress
and other contractual amounts due
from customers.

Adjusted EBIT

Profit for the year

Adjusted for:

Taxation
Pre-IPO employee share schemes(1)
IPO-related expenses(2)

Finance income

Finance expense

Adjusted EBIT – 2018 definition

Capitalised development costs

Amortisation of capitalised development costs

Adjusted EBIT – 2019 definition

2019
£’000s

2018
£’000s

2017
£’000s

10,182

18,150

25,866

2,818

4,306

–

(143)

852

–

(74)

–

7,996

4,400

3,000

(33)

–

13,709

22,382

41,229

(1,135)

(407)

153

–

12,727

21,975

41,229

(1) Relates to pre-IPO employee share scheme expense.
(2) Relates to IPO-related expenses which are determined to be non-recurring.

The table above reconciles Adjusted
EBIT to profit for the year.

(5) Operating free cash flow conversion
Operating free cash flow is calculated
as cash from operations, less gains and
losses on settlement of derivative
instruments and margin calls, less capital
expenditures, less total lease payments
in respect of IFRS 16 (which was applied
for the first time in the year ended 31
December 2019) and adding back IPO-
related expenses. Operating free cash
flow conversion represents Operating
free cash flow generated as a proportion
of Adjusted EBIT. Management uses
Operating free cash flow conversion
to monitor and manage cash flows. The
table below presents a reconciliation of
Operating free cash flow to Cash
generated by operations, which is the
nearest measure defined by IFRS.

(4) Adjusted EBIT margin
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 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 believe is reflective of
the underlying cost base and overall
trading operations.

£’000s

Cash generated by operations

Adjusted for:

2019

2018

2017

22,548

20,954

28,853

Settlement of derivative financial instruments
and margin calls

–

(108)

(2,683)

Capital expenditure

(2,076)

(1,638)

IPO-related expenses excluded from Adjusted EBIT

–

Total lease payments in respect of Right-of-Use Assets

(2,462)

–

Operating free cash flow

Adjusted EBIT – 2019 definition

Operating free cash flow conversion

18,010

12,727

142%

19,208

21,975

87%

(663)

3,000

–

28,507

41,229

69%

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 35

Strategic reportFinancial statementsAdditional informationGovernanceRisks and uncertainties

Ensuring effective risk identification
and management

Introduction
We recognise that managing risk
effectively is integral to executing our
strategy. We have therefore implemented
a five-step process for monitoring and
managing risk throughout our business,
allowing the Directors to conduct a robust
assessment of the principal risks facing the
Group. Risk is not something that should
be eliminated but, instead, identified,
assessed and managed in a timely manner.

Risk management is integral to
delivering our strategic objectives
In order to deliver our strategy and
achieve excellence through our business
model, both operationally and financially,
we must ensure we maintain the right
balance between safeguarding against
potential risks and taking advantage of
potential opportunities. Our aim is to

foster a culture of effective risk
management by encouraging appropriate
and monitored risk-taking in order to
achieve the Group’s strategic priorities.

Our key strategic priorities are:

1. Grow market share by maintaining

leading-edge technology, increasing
customer loyalty and winning new
business;

2. Develop our partner ecosystem to
increase operational capacity and
sales opportunities;

3. Extend our best-in-class digital agenda;

4. Establish Alfa Start as the leading
solution for the volume market;

5. Maintain a high-performance
organisation with a culture of
continuous improvement; and

6. Promote and grow value and develop

resilience.

We operate within various different
geographical markets, each with their
own potential diverse risks attached to
them. It is therefore imperative that we
assess and manage risks across each of
these markets to ensure we have
assessed all risks appropriately.

Our customers remain at the centre of
everything we do and depending on the
customer profile, they may be impacted
by different regulatory, legislative and
business requirements and challenges.
Our diligent approach to risk
management means, we take into
account the relevant implications for
our business.

How we monitor risk

Identify risks

Define risk appetite

Whilst overall responsibility for risk lies at Board level,
the Directors have delegated authority for risk identification
to the CLT.

A bottom-up approach has primarily been undertaken to
provide a detailed review of risks by relevant business owners
and this is led by the Risk Officer, twice a year. The output is
then reassessed by the CLT to provide assurance over
completeness of the risk register.

Our systems and processes are designed to manage our
exposure to risk rather than eliminate risk completely.
Therefore the Audit and Risk Committee, with the CLT,
reassesses the Group’s risk appetite each year with this in
mind. The Audit and Risk Committee considers the risks
associated with the conduct of our business and the delivery
of our strategy, assessing the risks we are exposed to and
evaluating whether this exposure is acceptable given the
likelihood and severity of the risk.

Respond, manage and mitigate

Assess and quantify

Each risk is reviewed, twice a year. At each review date, the
existing controls are reviewed for adequacy and effectiveness.
Due to the ever-changing business landscape and the industry
we work in, it is quite possible for the control requirements to
change and for processes and policies to require updating.
If this is the case, then a business owner is identified and they
are responsible for implementing changes.

Risks are assessed to understand the likelihood and the
impact of the risk crystallising. We assess these by
considering the possible impact on the following areas:

– Financial;

– Operational;

– Reputational; and

– Legal/compliance.

Monitor and review

Management monitors progress against the principal risks. This has been shared with our internal auditors, BDO, to assist them
form the internal audit plan for 2020. The Board reviews the summary risk register and assesses the adequacy of the principal risks
identified, as well as the mitigating controls and procedures which are in place.

36 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Principal
risk analysis
(including
mitigating
activities)

y
t
i
l
i

b
a
b
o
r
P

Impact

A Failure to retain or increase market share

in our strategic target markets

G IT security and cyber risks

B High customer concentration risk

C Socio-economic, geo-political risk

D Risk to people, skills, location and

working environment

E Failure to deliver on our existing
implementation or ODS business

F Failure to develop Alfa Systems to ensure
it remains relevant in the market, to
lower the cost of development in the
future and to allow competitive
technological and product development

H Business interruption or continuity

I Brexit and uncertainty surrounding
trading arrangements after the
transition period

J Pandemic outbreak in Alfa

and/or customer geographies

Acceptable risk appetite

The processes and systems
which support the risk
management review
The ownership of the Alfa risk register
sits with the Risk Officer. The risks are
documented in our project and issue-
tracking software tool which is used for
all of our development work. Senior
management assesses and monitors
risks during the twice-yearly risk
meetings. Dashboards within the
software highlight key risks and relevant
action points. The risk tool also provides
a history of our decision-making and
discussion points.

The principal risks and uncertainties and
actions being taken to mitigate those
risks are presented to the Board at least
every six months, including as part of the
financial interim and year-end processes.
As part of the long-range business plan
and risk management processes, the
Board considers the level of risk carried
and the extent of mitigation required
to deliver an acceptable level of risk.

Responsibilities

Board
• Defines the risk governance framework, risk culture and principles.

• Sets overall risk strategy and policy.

• Approves risk appetite.

Audit and Risk Committee
• Reviews the risk management framework and the effectiveness of

internal controls, risk management systems and major risk initiatives.

• Reviews the internal audit programme and reports.

Risk Officer and CFO
• Responsible for collating updates, managing the risk register and

presenting principal risks and uncertainties to the Company
Leadership Team and Audit and Risk Committee.

• The Risk Officer reports to the CFO in relation to risk

management matters.

• The CFO has responsibility for governance and risk

management review.

• Responsible for an effective system of internal controls.

• Approves risk decisions that are beyond delegated authorities.

CEO and CLT
• Review the risk management framework and the effectiveness
of internal controls, risk management systems and major risk
initiatives across the Group.

• Review the risk profile against risk appetite and make

recommendations to Board in relation to risk profile, strategy
and key controls.

• Review the sustainability of risk methodologies, metrics and policies.

• Assess major risk-related projects.

• Assess new commercial arrangements through activities of

the Deal Committee.

Operational management
• Assess for new risks, update on current risks assessment and

implement mitigation strategies.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 37

Strategic reportFinancial statementsAdditional informationGovernanceRisks and uncertainties continued

Risk assessment categories

Operational

Risks arising from people, processes,
and systems, impacting upon efficient
and effective operations or our ability
to deliver on strategic priorities

Financial

Risks which might impact upon our
ability to meet our financial
expectations and obligations

Reputational

• Strategy and leadership

• Product development, innovation

• People – recruitment, retention,

and quality

skillsets, wellbeing, health and safety

• Sales and marketing

• Service delivery

• Contractual and commercial terms

• Operating geographies

• Information technology, security

and governance

• Liquidity and funding

• Tax compliance

• Foreign exchange volatility

• Financial management and control

• Credit or customer concentration

Risks which may impact how our Alfa
team members or stakeholders perceive
us, or how they interact with us

• Cyber security

• Environment

• Ethics

Legal/compliance

Risks related to non-compliance
with government and regulatory
requirements in the jurisdictions in
which we operate

• Ethics

• Corporate governance

• Laws and regulations

38 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Risk appetite
The Board, assisted by the Audit and
Risk Committee and CLT, assessed the
Group’s risks appetite in November
2018 for the categories above, and
again in March 2020. This has been
used to determine the appropriateness
or effectiveness of the mitigating
actions and controls in place or to
be put in place.

Focus for 2020

We have continued to focus on our risk management activities and have
set a plan for the coming year as follows:

• An exercise has started with our

• Business Continuity and Disaster

internal auditors, BDO, to review
and assess our risk management
processes, and to develop these
further. This ensures that we remain
up to date with the latest processes
and advances in this area.

Recovery Planning – we have
performed a number of scenario
testing exercises. Our internal
auditors have also performed a
review to assess the strength
of our procedures and responses.

• Cyber security and data protection
– We have maintained our SOC II
certification in 2019 and will continue
to ensure we maintain this in 2020.

• Internal audits – we plan to perform

reviews of financial controls,
corporate governance and
recruitment, retention, and talent
management, amongst others.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 39

Strategic reportFinancial statementsAdditional informationGovernancePrincipal risks and uncertainties

Principal risks and uncertainties in more detail
The Group faces a number of risks that may adversely affect our
strategic and business objectives, operations, liquidity, financial
position, reputation or future performance, not all of which are
wholly within our control or known to us. Some such risks may
currently be regarded as immaterial and could turn out to be
material. We accept that risk is an inherent part of doing business.

The Directors consider the following matters to be the
principal risks and uncertainties (in no specific order)
affecting our business at this time.

Our strategic priorities

Grow market share by
maintaining leading-edge
technology, increasing
customer loyalty and
winning new business

Develop our partner
ecosystem to increase
operational capacity and
sales opportunities

Extend our best-in-class
digital agenda

Establish Alfa Start as the
leading solution for the
volume market

Maintain a high-performance
organisation with a culture of
continuous improvement

Promote and grow value
and develop resilience

Risk A – Failure to retain or increase market share in our strategic target markets

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement:
Reduced risk due to
renewed focus on strategic
target markets, and a
healthy sales pipeline

Impact:
Major

Probability:
Possible

• We may fail to assess our target markets: technological
changes, customer requirements, capacity needs and
competitors’ strategies, including launching disruptive
technologies, and therefore miss opportunities, or fail
to win new contracts.

• We may fail to address significant changes in the

industry, e.g. price, flexibility of product or meeting
increased requirements in relation to digital
enablement.

• Our product may not develop sufficiently to meet
these market opportunities, or may fail to meet
customer requirements or needs, or these
developments could have delays, or cost overruns
impacting on our market position, revenues or returns
on investment.

• We have refreshed our sales and business development
approach, with a renewed focus on our strategic target
markets, led by our CEO and regional business
development leads.

• We have continued to invest in Alfa partnering, building
a strong and growing network of professional services
partner organisations. This is expanding our access to IT
decision-makers.

• We have professional, experienced project teams, led
by Client Account Directors, who focus on large-scale
implementations and develop close relationships within
the industries we serve.

• We have continued to focus on our digital offerings as an
additional value-add to both new and existing customers
to increase our sales potential.

• We assess all product investment projects through the
Investment Committee (see page 80), which approves
major development programmes, ensuring they meet our
business objectives, internal commercial targets and the
requirements of the market.

• Our Alfa hosting cloud platform is proving a compelling
prospect for existing customers who are considering
cloud-first strategies.

Risk B – High customer concentration risk

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement:
Reduced risk due to
implementation successes
in 2019, moving those
customers into ODS

Impact:
Major

Probability:
Possible

• We have significant customer-concentration risk due
to the size of our software implementation projects,
the duration of those projects and the relatively low
percentage of recurring revenues from maintenance
contracts. If one, or more, of our key customers pauses,
or terminates, their implementation activities there is a
risk of a material impact on revenue targets.

• We continue to aim for alignment of key contractual
terms across all new contracts to protect the Group,
where possible, against paused or terminated contracts.

• We ensure that the Group is financially robust and

resilient to economic downturns, or project pauses, by
retaining cash reserves and collecting maintenance and
licence revenues in advance.

• We have continued to invest in Alfa partnering, building a

strong and growing network of professional services
partner organisations. This increases our capacity to run
concurrent implementations, with the aim of reducing our
exposure to individual customer contracts.

Risk C – Socio-economic, geo-political risk

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement:
Reduced risk due to the
implementation of the
Brexit transition period,
and conclusion of the 2019
UK general election. Brexit
is also now shown as a
separate risk – see Risk I.

Impact:
Major

Probability:
Unlikely

• Alfa derives all of its revenues from providers of asset

finance.

• The finance industry is sensitive to changes in

economic conditions and unforeseen external events,
such as political instability, international trade
uncertainties, inflation and other unforeseen events
which may put pressure on profitability of the players
in this market.

• This in turn may decrease the amount they have to

spend on improving their internal systems and
processes or may extend the decision-making when
contemplating a new asset finance system.

• Brexit, particularly the uncertainty around the end of
the transition period on 31 December 2020, has been
given specific focus at ‘Risk I’.

• Risks associated with Coronavirus (“Covid-19”) are

shown discretely at ‘Risk J’.

• We continue to focus on diversifying our customer base,
both geographically and by asset type (i.e. automotive,
equipment) but also by type of customer (i.e. banking,
OEM or independent) which therefore have different
and often contrasting risk characteristics. This mitigates
some of this risk as there is often a degree of cyclicality in
trends affecting the asset finance industry.

• In times of uncertainty, regulation and focus on

operational efficiency may increase and Alfa regularly
reviews its product roadmap and strategy to ensure that
such changes become business opportunities in times of
economic, political and social uncertainty.

• We ensure that the Group is financially robust and

resilient to economic downturns, or project pauses, by
retaining cash reserves and collecting maintenance and
licence revenues in advance.

40 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Risk D – Risk to people, skills, location and working environment

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement:
Increased risk due to
intense competition in the
engineering recruitment
market

Impact:
Major

Probability:
Possible

• Our business is heavily dependent on our people

• We continue to recruit graduates and experienced hires

because they are integral to the development and
delivery of Alfa Systems.

from a diverse number of sources, from varied
backgrounds and ethnicity and with varied core skills.

• There continues to be intense competition for

engineers, both at the graduate level as well as highly
experienced individuals.

• Failure to attract, train and retain high quality

individuals in our key operating regions may limit our
ability to deliver implementations, maintain product
quality and leading-edge functionality, manage
customer relations and deliver on our strategic plan.

• As our global reach expands and opportunities arise in
new regions, we may find it difficult to provide staff
across geographically diverse customer sites. This has
the potential to have an impact on our ability to deliver
implementation services to our customers.

• We benchmark our remuneration levels against relevant
roles in the industry and aim to be competitive, through
base pay and, going forward, ideally through broader
share ownership in our business.

• Employee engagement surveys are carried out every two
months, and allow areas for improvement to be identified
and acted upon.

• Annual performance management and career planning
is carried out to provide for continuity of operations.

• We have continued to invest in Alfa partnering, building
a strong and growing network of professional services
partner organisations, with wide geographical coverage.
This will enable us to decouple our future growth from
employee numbers.

• We have an established presence in our key strategic
markets in Europe and the USA. We have actively
recruited in both continents in 2019, and this continues
in 2020.

• We engage immigration and relocation experts to assist
us in ensuring that we can place our staff in the locations
where they are required by our customers.

• In 2019, we established:

– An additional Technical Delivery team in our Texas

office, to provide software engineering and
architecture services to our global customers, including
those in the USA; and

– A 24/7 technical operations and Alfa Systems support

capability, using a ‘follow the sun’ approach, with
activities handing over to staff in different time-zones
over a 24-hour period.

• We have established new subsidiary companies in

Germany and France in order to improve service to our
EU customers and staff.

Risk E – Failure to deliver on our existing implementation or ODS business

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement:
Reduced risk due
to implementation
successes in 2019

Impact:
Major

Probability:
Possible

• Our business is dependent on continued delivery
success – our customers rely on Alfa Systems to
operate at the core of their business. Failure to deliver
timely and effective implementations and maintain
sufficient levels of post-implementation support,
could harm our reputation and cause loss of customers.

• Our implementation projects often involve a high

degree of complexity and require a significant time
investment from both Alfa and the customer. Lack of
appropriately skilled resource from the customer side
could prevent us from delivering timely and effective
implementations.

• Our implementations and ongoing development and
support services are delivered side-by-side with the
customer, which allows continuous interaction and
real-time feedback.

• We have continued our investment in faster

implementation processes, for both the auto finance and
equipment finance markets. We have begun to reap the
benefits, with newly-started implementation activities
in both markets accelerating to full pace far more quickly
than had previously been achievable.

• We have project teams who are experienced in

supporting our customers through large-scale and
complex implementations. We have developed flexibility
within our workforce such that we are able to deploy
team members to supplement the customer’s resources
when required. We continue to focus on expanding our
partner network which will provide opportunities to
supplement the effort required by our customers during
the implementation phase.

• The Alfa user groups in the USA and Europe have

continued this year, allowing knowledge sharing and a
forum to gather customer feedback on existing projects
as well as future requirements.

• Our development methodology primarily uses a four-
weekly time box schedule – which serves to minimise
surprises. Development is undertaken on a continuous
basis of four-week sprints, with the aim of increasing
efficacy of quality reviews and testing cycles.

• We have restructured our implementation leadership,

with Client Account Directors leading an implementation
community. They have established a community of best
practice, focusing on continually improving our Alfa
Delivery methodology, sharing experience across
implementation projects, and recognising and
re-using the best approaches.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 41

Strategic reportFinancial statementsAdditional informationGovernance

Principal risks and uncertainties continued

Risk F – Failure to develop Alfa Systems to ensure it remains relevant in the market, to lower the cost of development in

the future and to allow competitive technological and product development

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement:
Same

Impact:
Major

Probability:
Unlikely

• As Alfa Systems is central to how an asset finance

• We will continue to develop Alfa Systems based on

company operates, it is imperative that it continues to
evolve to meet our customers’, and prospective
customers’, ever-changing needs.

requirements from our customers, and this continues to
be our focus, ensuring we are focused on the needs of our
markets.

• Such changes could come from increased regulation,

adopting a new or more modern operating model, or a
desire for increased efficiency.

• Failure to manage our product roadmap, to respond to
demand, could result in an inappropriate investment
focus that does not meet our customers’ business
needs. This, in turn, could increase the risk that
customers could look for alternative solutions,
resulting in the loss of new, or existing, revenue
streams, and could stall long-term growth prospects.

• The USA and European Alfa user group forums actively
influence the Alfa roadmap, with customer and market
requirements being constantly assessed through active
collaboration.

• Our one-product approach, which provides a common

upgrade path for our customers, allows all customers to
take advantage of new functionality.

• Alfa innovation and investment activities have been

particularly active in 2019, with the Investment
Committee meeting every four weeks to decide priorities
and reassess budget allocations. This includes
consideration of strategic initiatives like Alfa partnering
and Alfa hosting, product improvements like refreshing
the Alfa user interface, and initiatives to improve our
software development processes.

• We keep our engineers up-to-date with technology

trends, including attending and participating at
technology conferences, and by researching and
publishing materials on topics important to our markets,
such as artificial intelligence and its applications in the
asset finance industry.

Risk G – IT security and cyber risks

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement:
Same

Impact:
Critical

Probability:
Unlikely

• We are cognisant that no system, network or product is
immune to the risk that outside elements may target
Alfa with attacks, specifically designed to disrupt our
business or harm our reputation.

• Our internal IT and cyber security team monitors key

security and cyber risks, assesses and monitors the control
framework of our key technology suppliers and
undertakes day-to-day monitoring of IT security incidents.

• Although we do not store our customers’ data on our
own corporate network, a targeted attack on Alfa
could adversely affect our customers’, or future
customers’, perception of Alfa Systems. In addition, a
security breach could impinge upon our ability to
operate our business, including our ability to continue
providing support to our customers.

• Our Alfa hosting offering stores our customers’ data on
third party cloud hosting platforms. A security breach
in our Alfa hosting offering could result in compliance
violations, identify theft, malware infections and
diminished customer trust and loss of revenue.

• We implement continual improvements in our IT security

environment and maintain an annual education and
training programme for all staff.

• We have maintained our SOC2 type II and our ISO 27001

compliance in 2019.

• Where we provide Alfa hosting services, using third party
cloud hosting suppliers, we have a continuity plan in place
to transfer our customers’ data to a similar supported
environment should the services not be available.

• Our customers perform thorough assessments of the

security of the Alfa hosting platform during their system
selection and implementation process, measuring our IT
security and data protection processes and controls
against their own, typically stringent, internal policies.
These compliance checks sit alongside our own policies
and procedures, and provide independent assurance for
our customers that appropriate security controls are
in place.

Risk H – Business interruption or continuity

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement:
Same

Impact:
Major

Probability:
Unlikely

• We are at risk of disruption to our day-to-day

• We have an established, detailed and tested incident

operations if there is a disaster incident which causes
our internal IT systems to fail or we do not have access
to our office space.

• A failure to be able to use key IT systems or access our

infrastructure could lead to a failure to deliver
maintenance services to our customers and therefore
have a negative reputational impact.

• Note that the risk that Coronavirus (Covid-19) poses to
us, and our readiness for this, is given specific focus as
“Risk J”.

management procedure and escalation process.

• We have a disaster recovery and business continuity plan

which is reviewed and tested annually.

• Our SOC2 reporting and complete failover testing has

identified no significant required remedial actions.

42 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Risk I – Brexit and the uncertainty surrounding trading arrangements after the transition period

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement: NEW

Impact:
Major

Probability:
Possible

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 December 2020. It is possible that we will face:

• Difficulty recruiting staff from EU countries, reducing

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.

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 regions, 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.

• 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.

Risk J – Pandemic outbreak in Alfa and/or customer geographies

Link to strategic priorities

How it impacts us

What are we doing about it?

Risk movement: NEW

Impact:
Major

Probability:
Almost certain

• Coronavirus (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.

• 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 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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 43

Strategic reportFinancial statementsAdditional informationGovernance

Viability statement

In accordance with the Code, the Board has
addressed the prospects and viability of Alfa

Assessment of prospects
Alfa is one of the leading providers of
software to the asset finance industry
and it is the Group’s clear focus to
increase its relatively small market
share in this space by:

The Group’s prospects are assessed
primarily through its annual planning
process, led by the CEO with the CLT.
All relevant functions are involved,
including finance, sales, recruitment
and resourcing, and commercial.

The Board participates fully in the annual
process and has the task of considering
whether the plan appropriately takes
into account the external environment,
including technological, social and
macroeconomic changes, as well as the
risks and uncertainties of the business.

The output of the annual review process
includes the annual financial budget and
an analysis of the risks which could
prevent the plan being delivered.
Detailed financial forecasts which include
profit, cash flow and key financial ratios
have been prepared for the three-year
period to December 2022.

The first year of the financial forecasts
forms the Group’s 2020 budget and is
subject to a reforecast process each
quarter. The second and third years are
prepared in detail and are flexed based
on the actual results in the first year.

Assessment of viability
The Board’s assessment of the Group’s
prospects, as described on this page, has
been made with reference to current
market conditions and known risk
factors, including the possible impacts
of Covid-19, as described in Principal
risks and uncertainties on page 40.

In addition to this, the Board also
considered the events which were
disclosed in Trading Updates issued in
2018 and 2019, reflecting the
postponement of an existing customer’s
implementation project, and a slower
than expected conversion of the sales
pipeline, respectively.

• Building on its existing customer base,

to ensure a diverse portfolio of
customers whilst increasing recurring
revenues;

• Continuing its excellent delivery track

record;

• Continuously improving the

functionality and performance of
Alfa Systems; and

• Attracting and retaining the best

people, whilst preserving the culture
of Alfa.

During the year ended 31 December 2019,
the Group generated profit before tax of
£13.0 million and was cash-generative
with net cash generated from operating
activities amounting to £17.6 million.
Taking into account the Group’s current
position and its principal risks and
uncertainties as described on pages 40
to 43 of this Annual Report, the Directors
have assessed the Group’s prospects
and viability.

Assessment period and process
The strategy and business model as set
out on pages 8 to 13 and 30 to 31 are
central to an understanding of its
prospects. These inputs provide a
framework for assessing the Group’s
prospects and viability.

The three-year timeframe for assessing
both prospects and viability is considered
to be appropriate because:

• It reflects reasonable expectations in

terms of the reliability and accuracy of
operational forecasting models; and

• Projections looking out beyond three

years become significantly less
meaningful in the context of the fast-
moving nature of the asset finance
industry and the software and
technology landscape.

The Board have considered the Group’s
financial performance in 2019, the
impact of the events in the Trading
Updates, and the current assessment of
the Covid-19 situation, and consider that
the key factors which could impact the
delivery of the Group’s financial
objectives are as follows:

• Pandemic causing projects to be

delayed or cancelled;

• Failure to deliver a significant

implementation either in whole
or on time;

• Failure to win new customers or upsell

to existing customers;

• Failure to retain existing customers;
• Failure to retain key personnel; and
• A weakening of the Group’s market-

leading position.

Conclusion
It was determined that none of the
individual risks would, in isolation,
compromise the Group’s viability.
The Directors therefore reviewed the
outputs of the alternative forecasts
which were produced to model the
effect on the Group’s liquidity and
solvency of very severe combinations
of the principal risks and uncertainties
affecting the business.

Scenario 3 reflects the combination
of all risk factors identified and is
considered a ‘worst case scenario’.
The Directors consider that this scenario
more than covers the potential impacts
of Covid-19 including potentially
delayed or cancelled projects, loss of
customers and failure to win new work.
Based on the current assessment of
the Covid-19 situation and the limited
effects on the business and commercial
outlook to date, Scenario 3 is still
considered extremely severe and has
been prepared for the purpose of
creating outcomes that have the ability
to threaten the viability of the Group.

44 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

In the case of such a scenario crystallising
the Company has many different levers
it could pull to minimise the financial
impact and maintain liquidity to
continue in operation. When quantifying
the expected financial impact and
remediation time period for each of
the risks on the viability of the Group,
management assessed historical
evidence of being able to take such
actions and the contractual terms of
the relevant actions.

Revenue and profitability are clearly
affected in this alternative scenario,
however based on the Group’s existing
cash reserves, combined with
incremental cost reduction measures,
the business would retain sufficient
cash reserves to continue in operation
throughout the three-year forecast
period. After cost reductions of
approximately £10-20 million per
annum, the lowest cash balance
modelled was £16.5 million.

Whilst it is acknowledged that there is a
great deal of uncertainty regarding the
future impacts of Covid-19, based on the
assessment of prospects and viability,
opposite, the Directors confirm that
they have a reasonable expectation that
the Group will be able to continue in
operation and meet its liabilities as they
fall due over the three-year period
ending 31 December 2022.

1
Scenario 1 – No conversion
of sales pipeline

Includes a rapid deterioration in pipeline and therefore
no new customer wins in a 24-month period and
pressure on existing customers in the face of an
impending financial crisis impacting rate increases.

The level of recruitment and uplifts in salaries and
personnel related spend are reduced in this scenario.

2
Scenario 2 – Loss of
significant customers across
all business segments

Includes the termination of all significant maintenance
customers, the termination of a significant ongoing
implementation project and no ODS pipeline.

Recruitment and other cost reduction plans consistent
with Scenario 1.

3
Scenario 3 – No conversion
of sales pipeline and loss of
significant customers across
all business segments

Includes both a rapid deterioration in pipeline and
therefore no new customer wins in a 24-month period,
the termination of all significant maintenance
customers, the termination of a significant ongoing
implementation project and pausing of all ODS pipeline,
including the economic impacts of a Pandemic.

In this worst case scenario, substantial cost reductions
would be required, which have been modelled through
paused recruitment and further headcount reductions,
as well as cost reductions across areas other than
research and development, sales and marketing.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 45

Strategic reportFinancial statementsAdditional informationGovernanceFinancial review

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
revenue fell short of our budgets for
the year, performance was in line
with our revised expectations, as set
out in our Trading Update issued on
16 September 2019.”

John Miller
Interim Chief Financial Officer

Group revenue

£64m

(2018: £71m)

Operating profit

£14m

(2018: £22m)

Adjusted EBIT margin1

20%

(2018: 31%)

Cash generated from operations

£23m

(2018: £21m)

Operating free cash flow conversion1

142%

(2018: 87%)

(1)

See “Key Financial Metrics” on page 35 for a
reconciliation of Adjusted EBIT and operating
free cash flow conversion.

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. The
full impact of the transition to IFRS 16 is
explained in note 19 to the consolidated
financial statements.

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 on page 51.

Software implementation
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

46 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Group results

Revenue

2019
£’000s

2018
£’000s

Movement
%

64,480

71,038

Implementation and support expenses

(18,103)

(18,924)

Research and product development expenses

(15,189)

(16,341)

Sales, general and administrative expenses

(18,056)

(13,457)

Other operating income

Operating profit

Finance income

Finance expense

Profit before taxation

Taxation

Profit for the financial year

Revenue

Software implementation

ODS

Maintenance

Revenue from customers

577

13,709

22,382

143

(852)

–

13,000

22,456

(2,818)

10,182

(4,306)

18,150

2018
£’000s

Movement
%

2019
£’000s

26,128

23,460

14,892

64,480

30,391

23,920

16,846

71,157

(9%)

(4%)

(7%)

34%

774%

(39%)

93%

–

(42%)

(35%)

(44%)

(14%)

(2%)

(12%)

(9%)

–

(9%)

(Loss)/gain on derivative financial instruments

–

(119)

Group revenue from customers*

64,480

71,038

* 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.

Software implementation revenue

New

Continuing

Completed

Paused

Software implementation
revenue from customers

2019
£’000s

8,839

16,312

1,166

(189)

2018
£’000s

Movement
£’000s

25,950

3,301

1,104

8,803

(9,638)

(2,135)

(1,293)

26,128

30,391

(4,263)

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,

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 47

Strategic reportFinancial statementsAdditional informationGovernanceFinancial review continued

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%).

44%

Group revenue from
US-based customers

20%

Group revenue from
Rest of Europe

29%

Group revenue from
UK customers

Group revenue from
Rest of World

Geographical split of revenue

Rest of Europe

Rest of World

Revenue

2019
£’000s

18,618

28,087

13,016

4,759

64,480

2018
£’000s

Movement
£’000s

22,847

33,124

12,391

2,795

(4,229)

(5,037)

625

1,964

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, below.

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 below.

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

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
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.

ODS revenue

New

Pre-implementation

Continuing

Completed or contractual non-recurring

ODS revenue from customers

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

2019
£’000s

2,321

2,438

13,118

5,583

23,460

2018
£’000s

Movement
£’000s

–

960

19,917

3,043

23,920

2,321

1,478

(6,799)

2,540

(460)

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.

48 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

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

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 £0.5 million 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 opposite.

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

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%).

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%).

in the year reflecting annual inflationary
rate rises on the underlying existing
customer base.

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.

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%).

Expenses by activity

Implementation and support expenses

Research and product development expenses

Sales, general and administrative expenses

Other operating income

Total operating expenses

2019
£’000s

18,103

15,189

18,056

(577)

2018
£’000s

Movement
%

18,924

16,341

13,457

(66)

(4%)

(7%)

34%

774%

50,771

48,656

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 49

Strategic reportFinancial statementsAdditional informationGovernanceFinancial review continued

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.

Operating free cash flow conversion improved 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.”

Constant currency – average exchange rates

USD

Euro

Swedish Krona

New Zealand Dollar

Australian Dollar

Key financial metrics

Revenue – as reported

Revenue – constant currency

EBIT – as reported

EBIT – constant currency

Adjusted EBIT – as reported

Adjusted EBIT – constant currency

2019

1.2771

1.1407

2018

1.3355

1.1303

12.0708

11.5953

1.9379

1.8365

1.9311

1.7862

2019
£’000s

64,480

13,709

12,727

2018
£’000s

Movement
%

71,038

72,503

22,382

23,205

21,975

22,798

(9%)

(11%)

(39%)

(41%)

(42%)

(44%)

50 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

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
shown in the table opposite.

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.

Adjusted EBIT

Profit for the period

Adjusted for:

Taxation

Finance income

Finance expense

Adjusted EBIT – 2018 definition

Capitalised development costs

Amortisation of capitalised development costs

2019
£’000s

10,182

2,818

(143)

852

13,709

(1,135)

153

2018
£’000s

18,150

4,306

(74)

–

22,382

(407)

–

Adjusted EBIT – 2019 definition

12,727

21,975

Operating free cash flow generation

Cash generated from operations

Adjusted for:

Settlement of derivative financial instruments
and margin calls

Capital expenditure

Total lease payments in respect of Right-of-Use Assets

Operating free cash flow

Adjusted EBIT – 2019 definition

Operating free cash flow conversion

2019
£’000s

22,548

2018
£’000s

20,954

–

(2,076)

(2,462)

18,010

12,727

142%

(108)

(1,638)

–

19,208

21,975

87%

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.

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%).

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 51

Strategic reportFinancial statementsAdditional informationGovernance

Financial review continued

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 presented
on the page opposite. 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.

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.

Cash flow

Cash generated from operations

Interest element on lease payments (IFRS 16)

Settlement of derivative financial instruments
and margin calls

Income taxes paid

Net cash generated from operating activities

Net cash (used in) by investing activities

Cash used in financing activities

Effect of exchange rate changes

Movement in year

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

Movements in working capital and
other balance sheet items

Movement in provisions

Movement in contract liabilities

Movement in working capital:

Movement in trade and other receivables

Movement in trade and other payables and
provisions (excluding derivative financial
instruments and contract liabilities)

Movement in working capital and
other balance sheet items

2019
£’000s

2018
£’000s

22,548

20,954

(852)

–

(4,074)

17,622

(1,933)

(1,610)

(162)

13,917

44,922

58,839

2019
£’000s

515

3,110

(108)

(5,846)

15,000

(1,564)

–

219

13,655

31,267

44,922

2018
£’000s

(1,379)

2,532

(1,237)

(858)

(179)

5,299

(2,730)

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.

52 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

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.
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 above, in Note 1(a)
to the consolidated financial statements
and in the Directors’ report.

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

John Miller
Interim Chief Financial Officer

23 April 2020

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 (5),
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
(1) to grow market share, (3) to extend
our best in class digital agenda, and
(6) 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, as set out on pages 40 to 43.

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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 53

Strategic reportFinancial statementsAdditional informationGovernanceEnvironmental, social and governance

Environment, social
and governance (ESG)

In 2019, we focused on two of
our company values from a social
and environmental perspective:
Create a positive impact and Make
it better together. We have aimed
to relate all activities back to
these values.

Our people are our key asset. In return
for their commitment to provide a
first-class service to our customers,
we strive to be a great employer.
Alongside supporting and promoting
equality and diversity in the workplace,
we are committed to helping our
people grow both professionally
and personally.

We pledge to carry out a
comprehensive review of the total
carbon emissions of Alfa’s operations
aiming to identify and implement
strategies for reductions including
investing in carbon offsetting initiatives
to begin the process of bringing our
emissions to net zero.

54 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Summary of what we achieved in 2019

Area

Commitment

2019 achievements

Diversity

To support and promote diversity across the
whole company and to hold four internal
events on these issues.

• Launch of Alfa Women’s Community.

• Alfa stand at Pride in London.

• The Alfa Inclusion Community hosted events to address:

– Diversity issues, including ageism;

Training

Culture

m
a
e
t

r
u
O

To provide opportunities to expand technical
knowledge as well as soft skills and personal
development.

To create a great place to work – collaborating
and sharing ideas, knowledge, expertise and
networks.

– Social background;

– Unconscious bias; and

– Mental health.

• Delivered over 150 days of training internally.

• 870 days of training attendance across the company.

• 115 days spent on content creation and updating.

• New courses created and existing courses refreshed.

• Alfa’s values, purpose and vision published.

• Continued to foster a collaborative and innovative
environment via regular innovation afternoons and
innovation days, hackathons and social responsibility
events.

Internal
communications

To continue to provide transparent and clear
communications.

• Commitment to communicate internally early and often

to keep staff informed.

• Quarterly company meetings at which company news

delivered to and discussed by all staff globally.

• Town Hall meetings.

• Directors’ Questions and Executive blogs.

• Bi-monthly employee engagement surveys.

• Daily communications on our company intranet.

Our charities

To offer our time and expertise as well as
financial donations.

• Improvement of our volunteering scheme to encourage

more staff to participate.

s
e
i
t
i
n
u
m
m
o
c

r
u
O

Our next
generation

To offer support, advice and connections to
young people who are just starting out in the
business world.

• Fundraising and volunteering initiatives for charities
nominated by staff, representing a variety of causes.

• Events included sponsored runs, cycles, and a clean-up
of a gardening space, for people with disabilities, as well
as individual fundraising efforts which Alfa matched.

• Employees engaged in a number of initiatives in 2019 to

help inspire the next generation:

– Volunteering with a charity which helps young people

discover and realise their creative potential;

– Establishing partnership with a local girls’ youth club; and

– Our internal graduate programme.

Our customers

To listen actively to feedback, react and
respond to it and always fulfil our promises.

• Four Alfa user group meetings took place in EMEA and

North America, as well as separate working group sessions.

Our suppliers

To work with suppliers who source ethically
and whom we can trust to continue to do so.

• Customers actively running and hosting the user group

meetings.

• User experience research visits to a number of customers.

• Focus on ensuring our suppliers practice sustainability.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 55

Strategic reportFinancial statementsAdditional informationGovernance

Environmental, social and governance continued

Our team

Recruitment and retention

Alfa welcomes and considers all
suitable applications for employment,
irrespective of gender, race, ethnicity,
religion, age, sexual orientation or
disability. All employees are eligible to
participate in our career development
and promotion activities. Each
employee has an annual pay rise and
promotion meeting with senior company
leadership. Support is provided for
employees who become disabled, to
continue in their employment, or to
be retrained for other suitable roles.

Diversity and inclusion

Our approach to diversity and inclusion
is a critical part of our business and
culture. Our team, which speaks over
30 languages and comprises more than
50 nationalities, is more productive
for embracing our rich mix of
different perspectives.

There is regular engagement with the
wider company through dedicated
events, blogposts and internal forums.
This level of interaction has fostered the
development of a valuable platform
for open communication at Alfa.
Community representatives are active
at each of our main locations worldwide,
delivering coordinated events and
facilitating discussion.

Our key objective in 2020 is to develop
and execute a diversity plan, the central
part of which is increasing diversity in
our leadership team and the Board.
Aside from leadership, a company-wide
effort will be made to bolster the
diversity of our recruitment, devise
strategies for colleague-led support
networks, and continue to foster our
global platform through regular events.

As Alfa’s diversity policy continues to
mature, we will also seek to improve
engagement with our people and
monitor our positive impact across
diverse communities.

Gender

In 2019, the Alfa Women’s Community
was formed. This body represents
female staff and strives to achieve
a progressive and inclusive working
environment where all can thrive. The
community also aims to provide support
to people of any gender to address
concerns of bias related to women, and,
actively encourages gender diversity –
not only within Alfa, but across the
industry in which we operate.

Within Alfa globally, 29 per cent of
our people are female (2018: 20%).
Alongside our work to improve gender
balance, we have continued our
longstanding relationship with Women
in Tech, an organisation which provides
guidance and support to women either
seeking to enter, or operating in, the
technology sector. In 2019 we also ran
career development sessions with a
local girls’ youth club, Karismatic Minds,
and will further develop this partnership
in 2020.

56 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Our pay, diversity and inclusion strategy

We are very proud of the work that we do at Alfa to create and
support diverse and balanced teams throughout the organisation.
As a new joiner to Alfa, I am inspired by the passion and drive of
our employees in maintaining an inclusive working environment.
Our pay gap numbers for 2019 have been heavily influenced by
a number of senior management changes that took place at the
beginning of the year. Subsequent recruitment at senior levels
will redress this to some extent, and I am confident that our
continued focus and long-term plans will enable us to create a
diverse organisation that we are all proud of.”

Vicky Edwards
Chief People Officer

What we did this year and
what we are going to do

Flexible working
We are gradually empowering our
people to choose how, when and
where they work to help support their
personal and professional ambitions.
We continue to encourage and allow
flexible working patterns, for a
number of reasons, including care
responsibilities, hobbies and well-
being. We continue to maintain a 100%
record of employees returning to work
after maternity and paternity leave.

Mentoring and Coaching
To continue the development of a
female talent pipeline, we encourage
and promote uptake of our career
management scheme to all employees
across the company. In 2019, we offered
our female senior leaders access
to an external coaching programme
and this has continued into 2020.

Women’s Community and Initiatives
In 2019, the company formed an
internal Women’s Community, which
aims to support existing women
employees, ensure a progressive and
inclusive working environment and to
provide female role models internally
and within the wider community.
The company has continued
partnership with the PwC The Tech
She Can® Charter, which works with
companies on initiatives to increase
the number of women working in
technology roles in the UK. We have
also formed a corporate partnership
with the Women’s Association which
empowers women to overcome
preconceived ideas of what women
are able to do in the workplace.

Statutory Gender Pay Gap (GPG) Reporting
The gender pay gap is the measure of the difference in average pay between all
men and women across an organisation, regardless of their role, level, length of
service or location and any other differentiating factors. The gender pay gap is
reported as a mean average and median average (midpoint) figure. The gender
pay gap is different to the concept of equal pay which requires that women
and men are paid the same for doing the same job. It is unlawful to pay people
unequally on the basis of gender.

We have fewer than 250 employees in our largest trading subsidiary, Alfa
Financial Software Limited, but we have compiled our GPG data, voluntarily, to
continue our commitment to diversity across our Alfa team and best practice in
corporate reporting. The analysis is based on data as at 5 April of each year and
this report reflects the data collected and analysed as of 5 April 2019.

Pay Gap % – Employees

Gender Pay Gap

2019

2018

2019

2018

Statutory

Median Pay Gap Median Pay Gap Mean Pay Gap Mean Pay Gap

Alfa

Tech sector

*2019 data from ONS.

23.5%

17.3%

13.7%

14.6%

11.8%

14.8%

21.1%

16.2%

10.5%

13.1%

14.3%

18.5%

Percentage in pay quartiles – Employees

Pay quartiles –
proportion of men
and women in each
pay quartile

1st (Lowest)

2nd

3rd

4th

All

2019
Men

69%

71%

84%

77%

2019
Women

31%

29%

16%

23%

2018
Men

67%

88%

78%

81%

75%

2018
Women

33%

12%

22%

19%

25%

Sponsorship
We continue to encourage more women
into the technology industry through
the organisation and sponsorship of
women and STEM specific events,
at university level.

Career Paths
We have continued to develop and
evolve our career path structure
to ensure employees across the
organisation have appropriate
support and development
opportunities in their area of work.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 57

Strategic reportFinancial statementsAdditional informationGovernanceEnvironmental, social and governance continued

Culture

Our culture is one of our greatest
strengths and remains highly valued and
appreciated by the whole Alfa team.
It is a key factor in our consistently high
rates of staff retention. Pivotal to this
culture, is our commitment to promoting
collaboration and innovation across all
levels and roles within the company.

Every year, we hold a series of
innovation afternoons to allow staff to
participate in new ideas, initiatives and
opportunities. For the first time in 2019,
we ran a full innovation day across all
locations, which proved to be a great
success. Our annual hackathon also
remains a hugely popular event and this
year innovations included: Blockchain: a
business case exercise; Alfa on a cluster
of Raspberry Pis; and Alfa store front.

Our Events Team organises an engaging
programme throughout the year,
providing staff with opportunities to
interact with people in the company
they might not otherwise get a chance
to meet. Events range from our annual
summer party (to which families are
also invited); social get-togethers;
and educational meetings, including
‘Talks in Moor’, where inspirational
people are invited to talk about their
experiences and achievements.
This year, speakers have included
Paralympians, art therapists and
our own Non-Executive Directors.

Our dedication to diversity and inclusion
runs from the Board through the whole
company. Staff across the company
work hard to facilitate a safe and
enjoyable working environment
for all colleagues, enhancing morale
and productivity.

Carbon emissions

We pledge to carry out a comprehensive
review of the total carbon emissions of
Alfa’s operations, including flights,
equipment and electrical output, aiming
to identify and implement strategies for
reduction. At the end of this process we
will invest in carbon offsetting initiatives
to begin the process of bringing our
emissions to “net zero”. We will do the
necessary due diligence to ensure we
are employing the most appropriate
methodology to achieve this for a
company of our size and distribution.

We will be launching internal
information campaigns, including blog
posts, to incentivise our employees to
take both individual and group actions
to reduce emissions. This may involve
using alternative forms of transport to
flying, and electing to utilise remote
meeting software rather than travelling
to meet face-to-face where possible.
Our number one priority remains to
deliver Alfa implementations on time
and to the necessary standard, so
individual discretion will be required.

Usage of fuel and operation of buildings

Air travel

Total

Revenue (£ million)

Intensity ratio – tCO2E per million of revenue

2019 tCO2E

2018 tCO2E

143

678

821

64.5

12.7

153

737

890

71.0

12.5

58 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Learning and
development

Customers and
suppliers

Alfa is passionate about maintaining
a culture of continuous learning and
development. We recognise that every
employee is unique and, as such, adopt
an approach which focuses on the
individual. We have a rich library of
training courses, from classroom-based
courses in our standard curriculum, to
bite-sized resources, that can be
accessed on an ad hoc basis. In 2020, we
will increase our investment in learning
and development, demonstrating our
commitment to personal development.

Managers and supervisors meet regularly
with their teams to discuss personal and
professional development. Alongside
this, we encourage staff to spend
five days per year on learning and
development activities.

Our learning and development
objectives for 2020 include:

• Grow our repository of learning

and development resources;

• Work more closely with the business

to ensure we are maximising our
impact; and

• Increase senior levels of staff delivery

of learning and development activities.

We have also introduced a range of
tailored coaching programmes and
support across the business. This
includes those transitioning into
leadership roles, particularly during
their critical first six months, and
for our most senior female leaders,
focusing specifically on their personal
development and progression within
Alfa. We are continually working to
improve our ability to coach people
across the organisation.

The user-group forums that we
reinvigorated in 2018 went from
strength-to-strength over the course of
2019. Three meetings of the EMEA user
group took place, including a digital
webinar hosted by one of our most
valued customers. The session looked at
the role Alfa played in that customer’s
digital transformation project, which
successfully went live this year. One
meeting of the US user group took place
and we plan on increasing the frequency
of the US user group meetings in 2020.

Working groups form an invaluable
part of our user groups, providing a
mechanism for specific topics to be
discussed and agreed by the group
as a whole. The formation of these
groups has been as a result of both
requests from the user groups
themselves, and from Alfa, with the
latter focused on getting feedback on
our investment initiatives. This year we
had two EMEA user group working
groups, focusing on user experience
improvements in Alfa Systems and the
use of SONIA as the primary interest
rate benchmark for sterling markets.

In 2019, we continued to train our team
members involved with procurement
and have strengthened controls around
the selection and assessment of new
suppliers. We operate responsibly
as a customer and endeavour to pay
our suppliers on a timely basis as
detailed in our bi-annual Payment
Practices Reporting.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 59

Strategic reportFinancial statementsAdditional informationGovernanceEnvironmental, social and governance continued

Sustainability

2019 saw us significantly increase our
ESG efforts, with staff across the
company proactively seeking to reflect
our core “Create a Positive Impact”
value. We have expanded our ESG
activities around the globe, with a new
local ESG team being created in the
Asia Pacific region and a number of
inclusion-related breakfast sessions
being co-ordinated globally. These
teams and events not only showcase
our commitment to communities in
which we operate, but provide an
invaluable platform for people
to share their experiences and
learn from others.

In acknowledging our increasing
responsibility we have as a business, we
have focussed our efforts on reducing
our impact on our environment. We are
pleased to say that membership of Alfa’s
Green Team increased almost fourfold,
and we launched a number of Green
initiatives. We also hosted a number
of events on Green themes, including
raising awareness of the United Nations
Sustainable Development Goals.

We have been delighted to see staff
committed to, and proactively
progressing, our carbon offsetting
efforts this year. From opting to travel
to Germany by train rather than fly,
to offsetting carbon emissions from
flights, we are proud of the collective
responsibility our people have shown.
We will be supporting these efforts
and more in 2020.

We also continued to devote time and
energy to supporting initiatives in our
local communities, providing resources
and raising funds for organisations
wherever we work:

• Fundraising: Alfa staff in the UK raised
over £30,000 for charitable causes,
including over £17,000 for our official
charity partner, Alzheimer’s Society;

• Matching contributions: Alfa matched
money raised by staff for Alzheimer’s
Society at various activities held
throughout the year, including the
British 10K, Swim Serpentine, a month-
long Alfa Bake Off competition and
charity quizzes;

• Food banks: we held a number of food

bank drives throughout the year in
both the UK and the USA, repeating
our popular Reverse Advent Calendar
event in the run-up to Christmas in the
UK. In the USA each of our offices and
locations ran food bank initiatives
throughout the summer;

• Thrive volunteering: Alfa staff spent
two days restoring and maintaining a
garden which provides opportunities
for disabled people to improve their
lives through gardening;

• Canal River Trust volunteering: Alfa

staff spent an afternoon working with
the Canal River Trust to clean up
waterways in our local area;

• Nature garden volunteering: a team

of Alfa staff designed, built and
planted a nature garden for a local
school, Mayfield Primary;

• Habitat for Humanity volunteering:

Alfa staff volunteered with this
organisation in Michigan which helps
provide affordable housing. We
volunteered at one of their ‘restores’
where donated furniture and building
materials are repurposed;

60 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

• Life Remodelled volunteering: Alfa

staff volunteered in Detroit, Michigan
as part of a project to renovate and
beautify 300 city blocks in just six days;

• Greening of Detroit volunteering:

Alfa staff volunteered with an
environmental non-profit organisation
to plant trees in Detroit, aiming to
improve the quality of life in the
community;

• Ministry of Stories volunteering: Alfa

staff volunteered for Ministry of
Stories, a local writing and mentoring
centre which encourages young people
to discover their own gift for writing;

• Pride in London: Alfa staff hosted a
stand at Pride in London where we
engaged with the community, spoke
about diversity in tech and represented
Alfa as a Global Diversity Champion;

• Young people’s career development:

Alfa staff in London ran career
development sessions for local girl’s
youth club, Karismatic Minds. This is an
organisation we hope to do more work
with in 2020; and

• LGBT Allyship: we launched our Allyship
campaign globally, encouraging staff to
be an active friend or support to LGBT
colleagues at Alfa.

Our ESG teams around the world have
collaborated to produce an exciting and
challenging set of objectives for 2020
and beyond. These include:

• Using the United Nations Sustainable
Development Goals to inform all Alfa
ESG ideas and efforts;

• Identifying and implementing

strategies for our carbon-offsetting
approach, to begin the process of
bringing our emissions to net zero;

• Increasing volunteer uptake

significantly across the company; and

• Widening the Alfa charity partner

ecosystem, developing relationships
with a number of new charity partners.

Our ESG work remains central to
who we are as an organisation, and is
a fundamental part of our culture.

Volunteering
focus: Ministry
of Stories

We continued to partner with the Ministry
of Stories in 2019 and this year one of our
staff in London, Tony Palmer, took part as a
volunteer writing mentor in the Speak Up
Programme.

Speak Up guides young people to create a
short speech and deliver it, on a subject they
are passionate about. It was amazing to
see the journey the young people went on,
growing in confidence and finding a topic
they really care about.

I was hugely honoured to attend the final
presentation session where the children had
an opportunity to deliver their speeches to
an audience that included Ministry of Stories
staff, volunteer mentors, MoS trustees,
local poets and artists, and people from
NGOs. Speeches were on topics such as
racism, prejudice, and allyship; knife crime,
the reasons young people fall into gangs;
homelessness, community cohesion in
Hoxton; sexism; global warming, fossil fuels,
and deforestation; and misinformation and
censorship online. And they were amazing.”

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 61

Strategic reportFinancial statementsAdditional informationGovernance
Engaging with our stakeholders

Engaging with our stakeholders

The Board recognises the importance of understanding the views of Alfa’s key
stakeholders. A range of mechanisms for engaging with these differing groups are
detailed below, which ensure that their views and the matters set out in section
172 Companies Act 2006 in respect of the Directors’ duty to promote the success
of the Company for the benefit of its members as a whole, are considered as part
of the Company’s strategic decision-making.

Engagement with our shareholders and wider stakeholder groups plays a vital role
in Alfa’s business. Alfa’s key stakeholders are set out below.

How we engage

Stakeholders’
key interests

How we are influenced
by stakeholders

Relevance to
decisions and
strategy

Further
information

Timely and efficient
implementation delivery.

High quality, resilient and
performant software.

Availability of post-implementation
development, upgrade and
maintenance services.

Ability of Alfa to adapt to and
advise on changing market
dynamics and regulations.

Access to highly skilled and
experienced project teams.

Access to technical innovation
and functional development.

CEO business
review pages
4 to 6

Our strategy
pages 8 to 14

Market overview
pages 15 to 21

Board Leadership
and company
purpose pages
69 to 72

Engaging with our customers
and working closely alongside
them to understand their
business needs, allows us to
combine high standards of
customer service, with a
mutually acceptable delivery
approach. This combination
enables us to provide highly
functional software that is
configured for the needs of
each individual customer.

Identifying our customers’
needs, alongside changing
market dynamics and
regulations, allows us to identify
opportunities for Company
growth and to focus our product
research and development such
that it will produce innovative
and functional solutions for the
asset finance industry.

Building long-term
relationships with
our customers is key
to our long-term
success; maintaining
leading-edge
technology;
increasing customer
loyalty; and winning
new business.

Delivering high
levels of customer
satisfaction and
innovative product
solutions serves to
enhance the
reputation of Alfa in
our marketplace and
grow our existing
customer base.

The implementation phase
of our projects can span from
months to years and during
this time we work in close
partnership with our
customers, actively seeking
to understand their needs
and expectations. Thereafter,
we maintain contact with
customers to ensure we
can deliver their additional
development and
enhancement requirements.

We listen and react to
feedback received from our
customers. In particular,
during the year we have run
customer user group events
with a number of our
European and US customers.
These events have facilitated
insightful discussions between
our customers and provided
us with valuable feedback in
terms of where we should
focus our efforts, the new
features they would like to see
developed and what our
customers see as the key
issues facing their industries.

Members of our CLT have
regular conversations with
each of our key customers.

Executive Directors are
directly involved with
customer senior management
and report to the Board
regularly on the status of
customer implementations.

s
r
e
m
o
t
s
u
C

62 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

How we engage

Stakeholders’
key interests

How we are influenced
by stakeholders

Relevance to
decisions and
strategy

Further
information

Career development and
opportunities.

Wellbeing.

Training and development both in
the technical aspects of their role
and soft skills.

Ability to engage with senior
management, to share ideas and
help contribute to the future
success of the Company.

Fair remuneration and working
conditions.

Recognition and reward.

Regular Company and ad hoc
Town Hall meetings which
provide the opportunity for
transparent and clear
communications from senior
management, as well as an
opportunity for all staff to
share views, learnings and
innovative ideas.

Investment in training and
education starting from
our graduate induction
programme, through to
identification and nurturing
the potential leaders of
the future.

Bi-monthly internal employee
pulse surveys which provide
regular feedback to CLT and
the Board.

Informal communication
across all grades of staff via
our internal intranet site.

Regular Q & A sessions with
the CLT and Non-Executive
Board Directors.

Regular reporting to the
Board on key HR initiatives,
objectives and issues.

The Company applied the
‘alternative arrangement’
approach to workforce
engagement. This enabled the
Board to increase their
understanding of employee
concerns and issues as part of
the Board’s decision process.

s
e
e
y
o
l
p
m
E

Responses from the pulse surveys
are reviewed and assessed to
ensure senior management
respond and take appropriate
action and pulse survey trends
are regularly reported and
discussed by the Board.

Our people are the
bedrock of our
business and we are
focused on providing
them with extensive
experience to
develop their skills.

Business model
pages 30 to 31

Environment,
social and
governance, pages
54 to 61

Our project teams work closely
alongside our customers and are
key to the experience of the Alfa
brand and product, as well as to
the timely and efficient delivery
our customers expect.

Our back-office staff provide
infrastructure support to enable
our project and product teams
to work effectively as well as
ensuring the Company satisfies
its legal and regulatory duties and
creating conditions for the Alfa
culture to thrive.

People pages
22 to 23

Staff development
and training is key to
our future success
and ensuring staff
retention.

Leading product
research and
development are
essential to the
growth of Alfa in the
future. Our
employees’
experience, market
knowledge and
technical skills are at
the heart of the
innovative thinking
we need to deliver
this goal.

The identification
and development of
future Alfa
leadership team
members is key to
our success both in
the medium and
longer term.

We aim to improve
the flow of feedback
and communications
with employees. The
Board reviews
information on
workforce
demographics,
diversity initiatives,
talent acquisition
updates on
engagement levels
and cultural
initiatives.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 63

Strategic reportFinancial statementsAdditional informationGovernanceEngaging with our stakeholders

How we engage

Stakeholders’
key interests

How we are influenced
by stakeholders

Impact of the Group’s activities
on the wider community and
environment.

The Group’s ESG agenda.

Supporting local charities
provides important help and
resource to the local communities
within which we operate. This
also provides our team with the
opportunity to engage with, and
have an impact on, issues they
feel are important to them.

Employees are empowered to
nominate and select local
charities to support.

Relevance to
decisions and
strategy

Further
information

We aim to contribute
positively to the
communities and
environments in
which we operate.

Environment,
social and
governance,
pages 54 to 61

We believe Alfa has
an important role to
play in creating a
positive impact on
the health of the
environment in
which we live and
operate.

Positive actions in
respect of the
environment
including waste and
energy reduction are
desirable, and are
also of potential
commercial
benefit to Alfa.

Access to leading-edge technology
and consultancy proposition with
established credentials.

Experience and in-depth industry
knowledge.

Sustainable partnerships with
long-term relationships and
blue-chip customer lists.

Strategic alliances increase
Alfa’s operational capacity
enabling the delivery of more
implementations, as well as
enhancing Alfa’s ability to target
new customers and markets.

Our partners provide local
language and market expertise.

We access increased sales
channel opportunities via
partner relationships and the
extended global reach and
credibility they provide.

Our partnership
programme is an
important part of
Alfa’s long-term
growth strategy.

We aim to develop
our partner
ecosystem to
increase Alfa’s
operational
capacity and sales
opportunities.

Partnership
pages 26 to 27

t
n
e
m
n
o
r
i
v
n
e

e
h
t
d
n
a
y
t
i
n
u
m
m
o
C

s
r
e
n
t
r
a
P

We have an established global
ESG team and a programme
of activities to assist the
communities in which we
work. Details of our ESG
programme are disclosed
on pages 54 to 61.

The Board endorses the
encouragement of our
employees to contribute to
the community through the
provision of their time and
expertise. This includes
supporting local schools and
charities through Company-
led activities and Company-
matched monetary donation
funding and active time
working on approved
charitable activities.

Building relationships with
organisations such as Women
in Tech, which is focused on
supporting women either
seeking to enter, or operating
in, the technology sector.

We are committed to reducing
the impact the Group has on
the environment and actively
encourage the reduction,
recycling and re-using of waste
across our offices.

We engage with a small,
carefully selected partner
ecosystem of like-minded
organisations, with global
spread and complementary
delivery capabilities.

Our initial approach is to
augment Alfa teams with
partner staff, and work with
systems integrator partners,
whilst we retain ownership of
the customer relationship and
responsibility for project
delivery.

We continue to develop our
partner training and learning
programme, delivering a
comprehensive training
schedule including Alfa
Systems training, our delivery
methodology and simulation-
based implementation
workshops.

Executive Directors are
involved directly with partner
senior management and
provide regular updates
to the Board on key partner
developments and issues.

64 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

How we engage

Stakeholders’
key interests

How we are influenced
by stakeholders

Relevance to
decisions and
strategy

Further
information

Engagement with shareholders
helps the Board understand their
views and priorities.

Shareholder feedback informs
the Board’s decision-making and
influences long-term strategy.

We are committed
to maintaining good
communications
with investors to
maintain long-term
shareholder support.

Corporate
governance
report page 70

We aim to create
long-term
sustainable value
for shareholders.

Regular communications of
half-year and full-year results.

Sustainable financial and
operational performance.

Strategic plans and execution.

Share price growth

Return on investment
and/or capital growth.

ESG issues.

s
r
o
t
s
e
v
n
I

Stock Exchange
announcements and
press releases.

Dedicated investor section
on www.alfasystems.com

Major investor and analyst
calls and meetings (with
Chairman, CEO and Interim
CFO).

Annual General Meeting
and shareholder circulars.

Formal investor/analyst
feedback to the Board
twice a year post half-year
and full-year results.

Availability of Senior
Independent Director.

Relationship Agreement
in place with Controlling
Shareholder to protect all
members’ interests.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 65

Strategic reportFinancial statementsAdditional informationGovernanceCorporate governance introduction

Andrew Page
Chair of the Board
and Founder

After a year of challenging trading
conditions and a period of Board
and senior management changes,
we enter 2020 by strengthening
the Board with the appointments
of two additional non-executive
directors and a new CFO, and
with the Company Leadership
Team and Business Development
functions contributing materially
to the current and longer-term
prospects of Alfa.”

Board evolution and governance
As our journey as a public company
continues, we remain committed to
strengthening our governance and the
appointments of Chris Sullivan and
Steve Breach as independent Non-
Executive Directors last summer was the
first stage in building a balanced Board.
In March 2020, we announced that
Adrian Chamberlain and Charlotte de
Metz will join the Board, as independent
Non-Executive Directors, and Duncan
Magrath will join the Board as Chief
Financial Officer, after the release
of our 2019 financial results. These
appointments complete the refreshing
and strengthening of your Board.
Collectively, the Non-Executive
Directors will bring a strong combination
of skills and experience in asset finance
and enterprise software, strategic
planning, financial management and
governance, and act as a supportive, but
challenging, counsel to the Executive.

The changes to the Board that have
taken place during the course of the
year are detailed in the Directors’ and
Nomination Committee Reports. I take
this opportunity to record my thanks in
particular to Richard Longdon, Karen
Slatford and Robin Taylor, our former
Non-Executive Directors, who provided
invaluable support and guidance
throughout our transition from private
to public company status.

Additionally, I thank David Stead for
his contributions before he had to
step down from the Board as a
Non-Executive Director due to
restrictions on his availability.

I also express my thanks to Vivienne
Maclachlan who stood down as Chief
Financial Officer in April 2019 and John
Miller who has ably acted as Interim
Chief Financial Officer since May 2019.
I was delighted that we strengthened
the Executive Director team further,
with the appointment of Matthew
White, as Chief Operating Officer, in
October 2019.

Alongside the changes to the Board, a
number of senior management changes
were made during the year and a
renewed Company Leadership Team
(CLT) constituted. It was pleasing
to be able to promote a number of
experienced Alfa staff to that leadership
group, and to see the CLT operating so
effectively from the second half of 2019.
In March 2020, we were delighted to
welcome Vicky Edwards, as our new
Chief People Officer.

Board oversight and monitoring
The Board has three sub-committees,
being the Nomination Committee, the
Audit and Risk Committee and the
Remuneration Committee. A summary
of each committee can be found on
pages 82 to 104 with the membership,
responsibilities and activities of each of

these committees documented in their
respective reports. All committees are
wholly comprised of independent
Directors with the exception of the
Nomination Committee, of which I am
a member, but where the majority of
members are independent and Chris
Sullivan, our Senior Independent
Director, chairs that committee.

In line with the requirements of the
Corporate Governance Code, the
Board conducts an evaluation of the
Board, its committees and individual
Directors, as explained further in this
Governance report. The Independent
Non-Executive Directors meet from
time to time without the presence
of the Executive Directors.

Compliance with the UK Corporate
Governance Code 2018 (the “Code”)
The Directors consider that the
Company has been compliant with the
Code provisions throughout the year
and to the date of this report, other
than the exceptions laid out below:

Code Provision 3: Whilst having a full
understanding of major shareholder
issues raised during the year, the
Committee chairs have not actively
sought wider engagement from major
shareholders on significant matters
relating to their areas of responsibility,
due to their limited time in the role but
intend to do so during 2020.

66 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Introducing the Non-Executive members of the
Board and Chief Operating Officer

Chris Sullivan
Senior Independent
Non-Executive Director

Chris brings expertise in the asset
finance industry, having spent
nearly 30 years with the Lombard
Group in a number of directorate
roles including as CEO.

Steve Breach
Independent Non-Executive Director

Steve has 16 years’ experience as
Chief Financial Officer. Between
2010 and 2016, Steve was CFO
of Tribal Group PLC, a leading
international provider of student
management software.

Code provision 9: As Chairman, I was
not independent on appointment
because I had previously been the
Chief Executive Officer and I am the
controlling shareholder. On listing, the
Board unanimously supported, and
continues to support, my appointment
as Chairman to retain my skills and
experience, and ensure continuity
of service for customers and
commercial partners.

Code provision 20: Karen Slatford and
Robin Taylor considered it inappropriate
to play a substantive role in the
recruitment of their successors. As a
result, I, as the remaining member of the
Nomination Committee, supported by
the CEO, Andrew Denton, with input
and assistance from Karen Slatford and
Robin Taylor, led the NED search
process. An external search consultant,
Norman Broadbent Executive Search
Limited, was engaged to compile a list
of candidates, to which was added a
number of other candidates who had
been recommended to the Company
separately. Chris Sullivan was appointed,
to the Board and then chaired the
Nominations Committee, subsequently
obtaining Board approval for the
appointment of Steve Breach and
David Stead.

Code provision 24: For the periods
27 April to 8 August 2019 and
7 December 2019 to the date
of this report, the Audit and Risk
Committee membership only had
two independent directors pending
the recruitment of additional
Non-Executive Directors. On
appointment, Adrian Chamberlain
and Charlotte de Metz will join
the Committee and this will bring
the Audit and Risk Committee
composition into compliance
with this Code provision.

Code provision 32: For the periods
27 April to 8 August 2019 and
7 December 2019 to the date of
this report, the Remuneration
Committee membership only
had two independent directors
pending the recruitment of
additional Non-Executive Directors.
On appointment, Adrian Chamberlain
and Charlotte de Metz will join the
Committee and this will bring
the Remuneration Committee
composition into compliance
with this Code provision.

Andrew Page
Executive Chairman

23 April 2020

Matthew White
Chief Operating Officer

Matthew has been a member
of the Alfa team since 1999,
with experience of software
development and all aspects of
systems implementation. He has
had responsibility for most areas
of the Company’s operations at
different times in his career, and
as COO he leads project delivery,
international operations and the
HR function.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 67

Strategic reportFinancial statementsAdditional informationGovernanceCorporate governance report

The Governance
report key features

The Board acknowledges the
importance of, and is committed
to the principle of achieving and
maintaining a high standard of
corporate governance and
promoting a positive culture
within the Group. The following
pages provide information on
how we have applied the
principles of good governance as
set out in the UK Corporate
Governance Code 2018.

We have used the following
key areas to lay out the
activities of 2019:

Board leadership and company purpose

Divisions of responsibility

Composition, succession and evaluation –
Report of the Nomination Committee

Audit, risk and internal controls –
Report of the Audit and Risk Committee

Remuneration –
Report of the Remuneration Committee

The UK Corporate Governance
Code 2018 (the “Code”) is the
standard against which we are
required to measure ourselves.
A copy of the Code is available
on the Financial Reporting
Council’s website.

Governance area

Summary

Independence

Excluding the Chairman, who is not independent, at least half of our Board has been independent throughout the year.
Our Senior Independent Director is Chris Sullivan.

Accountability

There is a clear separation of duties between the Chairman and CEO exists and all Directors stand for re-election annually.

Evaluation

An internal evaluation of the performance of the Board and its Committees has been carried out during the year.

Experience

The Directors have the requisite experience for sector, financial and governance.

Auditor independence

Our external auditor has been in role for three years and there were no non-audit services provided in the year, other than
interim review services in connection with the Company’s half-year results announcement.

Internal audit

Remuneration

The Company’s outsourced internal audit provider, KPMG, resigned, in August 2019. In November 2019, we selected
BDO to provide internal audit services. Details of the function and services received are set out in this report.

Our Directors’ Remuneration Policy was approved at the AGM in April 2018 and will apply until 2021 when an updated
policy will be re-submitted to shareholders for approval.

68 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Board leadership and company purpose

This section considers the following areas:

1. Defining purpose and creating value

2. Establishment and review of effectiveness

of internal controls

3. Engagement with shareholders

4. Shareholder agreement

5. Engagement with other stakeholders

• Our workforce policies and practices

• Investing in the Alfa team

• Suppliers and modern slavery

1. Defining purpose and creating value

Purpose (our purpose states what we do and why we do it):
To deliver our leading-edge technology with smart, diverse
people, making our customers future-ready.

During the year, the Company has continued to embed across
the business, the purpose and values as set out in the Strategic
report on pages 1 to 65 of this report.

Strategy (our strategy is our plan of action designed to build
on our competitive advantages and achieve our purpose):
The Board continues to monitor the strategic direction of the
Company and the key investments we need to make to remain
in a leading position in an ever-changing market and ensures
we have the resources and the right people, in the right place
operationally, to ensure we remain relevant to the markets in
which we operate.

Objectives
1. Grow market share by maintaining leading-edge

technology, increasing customer loyalty and winning new
business – We will retain our market-leading position and
grow our share of the enterprise asset finance sector.

2. Develop our partner ecosystem to increase operational
capacity and sales opportunities – We will work with a
select group of partners to increase our delivery capabilities
whilst maintaining quality.

3. Extend our best-in-class digital agenda – We will remain a

market leader for digital solutions in the asset finance sector.

4. Establish Alfa Start as the leading solution for the volume
market – We will become a market leader in the volume
market of the asset finance industry.

5. Maintain a high-performance organisation with a culture
of continuous improvement – We will continue to offer a
supportive, diverse and collaborative working environment
and be considered to be an employer of choice.

6. Promote and grow value and develop resilience – We will
deliver value to shareholders by building and extending
long-term profitability in a cash-efficient manner.

The strategy and business model are set out in detail on pages
8 to 13 and 30 to 31 respectively.

The Board and CLT embed the Company’s values across
the business. In order to monitor whether our culture is and
remains aligned with our values, the Company seeks feedback
from customers and potential customers on how the values
have been received and how they have been experienced
during the sales process; and through the various stages of
software implementations and provision of ODS services.
The Board also assesses engagement with the wider Alfa team
using a variety of methods including bi-monthly employee
pulse surveys, which provide an opportunity for employees
across the Group to share their thoughts, concerns, questions
and ideas on an anonymous basis. The Company has
strengthened its communications with employees through
the introduction of staff Q & A sessions attended by the CLT
and sometimes the Non-Executive Directors.

2. Establishment and review of effectiveness

of internal controls

The Board is responsible for the establishment of an overall
system of internal control and for reviewing its effectiveness on
an annual basis. The Board carried out a robust assessment of
the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity as detailed on pages 36 to 43 of the Strategic report.
The Board has delegated the responsibility for designing and
operating the internal control and risk management framework
and systems to the CLT with oversight and monitoring by the
Audit and Risk Committee. The internal control and risk
management framework and systems continues to evolve
through focus on the identification, evaluation and assessment
of both new and existing key risks, taking into account events
that have occurred and the Group’s appetite for risk. The CLT
reviews the major risks on a regular basis and these are presented
to and considered by, the Audit and Risk Committee and full
Board throughout the year. The CLT continues to look for
opportunities to embed further and enhance internal controls
and risk management into the operations of the Group.

We have laid out an overview of the Group’s framework for
identifying and managing risk, both at an operating and
strategic level on pages 36 to 39 of the Strategic report.
Significant developments in internal controls in 2018, primarily
the implementation of a new HR and finance system, and the
establishment of an Investment Committee laid a good
foundation for further ongoing developments including
expanding the functionality of the HR and Finance system
which, in the medium term, will provide a more robust platform
for the provision of management information, and the start of
an improvement programme, focussed on the timely provision
of financial and operational management information to the
CLT and the Board. Further details of these developments
are included on pages 92 to 93 of the Audit and Risk
Committee Report.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 69

Strategic reportFinancial statementsAdditional informationGovernance

Corporate governance report continued

In August 2019, KPMG resigned as internal audit service provider
and in November 2019, BDO was selected as internal audit
service provider. The Audit and Risk Committee approves
the scope of BDO’s work and receives regular reports of its
investigations and findings, details of which are set out in the
Audit and Risk Committee Report on page 93. This should also
be read in conjunction with the principal risks and uncertainties
facing Alfa, which are detailed on pages 40 to 43 to the
Strategic report.

The Group’s investor relations microsite
investors.alfasystems.com is updated
throughout the year, providing the annual and interim
reports, presentations given to analysts and investors,
trading updates and other regulatory announcements,
and up to date information on the Group’s activities.
Shareholders are able to contact the Company through the
Company Secretary, at the Company’s Registered Office,
which is shown on the Directors' report on page 106.

There have been no changes to the risk management framework
during the period and up to the date of approval of the Annual
Report. It should be noted that the systems of internal control
are designed to manage, rather than eliminate, the risk of failure
to achieve business objectives and therefore they can only
provide reasonable, and not absolute, assurance against
material errors, losses, fraud or breaches of law and regulations.
We have a number of internal controls that operate across the
Alfa business, which as noted above have continued to be
strengthened during the year. As detailed on pages 92 and 93
of the Report of the Audit and Risk Committee, there were
certain areas of control weakness during 2019 and additional
controls have been added to address these challenges.

3. Engagement with shareholders

The Senior Independent Director, Chris Sullivan, serves as an
additional point of contact for shareholders should they feel
that any concerns are not being addressed properly through
other channels. He can be contacted via the Company
Secretary.

The Board encourages all shareholders to attend, vote and
take the opportunity to ask questions at the AGM, which is
attended by all Directors. The Directors will be available at the
AGM to answer questions and the Chairs of the Nomination,
Audit and Risk and Remuneration Committees will also be able
to answer any questions relating to the responsibilities of
those committees. There have been no situations where
20 per cent or more of votes have been cast against any Board
recommendation for a resolution.

The Board is committed to maintaining open and transparent
communications with both existing and potential shareholders
based on a mutual understanding of the Company’s objectives.
This communication is supported by a comprehensive investor
relations programme which includes formal announcements
and publications in respect of the interim and annual results, as
well ad hoc regulatory announcements made by the Company.

The notice convening the 2020 AGM will be issued to the
shareholders at least 20 working days in advance of the
meeting. Separate resolutions will be proposed on each
substantially separate matter. The results of the proxy votes
on each resolution will be collated independently by the
Company’s registrar and will be published on the Company’s
website as soon as practicable after the meeting.

4. Shareholder agreement

The relationship between the Board and the controlling
shareholder of the Company (‘the Controlling Shareholder’),
CHP Software and Consulting Limited, is governed by the
Relationship Agreement (which was executed on 26 May
2017). This agreement is a framework under which the
Controlling Shareholder, and the shareholders of the
Controlling Shareholder will operate to protect the rights of
the non-controlling shareholders. There have been no changes
to the Relationship Agreement during 2019, or up to the date
of this report.

The Chairman, the Chief Executive Officer and the Interim
Chief Financial Officer regularly engage with institutional
shareholders in order to develop an understanding of their
views, which are communicated back to, and discussed with,
the Board. During the year, the Company held meetings with
shareholders, which took the form of group meetings, one-to-
one meetings, conference calls, site visits, the AGM and the
announcement of the interim and annual results. The Board
receives regular updates from its advisers on investors’ and
analysts’ views after those meetings.

The key themes discussed at these meetings included:

• Current trading and market conditions and customer

demand;

• Sales pipeline opportunities and conversion;

• The short to medium-term strategy and business model;

• Longer term prospects for the Company;

• Current product investment and development; and

• Staff recruitment, retention and reward.

70 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Under the Relationship Agreement:

5. Engagement with other stakeholders

• Two Non-Executive Directors can be appointed to the

Board for as long as the Controlling Shareholder holds 20%
or more of the voting rights over the Company’s shares;

• One Non-Executive Director can be appointed to the Board
for so long as the Controlling Shareholder holds 10% or more
but less than 20% of the voting rights in respect of the
Company’s shares; and

• If none of the Controlling Shareholders are members of the
Nomination Committee, the Controlling Shareholder can
appoint an observer to the Nomination Committee.

Andrew Page is designated as the first appointed Director
of the Controlling Shareholder. Andrew Denton has not
been appointed as a designated Director by the Controlling
Shareholder. It has been agreed that for as long as the
Controlling Shareholder has the right to appoint two Directors
to the Board, and whilst Andrew Denton is a Director of the
Company, the Controlling Shareholder will not exercise its
right to appoint a second Director to the Board. There have
been no Board observers appointed either under the
Relationship Agreement, or otherwise.

For further details of the Relationship Agreement, see
page 108 of the Directors’ report.

Our workforce policies and practices
Alfa is fully committed to maintaining high standards of ethical
and professional conduct for the Company and its employees.
We have a number of policies in effect which are designed to
create an environment and culture where:

• Employees' health, safety, rights and wellbeing are placed at

the heart of the way the Group does business;

• Employee diversity and inclusion is celebrated;

• Employees must act ethically, honestly and stand up for what

is right;

• Communication across the business should be open, honest

and responsible; and

• Our teams must deliver excellent customer service and

innovative, yet tested and reliable technology.

One central policy in creating this environment and culture is
Alfa’s Ethics and Code of Conduct (the Code of Conduct)
which clearly sets out a zero-tolerance policy for dishonest
and corrupt behaviour among our employees and seeks to
educate team members on unlawful and unethical conduct.
Compliance with the policy maintains Alfa’s reputation in the
marketplace as well as our relationship with our colleagues,
investors, customers and other stakeholders.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 71

Strategic reportFinancial statementsAdditional informationGovernanceCorporate governance report continued

The Code of Conduct provides clear guidance to employees in
respect of legal and ethical issues which they may come across
while conducting Alfa business, and what Alfa expects in
respect of its employees’ behaviour including:

• To act ethically and with integrity in all business dealings;

• To comply with the law, the Code of Conduct, Alfa policies,

and Alfa business practices;

• To report known, or potential, violations using a variety of

alternate reporting channels;

• Certain business practices to be adhered to (including
complying with applicable laws and regulations in the
countries in which Alfa operates, compliance with anti-
bribery and immigration laws, protecting Alfa’s intellectual
property, and applicable insider trading and security laws);

• Certain business conduct to be maintained (including
financial integrity, unauthorised public disclosures,
compliance with other Alfa policies and procedures,
avoiding/managing conflicts of interest, protecting
confidential information etc.); and

• To cooperate with compliance investigations; and

• Alfa’s relationships with its employees (including diversity,

• To complete all mandatory compliance education courses

and requirements in a timely manner.

Further, the Code of Conduct outlines the additional
expectations that Alfa has of its leaders which are to:

harassment, health and safety and taxation).

To support the Code of Conduct and our values, Alfa has a
number of other workforce policies and practices covering:

• Business expenses;

• Promote and support ethical behaviour and business

• Confidentiality;

practices;

• Act as a leadership model in terms of demonstrating the

attributes outlined in the Code of Conduct;

• Ensure those employees who report to them, directly and
indirectly, understand where and how to report violations
under the Code of Conduct;

• Ensure that employees who report to them, directly and
indirectly, complete all mandatory compliance education
courses and other requirements in a timely manner;

• Maintain an “open door” policy with regard to employee

questions, including those of business conduct and ethics,
and ensure availability of compliance and ethics resources
and support, such as printed materials and relevant contact
information;

• Encourage employees to challenge and report questionable

conduct; and

• Encourage open, honest, and confidential dialogue without

retaliation.

The Code of Conduct also provides employees with clear
guidance and communication in relation to:

• Seeking help and reporting violations of the Code of

Conduct;

• Health and Safety;

• Diversity and inclusion;

• Harassment;

• Share dealing; and

• Whistleblowing.

We seek to embed our Code of Conduct through continuing
communications, training and appropriate controls. The Code
of Conduct and all other workforce policies and procedures
can be found and easily accessed by our employees through
our intranet site.

Whistleblowing
We recognise that our people are our strongest assets for
detecting and avoiding legal and ethical failure within our
business. Our whistleblowing policy and team provides a safe
environment to report concerns regarding illegal, unethical or
improper behaviour. The Group’s Whistleblowing Policy clearly
explains to employees how they can raise concerns directly to
the Group’s Whistleblowing Officer. All whistleblowing cases
are formally investigated by the Whistleblowing Officer and
reported regularly to the Audit and Risk Committee and the
Board, and the Board is responsible for reviewing the
effectiveness of actions taken in response to concerns raised.
Where necessary, external specialist third parties, or other
members of staff, with appropriate experience, may be
appointed to help investigate issues that have been raised.

72 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Talent management – Alfa supports its employees through
its career management programme which is open to all grades
across the Company. The aim of this initiative is to provide
opportunities for our people to be mentored and supported
as they progress through their career to help them reach their
full potential and become our future leaders.

Encouraging innovation – In line with our values (“Let great
ideas grow” and “Make it better together”), we encourage our
team to work together collaboratively to develop innovative
ideas is key to our future success. We hold numerous team and
Company events throughout the year, where our people are
given the opportunity to share their views and ideas. In
particular, our Hackathons provide a great example of the
inspirational events that we run to encourage innovation and
collaboration. More details on this are contained in the ESG
section of the Strategic report on pages 54 to 61.

Suppliers and Modern Slavery
We do not support any form of slavery, human trafficking or
child labour and we only work with suppliers that have been
assessed through our internal processes to be ethical
providers. We have an ethical procurement policy and our key
procurement team have been trained in relation to the
relevant requirements and regulations.

Share dealing code
Alfa has adopted a share dealing code which applies to all
employees and provides further restrictions on the Company’s
Directors, its other PDMRs and certain persons deemed
insiders. In accordance with the Market Abuse Regulation,
the Directors and PDMRs have confirmed to the Company
they are responsible for procuring the compliance of their
respective connected persons with the Alfa share dealing
code. The share dealing code has been published on the Alfa
intranet and guidance and communication is provided to all
new starters and the Alfa team on an ad hoc basis.

Investing in the Alfa team
The Board and Nomination Committee aim to ensure we
identify the right talent in our business to support future
growth. We provide training and development plans to
support our team members as they progress their careers
at Alfa.

Our approach – We want to attract and retain the best people
and to invest in developing their skills as they progress through
their career. We aim to create a collaborative and supportive
environment where our people are empowered and
encouraged to share innovative ideas and forward-looking
thinking. Our staff are remunerated well and enjoy an
excellent benefits package and identified high performers are
eligible for discretionary Long-Term Incentive plan awards.

Our training – We have a strong learning and development
programme which is aimed at enhancing the skills of our
workforce. This begins with our intensive and structured
graduate and software engineer induction training programme
through to customised personal development programmes as
our employees progress their careers with us. Our training is
delivered via a variety of different channels in order to provide
our employees with flexibility in satisfying their individual
training and development needs. Examples of the learning
and development opportunities available to our employees
include external classroom training sessions, internally-run
classroom sessions and presentations, technical conferences,
inspirational talks and various online training modules. These
sessions are aimed at expanding technical knowledge, soft
skills and wider personal development. We are proud to hold
Silver Accreditation with Investors In People, demonstrating
our commitment to developing our people, treating them well
and providing strong leadership to the Group.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 73

Strategic reportFinancial statementsAdditional informationGovernanceCorporate governance report continued

Division of responsibilities

Alfa is led and controlled by the Board which is collectively
responsible for the long-term and sustainable success
of the Group.

The skills and experience of each of our Directors is detailed
on pages 76 to 77 of this Governance Report. We consider that
the Directors, both individually and collectively, have the
broad range of skills, knowledge, diversity of experience and
dedication necessary to lead the Group and have the requisite
strategic and commercial experience to contribute to the
leadership of Alfa. As previously mentioned, in 2020, the
Company intends to strengthen the Board by the
appointment of Adrian Chamberlain and Charlotte de Metz
as Non-Executive Directors and Duncan Magrath as Chief

Financial Officer. On appointment, Adrian Chamberlain will
assume the Chair of the Remuneration Committee.

The Board – responsibilities
We have clear and documented roles and separation of duties
between the Chairman and the CEO. The Alfa CEO, Andrew
Denton, is responsible for determining the Alfa strategy and
day-to-day operations, and leading the CLT, which assists in
the day-to-day delivery of this strategy and general
operations. Andrew Page, as Chairman, provides oversight and
guidance to Andrew Denton on the strategic direction, key
commercial and contracting decisions in addition to his
responsibilities for running an effective Board.

The division of responsibilities between our board members and interim CFO is set out below:

Role

Principal responsibilities

Chairman
Andrew Page

Chief Executive
Officer
Andrew Denton

Manages and provides leadership to the Board.

Acts as a direct liaison between the Board and
management, working with the CEO to assist the flow
of information.

Ensures that the Directors have sufficient information
to enable them to form appropriate judgements.

Responsible for the day-to-day management of Alfa.

Responsible for defining the strategy and guiding the
CLT on its strategy execution, once this has been
agreed by the Board.

Creates a framework that optimises resource
allocation to deliver strategic objectives over varying
timeframes.

The Chairman develops and sets the agendas for
Board meetings, working with the CEO and Company
Secretary.

Recommends an annual schedule of Board and
Committee meetings.

Ensures effective communications with shareholders
and other stakeholders.

Ensures the successful delivery against plan and other
key business objectives, allocating decision-making
and responsibilities accordingly.

Identifies and executes new business opportunities
and assesses potential acquisitions and disposals.

Manages the Group with reference to its risk profile
in the context of the Board’s risk appetite.

Chief Operating
Officer
Matthew White

Responsible for day-to-day operational activities.

Responsible for software development.

Responsible for systems implementation delivery.

Develops key business operational model, monitoring
performance against key performance indicators and
ensuring adequate staffing recruitment to deliver
development and systems implementation

Senior Independent
Director
Chris Sullivan

Non- Executive
Directors
Steve Breach

Chris Sullivan

Responsible for delivery of HR resourcing
and planning.

An Independent Non-Executive Director.

Provides a sounding board for the Chairman and CEO.

Provide constructive challenge to the Executive
Directors.

Help develop proposals on strategy.

Scrutinise management’s performance in meeting
agreed goals and objectives.

Monitor performance reports.

Chief Financial
Officer1

Overall management of the financial risks of the
Group.

John Miller (Interim)

Responsible for financial planning and record-keeping,
as well as financial reporting to the Board and
shareholders.

Serves as an intermediary for the other Directors and
shareholders when necessary.

Is available to shareholders if they have concerns.

Satisfy themselves regarding the integrity of financial
information, and that controls and risk management
systems are robust and defensible.

Determine appropriate levels of remuneration for
Executive Directors.

Appoint and remove Executive Directors as required
and review succession planning.

Ensures effective financial compliance and control,
while responding to regulatory developments,
including financial reporting, effective allocation of
capital, management of liquid resources, investor
relations and corporate responsibility.

1. Interim CFO, though not a board member, attends Board meetings by invitation. Duncan Magrath, when appointed as CFO, will join the Main Board.

74 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Nomination
Committee

Audit and Risk
Committee

Remuneration
Committee

Key objectives
Monitoring the structure, size and
composition of the Board, advising
on succession planning and making
recommendations on appointments
to the Board.

Principal responsibilities
• Reviewing structure, size and
composition of the Board;

• Board succession planning;

• Evaluation of Board appointments –

with reference to matters such as skill,
experience, knowledge, diversity;

• Review of Non-Executive Directors’

Key objectives
Oversight of the Company’s financial
reporting process, internal control system,
risk management system and internal and
external audit functions.

Key objectives
Determining, and advising the Board on,
the framework and policy for the
remuneration of the Executive Directors
and senior management.

Principal responsibilities
• Monitor the integrity of financial

statements;

Principal responsibilities
• Responsibility for setting, monitoring

and reviewing the Remuneration Policy;

• Review and challenge accounting policies
and the application of these policies to
unusual transactions;

• Consultation on major changes to

employee benefit structure;

• Approval and determination of

• Review and approve assumptions in

relation to the Group’s viability;

required time commitment;

• Assess compliance with accounting

• Review results of the Board performance

standards;

evaluation process; and

• Review all conflicts of interest.

Membership
Chris Sullivan (Chair)
Steve Breach
Andrew Page

• Review clarity, transparency and

completeness of financial statements;

• Oversee material information presented

with financial statements;

• Review content of Annual Report to

advise if fair, balanced and
understandable for shareholders;

• Review and advise on adequacy and

effectiveness of the Company’s internal
financial and operational controls,
including the risk management framework;

• Monitoring and review of internal and

external audit; and

• Review of whistleblowing, fraud and

compliance.

Membership
Steve Breach (Chair)
Chris Sullivan

performance related pay schemes (with
regard to the UK Corporate Governance
Code and Listing Rules);

• Responsible for selection and
appointment of remuneration
consultants;

• Review, design and assessment of share

incentive plans;

• Review of Director pension

arrangements; and

• Approval of Director service contracts

and severance payments.

Membership
Chris Sullivan (Chair)
Steve Breach

Nomination Committee Report
pages 82 to 84

Audit and Risk Committee Report
pages 85 to 93

Remuneration Committee Report
pages 94 to 104

Board and Committee meetings and attendance (scheduled meetings attended)*

Andrew Page (Chairman)
Chris Sullivan (appointed 18 July 2019) (i)
Steve Breach (appointed 9 August 2019)
Andrew Denton
Matthew White (appointed 9 October 2019)

Richard Longdon (resigned 26 April 2019) (ii)
Vivienne Maclachlan (resigned 26 April 2019)
Karen Slatford (resigned 26 September 2019) (iii)
David Stead (appointed 20 August 2019, resigned 6 December 2019)
Robin Taylor (resigned 26 September 2019) (iii)

Board

Audit and Risk

Remuneration

Nomination

8/8
3/4
4/4
8/8
2/2

0/2
2/2
5/6
3/3
5/6

n/a
1/1
3/3
n/a
n/a

0/1
n/a
4/4
2/2
4/4

n/a
2/2
3/3
n/a
n/a

0/1
n/a
2/2
2/2
2/2

4/4
1/1
1/1
n/a
n/a

0/2
n/a
3/4
1/1
3/4

(i) Chris Sullivan did not attend the Board meeting in August due to prior business commitments; (ii) Richard Longdon did not attend any meetings during 2019 due to
prior commitments; (iii) At the request of the Chairman, Karen Slatford and Robin Taylor did not attend the Board and Nomination Committee meetings in September
which recommended and appointed their successors.
(*)Includes formal scheduled meetings and excludes any strategy days or ad hoc conference calls or meetings.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 75

Strategic reportFinancial statementsAdditional informationGovernance

Board of Directors

A balanced mix
of experience
and expertise

1. Andrew Page
Executive Chairman

2. Andrew Denton
Chief Executive Officer

3. Matthew White
Chief Operating Officer

Appointment to the Board
May 2017

Committees
• Nomination Committee

Meeting attendance (1)
8/8

Other appointments
N/A

Past roles
CEO of Alfa

Appointment to the Board
April 2017

Appointment to the Board
October 2019

Committees
N/A

Meeting attendance (1)
8/8

Other appointments
N/A

Committees
N/A

Meeting attendance (1)
2/2

Other appointments
N/A

Past roles
Director of Sales and Marketing of Alfa

Past roles
Various roles at Alfa having joined in 1999

Relevant experience
Considerable senior management experience
and deep understanding of the asset finance
industry.

Relevant experience
Computer scientist by training, considerable
senior management experience and significant
experience in the asset finance industry.

Relevant experience
Considerable senior management experience in
software development and all aspects of
systems implementation and delivery.

76 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

(1) Meeting attendance represents attendance at the
formal scheduled Board of Director meetings.

Age profile

35-50
50-60
60-70

2
2
1

Experience

Technology

Remuneration

Financial

4/5

2/5

Changes to the
board in 2019

The appointments of Chris Sullivan and
Steve Breach as Non-Executive Directors
provides your Board with a strong
combination of skills and experience in asset
finance and enterprise software, financial
management and governance. The
Executive Director team was also
strengthened with the appointment of
Matthew White as Chief Operating Officer.

4. Chris Sullivan
Senior Independent
Non-Executive Director

Appointment to the Board
July 2019

5. Steve Breach
Independent
Non-Executive Director

Appointment to the Board
August 2019

Committees
• Chair of Nomination Committee

Committees
• Chair of Audit and Risk Committee

• Chair of Remuneration Committee

• Nomination Committee

• Audit and Risk Committee

• Remuneration Committee

Meeting attendance (1)
3/4

Meeting attendance (1)
4/4

Other appointments
• Chairman Westminster Abbey Investment

Other appointments
• Adviser to a number of private companies.

Committee

• Non-Executive Director The Goodwood

Estate Company

• Senior Independent Director DWF Group PLC

Past roles
Chief Executive Corporate & Investment
Banking, Santander UK

Deputy Group Chief Executive RBS Group plc

Relevant experience
Extensive experience of corporate, investment
and retail banking and asset financing together
with general management and listed company
experience.

Past roles
Chief Financial Officer Tribal
Group PLC

Various CFO roles

Corporate finance adviser at EY

Relevant experience
Extensive experience in corporate finance
advice to technology businesses as well as
holding various CFO roles.

Fellow of the Institute of Chartered Accountants
in England and Wales.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 77

Strategic reportFinancial statementsAdditional informationGovernance

Company Leadership Team

1. Andrew Denton
Chief Executive Officer

2. Matthew White
Chief Operating Officer

3. John Miller
Interim Chief Financial Officer

4. Vicky Edwards
Chief People Officer

Date joined Alfa
August 1995

Date joined Alfa
June 1999

Date joined Alfa
May 2019

Date joined Alfa
March 2020

Member of Deal Committee
Y

Member of Deal Committee
N

Member of Investment
Committee
Y

Member of Investment
Committee
N

Relevant Experience/
Previous Roles
Andrew joined the Company in
1995 and the Board in 2003 as Sales
and Marketing Director. He was
made COO in 2010 and CEO in
2016. Andrew is also director and
joint founder of the Leasing
Foundation, an organisation that
supports the finance industry
through charitable activities,
research and development.

Relevant Experience/
Previous Roles
Matthew is accountable for Alfa’s
technology platform and project
delivery. Matthew joined as a
graduate in 1999, starting in
software development and
continuing into systems
implementation and project
management. He took
responsibility for operations
of the Company, before leading
Alfa’s IPO in 2017.

Relevant Experience/
Previous Roles
John is a Fellow of the Institute of
Chartered Accountants and brings
extensive C-suite level finance and
operating experience for listed and
private equity-owned technology
and professional services
companies. He has fulfilled
various Finance Director and
CFO roles.

Relevant Experience/
Previous Roles
Vicky joined Alfa in March 2020,
bringing 26 years of experience in
consultancy businesses. A
commercially focused HR leader,
Vicky has held leadership roles
across HR, commercial and
operations functions, as well as
C-suite level positions in the
professional services, technology
and energy sectors.

78 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

5. Richard Raistrick
Chief International Officer

6. Richard Dewire
Chief Revenue Officer

7. Andrew Flegg
Chief Technology Officer

8. James Paul
Chief Delivery Officer

Date joined Alfa
May 1995

Date joined Alfa
January 2001

Date joined Alfa
February 2005

Date joined Alfa
September 1999

Member of Deal Committee
N

Member of Deal Committee
Y

Member of Deal Committee
N

Member of Deal Committee
Y

Member of Investment
Committee
N

Member of Investment
Committee
Y

Member of Investment
Committee
N

Relevant Experience/
Previous Roles
Richard is responsible for project
delivery of some of Alfa’s largest
customers. He has carried out
consultancy and project
management engagements around
the globe, and has worked in the
asset finance sector since 1995.

Relevant Experience/
Previous Roles
Richard has 19 years in the asset
finance industry and an in-depth
knowledge of Alfa Systems through
many years of implementation,
with extensive knowledge of Alfa’s
sales and commercial process. He
was previously Director of Strategy
and Investment.

Relevant Experience/
Previous Roles
Andrew brings 35 years of
programming experience, with over
25 years in commercial software
development and 15 in the asset
finance industry. He was previously
Alfa’s Global Director of Platforms,
covering internal IT systems, cloud,
information security and solution
architecture.

Relevant Experience/
Previous Roles
James is accountable for all EMEA
implementations and takes global
responsibility for support,
resourcing and partnering. He has
20 years’ experience implementing
in asset finance for organisations of
all sizes.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 79

Strategic reportFinancial statementsAdditional informationGovernanceCorporate governance report continued

Company Secretary
The Company Secretary acts as Secretary to the Board and each of the Nomination, Audit and Risk, and Remuneration
Committees. The Company Secretary provides a conduit for Board and Committee communication and ensures that the Board
members have access to the information they need to perform their roles particularly in connection to matters of share dealing,
regulatory announcements, major shareholder changes and compliance with relevant corporate governance regulation.

In March 2020 Charlotte Caulfield joined as Company Secretary of the Company, while Hazeland Company Secretarial Support
Limited resigned on 23 March 2020 having succeeded Prism CoSec Limited who resigned on 26 September 2019. We are grateful
to Mark Henson of Hazeland and Simon Maynard of Prism for their support and counsel over their time advising the Company.

Summary of Matters Reserved for the Board

Area

Corporate
strategy

Review and approve overall strategy and business
objectives.

What we focused on in 2019
During the year, the Board assessed, considered and debated
a wide range of matters including but not limited to:

• Strategy;

Review and approve all take-over offers.

• Performance of the business both financially and operationally;

Capital
structure

Approve any share issues (except under employee
share plans) and any major changes to the share
structure.

Approve any changes to the Articles of Association of
the Company.

Approve any changes to the Company’s Listing.

Finance

Review and approve half-year and year-end
consolidated financial statements, including
accompanying reports.

Review and approve budget and three-year plan.

• Financial statements, announcements and other financial
reporting matters including the trading update issued
on 16 September 2019;

• Budgets and long term plans;

• Shareholder feedback and reports from brokers and analysts;

• Risk management;

• Financial management, forecast performance, governance

and controls;

Review and approve dividend policy.

• People – succession, diversity and talent management;

Approve any material changes to accounting policies
and practices, including hedging policy.

• Remuneration;

• Group policy reviews (Health and Safety, Whistleblowing,

Risk
management

Review and set risk appetite.

Review procedures for detection of fraud and
prevention of bribery.

Code of Conduct etc.);

• Regulatory updates;

Approve annual assessment of effectiveness of risk and
control processes.

Approve overall levels of insurance coverage for the
Company including Directors' and Officers 'cover.

• Sales pipeline and business development;

• Board sub-committee Terms of Reference; and

• Evaluation of Board effectiveness.

Corporate
governance

Approve statement that Non-Executive Directors are
independent.

Undertake a formal review of performance of the
Company in relation to the Corporate Governance
Code, collective effectiveness of Board and
committees and effectiveness of individual Directors.

Expenditure

Amounts in excess of £1m of capital or operating
expenditure outside approved budget.

All class 1 or 2 transactions and any acquisitions or
disposals in excess of £25 million.

New material borrowing facilities.

All related party transactions.

Shareholder
communication

Receive and consider views of shareholders.

Approve all circulars, annual reports, regulatory
announcements and press releases with significant
matters included.

Approve all resolutions and related documentation for
general meetings.

Succession
planning

Succession plans for Board and CLT, including selecting
a Chairman, CEO and appointing a Senior Independent
Non-Executive Director.

Appointment of the Company Secretary.

Company Leadership Team
During 2019, a new Company Leadership Team (CLT) was
constituted and we took the opportunity to promote a
number of staff with deep understanding of their functional
areas. The CLT has a combined total of 124 years of Alfa
service. 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. Further details of the CLT can be
found at pages 78 to 79.

Investment Committee
The purpose of this committee is to advise the CEO on the
technical and commercial costs and benefits of internal
investment projects which are aimed at increasing the long-
term sustainability of the business. The Investment Committee
also monitors emerging technology risks and opportunities.
The Investment Committee is chaired by the CEO.

Deal Committee
In early 2020, the CEO created a Deal Committee, to be
chaired by the Chief Revenue Officer. The Committee
provides scrutiny over commercial activity, including:

•

Establishment of standard guidelines in financial and key
contractual terms;

Review of deals that may fall outside of these guidelines;
and

• Review of key commercial deal terms.

80 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Outputs from this year’s internal evaluation
The evaluation identified a number of key strengths of
the Board including:

• Following the refreshment of the Board, a strong focus
on effective leadership with a common purpose and
independent mindset;

• Board relationships have significantly improved, with

Non-Executive Directors working well with management
and the Board working more effectively; and

• A healthy diversity of perspectives and an increasing

sense of team.

The review explored potential longer-term challenges and
suggested ways that the Board might build on its current
strengths to ensure it remained effective as it progressed
through a period of change.

Key themes included:

• Continue to provide strong leadership through a culture

of collaboration, transparency, open communication and
cooperation. Increase CLT exposure to the Board and wider
employee engagement focus;

• Strategy setting to form an integral part of the Board's
calendar with consideration of institutional investor
expectations and other stakeholders including wider
workforce engagement. Ensure that the Board agenda
allows sufficient time and visibility of longer-term strategic
perspectives;

• Maintain focus on improving the quality of information and

increased communication channels with other stakeholders,
including employee engagement; and

• Full consideration of succession planning for the Board and
members of the CLT with diversity being addressed and
included in the succession review to be carried out by the
Nomination Committee.

Composition, succession and evaluation

Board evaluation
The Board recognises the benefit of a full evaluation of its
performance and believes it provides fresh insight and
objectivity to its Committees and Directors, enabling it to
improve its leadership, effectiveness and focus. During the
year the evaluation was conducted as described below:

Evaluation process
• The scope of the evaluation was previously agreed between
the Chairman and Company Secretary, including the input of
the Senior Independent Director.

• The Company Secretary prepared a questionnaire which was
sent to the Board members for completion. The Company
Secretary analysed the responses and prepared a report of
the findings for the Board. The report identified the
strengths, challenges and areas for improvement.

• The Company Secretary presented the findings and
recommendations to the Board. The report was then
discussed and where appropriate relevant actions
were agreed.

The aim of the questionnaire sent to Board members was
to obtain views on certain key governance areas as well as
to gauge views on its own effectiveness. It gave members an
opportunity to view opinions, and consider what was done
well and what needed improvement.

The questionnaire included issues such as:

• Effectiveness of Board and Committee meetings, including

team dynamics;

• Contributions of the Board and Committees;

• Relationships with Company Leadership Team members
around the direction and values of the organisation and
the decision-making process;

• Board’s understanding of the strategy and developing

culture;

• Adequacy of agendas and meetings scheduled;

• Training and development; and

• Shareholder and stakeholder communications.

Despite a number of changes to the Board during the year and
challenges experienced in the control environment detailed in
the Audit and Risk Committee report on pages 92 and 93, the
overall results of this year’s evaluation were nevertheless
positive and concluded that the Board and committees were
well run and continued to operate effectively.

All Directors have been advised of the time required to fulfil
the role prior to appointment and have confirmed they can
make the required commitment. The Board is satisfied that
the Chairman and each of the Non-Executive Directors are
able to devote sufficient time to Company business.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 81

Strategic reportFinancial statementsAdditional informationGovernanceReport of the Nomination Committee

The appointments of Adrian
Chamberlain, Charlotte de Metz
and Duncan Magrath, will complete
the refreshing and strengthening
of your Board. The Non-Executive
Directors have a strong combination
of appropriate skills, and knowledge
to support and challenge the
Executive Directors, with experience
of the asset finance and enterprise
software sector, strategic planning,
financial management and corporate
governance.”

Introduction
I am pleased to introduce the Nomination Committee (the
“Committee”) Report for 2019 which summarises our key
activities during the year. 2019 was a year of transition, as the
founding Non-Executive Directors and Chief Financial Officer,
who were appointed at the time of the Company’s listing on the
London Stock Exchange in May 2017, stepped down, during the
course of the year. Additionally, David Stead found he was not
able to commit sufficient time to Alfa and chose to step down
from the Board in December 2019. Matthew White, Chief
Operating Officer, was promoted to the Board as an Executive
Director in October 2019 and the Board will be strengthened
further after the release of the Company’s 2019 financial
results with the recently announced appointments of Adrian
Chamberlain and Charlotte de Metz as additional independent
directors and Duncan Magrath as Chief Financial Officer. The
Committee is confident that we have a strong combination of
appropriate skills, experience and knowledge to support and
challenge the Executive Directors, in the future.

Role of the Committee
The role of the Committee is set out in the Committee’s Terms
of Reference, which were reviewed and amended during the
year. The Terms of Reference are available on the Company’s
website at investors.alfasystems.com.

The main areas of the Committee’s responsibilities are:

• To review the structure, size and composition of the Board

and its committees and ensure that the procedures for
appointing Directors are formal, rigorous, transparent,
objective, merit-based and has regard for diversity
(including gender, nationality and experience);

• The consideration and recommendation of Board candidates

who are appropriate for appointment as Executive and
Non-Executive Directors, in order to maintain an
appropriate balance of skills and experience on the Board
and to ensure progressive refreshing of the Board;

Chris Sullivan
Chair of the
Nomination
Committee

Membership of the Committee

Scheduled
meetings
attended Appointed

Resigned

Chris Sullivan* (Chair)

Steve Breach*

Andrew Page

David Stead*

Richard Longdon (Chair))* (i)

Karen Slatford* (ii)

Robin Taylor* (ii)

1/1

4/4

1/1

0/2

3/4

July
2019

August
2019

May
2017

August
2019

May
2017

December
2019

April
2019

September
2019

(i) Richard Longdon did not attend the meetings due to prior
commitments; (ii) At the request of the Chairman, Karen Slatford
and Robin Taylor did not attend the meeting in September due to the
recommendation of their successors.

*denotes independent member under the Code.

The Committee generally meets formally three times
a year with additional ad hoc conference calls and
meetings as required.

We can confirm that we have complied throughout the
year with the Code recommendations that the
Committee is comprised of a majority of Independent
Non-Executive Directors.

The Company Secretary acts as Secretary to the
Committee, and by invitation, the meetings of the
Committee may be attended by some or all of the
Chief Executive Officer, Chief Operating Officer,
Chief Financial Officer, and Chief People Officer.

82 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

The Committee will take into account a variety of factors
before recommending any new appointments to the Board,
including relevant skills to perform the role, experience,
knowledge and diversity. Alfa endeavours to achieve
appropriate diversity, including gender diversity, throughout
the Company.

We have the following composition of male to female
representation, as at 2 March 2020:

Male

Male % Female Female %

Board

Company Leadership Team

Company Leadership Team
direct reports

Company wide

224

100

Following the publication of the 2019 financial results, and the
appointment of Adrian Chamberlain, Charlotte de Metz and
Duncan Magrath, the Board will have 87.5% male
representation and 12.5% female representation.

The Committee notes the recommendations of the Hampton
Alexander Review on gender and the Parker Review on ethnic
diversity. It is part of the Committee’s remit when making new
Board appointments to consider the importance of diversity
on the Board, including gender and ethnicity. This is
considered in conjunction with experience and qualifications
in relation to the balance of the Board and its Committees.

Succession planning
The Committee has oversight of succession plans for the
Directors, as well as having regard to the Company’s senior
management structure and employees identified by
management with the potential to develop in the longer term
into future leaders of the business, taking into account the
challenges and opportunities facing the Company in the
medium- to long-term.

• To consider succession planning for the Board and senior

management immediately below Board level; and

• To carry out annual performance evaluations of the

Committee.

Main activities during 2019
• Non-Executive Director succession planning and

recruitment;

• Evaluation of directors (all of whom are proposed

for re-election at the AGM);

• CFO recruitment process;

• Reviewing Board and CLT structure; and

• Recommending the appointment of Matthew White, Chief
Operating Officer, as an Executive Director to the Board.

On the recommendation of the Committee and in line with the
Code, all Directors will retire at the forthcoming AGM and
offer themselves for re-election.

Appointment of Directors
There is a formal, rigorous and transparent procedure for the
appointment of new Directors to the Board under which the
Committee interviews suitable candidates who are proposed
either by existing Board members, or by using an external
search firm. Consideration is given to ensure that proposed
appointees are appropriately qualified and that the balance of
skills, knowledge and experience on the Board is maintained. If
discussions relate to the appointment of a Chairman, I, as
Senior Independent Director, will lead the recruitment
process. When the Committee has found a suitable candidate,
the Chair of the Committee makes a proposal to the whole
Board, which retains responsibility for all such appointments.
In the recruitment of Non-Executive Directors during the year,
an external recruitment agency, Norman Broadbent Executive
Search Limited, which has no other connection to the
Company or its Directors, was engaged to compile a list of
candidates to which was added a number of other candidates
who had been recommended to the Company separately. A
similar process has taken place in recruiting the two additional
Non-Executive Directors whose appointments were
announced in March 2020. Another external recruitment
agency, FDU Group Limited, which has no other connection to
the Company or its Directors, ran the search process which
culminated in the selection of Duncan Magrath as our Chief
Financial Officer Designate.

Diversity
Alfa seeks to have a workforce which reflects the world we and
our customers live in, whilst facilitating the delivery of our
strategic goals. The Board and the Committee believe that
diversity is a wider topic than simply gender and in order to
achieve the Group’s future growth aspirations, Alfa should
remain committed to building a pipeline of diverse talent and
regularly reviewing HR processes, including recruitment and
performance management frameworks.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 83

Strategic reportFinancial statementsAdditional informationGovernanceReport of the Nomination Committee continued

Induction and ongoing professional development
To ensure that each Director receives appropriate support
on joining the Board, there is a comprehensive and tailored
induction programme, including the provision of background
material on the Company and briefings with relevant CLT
members. The induction programme will continue to be
reviewed and updated on a regular basis.

For professional ongoing development, the Board receives
presentations relevant to the Company’s business and
updates on any changes to markets, or regulations, which may
affect the Company’s operations. The Company Secretary
supplies all Directors with information on relevant corporate
governance and best practice. As part of their annual
performance evaluation, Directors are given the opportunity
to discuss training and development needs. The Committee is
confident that Board members have the knowledge, ability
and experience to perform the functions required of a
Director of a listed company.

External directorships
The Board believes, in principle, in the benefit of Executive
Directors accepting non-executive directorships of other
companies in order to widen their skills and knowledge for the
benefit of the Company. All such appointments require the
prior approval of the Board and the number of public company
appointments is limited to one. There were no external
appointments in relation to the Executive Directors during
2019, with the exception of Vivienne Maclachlan who was
appointed as a Non-Executive director of Tungsten
Corporation PLC on 11 February 2019.

Conflicts of interest
The Board operates a policy to identify and, where
appropriate, manage any potential conflicts of interest that
Directors may have. It is the role of the Committee to monitor
and determine actions to address any potential, or actual,
conflicts that may arise. The Committee reviews all potential
conflicts of interest on an annual basis and when new Directors
are formally appointed. No conflicts of interest were noted in
the year and to the date of this Annual Report.

Re-appointment of Directors
The reappointment of Directors is subject to their
continuing commitment to Board activities and satisfactory
performance. All Directors will stand for re-election annually
in accordance with the provision of the Code. The Committee
has confirmed to the Board that the contributions made by
the Directors offering themselves for re-election at the 2020
AGM continue to benefit the Board and the members are
invited to support their re-election.

Non-Executive Directors are appointed initially for three years
and Non-Executive Directors may, subject to Board approval,
remain in office for a period of up to six years, or two terms in
office, with discretion for the Board to extend the term for
one further three-year term, to a maximum of nine years.

Annual evaluation
The performance of the Committee has been assessed by
way of an internal process whereby the Chair and Company
Secretary carried out a Committee evaluation through an
electronic questionnaire. The results of this report were
subsequently discussed and areas identified to develop the
effectiveness of the Committee further.

Focus for 2020
Board membership and succession will continue to be high on
the agenda moving into 2020 and in particular finalising the
appointments, to the Board, of Duncan Magrath as Chief
Financial Officer and Adrian Chamberlain and Charlotte de
Metz as additional Non-Executive Directors. The Committee
will also monitor the effectiveness of recent appointments
to the Board and take an active interest in the succession
planning and future leader identification processes for those
immediately below Board level, sitting on the CLT, as well as
monitoring progress on diversity to ensure that any succession
plans incorporate an appropriate balance and diversity of skills
and experience.

Chris Sullivan
Chair, Nomination Committee

23 April 2020

84 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Report of the Audit and Risk Committee

Audit, Risk and Internal Controls

Steve Breach
Independent
Director and Chair
of the Audit and Risk
Committee

Membership and Organisation of the Committee
The table below details the Committee members and
their attendance at meetings during 2019:

Scheduled
meetings
attended

Appointed to
Committee

Resigned

Steve Breach (Chair)

3/3

August 2019

N/a

Chris Sullivan

Richard Longdon (i)

Karen Slatford

1/1

0/1

4/4

September
2019

N/a

May 2017

April 2019

May 2017

September
2019

December
2019

September
2019

David Stead

2/2

August 2019

Robin Taylor (Chair)

4/4

May 2017

(i) Richard Longdon did not attend the meeting due to prior commitments.

The Committee’s members are all Independent
Non-Executive Directors.

Alfa is making good progress
at embedding new financial
processes and systems which will
enhance financial management in
the coming years.”

Introduction
I am pleased to present this Audit and Risk Committee
Report, for the year ended 31 December 2019, which
summarises the Committee’s activities in the year, as well as
setting out expected key areas of focus for 2020. This is our
first report since I took over as Chair of the Committee and
I would like to thank Karen Slatford, Richard Longdon and
David Stead, for their work on the Committee, and to Robin
Taylor, as Chair.

During 2019, the Company experienced challenges arising
from significant personnel changes amongst its senior
leadership team, as well as difficult trading conditions.
Throughout this period, the Committee’s primary focus
has been to maintain the integrity and transparency of the
Company’s external financial reporting. In particular, we have
spent significant time assessing the application of IFRS 15
“Revenue from Contracts with Customers”, alongside careful
review of the Company’s risk management framework, internal
controls and management information systems. The
Company’s financial management improvement programme,
which was instigated in 2019 with clear short-term and
medium-term objectives, will continue into 2020. Further
details of the areas of weakness and the Group’s overall
response to these challenges are shown on pages 92 to 93.

Members’ skills and experience are documented on
pages 76 to 77. The Board is satisfied that the Committee
meets the requirement to have recent and relevant financial
experience and that, as a whole, its members have experience
of the asset finance and enterprise software sector and
corporate governance.

By invitation, the meetings of the Committee may be
attended by the Chairman, the CEO, the CFO and the COO.
The Company’s external auditor and its internal audit services
provider are also present at all Committee meetings, to ensure
full communication of matters as they relate to their
respective responsibilities. At the end of each Committee
meeting, Committee members have the opportunity to meet
with the external auditors (and, where appropriate, the
internal auditors) for a private discussion regarding the audit
process and relationship with management. The Company
Secretary acts as Secretary to the Committee.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 85

Strategic reportFinancial statementsAdditional informationGovernanceReport of the Audit and Risk Committee continued

Role of the Committee
The Board has delegated to the Committee responsibility for
overseeing financial reporting, the review and assessment of
the effectiveness of the internal control and risk management
systems and maintaining an appropriate relationship with the
External Auditor.

In order to fulfil these responsibilities, the Committee’s duties
include the following:

• Giving due consideration to applicable laws, regulations and

accounting standards;

• Monitoring the integrity of the Company’s financial

statements;

• Reviewing and challenging the application of accounting
policies, including estimates and judgements made by
management, and the clarity and completeness of
disclosures;

• Monitoring the effectiveness of the Company’s internal

financial controls and risk management systems;

• Reviewing and assessing the internal audit function, including
approval of any appointments, review of internal audit plans
and findings and recommendations; and

• Overseeing the relationship with the external auditor,

including a review of its independence and audit
effectiveness.

Further details on the Committee’s roles and responsibilities
can be found in our Terms of Reference, which were revised in
2019, on our website, at investors.alfasystems.com.

Meetings
The Committee generally meets at least four times during a
year. The Committee operates to a forward agenda linked to
the financial calendar which ensures that the responsibilities
and duties of the Committee are discharged in accordance
within the Terms of Reference and the requirements of the
UK Corporate Governance Code.

Additional agenda items, or meetings, may be added during
the financial year, as required, and to address changes in the
business, or changes to regulation. During 2019, such items
involved progress on the financial management improvement
programme, review of progress and plans for the deployment
of new business systems and changes to the UK Corporate
Governance Code.

The Committee is satisfied that it receives sufficient
information and has access to relevant management personnel
to allow the Committee members to engage in an informed
debate during Committee meetings. The Committee notes
that the quality and timeliness of management information
reporting is improving under the financial management
improvement programme and will continue to develop
during 2020.

86 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Principal activities of the Committee
During the year, the Committee has undertaken the following activities:

Date

Focus

February 2019

Review of the 2018 Annual Report, full year results statement and presentation including:

• Review of key accounting judgements including the application of IFRS 15 “Revenue from Contracts with

Customers”.

• Review of principal risks and uncertainties affecting the Company.

• Assessment of going concern and long-term viability statement.

• Reviewing the 2018 Annual Report to ensure it was fair, balanced and understandable.

• Review of the report by the external auditor in relation to the 2018 Annual Report.

• Review of the internal audit plan for 2019.

• Review of the business systems deployment programme.

• Review of non-audit services.

May 2019

• Assessment of the effectiveness of external audit.

August and
September 2019

• Review of the internal auditors’ report on internal controls.

• Review of the accounting policy manual.

• Review of principal risks and uncertainties affecting the Company.

• Progress review of the business systems deployment programme.

• Review of the whistleblowing policy and incident reporting.

• Review of the anti-bribery policy and procedures.

• Review of the Committee terms of reference.

• Review of the 2019 half-year results statement and presentation.

• Review of key accounting judgements including the application of IFRS 15 “Revenue from Contracts with

Customers” and capitalisation of development costs.

• Going concern review.

• Review of corporate governance compliance.

• Review of the report by the external auditor in relation to the 2019 half-year results.

• Review of principal risks and uncertainties affecting the Company.

• Consideration of approach to internal audit following the resignation of the previous internal audit provider.

• Progress review of the business systems deployment programme.

• Review and approval of non-audit services.

December 2019

• Assessment of progress with the financial management improvement programme.

• Review and approval of the external audit plan for full year results.

• Approval of the external auditor’s fee for 2019.

• Approval of the 2019/2020 revised internal audit plan.

• Review of the output of a risk workshop and consideration of learning points regarding risk

management processes.

• In-depth review of the business systems deployment programme.

• Review and approval of updates to the Committee’s Terms of Reference.

• Consideration and approval of the Committee’s work plan for 2020.

• Review and update of the policy regarding external auditor independence.

• Review and update of the whistleblowing policy.

Following each meeting, the Chair reports to the Board on the activity of the Committee, highlighting the main issues discussed
and matters of particular relevance, with all Board members having access to copies of the Committee minutes and papers.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 87

Strategic reportFinancial statementsAdditional informationGovernanceReport of the Audit and Risk Committee continued

Key matters considered in relation to the
consolidated financial statements
The Committee receives drafts of the Annual Report and
consolidated financial statements and the half-year results on
a timely basis, to enable sufficient review, challenge and
discussion of key judgements, the narrative and disclosures
before being recommended to the Board. Prior to the relevant
Committee meeting, management prepares a paper providing
details of significant areas of accounting, tax, disclosure and
other matters where relevant.

The critical accounting estimates, judgements and disclosure
areas are disclosed on subsequent pages. During the year, the
Committee again invested a significant amount of time in
assessing the application of IFRS 15 “Revenue from Contracts

with Customers” in relation to the Group’s contracts and
continuing projects, including reviewing the judgements made,
which are described further in the relevant accounting policies
and detailed notes to the consolidated financial statements.
The external auditors reported to the Committee any
misstatements that they found in the course of their work and
no net material adjustments were required.

After reviewing the presentations and reports from
management and consulting where necessary with the
external auditors, the Committee is satisfied that the
consolidated financial statements appropriately address
the critical judgements and key estimates in respect of both
the amounts reported and related disclosures.

88 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Revenue recognition

The Group’s operations include complex software implementation programmes and service activities.

The delivery of these contracts typically extends over more than one reporting period, and often the original project plans are amended,
as the implementation progresses. In recognising revenue, management has to apply a number of judgements to allocate the overall
transaction price across the multiple performance obligations that have been identified within these projects.

Due to the structure of the Group’s licence and maintenance contractual arrangements, there are times when one-off licence uplift or
maintenance / right to use termination payments are received. The revenue recognition of such items mirrors any underlying
performance obligations of the Group, whilst taking into account the existence of any contractual right of clawback.

Assessment
The Group applies IFRS 15 “Revenue from Contracts with Customers” in the calculation of its revenue recognition and associated
accounting policies.

Prior to the IFRS 15 transition date, 1 January 2018, a detailed review was carried out of the terms and conditions of each contract, in
both the software implementation and ODS segments, as well as all continuing maintenance contracts. This detailed review was
undertaken to determine the performance obligations under each contract, to assess the transaction price for each performance
obligation and, where relevant, allocate the transaction price to each performance obligation. Management paid particular attention to
whether individual promises within each contract constituted distinct performance obligations and whether the fair value of the right to
use performance obligation, invoiced during the implementation period, related to future periods. During the year ended 31 December
2019, management continued to review the terms and conditions of both new and existing contracts, on a basis consistent with that
described above, in order to identify any new performance obligations to be considered.

Following the review of contracts outlined, above, management has concluded that the Group’s contracts contain distinct performance
obligations as set out below, along with the relevant management judgements or estimates:

• Implementation services are those that could be delivered by an external third party other than the Group. The transaction price for
this service is based on stand-alone selling prices and there are judgements in relation to what these services are and also the stand-
alone selling price of the day rate relevant to that particular implementation project and geography.

• Development services are those that relate to granting of a right to use Alfa Systems, which comprises delivery of the related software

licence and also any work to change the underlying code. Management estimates the total revenue relating to these services at the
start of a contract, and this is recognised on a percentage-of-completion basis. Development services are valued using the residual
method as there is no stand-alone selling price which is observable because each project is customised. In addition each contract may
contain an expectation to deliver multiple separate instances of the customised licence which may form separate groups of distinct
performance obligations.

• 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 determines the value of the development services during the software implementation period and the remaining
expected customer life.

• The periodic maintenance and right to use Alfa Systems relates to the ongoing support and right to use the Alfa System over a

customer’s life. The transaction price relating to the periodic maintenance is recognised throughout the period, as the services are
delivered. The transaction price, relating to the periodic right to use Alfa Systems, is recognised over the period if there is a right of
clawback by the customer, or in full when there is a right of collection, if there is no right of clawback.

• 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.

The key judgements are in relation to the assessment of whether there are multiple performance obligations, specifically the efforts
within the implementation process which relate to activities that could be delivered by a third party and therefore represent a stand-
alone performance obligation, distinct from the efforts to develop a customised licence, or right to use. The key estimates are the
estimated time to complete the implementation project, including both implementation and development time, and the stand-alone
selling price of an implementation day rate.

The revenue recognition accounting policy and the relevant critical accounting estimates and judgements are detailed in note 3 to the
consolidated financial statements.

Action and outcome
The Committee reviewed in detail, with the external auditors, management's analysis of IFRS 15, as applied to key customer contracts
during 2019.

The auditors reviewed the approach to revenue recognition and challenged the basis of key assumptions.

The Committee is satisfied with the conclusions made in respect of the performance obligations that have been identified, and with
the judgements made in determining the transaction price for the various performance obligations, specifically the determination of
what constitutes customisation effort, the estimation of the time to complete and the determination of the stand-alone selling price
for the implementation day rates.

The Committee is satisfied that management’s assessment is in compliance with IFRS 15, the disclosure in the consolidated financial
statements is appropriate and that the Group has applied the relevant standard appropriately.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 89

Strategic reportFinancial statementsAdditional informationGovernanceReport of the Audit and Risk Committee continued

Development costs

The Group continues to invest in the development of Alfa Systems, specifically in relation to the enhancement of the Alfa Systems
product platform and capabilities. The majority of development effort is undertaken in partnership with customers and therefore
specific to that implementation, or customer’s process.

Judgement is required to assess whether any development is substantially new in either design, or functionality, and whether it would be
commercially viable in the open market. Therefore, management assesses the likelihood of capitalisation of such costs prior to initiation
of the investment project and also performs bi-annual assessments of the development work that has been undertaken to determine if it
meets the criteria set out in IAS 38 for capitalisation.

Assessment
Research and product development expenditure incurred on minor, or major, upgrades, or other changes in software functionalities,
does not satisfy the capitalisation criteria because the product is not substantially new in its design or is customer-specific. Such
expenditure is therefore recognised as an expense.

During 2019 the Group has capitalised internally generated costs incurred in the following areas of product development:

• Upgrades and significant improvement work to the usability and functionality of the Alfa Systems user interfaces. Additional work is

planned in this area, during 2020, following which such capabilities will be made available for use to existing and new customers;

• Specific functionality requested by existing customers for which the Group has invested time developing new modules and capabilities
within Alfa Systems. Such capabilities include developing the functionality of Alfa Systems to operate in the wholesale leasing market
and to comply with the requirements of specific regulations applicable to the asset leasing market. Additional work is planned on these
modules and capabilities, during 2020, following which such capabilities will be made available for use to existing and new customers;

• Investment in the functionality of the cloud-hosting platform offered by the Group, to its new and existing customers, to provide more
security, scalability, simplification and capacity. This increases significantly the number and size of production environments the Group
is able to host. Additional work is planned in this area, during 2020, focused particularly around testing new functionality, following
which such capabilities will be made available for use to existing and new customers;

• The adaptation of the existing Alfa Start technology to meet the requirements of the UK equipment finance market and to provide a
ready-to-deploy repeatable subscription license model. This new functionality was completed prior to the end of 2019 and has been
successfully implemented for the first time in March 2020; and

• Continued investment in its digital capabilities. This investment includes both internally generated costs as well as externally acquired

technical assistance. Such capabilities are available for sale to existing and new customers.

Action and outcome
The Committee reviewed and discussed with management and the external auditor whether development costs met the capitalisation
criteria under IAS 38 and is satisfied that such expenditure, with the exception of that relating to those items capitalised during the year,
should be expensed.

The Committee has reviewed and is satisfied with the judgements applied by management in determining the value of the development
costs capitalised during the year. These judgements have also been discussed with the external auditor.

Alternative performance measures (“APMs”) and presentations not specifically defined by IFRS

Alfa uses APMs which are not specifically defined by IFRS, being Adjusted EBIT and Adjusted EBIT margin, to show the impact on
earnings before the capitalisation (and related amortisation) of development costs, in order to present clearly the underlying costs and
results of the Group.

Additionally, Alfa uses Constant currency revenue growth to show the underlying growth of revenues excluding the effects of currency,
and Operational cash flow conversion to show the conversion of Adjusted EBIT to cash.

Assessment
These APMs are not specifically defined by IFRS but are utilised by management to monitor performance as the data provided illustrates
the underlying performance of the business including underlying cost base and overall trading operations.

These APMs are defined and reconciled, to the nearest equivalent IFRS measure, in the Key Financial Metrics section of the Financial
review, on pages 46 to 53 of this Annual Report.

Action and outcome
The Committee considered the presentations made in light of the guidance provided by the European Securities and Markets Authority and is
satisfied that the measures presented continue to be appropriately adjusted and disclosed as non-GAAP measures. The Committee is
satisfied that the non-GAAP measures are not given undue prominence and that the reconciliations provided are presented in a clear manner.

90 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Newly applicable accounting standards – Accounting for Leases

IFRS 16 “Leases” took effect for periods beginning on or after 1 January 2019. Alfa has both property and car leases for which the
accounting treatment must comply with IFRS 16.

Management has implemented IFRS 16 “Leases” using the “cumulative catch up approach” as if IFRS 16 had been applied since the start
date of the relevant lease. Under this approach, the difference between the Right-of-Use Asset and the Lease Liability, as at the date of
transition, is accounted for as an adjustment to the Group’s opening retained earnings.

Assessment
In assessing the impact of IFRS 16, management assessed each of the lease contracts the Group had in place, as at 31 December 2018, to
determine whether or not each contract met the definition of a lease, under IFRS 16. In those instances where management considered
the definition had been met, and the Group is the lessee, management determined both the value of the Lease Liability and the Right-of-
Use Asset that was recognised as at 1 January 2019. Management has also assessed new lease contracts entered into during the year, as
well as any rent reviews, or lease extensions, applicable to any existing leases, against the requirements of IFRS 16.

In carrying out these calculations, management made judgements about certain parameters including the discount rate and, in certain
cases, whether a break clause will be exercised. Management has also separately assessed the terms and conditions of any lease
contracts it has where the Group is the lessor.

The IFRS 16 lease accounting policy and details around the Group’s transition to IFRS 16 are set out in note 19 to the consolidated
financial statements.

Action and outcome
The Committee has reviewed and discussed these judgements, explanations and conclusions with management and the external auditor.
The Committee is satisfied with the explanations provided, the judgements and conclusions made and the disclosure in the consolidated
financial statements.

Going concern and viability statement

The Directors must satisfy themselves regarding the Group’s long-term viability and confirm that they have a reasonable expectation
that the Group will continue to operate and meet its liabilities as they fall due, for the foreseeable future.

Assessment
The period over which the Directors have determined it is appropriate to assess the prospects of the Group has been defined as three
years, which is in line with the assessment in the 2018 Annual Report.

In addition, the Directors must consider if the going concern assumption is appropriate.

Action and outcome
The Committee reviewed management’s budget and forecasts, including an overview of the assumptions made in the preparation of the
base case supporting the going concern and viability statement. This included the Group’s 2020 budget and also the high level plans for 2021.

The Committee discussed, and challenged as appropriate, before agreeing with the reasonableness of the three-year period. The
Committee assessed this in light of the principal risks and uncertainties, including the impact of Covid-19, as disclosed on pages 40 to 43 in
the Strategic report.

The Committee discussed and challenged the downside scenarios modelled as part of the viability statement as disclosed on pages 44 to 45
in the Strategic report, the funding headroom available and the feasibility of mitigating actions and the speed of implementation of any
cost-saving measures following management decision making. The Committee noted in particular that Scenario 3 includes the possible
impacts of Covid-19.

The Committee noted the Code requirement for the Directors to state whether they consider it appropriate to adopt the going concern
basis of accounting for a period of at least 12 months from the date of approval of the 2019 financial statements. In line with the guidance
issued by the FRC, on 26 March 2020, the Committee considered the additional downside stress testing performed by management.

Following this evaluation and analysis, the Committee was satisfied with the judgements made and that the continued use of the going
concern basis was appropriate and the viability statement was prepared appropriately.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 91

Strategic reportFinancial statementsAdditional informationGovernanceReport of the Audit and Risk Committee continued

1. Assessment of the Annual Report
The Committee has undertaken a careful review to ensure the
contents of this 2019 Annual Report, when taken as a whole,
are fair, balanced and understandable and provides the
necessary information for shareholders to assess the Group’s
consolidated position, performance, business model and
strategy. In forming its opinion and recommendation to the
Board in respect of the above matters, the Committee
assessed the following:

Fair
• Is the narrative, presentation or information materially

complete?

• Are the key messages in the narrative aligned with the financial

statements and supported by KPIs?

• Are the KPIs appropriate based on the financial reporting and

the outlook?

Balanced
• Is the narrative and presentation even-handed?

• Is the Strategic report consistent with the financial statements?

• Is there appropriate balance between financial measures

under IFRS and adjusted measures not defined by IFRS, with
the latter not having undue prominence?

• Are the key judgements and issues set out in this report
consistent with the critical accounting estimates and
judgements in the financial reporting and the significant
issues set out in the report of the External Auditors?

• Are the principal risks and uncertainties set out in the

Strategic report aligned with the key risks set out in the report
of the external auditors?

Understandable
• Is the narrative cohesive, and is it written simply and

transparently?

• Are the important messages highlighted and presented

consistently and prominently?

• Will a shareholder understand the market in which Alfa

operates and how it generates value?

Following the Committee’s review and recommendation, the
Directors confirmed that the 2019 Annual Report, when taken
as a whole, is fair, balanced and understandable and presents the
information necessary for a shareholder to assess the Company’s
position and performance, business model and strategy.

2. Internal controls and risk management
While the Board is ultimately responsible for the operation
of an effective system of internal control and risk management
appropriate to the business, the Committee is responsible for
reviewing the risk management systems and internal controls
to ensure that they remain effective and that any identified
weaknesses are dealt with appropriately. The process of
review has been operational throughout the year and through
to the date of approval of this Annual Report.

At each Committee meeting, management reports any
whistleblowing activity, frauds identified and any other
significant issues. The Committee has neither identified,
nor been informed of any, failings or weaknesses that it has
determined to be significant, other than as described below.

Overview of the internal control environment
The following key elements summarise the internal control
environment which has been designed to identify, evaluate and
manage, rather than eliminate, the risks facing the Group and to
ensure timely and accurate reporting of financial information:

• An appropriate organisational structure with clear lines of

responsibility;

• A comprehensive annual process for strategic and business

planning;

• Systems of control procedures and delegated authorities,

beyond the Board Terms of Reference, which operate within
defined guidelines and approval limits for capital and operating
expenditure and other key business transactions and decisions;

• Procedures by which the Group’s consolidated financial

information and statements are prepared, which identify and
take into account changes to financial risks as a result of changes
to operating models or commercial terms or new accounting
standards and disclosures;

• Established policies and procedures setting out expected

standards of business conduct, integrity and ethical standards
which require all employees to adhere to legal and regulatory
requirements in the area in which they do business;

• A finance function which has appropriate experience and

qualifications, and which regularly assesses the financial impact
of risks facing the Group; and

• An appropriate risk management process complemented by a

suitable internal audit function.

Internal control efficacy during 2019
The majority of Alfa’s controls operated as intended during the
year. However, Alfa’s transition from private to public company
status has led to challenges as the Company’s corporate
governance structures were tested by the impact of personnel
changes during 2019. The Directors consider that the following
matters represented areas of weakness during 2019.

Timeliness of management information
Steps have been taken to streamline the production of
monthly management information and simplify the application
of IFRS 15, which ultimately will improve the timeliness of
reporting. The initial phase of these developments has been
completed and further improvements will continue during
2020. The Company is also in the process of expanding the
functionality of the finance and HR system (Workday) which,
in the medium-term, will provide a more robust platform for
the provision of management information.

Forecasting accuracy
The nature of Alfa’s business, which typically includes a number
of individually significant new customer software contracts,
alongside a small number of large software delivery contracts,
makes it inherently difficult to forecast over the short
term because the timing of contract sign-off and customer
programme milestones may change beyond the Group’s control.

Steps are being taken to improve forecasting processes,
particularly with regard to timing and value of sales pipeline
and opportunities. Increased management scrutiny is focussed
on expected resource allocation. Feedback is provided to
budget holders regarding forecasting accuracy, with a view to
enhancing the quality of budgeted information prepared for
management and the Board.

92 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Overall response to these challenges
In order to address the challenges faced by the Group during
2019, additional controls were implemented during the period
and further control enhancements are in progress. Work
programmes are continuing to ensure that the Board has the
information, time and resources it needs in order to function
more effectively. As announced in the Company’s 2019 interim
results announcement, a finance improvement programme
has been instigated, under the leadership of John Miller. This
has focussed, initially, on the timely provision of financial and
operational management information to management and the
Board. Assisted by external input from Grant Thornton, the
initial phase of the project encompassed three workstreams
which were completed in early 2020:

• A detailed review of accounting for IFRS 15 revenue recognition
to ensure clarity on its application and process improvements;

• Development of an improved budgeting and forecasting

process and five-year forecasting model; and

• Development of an enhanced monthly management

reporting pack.

Risk management process
Alfa recognises that effectively managing risk is integral to
allowing the Group to deliver on its strategy. Management
monitors and manages risk utilising a five-step process
throughout the business, as discussed in more detail on pages
36 to 39 in the Strategic report. Additionally, the Committee
has reviewed, and will continue to review, the risk register a
minimum of twice annually and assess the actions taken by
management to manage and mitigate identified risks.

During 2019, the Board also undertook a risk workshop
facilitated by the internal auditor. This process enabled
management and the Board to take a fresh look at the risks
faced by the business now and in the future, and to test that
the existing risk management process continued to identify
key risks requiring management attention.

The Group’s principal risks and uncertainties are described on
pages 40 to 43 in the Strategic report.

Internal audit
The Group has an internal audit function resourced by an
external provider. The internal audit function reports jointly
to the Chair of the Audit and Risk Committee and the CFO.
The Board, acting through the Committee, has directed the
work of the internal audit function towards those areas of
the business that are considered to be of higher risk. The
Committee approves a rolling audit programme, ensuring that
significant areas of the business are independently reviewed
over a suitable period. The effectiveness of the internal audit
function is reviewed by the Committee.

Until August 2019, the internal audit function was delivered by
KPMG. BDO was selected to deliver internal audit services in
November 2019. Their focus will be to provide a number of
assurance reviews including key financial and operational risk
areas all agreed in advance with the Committee. Recent
internal audit work includes the following areas of focus:

• Core financial controls;

• Risk management processes;

• Contract management review and new business

acceptance; and

• Business continuity.

3. Independence and performance of the external auditors
The Board has approved a policy which is intended to maintain
the independence and objectivity of the external auditors. The
policy governs the provision of audit, audit-related services
and non-audit services provided by the auditor. Committee
approval is required for all projects with an expected cost in
excess of £10,000. The Group’s auditors are Deloitte LLP, and
they were appointed, as statutory auditor to the Group, on
5 May 2017, for the year ended 31 December 2017. They were
re-appointed by shareholders for the 31 December 2019
period on 26 April 2019 and the Committee has recommended
to the Board that a resolution be prepared and presented to
shareholders to reappoint Deloitte LLP for the 2020 financial
year. The audit partner is Richard Howe, and he has been the
partner on the engagement since 2016. There were no non-
audit fees paid to the Group’s auditors in 2019 other than for
interim review services. Details of audit, audit-related fees and
non-audit fees are included in note 18 to the consolidated
financial statements. The external auditor is prohibited from
providing internal audit services. Deloitte has confirmed its
independence to the Committee on a regular basis during the
year under review.

4. Effectiveness of the external auditor
The Committee has reviewed the quality of the audit plan
and related reports for the 2019 audit and is satisfied with the
quality of these documents. The Committee has discussed
the quality of the audit throughout the year and considered
the performance of the external auditors, taking into account
feedback from a survey targeted at various stakeholders
across the business and the Committee’s own assessment.
The evaluation focused on: robustness of the audit process;
quality of delivery; reporting; and people and services. The
Committee has reviewed the independence of the external
auditor and concluded that it complies with UK regulatory
and professional requirements and that its objectivity is not
compromised. The external audit will not be put out to tender
in the coming financial year as the appointment of Deloitte
LLP occurred in 2017 and therefore the Company has
complied with the Competitions and Markets Authority
requirement in relation to audit tenders every 10 years.
The Committee will continue to keep this under review as
part of their review of effectiveness of the external auditor.

5. Performance of the Audit and Risk Committee
The performance of the Committee during 2019 has been
assessed through an internal process where the Chair and
Company Secretary carried out a Committee evaluation
through an electronic questionnaire. The results of this report
were reviewed by the Committee and areas identified to
develop the effectiveness of the Committee further.

6. Focus for 2020
In 2020, the Committee will continue to monitor closely
the finance improvement programme, seeking continued
enhancement to the timeliness and efficiency of production of
insightful management information, with increasing use of new
systems, allied to improved forecasting of future performance.

Steve Breach
Chair, Audit and Risk Committee

23 April 2020

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 93

Strategic reportFinancial statementsAdditional informationGovernanceReport of the Remuneration Committee

Remuneration

Chris Sullivan
Senior Independent
Director and Chair of
the Remuneration
Committee

Membership of the Committee
The Committee generally meets at least three times a
year. Attendance by the Committee members at these
meetings is shown below:

Scheduled
meetings
attended

Member since

2/2

September 2019

3/3

August 2019

2/2

August 2019 –
December 2019

May 2017 –
September 2019

0/1

May 2017 – April 2019

Chris Sullivan (Chair)
Senior Independent
Non-Executive Director

Steve Breach
Independent Non-Executive
Director

David Stead
Independent Non-Executive
Director

Karen Slatford
Independent Non-Executive
Director

Robin Taylor
Independent Non-Executive
Director

Richard Longdon
Independent Non-Executive
Director(i)

(i)

Richard Longdon did not attend the meeting February
due to prior commitments.

The Committee’s members are all independent
Non-Executive Directors.

94 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

The Committee continues to
monitor the various elements of
the remuneration paid to Executive
Directors to ensure salary is at an
appropriate level and there is the
opportunity to receive variable
remuneration if stretching business
targets are met.”

Introduction
I am pleased to present the Directors’ Remuneration Report for
the year ending 31 December 2019, which covers the Company’s
remuneration policy and practice. This is our first report since I
took over as Chair of the Committee and I would like to thank
Karen Slatford and David Stead for their work on the Committee
and as Chair, and to Richard Longdon and Robin Taylor for their
contributions to the Committee’s work in 2019 and before.

The Remuneration Policy, which was approved by
shareholders at the AGM in 2018, remains in place and there
are no proposals to amend it for the coming year. An updated
policy will be brought back to shareholders at the AGM in
2021. The policy incentivises and motivates the leadership
team to deliver long-term shareholder value by achieving the
Company’s strategic goals. The Committee is also supportive
of senior management’s wishes to extend share ownership as
widely as possible amongst the workforce. During 2019, LTIP
awards were made to selected employees below senior
management level, based on performance.

The report is presented in two parts. The Annual Statement sets
out an overview of 2019 activities. Secondly, the Annual Report
on Remuneration, on pages 96 to 100, sets out how we will be
implementing our policy for 2020, together with the details of
remuneration outturns for 2019. We also provide a summary of
the Remuneration Policy on pages 101 to 103, which remains
unchanged, and was set out in full in our 2017 Annual Report.

We hope you find the information contained in the report to be
clear and informative.

Role of the Committee
The Committee’s primary role is to review and set the
remuneration policy for the Executive Directors. It also
approves discretionary performance-related awards to
Executive Directors and the CLT. The Committee also has
oversight of wider workforce remuneration and approves
the annual bonus pool and salary increase budget. The
Committee’s full Terms of Reference can be viewed at
investors.alfasystems.com. The Executive Directors and
other CLT members may attend, by invitation but will not
be present when their own remuneration is discussed.

Principal activities in 2019
During 2019, the Committee’s principal activities were
as follows:

• Approved the remuneration for Matthew White, following

his appointment to the Board;

• Approved a revised remuneration structure for Senior

Management below Board level;

• Reviewed the annual bonus targets for the Executive
Directors for the financial year 2019 and measured
performance against them;

• Agreed the structure of annual bonus targets and

quantum for the Executive Directors and CLT for the
financial year 2020;

• Approved LTIP awards to employees under the Long Term

Incentive Plan (LTIP);

• Incorporated the revised UK Corporate Governance Code

into the Committee’s policies and procedures; and

• Reviewed and approved, the Terms of Reference of the

Committee.

Remuneration policy overview
The principal objectives of the Company’s remuneration
policy are to attract, retain and motivate the Group’s
Executive Directors and Senior Management, provide
incentives that align with, and support, the Group’s business
strategy as it evolves, and align incentives with the creation of
long-term shareholder value.

The Remuneration Committee oversees the implementation
of this policy and seeks to ensure that the Executive Directors
are rewarded fairly for the Group’s performance over the
short, medium and long-term. In line with best practice, the
Committee has decided that a significant proportion of
potential total remuneration should be performance-related.
The Committee notes that the Executive Chairman and Chief
Executive Officer hold, directly or indirectly, a significant
shareholding in the Company. Therefore, to date, the
Committee has granted LTIP awards to key individuals below
Board level. The Committee intends to make LTIP awards in
the future, including to other Executive Directors and the CLT.

During 2019, the Executive Chairman’s salary was unchanged
at £374,448 per annum; the CEO’s salary was unchanged at
£321,912 per annum; the CFO’s salary, up to the time of her
departure, was unchanged at £220,000 per annum; and the
salary for the COO, on his appointment to the Board, was
£220,000 per annum. No salary increases are proposed for the
existing Executive Directors, in 2020.

The Committee will continue to monitor the salary and total
remuneration for Executive Directors and make adjustments
if appropriate.

The Executive Chairman and the CEO have separately
advised the Committee that because they have a significant
shareholding in the Company, they wish to waive their
eligibility for a bonus in respect of the performance year 2019
and for any LTIP award for the performance period beginning
January 2020. Shareholders will be aware that the Executive
Chairman and CEO also waived any entitlement for the
performance years 2017 and 2018. The Committee places
on record its thanks to the Executive Chairman and the
CEO for waiving their bonus and LTIP entitlements which
helps the Committee broaden share ownership to selected
Company employees.

Focus for 2020
In the coming year the Remuneration Committee will consider
a number of matters including:

• Assessment of Company performance against the 2020

budget and determination of bonus awards;

• Approval of performance conditions and awards under the

Company’s Long-Term Incentive Plan for 2020;

• Approval of bonus performance measures and targets

for 2021;

• Review of any issues raised by shareholders in relation to

remuneration and the remuneration policy;

• Assessment of the ongoing appropriateness of the

remuneration arrangements in light of remuneration trends
and market best practice; and

• Remuneration for Duncan Magrath on his appointment as

Chief Financial Officer.

The Committee believes that the total remuneration package
for each Executive Director represents an appropriate balance
between fixed and variable remuneration. It will reward
personal and corporate outperformance whilst ensuring
overall awards are broadly in line with FTSE small cap levels.

Resolutions at the AGM
Shareholders will have an advisory vote on the Annual Report
on Remuneration at the Annual General Meeting. I look
forward to your support.

Chris Sullivan
Chair, Remuneration Committee

23 April 2020

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 95

Strategic reportFinancial statementsAdditional informationGovernanceAnnual report on remuneration

The 2017 Annual Report sets out, in full, the Directors’ Remuneration Policy, which was proposed and approved at the AGM in
April 2018. A summary is included on pages 101 to 103. This 2019 Directors’ Remuneration Report sets out how the Directors’
Remuneration Policy of the Company has been applied and how the Committee intends to apply the policy in 2020. An advisory
shareholder resolution, to approve this report, will be proposed at the 2020 AGM.

A) Audited Section of the Remuneration Report

Single total figure of remuneration – Executive Directors (audited information)
The following tables set out the aggregate emoluments earned by the Directors in the years ended 31 December 2019 and 2018,
respectively. It should be noted that remuneration is only included from the point the Director was appointed to a director role.

The following table shows the aggregate emoluments in the year ended 31 December 2019:

£’000s

Executive

Andrew Page

Andrew Denton

Matthew White (from 9th October 2019)

Vivienne Maclachlan (up to 26th April 2019)

Non-Executive

Chris Sullivan (from 18th July 2019)

Steve Breach (from 9th August 2019)

David Stead (from 20th August 2019 to 6th
December 2019

Karen Slatford (to 26th September 2019)

Robin Taylor (to 26th September 2019)

Richard Longdon (to 26th April 2019)

Salary and
fees(i)

Benefits(ii)

Annual
bonus(iii)

Long-term
incentives(iv)

Pension(v)

Total

374

322

310(vi)

45(vii)

–

388

338

341

The following table shows the aggregate emoluments in the year ended 31 December 2018:

£’000s

Executive

Andrew Page

Andrew Denton

Vivienne Maclachlan

Non-Executive

Karen Slatford

Robin Taylor

Richard Longdon

Salary and
fees(i)

Benefits (ii)

Annual
bonus(iii)

Long-term
incentives(iv)

Pension (v)

Total

374

322

220

–

439

338

250

(i) Annual salary and fees – corresponds to amounts receivable during the relevant financial year, either as base salary for executives, or fees for non-executives.

(ii)

Benefits – corresponds to the taxable value of benefits receivable during the relevant financial year and principally include company car (or cash equivalent), life
assurance and permanent health insurance, and accommodation in the case of the Executive Chairman during 2018.

(iii)

Annual bonus – corresponds to the amount earned in respect of the relevant financial year. Details of 2019 targets are set out on page 97. The Executive Chairman
and the CEO waived any eligibility for a bonus in both 2019 and 2018. The COO was included in a separate Company-wide bonus arrangement before his
appointment to the Board and any award under this scheme, prior to his appointment to the Board, has been excluded from the table, above.

(iv) Long-term incentives – corresponds to the amount earned by the Executive Directors in respect of the relevant financial year. No long-term incentive awards were
made to Executive Directors in respect of the 2019 and 2018 performance years. As no long-term incentive awards were made, no amount was attributable to
share price.

(v)

Pension – corresponds to the amount contributed to defined contribution pension plans. Vivienne Maclachlan was eligible for a pension contribution worth 10% of
salary. Matthew White is eligible for a pension contribution of up to 6% of salary on the same basis as the wider UK workforce. Andrew Page and Andrew Denton
have opted out of the pension scheme.

(vi) Included in Salary and fees paid to Vivienne Maclachlan was an additional payment of £220,000 in lieu of her contractual 12 months’ notice period, plus pension of

£22,000 included within Pension.

(vii) Steve Breach’s fees include £19,578 of additional fees for specific additional advice October to December 2019 on the finance remediation plans. This was a short-

term arrangement which is not expected to recur in 2020.

96 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

2019 annual bonus
The 2019 annual bonus performance measures were selected to reflect the Company’s annual and long-term objectives and its
financial and strategic priorities, as appropriate. Performance targets are set to be stretching, taking into account a range of
reference points, including the Company’s budget and third party analyst forecasts, as well as the Group’s strategic priorities.

In respect of the annual bonus, the following measures were approved by the Committee:

• Revenue for the year;

• Adjusted EBIT margin, being operating profit excluding certain non-recurring and non-cash exceptional items as a ratio of

revenue;

• Operating free cash flow conversion being cash flow generated from operations after deducting the settlement of derivative

financial instruments and margin calls and capital expenditures as a percentage of Adjusted EBIT, as defined above; and

• Staff retention, calculated over a rolling 12 month period.

The Executive Chairman and CEO have waived their entitlement to a bonus for the 2019 performance year. Having stood down
from office before the end of the financial year, Vivienne Maclachlan was not eligible for a bonus in respect of the 2019
performance year. Matthew White did not participate in the Executive Director bonus scheme for 2019.

The table below shows the bonus outturn relating to each measure. No bonus pay-out was awarded in respect to the 2019
performance year.

Measure

Revenue

Adjusted EBIT margin

Operating free cash flow conversion

Staff retention

Total

Threshold

Maximum

2019 Bonus
Pay-out

95%

90%

80%

105%

110%

120%

100%

nil

Statement of Directors’ shareholding and scheme interests (audited information)
As at 31 December 2019:

Shareholding as a % of salary
(target/% achieved) (1)

Shares owned outright at
31 December 2019

Interests in share
incentive schemes without
performance conditions

Interests in share
incentive schemes with
performance conditions

Andrew Page

Andrew Denton

Matthew White

Chris Sullivan

Steve Breach

Over 200%

151%

n/a

181,224,631

16,421,018

276,184

–

6,009

–

552,368

–

No LTIPs were exercised during the year and there were no unexercised vested shares held at 31 December 2019.

As at 31 December 2018:

Shareholding as a % of
salary (target/% achieved)
(1)

Shares owned outright at
31 December 2018

Interests in share
incentive schemes without
performance conditions

Interests in share
incentive schemes with
performance conditions

Andrew Page

Andrew Denton

Vivienne Maclachlan

Richard Longdon

Karen Slatford

Robin Taylor

Over 200%

n/a

181,224,631

16,421,018

–

6,153

12,307

6,163

–

(1) Calculated as base salary divided by absolute number of shares held at 31 December by the share price at 31 December 2019 and 29 December 2018 respectively.

The Executive Chairman and Chief Executive Officer have significant direct, or indirect shareholdings, in the Company. The
Remuneration Committee has adopted formal shareholding guidelines to encourage Executive Directors to build, or maintain,
a shareholding in the Company (excluding shares held conditionally under any incentive arrangements). The required
shareholding is 200% of base salary on a gross basis. The Committee is currently developing a post-employment shareholding
policy for implementation during 2020.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 97

Strategic reportFinancial statementsAdditional informationGovernanceAnnual report on remuneration continued

Payments for loss of office (audited information)
There were no payments for loss of office during the year.

Payments to past directors (audited information)
As disclosed at the time of her departure, Vivienne Maclachlan received a payment in lieu of her contractual 12 months’ notice
of £220,000, plus her contractual pension contributions of £22,000 in a series of payments between May 2019 and August 2019.
No other payments were made to her.

B) Unaudited Section of the Remuneration Report
External appointments
Executive Directors are allowed to accept one appointment outside the Company, with the prior approval of the Board. Any
fees may be retained by the Director, although this is at the discretion of the Board. During 2019 and up to the date of this
report, none of the Executive Directors who held office during the year under review held external appointments for which they
received a fee, other than Vivienne Maclachlan who was appointed as a Non-Executive Director of Tungsten Corporation PLC
on 11 February 2019.

Fees for the Non-Executive Directors
The fees were agreed on appointment and have remained unchanged since that time. A summary of current fees is shown below:

£’000s

Chris Sullivan

Steve Breach

Basic fees

Audit and Risk
Chair

Remuneration
Chair

Senior
Independent
Director

–

There is no additional fee payable to the Chair of the Nomination Committee.

All the Non-Executive Directors have letters of appointment, with the Company, for an initial three year term, subject to
annual re-appointment at the AGM. The appointment letters for the Non-Executive Directors provide that no compensation
is payable upon termination. Letters of appointment are available for inspection at the Company’s Registered Office.
Details of the appointment terms of the Non-Executive Directors are as follows:

Chris Sullivan

Steve Breach

Start of current term

Expiry of initial term

18 July 2019

9 August 2019

17 July 2022

8 August 2022

Comparison of overall performance and pay
The graph below shows the value of £100 invested in the Company’s shares since listing compared with the FTSE small cap
index (excluding investment trusts). The graph shows the total shareholder return generated by both the movement in share
value and the reinvestment over the same period of dividend income. As Alfa is a constituent member of the FTSE small cap,
the Committee considers that it is the appropriate index for comparative purposes. This graph has been calculated in
accordance with the Directors’ Remuneration Reporting Regulations and shows total shareholder return from the date
of listing to 31 December 2019.

Total shareholder return (For the period from 26 May 2017 to 31 December 2019)

125

100

FTSE small cap

Alfa Systems

May 2017

Dec 2017

Dec 2018

Dec 2019

98 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Percentage change in CEO remuneration compared with employees
The table below shows the average increase in each component between the CEO and the average employee in the Company
from listing to 2019:

CEO

Alfa employees

% change in
base salary

% change in
bonus earned

% change in
benefits

2019: 0%
2018: 0%
2017:0%

2019: (3%)
2018:1%
2017: 2%

2019: (13%)
2018: (37%)
2017: (33%)

2019: 0%
2018: (42%)
2017:87%

2019: (42%)
2018:22%
2017: (11%)

CEO Pay Ratio
Although Alfa had fewer than 250 UK employees in the year under review, the Company has elected to publish the CEO pay
ratio because we believe this reporting is a valuable step towards improving corporate remuneration transparency.

The methodology adopted for calculating the ratio was ‘Option A’ which entailed calculating the total full-time equivalent (FTE)
pay and benefits for all UK employees on the December 2019 payroll. Employees were then ranked based on their FTE
remuneration from low to high in order to identify those whose remuneration placed them at the 25th, 50th (median) and 75th
percentile points. The CEO’s single total figure of remuneration (STFR) was then measured against these percentiles, to produce
the three pay ratios.

Option A was chosen because it was deemed to be the most statistically accurate method for this reporting purpose. Having
reviewed the analysis, the Company believes the median pay ratio to be consistent with the Company’s general employee pay,
reward and progression policies. The Company carries out bi-annual salary reviews and annual reviews of benefits packages.
Salary awards are made with reference to the outputs of annual industry benchmarking exercises. The Company did not omit
any components of pay and benefits from the calculations.

Year

2019

£’000s

Total remuneration

Salary only

25th
percentile
(lower
quartile)

Pay ratio
50th
percentile
(median)

75th
percentile
(upper
quartile)

Method

5.7:1

4.4:1

3.2:1

Y25
25th
percentile

Y50
50th
percentile

Y75
75th
percentile

59.0

57.1

76.2

71.2

106.3

95.7

The following table shows the CEO's remuneration for 2019, 2018 and 2017.

Year

2019

2018

2017

CEO single figure of
remuneration

Annual bonus pay-out (as a %
of maximum opportunity)(1)

LTIP vesting (as a %
of maximum opportunity)(2)

£338,129

£337,944

£349,478

(1) The CEO waived any eligibility for a bonus in 2019, 2018 and 2017.

(2) No long-term incentive awards were made to Executive Directors in respect of the 2019, 2018 and 2017 performance years.

Relative importance of spend on pay
The following table illustrates Alfa’s spend on pay for all employees in the Group in 2018 and 2019.

£’000s

Employee costs (note 5 to the consolidated financial statements)

Average number of employees (note 5 to the consolidated financial statements)

Revenue (consolidated income statement)

Adjusted EBIT (see note 2 to the consolidated financial statements)

2019

37,483

313

64,480

12,727

2018

% change

38,217

327

71,038

21,975

(2%)

(4%)

(9%)

(42%)

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 99

Strategic reportFinancial statementsAdditional informationGovernanceAnnual report on remuneration continued

Implementation of the Remuneration Policy in 2020
2020 Executive Directors’ base salary
The table below shows the salaries for the Executive Directors as at 1 January 2020 in comparison to base salary at
31 December 2018:

£’000s

Andrew Page

Andrew Denton

Matthew White

1 January 2020

31 December
2018

% change

374

322

220

374

322

–

Salaries for Executive Directors are reviewed, each year taking into account the Remuneration Policy approved at the 2018
AGM. No increases to salaries are proposed for 2020.

Pension
Matthew White receives a pension contribution of up to 6% of base salary, on the same terms as the wider UK workforce.
Andrew Page and Andrew Denton have opted out of the pension scheme.

2020 Annual bonus and LTIP
For the performance year 2020, the Committee has decided to limit the maximum bonus potential to 100% salary for all
Executive Directors. A decision on the maximum potential for 2021 will be taken during the course of 2020.

The following measures have been selected for the 2020 annual bonus performance year:

• Earnings before Interest and Tax (EBIT) (30% of bonus);

• Revenue (30% of bonus);

• Free cash flow conversion (15% of bonus); and

• Personal performance (25% of bonus).

Each measure has a target. Failure to meet a minimum percentage of the target will result in no bonus being awarded for that
element. Achieving a maximum percentage of target will result in the maximum bonus being awarded under the formula (subject
to the minimum EBIT target being achieved), although as described earlier, the final determination is made by the Committee
talking all available factors into account. The targets are:

• EBIT: 85% to 120% target;

• Revenue: 95% to 105% target;

• Free cash flow conversion: 80% to 120% target; and

• Personal performance: 0% to 100% target.

The detailed bonus targets for the coming year are considered to be commercially sensitive. However, the Committee
will provide an appropriate explanation of the bonus outcomes in the 2020 Directors’ Remuneration Report.

The Committee has agreed the following measures for the LTIP, with an equal weighting applied to each measure:

• Relative Total shareholder return (TSR); and

• Earnings per share (EPS).

The comparator group for the TSR is the FTSE small cap, excluding investment trusts. Median performance over the
3-year performance period will result in 25% vesting, with 100% vesting if upper quartile performance is achieved.
The EPS performance conditions are being finalised and details will be included in the RNS announcing the awards.
As in previous years, the Executive Chairman and CEO have waived any eligibility to an LTIP award during 2020.

2020 Non-Executive Director remuneration
Following the annual review of Non-Executive Director fees, it was determined that the fees will remain at the following level:

Base fee

Additional fee for chairing Audit and Risk Committee or Remuneration Committee (subject to maximum fees £65,000)

Fee for the Senior Independent Director (including chairing committees)

There is no additional fee for chairing the Nomination Committee. There is no Committee member supplementary fee.

£55,000

£10,000

£65,000

100 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Summary of the Directors’ remuneration policy

The Directors’ Remuneration Policy was approved at the 2018 AGM on 24 April 2018 and has applied from that date.

A summary of the policy table is reproduced below, for information only. The Policy report is contained on pages 71-76 of the
Company’s Annual Report and Accounts 2017, which is available on our website.

Component – Base Salary

Purpose and link to strategy Provides a set level of remuneration sufficient to attract and retain Executives with the

appropriate experience and expertise.

Operation

The Committee takes into account a number of factors when setting and reviewing salaries,
including:

• scope and responsibility of the role;

• any changes to the scope or size of the role;

• the skills and experience of the individual;

• salary levels for similar roles within appropriate comparators; and

• value of the remuneration package as a whole.

Maximum opportunity

There is no set maximum to salary levels or salary increases. Account will be taken of increases
applied to colleagues as a whole when determining salary increases for the Executive Directors,
however the Committee retains the discretion to award higher increases where it considers it
appropriate, especially where salary at outset has been set at a relatively low level.

Performance measures

n/a

Component – Benefits

Purpose and link to strategy Provides benefits sufficient to attract and retain Executives with the appropriate experience

and expertise.

Operation

Executive Directors are entitled to the following benefits:

• life assurance;

• income protection insurance;

• private medical insurance; and

• car allowance.

Maximum opportunity

Executive Directors are also eligible to participate in all-employee share schemes on the same
basis as other staff.

The Committee recognises the need to maintain suitable flexibility in the benefits provided to
attract and retain personnel to deliver the Company’s strategy. The maximum payable will be
set at the cost of providing the benefits described. One-off payments such as legal fees or
outplacement costs may also be paid if it is considered appropriate.

Performance measures

n/a

Component – Pensions

Purpose and link to strategy Provides pension contributions sufficient to attract and retain Executives with the appropriate

experience and expertise.

Operation

Directors are eligible to receive employer contributions to the Company’s pension plan (which is
a defined contribution plan) or a salary supplement in lieu of pension benefits.

Maximum opportunity

10% of salary per annum.

Performance measures

n/a

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 101

Strategic reportFinancial statementsAdditional informationGovernanceSummary of the Directors’ remuneration policy continued

Component – Annual bonus

Purpose and link to strategy Variable remuneration that rewards the achievement of annual financial, operational and

individual objectives linked to the Company’s strategy.

Operation

Maximum opportunity

Performance measures

Objectives are set annually to deliver the Company’s strategic goals. At the end of the year, the
Committee meets to review performance against the agreed objectives and determines pay-out
levels.

From the performance year 2018 onwards, not less than 25% of any bonus will normally be
deferred for a period of three years. Any accrued dividends can be paid in cash or shares. The
Committee retains the discretion to allow dividends to accrue over the vesting period in respect
of the awards that vest. Malus and Clawback provisions may be applied in exceptional
circumstances.

Up to 150% salary for the Executive Chairman and CEO. Up to 125% salary for the CFO. The
bonus for on-target performance is 50% of the maximum award. If performance is less than each
of the thresholds of the relevant target, no bonus will be awarded.

Awards are based on financial, operational and individual goals set at the start of the year. At
least 50% of the award will be assessed against the Company’s financial performance in that
year. The remainder of the achievement will be assessed against specific personal and strategic
objectives.

The Committee reserves the right to make an award of a different amount if it believes the
calculated bonus outcome is not a fair reflection of Company performance.

The split between these performance measures will be determined annually by the Committee
and exceptionally during the year if there is a compelling reason to do so.

Component – Long term incentive plan

Purpose and link to strategy Variable remuneration designed to incentivise and reward the achievement of long-term targets

aligned with shareholder interests. The LTIP also provides flexibility in the retention and
recruitment of Executive Directors.

Operation

Awards granted under the LTIP vest subject to achievement of performance conditions
measured over a three year period. LTIPs may be made as conditional share awards or in other
forms (e.g. nil cost options) if it is considered appropriate.

Accrued dividends may be paid in cash or shares, to the extent that awards vest.

The Committee may adjust and amend awards in accordance with the LTIP rules.

Maximum opportunity

175% salary in any scheme year for the Executive Chairman and CEO. 150% salary for the CFO.
Any awards made in the same year under the Company Share Option Scheme will be taken into
account in applying these limits. In exceptional circumstances, awards totalling 200% salary may
be made in a year.

Performance measures

Performance measures are currently EPS and relative TSR, with equal weighting given to each
measure. The Committee reserves the right to adjust the measures before awards are granted,
to reflect relevant strategic targets.

The Committee reserves the right to adjust the outcome produced by the performance
measures if it believes the calculated outcome is not a fair reflection of Company performance.

Awards are subject to a two-year post-vesting holding period.

102 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Component – Company Share Option Plan (“CSOP”)

Purpose and link to strategy Variable remuneration designed to incentivise and reward the achievement of long-term targets

Operation

aligned with shareholder interests. The CSOP also provides flexibility in the retention and
recruitment of Executive Directors.

Awards granted under the CSOP become exercisable subject to such timings and performance
conditions as may be set by the Committee. Options are granted at market value, or the nominal
share price if higher. Accrued dividends may be paid in cash or shares, to the extent that awards
vest. The Committee may adjust and amend awards in accordance with the CSOP rules.

Maximum opportunity

Maximum value of £30,000 at the time of grant, including any existing awards under the CSOP.
Overall maximum of 200% salary in any one year including any awards under the LTIP rules.

Performance measures

No CSOP awards to Executive Directors have been made. Details are included only for the
purposes of full disclosure.

Component – Share Incentive Plan (“SIP”)

Purpose and link to strategy An all-employee plan designed to encourage share ownership.

Operation

The Company has established a SIP in which the Executive Directors are eligible to participate as
required for HMRC approval.

Maximum opportunity

Participation in any HMRC-approved all-employee share plan is subject to the maximum
permitted by the relevant tax legislation.

Performance measures

The Company may apply conditions to participation in the SIP, which will apply to all employees,
as allowed by HMRC.

Component – Employee Share Purchase Plan (“ESPP”)

Purpose and link to strategy An all-employee plan designed to encourage share ownership for US employees

Operation

The Company operates a share purchase plan where US employees are eligible to participate.

Maximum opportunity

Participation in the ESPP is subject to the maximum permitted by the relevant terms.

Performance measures

The Company may apply conditions to participation in the ESPP, which will apply to all employees.

Notes to the policy table
All LTIP and CSOP awards and bonus awards made to Executive Directors are subject to Malus and Clawback provisions. The
Committee may, at its absolute discretion, determine to reduce the number of shares to which an award or option relates, or
cancel the award, altogether. Alternatively the Committee could impose further conditions on the vesting or exercise of an
award or option. At any time within five years of an award being made the Committee may require the Executive Director to
transfer to the Company a number of shares or a cash amount in circumstances where:

(a)

the financial statements or results for the Group are materially restated (other than restatement due to a change in
accounting policy or to rectify a minor error);

(b)

if in the reasonable opinion of the Board of Directors of the Company, an Executive Director has deliberately misled the
management of the Company and/or the market and/or the Company’s shareholders regarding the financial performance
of any part of the Group;

(c)

If the Executive Director’s actions have caused the Group company and/or the participant’s business unit reputational
damage;

(d)

An Executive Director’s actions amount to serious misconduct or conduct which causes significant financial loss for the
Group and/or the participant’s business unit; and

(e) There have been overpayments to the Executive Director due to material Exceptional write-offs.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 103

Strategic reportFinancial statementsAdditional informationGovernanceAnnual report on remuneration continued

Executive Directors’ service contracts
The Executive Chairman and CEO entered into service contracts effective from 15 May 2017. The COO entered into a new
service contract effective from 9 October 2019. All Executive Directors have rolling contracts terminable by either party on six
months’ notice in the case of the Executive Chairman and the COO and by either party on 12 months’ notice for the CEO. Each
Executive Director receives life insurance, the benefit of which amounts to a maximum of four times basic annual salary. Each
Executive Director is entitled to reimbursement of reasonable expenses incurred by them in the performance of their duties.
The Executive Chairman and CEO will be entitled to receive a payment equal to his or her gross annual salary (less any payment
in lieu of notice) in the event that there is a change of control of the Company and the Director’s employment is terminated
within one month of the change of control. The COO will be entitled to receive a payment equal to six months’ of his gross annual
salary (less any payment in lieu of notice) in the event that there is a change of control of the Company and the Director’s
employment is terminated within one month of the change of control. The service contracts for Executive Directors make no
provision for termination payments, other than for payment in lieu of salary.

Termination of office policy
If the employment of an Executive Director is terminated, any compensation payable will be determined by reference to the
terms of the service contract in force at the time. As variable pay awards are not contractual, treatment of these awards are
determined by the relevant rules. The Committee may structure any compensation payments beyond the contractual notice
provisions in the contract in such a way as it deems appropriate.

The Company may at its discretion make termination payments, in lieu of notice, calculated only on base salary. The service
agreements for the CEO and COO allow for garden leave during any notice period.

There is no entitlement to a bonus in any year. The Committee retains discretion to award bonuses for leavers taking into account the
circumstances of departure. Any bonus would normally be subject to performance, deferral and time pro-rating as appropriate.

Non-Executive Director remuneration

Component – Non-Executive Director Remuneration

Purpose and link to strategy Fees are set at a level to reflect the amount of time and level of involvement required in order to

Operation

Maximum opportunity

carry out their duties as members of the Board and its committees, and to attract and retain
Non-Executive Directors of the highest calibre with relevant commercial and other experience.

The fees paid to the Non-Executive Directors are determined by the Board as a whole.
Additional fees are payable for acting as Senior Independent Director and as Chair of the
Board’s Audit and Risk Committee and Remuneration Committee.

Fee levels are set by reference to Non-Executive Director fees at companies of similar size and
complexity and general increases for salaried employees within the Company. The maximum
aggregate annual fee for Non-Executive Directors provided in the Company’s Articles of
Association is £500,000 per annum

Performance measures

n/a

Appointment of external advisors
Mercer Kepler, Tapestry Global Compliance LLP and Skyfall Consulting Limited have acted as external advisors to the
Committee, during the year, to provide independent support and information as required. None of the advisers has any other
connection with the Company or its Executive Directors. Mercer Kepler’s fees for 2019 amounted to £nil; Tapestry Global
Compliance LLP fees were £21,792 and Skyfall Consulting Limited received fees of £9,420.

Statement of shareholding voting
The Directors’ Remuneration Report was approved by shareholders at the 2019 AGM. The Directors’ Remuneration
Policy was approved at the 2018 AGM. The votes cast were as follows:

£’000s

Directors’ Remuneration Report (2019 AGM)

Directors’ Remuneration Policy (2018 AGM)

For and on behalf of the Board

Chris Sullivan
Chair, Remuneration Committee

23 April 2020

104 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

For

Against

Votes
withheld

99.99%

99.78%

0.01% 14,032,868

0.22% 16,744,191

Statement of Directors’ responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are
required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent company
financial statements in accordance with Financial Reporting Standard 102.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing the parent company financial statements, the directors are required to:

• Select suitable accounting policies and then apply them consistently;

• Make judgements and accounting estimates that are reasonable and prudent;

• State whether Financial Reporting Standard 102 has been followed, subject to any material departures disclosed and

explained in the financial statements; and

• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will

continue in business.

In preparing the group financial statements, International Accounting Standard 1 requires that directors:

• Properly select and apply accounting policies;

• Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and

understandable information;

• Provide additional disclosures when compliance with the specific requirements in IFRS Standards are insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the entity's financial position and
financial performance; and

• Make an assessment of the company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.

Directors’ responsibility statement
We confirm that to the best of our 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 on 23 April 2020 and is signed on its behalf by:

Andrew Denton
Chief Executive Officer

23 April 2020

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 105

Strategic reportFinancial statementsAdditional informationGovernanceDirectors’ report

Statutory information
The Directors of Alfa present their report and the audited financial
statements for the year ended 31 December 2019. This Report
includes information required by the Companies Act 2006 and the
Listing Rules 9.8.4R of the UK Financial Conduct Authority’s Listing
Rules and forms part of the management report as required by the
Disclosure and Transparency (DTR) Rule 4.

Additional information which is incorporated by reference into
this Directors’ report can be located reference the table
on the right:

Principal activities
The principal activity of the Alfa Group is the provision of
software and software-related services to the asset finance
industry. 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 no. is 10713517. The
principal activity of the Company is that of a holding company.

The Company’s registrar is Equiniti Limited situated at
Aspect House, Spencer Road, Lancing, West Sussex,
BN99 6DA.

Subsidiaries and branches outside of the UK
The Group has subsidiaries in the United States of America,
France, Germany, Australia and New Zealand and
a subsidiary of the Company is registered as a branch of
an overseas company in South Africa. Further details of
these can be found in note 15(b) to the accounts on
pages 143 to 144.

Contracts of significance
We have no contracts deemed significant other than the
Relationship Agreement between the Company and the
Controlling Shareholder, as detailed on page 108.

Research and development
The Group continued to invest in product research and
development throughout the year. The Strategic report,
specifically the Financial review on pages 49 to 50, sets out the
research and product development expensed and £1.1 million
was capitalised as internally generated intangible assets during
the year ended 31 December 2019, as disclosed in note 4 to
the consolidated financial statements.

Employee involvement
We place considerable value on the involvement of our
employees, viewing and treating them as valued team
members and an integral part of our business and our success.
We continue to keep them informed on matters affecting
them through both formal and informal meetings and the
Group intranet, including CEO updates. Teams are consulted
regularly on a wide range of matters affecting their current
and future interests. We have established share ownership
schemes for use throughout the Company and intend to use
them to broaden share ownership across the Company.

Further information on team engagement, as monitored by
our internal employee surveys, is included in the ESG Report
on pages 54 to 61. Details of the Group’s employee share plans
are contained in the Remuneration Report.

106 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Statutory information

Section

Employee involvement

Employee diversity and
disabilities

Environment, social and
governance
Environment, social and
governance

Page

54 to 61

Executive share ownership and
benefit plans

Report of the Nomination
Committee
Report of the Remuneration
Committee

Employee long-term incentive
plans

Note 6 to the consolidated
financial statements

129 to 130

Community

Directors’ biographies

Executive share plans

Emissions reporting

Future developments of the
business

Financial position of the group,
its cash flow, liquidity position
and borrowing facilities

Environment, social and
governance
Board of Directors

54 to 61

76 to 77

Report of the Remuneration
Committee

Note 6 to the consolidated
financial statements
Environment, social and
governance
Strategic report

Environment, social and
governance
Financial review

Financial statements

129 to 130

4 to 65

54 to 61

46 to 53

117 to 157

Capital allocation

Financial review

46 to 53

Human rights and modern
slavery statement

Independent auditors

Internal controls and risk
management

Post balance sheet events

Corporate governance report

Report of the Audit and Risk
Committee

Independent auditor's report

Risks and uncertainties

110 to 116
36 to 43

Corporate governance report

66 to 81

Report of the Audit and Risk
Committee
Financial review

Note 14(c) to the Consolidated
financial statements

92 to 93

46 to 53
143

Research and development

CEO business review

Our strategy

Investment

Financial review

Notes 4.1 to the Consolidated
financial statements
Notes 10(c) to the Consolidated
financial statements
Note 8 to the Consolidated
financial statements

Significant related party
transactions

Subsidiary and associated
undertakings

Note 2 to the Company
financial statements

Statement of corporate
governance

Corporate governance
introduction

4 to 6

8 to 13

24 to 25

46 to 53

127 to 128

138 to 139

130 to 131

154 to 155

66 to 67

Audit and risk committee report Report of the Audit and Risk

85 to 93

Committee

Governance report

Corporate governance report

66 to 81

Directors’ remuneration report

Report of the Remuneration
Committee

94 to 104

Nomination committee report

Report of the Nomination
Committee

82 to 84

Strategic report

4 to 65

Viability statement

44 to 45

Waiver of director’s emoluments Report of the Remuneration

95 to 97

Committee

Employee diversity and inclusion
Our policy for the Alfa team and all applicants for employment
is to match the capabilities and talents of each individual to the
appropriate job. We are committed to ensuring equality of
opportunity in all employee relations. We aim to ensure that
no employee, potential employee, customer, visitor or supplier
will receive less favourable treatment on the grounds of sex,
pregnancy, disability, religious beliefs, marital status, race,
ethnic origin, nationality, age, sexual orientation or colour.

Disability
With regard to existing team members and those who may
become disabled, Alfa’s policy is to examine ways and means
to provide continuing employment under the existing terms
and conditions and to provide training and career
development, including promotion, where appropriate.

Directors
The names of the persons who, at any time during the financial
year and up to the date of this report, were Directors of the
Company are:

Date of appointment Date of resignation

Andrew Page

Chris Sullivan

Steve Breach

4 May 2017

18 July 2019

9 August 2019

Andrew Denton

6 April 2017

Matthew White

9 October 2019

n/a

Richard Longdon

5 May 2017

Vivienne Maclachlan

4 May 2017

26 April 2019

Karen Slatford

15 May 2017

26 September 2019

David Stead

Robin Taylor

20 August 2019

6 December 2019

5 May 2017

26 September 2019

Appointment and removal of a director
The rules governing the appointment and removal of a
director are set out in the Articles of Association of the
Company. The Articles of Association may be amended by a
special resolution of the shareholders. Specific details relating
to the Principal Shareholder, CHP Software and Consulting
Limited and its right to appoint directors are set out in the
Directors’ report on page 108.

All Directors will stand for re-election on an annual basis,
in line with the recommendations of the Code.

The Articles of Association are available on the corporate
governance page of our investor relations website
investors.alfasystems.com/corporate-governance.

Powers of the Directors
Specific powers relating to the allotment and issuance of
ordinary shares and the ability of the Company to purchase its
own securities are also included within the Articles and such
authorities are submitted for approval by the shareholders at
the AGM each year.

Since listing, the Directors have not exercised any of their
powers to issue, or purchase, ordinary shares in the share
capital of the Company.

Directors’ interests
The Directors’ interests in and options over ordinary shares
in the Company are shown in the Annual Report on
Remuneration on page 97. Since the end of the financial year
and to the date of this report, there have been no changes to
such interests.

In line with the requirements of the Companies Act, each
Director has notified the Company of any situation in which
he or she has, or could have, a direct or indirect interest that
conflicts, or possibly may conflict, with the interests of the
Company (a situational conflict). These were considered and
approved by the Board in accordance with the Articles and
each Director informed of the authorisation and any terms
on which it was given. All Directors are aware of the need to
consult with the Company Secretary should any possible
situational conflict arise, so that prior consideration can
be given by the Board as to whether or not such conflict
will be approved.

Directors’ indemnities
Each Director of the Company has the benefit of a qualifying
indemnity, as defined by section 236 of the Companies Act,
and as permitted by the Articles, as well as Directors’ &
Officers’ liability insurance.

No amount was paid under any of these indemnities or
insurances during the year other than the applicable
insurance premiums.

Share capital
The Company’s ordinary shares are listed on the London
Stock Exchange. The authorised share capital of the Company
as at 31 December 2019 and 23 April 2020, being the latest
practicable date prior to the date of this Annual Report,
comprises 300,000,000 ordinary shares of 0.1 pence each.
Further information regarding the Company’s issued
share capital can be found in note 4 of the Company
financial statements.

There have been no movements in the Company’s issued
share capital since 31 December 2019 through to the date
of this Report.

Shareholders’ voting rights
All members who hold ordinary shares are entitled to attend
and vote at the AGM. On a show of hands at a general meeting,
every member present in person shall have one vote and on a
poll, every member present in person or by proxy shall have
one vote for every ordinary share held. No shareholder holds
ordinary shares carrying special rights relating to the control
of the Company and the Directors are not aware of any
agreements between holders of the Company’s shares that
may result in restrictions on voting rights.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 107

Strategic reportFinancial statementsAdditional informationGovernanceDirectors’ report continued

Restrictions on transfer of ordinary shares
The Articles do not contain any restrictions on the transfer
of ordinary shares in the Company other than the usual
restrictions applicable where any amount is unpaid on a share.
All issued share capital of the Company at the date of this
Annual Report is fully paid. Certain restrictions are also
imposed by laws and regulations (such as insider trading and
market abuse requirements relating to close periods) and
requirements of the Listing Rules whereby Directors and
certain employees of the Company require Board approval
to deal in the Company’s securities.

Each of the Executive Directors, and the senior executives
(each, a “Restricted Shareholder”) at the time of listing agreed,
for a period of one year following Admission on the terms and
subject to the conditions of the Underwriting Agreement, not
to dispose of any of the ordinary shares they held in the
Company (the “Initial Lock-Up Period”). This Initial Lock-up
period expired on 1 June 2018 and, for most of the Restricted
Shareholders, was and is followed by three further lock-up
periods of 365 days, 720 and 1,095 days. Each of these further
lock-up periods commences on the termination of the Initial
Lock-Up Period and cover in each occasion a further 25% of
the relevant Restricted Shareholder’s holding of ordinary
shares. The final lock-up period expires on 1 June 2021.

All of the above arrangements are subject to certain
customary exceptions.

Authority to purchase own shares
Subject to authorisation by shareholder resolution, the
Company may purchase its own shares in accordance with
the Companies Act 2006. Any shares bought back may be held
as treasury shares or cancelled immediately on completion of
the purchase.

At the 2019 AGM, the Company was generally and
unconditionally authorised by its shareholders to purchase in
the market up to 10% of the ordinary shares of the Company
(30,000,000 ordinary shares).

As at 31 December 2019, and at the date of this report, the full
extent of this authority remained in force and unused. This
authority is renewable annually, and a special resolution will be
proposed at the 2020 AGM to request shareholders to renew
it. The Directors will only purchase the Company’s shares in
the market if they believe it is in the best interests of
shareholders in general.

Transactions with related parties
The only subsisting material transactions which the Company
has entered into with related parties are:

Relationship Agreement and the Controlling Shareholder
The Relationship Agreement was entered into on 26 May 2017
and regulates the relationship between CHP Software and
Consulting Limited (the “Controlling Shareholder”) and the
Company following listing. Subject to a certain minimum
shareholding, the Relationship Agreement details the rights
the Controlling Shareholder has to representation on the
Board and Nomination Committee and to appoint observers
to the Nomination Committee (if not represented on the
Committee). The Controlling Shareholder also undertakes not
to operate, establish, own or acquire a competing business
during the terms of the agreement. Any transactions between
Alfa and the Controlling Shareholder will be at arm’s length
and on normal commercial terms.

The Relationship Agreement complies with the requirements
of the LRs, including Listing Rules 9.2.2AR(2)(a), and Listing
Rules 6.1.4DR.

In accordance with the requirements of Listing Rules 9.8.4(14),
the Board confirms that the Company has complied with its
obligations under the Relationship Agreement, including in
respect of the independence provisions and, so far as the
Controlling Shareholder is aware, the Controlling Shareholder
has complied with the provisions of the Relationship
Agreement (including the independence and non-compete
provisions set out therein), at all times since the Agreement
was entered into.

Other related party transactions are detailed in note 15
to the consolidated financial statements.

Amendment of the Articles
The Articles may only be amended by a special resolution
of the Company’s shareholders in a general meeting, in
accordance with the Companies Act.

Profits and dividends
The consolidated profit for the year ended 31 December 2019
was £10.2 million (FY18: £18.2 million). The results are discussed
in greater detail in the Financial review on pages 46 to 53.

No dividends have been paid in or proposed for the financial
year ended 31 December 2019.

Significant Shareholdings at 31 December 2019 and 1 April 2020
(being the latest practicable date of this Report)
At the relevant dates, the Company has been notified pursuant to DTR5 or is otherwise aware of the following interests representing 3%
or more of the issued ordinary share capital of the Company:

Name of shareholder

No. of ordinary
shares at 31
December
2019

% of issued
share capital

No. of ordinary
shares at
1 April 2020

% of issued
share capital
at 1 April 2020

CHP Software and Consulting Limited

197,645,649

65.88 197,645,649

Aberdeen Standard Investments (Standard Life)

Aberforth Partners

16,212,587

13,273,591

5.40

4.42

13,814,424

13,322,591

65.88

4.60

4.44

Nature of
holding

Direct

108 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Viability statement
The viability statement containing a broader assessment by
the Board of the Company’s ongoing viability, which also
includes consideration of the impact of Covid-19, is set out in
the Strategic report on pages 44 to 45.

Corporate governance statement
The Company’s statement on corporate governance can be
found in the Governance report on pages 66 and 67 to this
report. The Governance report forms part of this Directors’
report and is incorporated by cross reference.

Annual General Meeting (AGM)
The venue, date and time of the 2020 AGM, along with the
resolutions to be proposed for approval by shareholders will
be communicated in due course.

Disclosure of information to the auditor
Each of the Directors of the Company at the date the
Directors’ report is approved confirms that:

• So far as the Director is aware, there is no relevant audit

information of which the Company’s auditor is unaware; and

• He or she has taken all the steps that he or she ought to have
taken as a Director in order to make himself or herself aware
of any relevant audit information and to establish that the
Group and Company’s auditors are aware of that information.

This confirmation is given and should be interpreted in
accordance with the provisions of s.418 of the Companies
Act 2006.

Deloitte LLP, the Group’s auditor, has indicated its willingness
to continue in office and, on the recommendation of the Audit
and Risk Committee and in accordance with section 489 of the
Companies Act of 2006, a resolution to reappoint it will be put
to the 2020 AGM.

Board approval of the Annual Report
The Strategic report, Corporate governance statement
and the Governance report were approved by the Board
on 23 April 2020 and signed on its behalf by:

Andrew Denton
Chief Executive Officer

23 April 2020

Compensation for loss of office and change of control
There are no agreements between the Company and its
Directors or Alfa team members providing for additional
compensation for loss of office or employment (whether
through resignation, redundancy or otherwise) that occurs
because of a takeover bid.

The only significant agreement, to which the Company is a
party to that take effect, alter or terminate upon a change
of control of the Company following a takeover bid, and the
effect thereof, is the Relationship Agreement.

The Relationship Agreement with the Controlling Shareholder
contains a provision under which it will terminate upon the
earlier of: (i) the Controlling Shareholder and its associates
ceasing to have the entitlement to exercise or control the
exercise of 10% or more of the voting rights in the Company;
or (ii) the Company’s ordinary shares ceasing to be admitted
to the listing on the Official List of the FCA.

Political donations
The Group made no political donations and incurred no
political expenditure during the year (FY18: nil). It remains the
Company’s policy not to make political donations or to incur
political expenditure.

At the 2019 AGM, the Directors were generally and
unconditionally authorised by the Company’s shareholders to
make limited political donations up to £50,000, in order to
protect against any inadvertent breaches of the relevant
provisions of the Companies Act 2006 which are very broad in
nature. The Board has no intention of using this authority.

Interest capitalised in the period
No interest has been capitalised by Alfa in the year ended
31 December 2019.

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 as set out on pages 40 to 43.

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
considerable 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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 109

Strategic reportFinancial statementsAdditional informationGovernanceIndependent auditor’s report to the members
of Alfa Financial Software Holdings PLC

Report on the audit of the financial statements

1. Opinion
In our opinion:

• the financial statements of Alfa Financial Software Holdings
plc (the ‘parent company’) and its subsidiaries (the ‘group’)
give a true and fair view of the state of the group’s and of the
parent company’s affairs as at 31 December 2019 and of the
group’s profit for the year then ended;

• the group financial statements have been properly prepared

in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;

• the parent company financial statements have been properly

prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting
Standard 102 ‘The Financial Reporting Standard applicable
in the UK and Republic of Ireland’; and

• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the
IAS Regulation.

We have audited the financial statements which comprise:

• the consolidated statement of profit or loss and

comprehensive income;

• the consolidated and parent company statements of

financial position;

• the consolidated and parent company statements of

changes in equity;

• the consolidated statement of cash flows;

• the notes 1 to 19 to the consolidated financial statements;

and

Materiality

• the notes 1 to 12 to the company financial statements.

Scoping

The financial reporting framework that has been applied in the
preparation of the group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation
of the parent company financial statements is applicable law
and United Kingdom Accounting Standards, including FRS 102
‘The Financial Reporting Standard applicable in the UK and
Republic of Ireland’ (United Kingdom Generally Accepted
Accounting Practice).

2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further
described in the auditor’s responsibilities for the audit of the
financial statements section of our report.

Significant
changes in our
approach

110 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

We are independent of the group and the parent company in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. The non-audit services provided to the group
and parent company for the year are disclosed in note 18 to
the financial statements. We confirm that the non-audit
services prohibited by the FRC’s Ethical Standard were not
provided to the group or the parent company.

We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

Key audit
matters

The key audit matters that we identified in
the current year were:

• revenue recognition;

• capitalisation of development costs; and

• going concern – Covid-19.

Within this report, key audit matters are
identified as follows:

Newly identified

Increased level of risk

Similar level of risk

Decreased level of risk

The materiality that we used for the group
financial statements was £0.65 million,
which was determined on the basis of 5% of
profit before taxation.

The group audit team performed full scope
audits for Alfa Financial Software Holdings
PLC, Alfa Financial Software Group Limited
and Alfa Financial Software Limited.
Specific audit procedures were carried out
on the following companies in the group:

• Alfa Financial Software Australia Pty

Limited;

• Alfa Financial Software Inc;

• Alfa Financial Software NZ Limited; and

• Alfa Financial Software GmbH.

We have identified a new key audit matter
in relation to going concern and the impact
of Covid-19 on the group. In all other
respects our approach remained consistent
with the previous year.

4. Conclusions relating to going concern, principal risks and viability statement

4.1. Going concern
We have reviewed the directors’ statement in note 1 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the group’s and company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements.

We considered as part of our risk assessment the nature of the group, its business model and related
risks including where relevant the impact of the Covid-19 pandemic and Brexit, the requirements of the
applicable financial reporting framework and the system of internal control. We evaluated the directors’
assessment of the group’s ability to continue as a going concern, including challenging the underlying
data and key assumptions used to make the assessment, and evaluated the directors’ plans for future
actions in relation to their going concern assessment.

We are required to state whether we have anything material to add or draw attention to in relation to
that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent
with our knowledge obtained in the audit.

4.2. Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in the
evaluation of the directors’ assessment of the group’s and the company’s ability to continue as a going
concern, we are required to state whether we have anything material to add or draw attention to in
relation to:

• the disclosures on pages 36-43 that describe the principal risks, procedures to identify emerging risks,

and an explanation of how these are being managed or mitigated;

• the directors' confirmation on page 45 that they have carried out a robust assessment of the principal
and emerging risks facing the group, including those that would threaten its business model, future
performance, solvency or liquidity; or

• the directors’ explanation on page 44 as to how they have assessed the prospects of the group,

over what period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the group will be able to continue
in operation and meet its liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.

We are also required to report whether the directors’ statement relating to the prospects of the group
required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

Going concern is the
basis of preparation of
the financial statements
that assumes an entity
will remain in operation
for a period of at least
12 months from the
date of approval of the
financial statements.

We confirm that we
have nothing material
to report, add or draw
attention to in respect
of these matters.

Viability means the
ability of the group to
continue over the time
horizon considered
appropriate by the
directors.

We confirm that we
have nothing material
to report, add or draw
attention to in respect
of these matters.

5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

5.1. Revenue recognition

Key audit matter
description

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 on page 89.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 111

Financial statementsStrategic reportAdditional informationGovernanceIndependent auditor’s report to the members
of Alfa Financial Software Holdings PLC continued

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

Key observations

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.

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.

5.2. Capitalisation of development costs

Key audit matter
description

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 £1.1m (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 on page 90.

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 timesheet 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.

112 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

5.3. Going concern – Covid-19

Key audit matter
description

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

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 on page 45, the Audit and Risk Committee report on
page 91 and note 1(a) to the financial statements.

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.

6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement
in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the
results of our work.

Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:

Group financial
statements

Parent company
financial statements

Materiality

2019: £0.65 million

2019: £0.64 million

2018: £1.10 million

2018: £1.08 million

Basis for
determining
materiality

2019: Circa 5%
of profit before
taxation.

Rationale
for the
benchmark
applied

This is the same
basis as in the
prior period.

As a listed entity,
profit before
taxation is
considered the
most appropriate
benchmark for users
of the financial
statements.

Materiality equates to
less than 1% of the parent
company’s net assets
capped at 99% of the
materiality of the group.

This is the same basis as in
the prior period.

As a holding company,
the net assets benchmark
is considered the most
appropriate benchmark
to base materiality for users
of the financial statements.

PBT £13.0m

Group materiality £0.65m

Component materiality range
£0.24m to £0.33m

Audit Committee
reporting threshold £0.03m

6.2. Performance materiality
We set performance materiality at a level lower than
materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the
materiality for the financial statements as a whole. Group
performance materiality was set at 60% of group materiality
for the 2019 audit (2018: 60%). In determining performance
materiality, we considered the following factors:

• the quality of the control environment and whether we were
able to rely on controls (refer to Audit and Risk Committee
report on pages 92 – 93);

• the level of turnover of management and key accounting
personnel (refer to the Business review on page 5 and
the Audit and Risk Committee report on page 85); and

• the history of misstatements identified in prior periods.

6.3. Error reporting threshold
We agreed with the Audit Committee that we would report
to the Committee all audit differences in excess of £0.03m
(2018: £0.06m), as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters
that we identified when assessing the overall presentation of
the financial statements.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 113

Financial statementsStrategic reportAdditional informationGovernanceIndependent auditor’s report to the members
of Alfa Financial Software Holdings PLC continued

7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our group audit was scoped by obtaining an understanding of
the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the group
level. The group was audited by the group audit team which
also tested the consolidation process.

The group has seven components (2018: seven) and the group
audit team performed full scope audits for Alfa Financial
Software Holdings plc, Alfa Financial Software Group Limited,
Alfa Financial Software Limited and specific audit procedures
were performed on the remaining components (Alfa Financial
Software Australia Pty Limited, Alfa Financial Software Inc,
Alfa Financial Software GmbH and Alfa Financial Software NZ
Limited). All procedures are performed by the group audit team
and our scoping remained consistent with the prior year.

The total revenue for the components audited together with
those on which specific audit procedures were performed
represented 100% (2018: 100%) of the group’s revenue.
The component materiality ranged from 37% to 51%
of group materiality totalling £0.24 million to £0.33 million
(2018: £0.44 million to £0.99 million).

7.2. Our consideration of the control environment
We obtained an understanding of general IT controls over the
group’s core IT systems. We did not plan to rely on IT controls
during our audit due to the timing of when new modules of the
group’s IT systems were implemented during the year. We
adopted a fully substantive audit approach due to the control
weaknesses outlined on pages 92 – 93 of the Audit and Risk
Committee Report.

8. Other information

The directors are responsible for the other information.
The other information comprises the information included
in the annual report, other than the financial statements
and our auditor’s report thereon.

Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form
of assurance conclusion thereon.

In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether there is a material misstatement in the financial
statements or a material misstatement of the other
information. If, based on the work we have performed,
we conclude that there is a material misstatement of this
other information, we are required to report that fact.

In this context, matters that we are specifically required
to report to you as uncorrected material misstatements
of the other information include where we conclude that:

• Fair, balanced and understandable – the statement given
by the directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the group’s position and performance,
business model and strategy, is materially inconsistent with
our knowledge obtained in the audit; or

• Audit committee reporting – the section describing the work

of the audit committee does not appropriately address
matters communicated by us to the audit committee; or

• Directors’ statement of compliance with the UK Corporate
Governance Code – the parts of the directors’ statement
required under the Listing Rules relating to the company’s
compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK
Corporate Governance Code.

We have nothing to report in respect of these matters.

9. Responsibilities of directors

As explained more fully in the directors’ responsibilities
statement, the directors are responsible for the preparation
of the financial statements and for being satisfied that they
give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.

In preparing the financial statements, the directors are
responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern
basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.

114 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

10. Auditor’s responsibilities for the audit
of the financial statements

Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these financial statements.

Details of the extent to which the audit was considered
capable of detecting irregularities, including fraud and non-
compliance with laws and regulations are set out below.

A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at: www.
frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.

11. Extent to which the audit was considered
capable of detecting irregularities, including fraud

We identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those
risks, including obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.

11.1. Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:

• the nature of the industry and sector, control environment

and business performance including the design of the group’s
remuneration policies, key drivers for directors’
remuneration, bonus levels and performance targets;

• results of our enquiries of management and the audit

committee about their own identification and assessment
of the risks of irregularities;

• any matters we identified having obtained and reviewed

the group’s documentation of their policies and procedures
relating to:

– identifying, evaluating and complying with laws and

regulations and whether they were aware of any instances
of non-compliance;

– detecting and responding to the risks of fraud and

whether they have knowledge of any actual, suspected
or alleged fraud;

– the internal controls established to mitigate risks of fraud

or non-compliance with laws and regulations;

• the matters discussed among the audit engagement team

and involving relevant internal specialists, including tax and IT
specialists regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.

As a result of these procedures, we considered the
opportunities and incentives that may exist within the
organisation for fraud and identified the greatest potential
for fraud in the following areas: revenue recognition and
capitalisation of development costs. In common with all audits
under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.

We also obtained an understanding of the legal and regulatory
frameworks that the group operates in, focusing on provisions
of those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the
financial statements. The key laws and regulations we
considered in this context included the UK Companies Act,
Listing Rules, pensions legislation; and tax legislation.

11.2. Audit response to risks identified
As a result of performing the above, we identified revenue
recognition and capitalisation of development costs as key
audit matters related to the potential risk of fraud. The key
audit matters section of our report explains the matters in
more detail and also describes the specific procedures we
performed in response to those key audit matters.

In addition to the above, our procedures to respond to risks
identified included the following:

• reviewing the financial statement disclosures and testing
to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as
having a direct effect on the financial statements;

• enquiring of management, the audit committee and

external legal counsel concerning actual and potential
litigation and claims;

• performing analytical procedures to identify any unusual
or unexpected relationships that may indicate risks of
material misstatement due to fraud;

• reading minutes of meetings of those charged with

governance and reviewing internal audit reports; and

• in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries
and other adjustments; assessing whether the judgements
made in making accounting estimates are indicative of a
potential bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the
normal course of business.

We also communicated relevant identified laws and
regulations and potential fraud risks to all engagement team
members including internal specialists, and remained alert
to any indications of fraud or non-compliance with laws and
regulations throughout the audit.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 115

Financial statementsStrategic reportAdditional informationGovernance14. Other matters
14.1. Auditor tenure
Following the recommendation of the audit committee, we
were appointed by the board of directors 5 May 2017 to audit
the financial statements for the year ending 31 December
2017 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and
reappointments of the firm is three years, covering the year
ending 31 December 2017 to 31 December 2019.

14.2. Consistency of the audit report with the additional
report to the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance
with ISAs (UK).

15. Use of our report

This report is made solely 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 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

Independent auditor’s report to the members
of Alfa Financial Software Holdings PLC continued

Report on other legal and regulatory requirements.

12. Opinions on other matters prescribed by the
Companies Act 2006

In our opinion the part of the directors’ remuneration report
to be audited has been properly prepared in accordance with
the Companies Act 2006.

In our opinion, based on the work undertaken in the course of
the audit:

• the information given in the strategic report and the

directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and

• the strategic report and the directors’ report have been

prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the
group and the parent company and their environment
obtained in the course of the audit, we have not identified any
material misstatements in the strategic report or the
directors’ report.

13. Matters on which we are required to report
by exception
13.1. Adequacy of explanations received and accounting
records
Under the Companies Act 2006 we are required to report to
you if, in our opinion:

• we have not received all the information and explanations

we require for our audit; or

• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or

• the parent company financial statements are not in
agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

13.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report
if in our opinion certain disclosures of directors’ remuneration
have not been made or the part of the directors’ remuneration
report to be audited is not in agreement with the accounting
records and returns.

We have nothing to report in respect of these matters.

116 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Consolidated statement of profit or loss and comprehensive income

for the years ended 31 December

£’000s

Continuing operations

Revenue

Implementation and support expenses

Research and product development expenses

Sales, general and administrative expenses

Other operating income
Operating profit

Finance income

Finance expense
Profit before taxation

Taxation
Profit for the financial year

Other comprehensive income:

Items that may be subsequently reclassified to profit and loss

Exchange differences on translation of foreign operations
Other comprehensive (expense)/income, net of tax

Total comprehensive income for the period

Earnings per share (in pence) for profit attributable to the ordinary equity holders
of the company

Basic

Diluted

Weighted average no. of shares – basic

Weighted average no. of shares – diluted

Note

2019

2018

2/3

4/5

4/5/6

7/19(d)

11(b)

64,480

(18,103)

(15,189)

(18,056)

577

13,709

143

(852)

13,000

(2,818)

10,182

71,038

(18,924)

(16,341)

(13,457)

22,382

–

22,456

(4,306)

18,150

(350)

9,832

376

18,526

3.5

6.3

3.4
17
17 290,554,694
285,962,898
17 298,812,270 300,000,000

6.1

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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 117

Financial statementsStrategic reportAdditional informationGovernanceConsolidated statement of financial position

As at 31 December

£’000s

Assets

Non-current assets

Goodwill

Other intangible assets

Deferred tax assets

Property, plant and equipment

Right-of-use lease assets
Total non-current assets

Current assets

Trade and other receivables

Accrued income

Prepayments

Other receivables

Cash and cash equivalents
Total current assets

Total assets

Liabilities and equity

Current liabilities

Trade and other payables

Corporation tax

Lease liabilities

Contract liabilities – software implementation

Contract liabilities – deferred maintenance
Total current liabilities

Non-current liabilities

Lease liabilities

Provisions for other liabilities
Total non-current liabilities

Total liabilities

Capital and reserves

Ordinary shares

Translation reserve

Retained earnings
Total equity

Total liabilities and equity

Note

2019

2018

10(b)

10(c)

10(d)

10(a)

19(d)

9(a)

9(b)/16

9(b)

9(c)

9(d)

19(d)

3(e)/16

3(e)

19(d)

9(d)

11(a)

11(b)

24,737

2,255

596

1,166

16,402

45,156

4,050

7,214

1,613

1,020

58,839

72,736

117,892

5,884

1,355

1,672

4,581

4,060

17,552

17,330

667

17,997

35,549

300

82,017

82,343

117,892

24,737

1,203

1,455

–

27,403

4,651

9,162

1,452

947

44,922

61,134

88,537

7,588

2,448

–

1,662

3,772

15,470

–

152

15,622

300

376

72,239

72,915

88,537

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

The consolidated financial statements on pages 117 to 150 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

118 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Consolidated statement of changes in equity

£’000s

Balance as at 1 January 2018

Profit for the financial year

Other comprehensive income
Total comprehensive income for the year

Employee share schemes – value of employee services
Balance as at 31 December 2018

Effect of initial application of IFRS 16

Deferred tax impact of initial application of IFRS 16
Adjusted balance at 1 January 2019

Profit for the financial year

Other comprehensive expense
Total comprehensive (expense)/income for the year

Employee share schemes – value of employee services
Balance as at 31 December 2019

Note

Share capital

Translation
reserve

300

–

–
300

–

300

–

–
–

–
300

–

376

–
376

–

376

–

(350)
(350)

–
26

19(d)

Equity
attributable to
owners of the
parent

54,121

18,150

376

18,526

268
72,915

(1,459)

419
71,875

10,182

(350)
9,832

636
82,343

Retained
earnings

53,821

18,150

–

18,150

268
72,239

(1,459)

419
71,199

10,182

–
10,182

636
82,017

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

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 119

Financial statementsStrategic reportAdditional informationGovernanceConsolidated statement of cash flows

for the years ended 31 December

£’000s

Operating profit

Adjustments:

Depreciation

Amortisation

Employee share scheme charge

Loss on disposal of property, plant and equipment

Unrealised loss on derivative financial instruments

Movement in provisions

Movement in contract liabilities

Movement in working capital:

Movement in trade and other receivables

Movement in trade and other payables
(excluding derivative financial instruments and contract liabilities)
Cash generated from operations

Interest element on lease payments

Settlement of derivative financial instruments and margin calls

Income taxes paid
Net cash generated from operating activities

Cash flows from investing activities

Payments for property, plant and equipment

Payments for software intangible assets

Payments for software development costs

Interest received
Net cash (used in)/generated by investing activities

Cash flows from financing activities

Principal element on lease payments
Cash used in financing activities

Net increase in cash

Cash and cash equivalents at the beginning of the year

Effect of exchange rate changes
Cash and cash equivalents at the end of the year

Note

2019

13,709

2018

22,382

10(a)/19(d)

10(c)

2(a)/9(e)

9(d)

9(a)

9(d)

7/19(d)

10(a)

10(c)

19(d)

9(c)

2,388

428

724

–

515

3,110

623

253

305

119

(1,379)

2,532

(1,237)

(858)

(179)

22,548

(852)

–

(4,074)
17,622

(376)

(565)

(1,135)

143

(1,933)

(1,610)

14,079

44,922

(162)

58,839

20,954

–

(108)

(5,846)
15,000

(622)

(609)

(407)

(1,564)

–

13,436

31,267

219

44,922

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

120 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statements

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 investors.alfasystems.com.

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 Australasia.

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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 121

Financial statementsStrategic reportAdditional informationGovernance1. Summary of significant accounting policies continued
New standards, amendments and interpretations not yet adopted
There are no new 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).

122 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statements1(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 note 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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 123

Financial statementsStrategic reportAdditional informationGovernance

2. Segments and principal activities continued
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

Software implementation

ODS

Maintenance

Operating revenue

(Loss) on derivative financial instruments

Total revenue

2019

26,128

23,460

14,892

64,480

–

64,480

2018

30,391

23,920

16,846

71,157

(119)

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

Profit for the year

Adjusted for:

Taxation

Finance income

Finance expense

EBIT

£’000s

EBIT

Adjusted for:
Capitalised development costs1
Amortisation of capitalised development costs

Adjusted EBIT

2019

10,182

2018

18,150

2,818

(143)

852

4,306

(74)

–

13,709

22,382

2019

13,709

(1,135)

153

12,727

2018

22,382

(407)

–

21,975

1 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

USA

Rest of World

2019

44,276

220

2018

27,096

269

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.

124 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statements

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.

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

3.2
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)

(ii)

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.

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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 125

Financial statementsStrategic reportAdditional informationGovernance

3. Revenue from contracts with customers continued
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.

3.3 Unrealised 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

Customer A

Customer B

Customer C

Customer D

2019

20%

13%

12%

2018

21%

10%

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

At a point in time – time and materials

At a point in time – fixed price

Over time – time and materials

Over time – fixed price

Total revenue

Software
implementation

ODS Maintenance Total revenue

–

26,033

26,128

17,926

5,534

–

23,460

–

14,892

17,926

5,534

26,033

14,987

64,480

126 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statements2018 – £’000s

At a point in time – time and materials

At a point in time – fixed price

Over time – time and materials

Over time – fixed price
Total revenue2

Software
implementation

ODS Maintenance Total revenue

–

30,391

–
30,391

21,459

2,461

–

–
23,920

–

16,846
16,846

21,459

2,461

30,391

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

USA

Rest of Europe

Rest of World
Total revenue2

3(d) Revenue by currency – Revenue by contractual currency is as follows:
£’000s
GBP

USD

Euro

Other
Total revenue2

2019

18,618

28,087

13,016

4,759
64,480

2019

21,644

29,398

9,429

4,009

64,480

2018

22,847

33,124

12,391

2,795
71,157

2018

23,608

36,532

5,830

5,187

71,157

2 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

Contract liabilities – deferred licence

Contract liabilities – deferred maintenance

4. Operating profit

2019

4,581

4,060

8,641

2018

1,662

3,772

5,434

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.’

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 127

Financial statementsStrategic reportAdditional informationGovernance4. Operating profit continued

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

£’000s
Personnel costs3
Training and recruitment

Other personnel related expenses

Advertising, sponsorship and marketing expenses

Depreciation and amortisation (note 10(a), 10(c), 19(d))

Property costs
Travel costs3
IT expenses
Professional advisor costs3
Insurance

Foreign currency differences

Employee share schemes (note 6)

Other

A further split by nature is set out below:

£’000s
Personnel costs3
Travel costs3
IT expenses

Overhead allocation
Implementation and support expenses

Personnel costs

Overhead allocation
Research and product development expenses

Personnel costs3
Advertising, sponsorship and marketing expenses
Professional advisor costs3
Depreciation (note 10(a))

Amortisation (note 10(d))

Foreign currency differences

Employee share schemes (note 6)

Overhead allocation
Sales, general and administrative expenses

2019

32,586

1,027

3,234

566

2,816

1,449
2,100

1,586

3,589

232

269

636

1,258

2019

14,003

2,100

1,468

532

2018

34,795

516

2,639

822

876

2,750
2,254

1,498

1,844

216

(523)

268

767

2018

14,100

2,254

1,213

1,357

18,103

18,924

14,558

631

15,189

8,286

566

3,589

2,388

428

269

636

1,894

18,056

14,509

1,832

16,341

8,825

822

2,128

623

253

(523)

268

1,061

13,457

3 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.

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.

128 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statementsPersonnel costs
£’000s
Wages, salaries and short-term benefits4
Training and recruitment

Social security

Post-employment benefits

Other employee expenses

Employee share schemes
Total personnel costs

2019

27,687

1,027

4,013

2,575

1,545

636

2018

29,681

516

4,322

2,094

1,336

268

37,483

38,217

4 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)

RoW
Total average monthly number of people employed

Average monthly number of people employed (including Directors)

Implementation and support

Research and product development

Sales, general and administrative
Total average monthly number of people employed

6. Employee share schemes

2019

236

313

2019

108

134

313

2018

235

327

2018

110

152

327

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

Employee share schemes – value of services

Expense in relation to fair value of social security liability on employee share schemes
Total cost of employee share schemes

2019

636

724

2018

268

305

Year of grant

Vesting date

2019 Number of shares

2018 Number of shares

Company LTIP plan

2019

2018

2014/2015 pre-IPO plan

2014/2015

Number of shares

1 November 2022

1 June 2021

4 annual tranches
from 1 June 2018

2019 LTIP
awards

2019

1,205,036

1,474,225

3,803,689

–

1,733,375

11,627,878

2018 LTIP awards

2014/2015 pre-IPO plan

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

Vested during the year

Forfeited during the year
Issued and outstanding at the end of the year

1,205,036

–

1,745,250

–

(4,206,093)

(4,867,716)

(259,150)

(11,875)

(3,618,096)

(248,597)

1,205,036

1,474,225

1,733,375

3,803,689

11,627,878

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 129

Financial statementsStrategic reportAdditional informationGovernance6. Employee share schemes continued
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

Finance income

Interest income on cash or short-term bank deposits

£’000s

Finance expense

Interest on lease liabilities

8. Income tax expense

2019

2018

143

2019

2018

(852)

–

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.

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.

130 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statements

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

Current tax

Current tax on profit for the year

Adjustment in respect of prior years

Foreign tax on profit of subsidiaries for the current year
Current tax

Deferred tax

Origination and reversal of temporary differences

Adjustment in respect of prior years

Effect of changes in tax rates
Deferred tax

Total tax charge in the year

2019

2018

2,159

(23)

851
2,987

(189)

–

(169)

2,818

3,800

(73)

605
4,332

(29)

3
–

(26)

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: 19.2%). The differences are explained below:

Analysis of charge for the year
£’000s

Profit on ordinary activities before taxation

Profit on ordinary activities at the standard rate of corporation tax

Tax effects of:

Effect of different tax rates of subsidiaries operating in other jurisdictions

Expenses not deductible for tax purposes

Income not taxable for tax purposes

Share-based payments

Adjustment in respect of prior years

Impact of tax rate changes

Other
Total tax charge for the year

2019

13,000

2,470

2018

22,456

4,267

274

260

(1)

(152)

(23)

(30)

(26)

–

(70)

–

2,818

4,306

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 131

Financial statementsStrategic reportAdditional informationGovernance9. 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;

– Trade receivables (note 9(a));

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

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

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

– 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

Financial assets at amortised cost

Trade receivables

Other financial assets at amortised cost

Cash and cash equivalents
Total financial assets

Financial liabilities at amortised cost

Trade and other payables

Contract liabilities
Total financial liabilities

Notes

2019

2018

9(a)

9(b)

9(c)

9(d)

4,050

9,847

58,839

72,736

5,884

8,641

4,651

11,561

44,922

61,134

7,588

5,434

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.

9.2 Financial 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.

132 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statementsSubsequent 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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 133

Financial statementsStrategic reportAdditional informationGovernance9. Financial assets and liabilities continued
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 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

Trade receivables
Provision for impairment
Trade receivables – net

Ageing of trade receivables
Ageing of net trade receivables £’000s

Less than 30 days
Past due 31-90 days
Past due 91+ days
Trade receivables – net

2019

4,050

–

4,050

2019

3,641

152

257

4,050

2018

4,651

–

4,651

2018

3,976

643

4,651

134 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statementsThe 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

GBP

USD

Other
Trade receivables – net

2019

1,319

2,073

658

4,050

2018

1,109

2,993

549

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

Customer A

Customer B

Customer C

Customer D

2019

737

353

–

2018

2,228

542

–

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

Accrued income

Prepayments

Other receivables
Total other receivables held at amortised cost

2019

7,214

1,613

1,020

9,847

2018

9,162

1,452

947

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

Cash at bank and in hand

Cash and cash equivalents

Currency of cash and cash equivalents

£’000s

GBP

USD

SEK

AUD

Euro

Other
Cash and cash equivalents

2019

58,839

2018

44,922

2019

48,222

5,730

2,335

2,105

365

2018

20,882

16,877

206

1,813

4,751

393

58,839

44,922

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 135

Financial statementsStrategic reportAdditional informationGovernance9. Financial assets and liabilities continued
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

Trade payables

Corporation tax

Contract liabilities – software implementation

Contract liabilities – deferred maintenance

Lease liabilities (note 19(d))

Provisions for other liabilities

Total current and non-current liabilities

Less non-current portion
Total current liabilities

See note 8 for further information on corporation tax liabilities.

See note 3 and 16 for further information on contract liabilities.

£’000s

At 1 January 2018

Provided in the period

At 31 December 2018

Provided in the period
At 31 December 2019

2019

5,884

1,355

4,581

4,060

19,002

667

35,549

(17,997)

17,552

2018

7,588

2,448

1,662

3,772

–

152

15,622

(152)

15,470

Provision for other liabilities

152

515
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.

136 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statements10. 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 estimation of

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:
IT equipment:
Motor vehicles:

3 – 10 years
2 – 5 years
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.

£’000s

Cost

At 1 January 2018

Additions

Disposals

Foreign exchange

At 31 December 2018
Depreciation

At 1 January 2018

Charge for the year

Disposals

Foreign exchange

At 31 December 2018
Net book value

At 31 December 2018
Cost

At 1 January 2019

Additions

Foreign exchange
At 31 December 2019

Depreciation

At 1 January 2019

Charge for the year

Foreign exchange
At 31 December 2019

Net book value

At 31 December 2019

Fixtures and
fittings

IT
equipment

Motor
vehicles

1,041

(1)

1,147

389

121

(1)

522

625

1,147

1,218

522

107

654

564

2,511

527

(254)

2,859

1,709

494

(252)

2,030

829

2,859

372

(54)

3,177

2,030

565

(20)

2,575

602

–

Total

3,592

622

(255)

4,046

2,129

623

(253)

2,591

1,455

4,046

376

4,435

2,591

673

3,269

1,166

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 137

Financial statementsStrategic reportAdditional informationGovernance10. Non-financial assets and liabilities continued
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

Within one year

Later than one year but not later than 5 years

Later than 5 years
Total sub-lease payments receivable

2019

427

473

–

900

2018

427

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

Cost

At 1 January
At 31 December

2019

2018

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.

138 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statementsThe 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

Cost

At 1 January 2018

Additions

At 31 December 2018
Depreciation

At 1 January 2018

Charge for the year

At 31 December 2018
Net book value

At 31 December 2018
Cost

At 1 January 2019

Additions
At 31 December 2019

Depreciation

At 1 January 2019

Charge for the period
At 31 December 2019

Net book value

At 31 December 2019

Computer
software

Internally
generated
software

Total

–

1,456

–

253

–

407

–

407

1,203

407

1,135

1,542

–

153

1,456

1,480

2,936

253

428

681

1,389

2,255

–

1,049

–

253

796

1,049

345

1,394

253

275

528

866

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 the 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).

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 139

Financial statementsStrategic reportAdditional informationGovernance10. Non-financial assets and liabilities continued
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

Balance as at 1 January

Adjustments in respect of prior period

Deferred income taxes recognised in the consolidated statement of profit or loss and comprehensive income
Balance as at 31 December

Consisting of:

Depreciation in excess of capital allowances

Other timing differences
Balance as at 31 December

2019

2018

419

169

596

359

237

596

(17)

(1)

(22)

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

Ordinary shares – 0.1 pence

Balance as at 31 December

2019

2018

£’000s

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

At 1 January

Currency translation of subsidiaries
At 31 December

2019

376

(350)
26

2018

–

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 amounts 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))

140 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statements13. 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 risk – customer
receivables

Trade receivables and
contract assets

Credit ratings

Ageing analysis
Credit ratings

Liquidity

Cash and cash equivalents

Cash flow forecasting

Diversification of bank deposits

Diversification of credit limits
and letters of credit

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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 141

Financial statementsStrategic reportAdditional informationGovernance13. Financial risk management continued

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.

£’000s

Trade and other payables

Provisions

£’000s

Trade and other payables

Provisions

Less than
6 months

Between
6-12 months

Between
1-2 years

Between
2-5 years

More than
5 years

5,884

–

400

–

125

–

142

31 December 2019

Less than
6 months

Between
6-12 months

Between
1-2 years

Between
2-5 years

More than
5 years

7,588

–

152

31 December 2018

142 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statements14. 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

Within one year

Later than one year but not later than 5 years

Later than 5 years

2018

2,465

9,306

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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 143

Financial statementsStrategic reportAdditional informationGovernance15. Related parties continued

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.

Alfa Financial
Software Group Limited

Alfa Financial
Software Limited

Alfa Financial
Software Inc

Alfa Financial
Software
Australia Pty Limited

Alfa Financial
Software
NZ Limited

Alfa Financial
Software GmbH

Registered address and
country of incorporation

Moor Place,
1 Fore Street Avenue,
London, EC2Y 9DT, UK
Moor Place,
1 Fore Street Avenue,
London, EC2Y 9DT, UK

350N Old Woodward
Avenue, Birmingham,
MI 48009, USA
Level 57 MLC Centre,
19-29 Martin Place,
Sydney, NSW 2000,
Australia
Level 1 Building B,
600 Great South Road,
Greenlane,
Auckland 1051,NZ

Bockenkheimer
Landstraße 20, 60323
Frankfurt am Main
Germany

Principal activity

Holding company

Software and services

Held by
Company
2019

100%

Held by
Group
2019

100%

Held by
Company
2018

100%

Held by
Group
2018

100%

–

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

Wages, salaries and short-term benefits

Social security

Post-employment benefits

Share-based payments
Total key management compensation

15(e) Directors
Aggregate Director compensation
£’000s

Aggregate emoluments

Post-employment benefits
Total aggregate director compensation

2019

2,428

223

2018

1,651

229

–

2,731

1,943

2019

1,305

1,337

2018

1,366

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.

144 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statements16. 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

Financial assets

Accrued income
Financial liabilities

Contract liabilities – software implementation

2018 £000’s

Financial assets

Accrued income
Financial liabilities

Contract liabilities – software implementation

Gross
amounts

Gross amounts offset in the
consolidated statement of
financial position

Net amounts presented in the
consolidated statement of
financial position

15,763

(13,130)

(8,549)

8,549

7,214

(4,581)

Gross
amounts

Gross amounts offset in the
consolidated statement of
financial position

Net amounts presented in the
consolidated statement of
financial position

12,301

(4,801)

(3,139)

3,139

9,162

(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.

Profit attributable to equity holders of Alfa (£’000s)

Weighted average number of shares outstanding during the year

Basic earnings per share (pence per share)

Weighted average number of shares outstanding including potentially dilutive shares

Diluted earnings per share (pence per share)

18. Auditor’s remuneration

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

£’000s

Audit of the consolidated financial statements

Audit fees relating to prior year

Audit of subsidiaries

Total audit fees

Audit-related assurance fees

Total assurance fees

Non-audit services
Total audit and non-audit related services

2019

10,182

2018

18,150

290,554,694

285,962,898

3.5

6.3

298,812,270

300,000,000

3.4

6.1

2019

165

150

363

135

498

–

498

2018

117

–

108

225

302

–

302

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 145

Financial statementsStrategic reportAdditional informationGovernance19. 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.

146 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statementsThe 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.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 147

Financial statementsStrategic reportAdditional informationGovernance19. IFRS 16 continued
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.

148 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statementsThe following table sets out the impact on the statement of financial position at 1 January 2019:

£’000

Non-current assets

Property plant and equipment

Right-of-use assets

Other non-current assets
Total non-current assets

Current assets

Total current assets
Total assets

Current liabilities

Lease liabilities

Other current liabilities
Total current liabilities

Non-current liabilities

Lease liabilities

Other non-current liabilities

Total non-current liabilities
Total liabilities

Shareholders’ equity
Total liabilities and equity

31 December
2018

Impact
of IFRS 16

1,455

–

25,948

27,403

–

17,990

–

17,990

Adjusted
1 January
2019

1,455

17,990

25,948

45,393

61,134

88,537

61,204

18,060

106,597

–

15,470

–

152

15,622

72,915

88,537

1,478

(961)

517

19,002

–

19,002

19,519

1,478

14,509

15,987

19,002

152

19,154

35,141

(1,459)

18,060

71,456

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

Short-term and low-value lease commitments straight-line expensed under IFRS 16

Payments due in periods covered by extension options that are included in the lease term

Operating lease commitments recognised on adoption of IFRS 16

Discounted using the incremental borrowing rate at 1 January 2019

Finance lease liabilities recognised under IAS 17 at 31 December 2018
Lease liabilities recognised at 1 January 2019

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

Lease liabilities recognised at 1 January 2019

Additions

Disposals

Interest charge

Payments made on lease liabilities
At 31 December 2019

19,627

(41)

6,652

26,238

20,480

–
20,480

2019

20,480

132

–

852

(2,462)

19,002

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 149

Financial statementsStrategic reportAdditional informationGovernance

19. IFRS 16 continued

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

Cost

Adjusted opening balance at 1 January 2019:

Additions

Foreign exchange
At 31 December 2019

Depreciation

At 1 January 2019

Charge for the year
At 31 December 2019

Net book value

Motor
vehicles

Property

Total

128

(8)

212

–

(67)

145

17,898

17,990

132

(5)

17,905

18,117

–

(1,648)

16,257

–

(1,715)

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

Depreciation
Interest expense
Short-term lease expense
Low-value lease expense

2019

(1,715)

(852)

(47)

–

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 the requirements of paragraphs 39 and B11 of IFRS 7:

£’000s

Non-current

Current
Total lease liabilities

No later than one year

Between 1 year and 5 years

Later than 5 years

Total future lease payments

Total future interest payments
Total lease liabilities

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

2019

17,330

1,672

19,002

2,456

11,504

9,409

23,369

(4,367)

19,002

150 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Notes to the consolidated financial statementsCompany statement of financial position

As at 31 December

£’000s

Assets

Non-current assets

Investment in subsidiary companies
Total non-current assets

Current assets

Other receivables

Cash and cash equivalents
Total current assets

Total assets

Liabilities and equity

Current liabilities

Amounts owed to subsidiaries

Other payables

Accruals
Total current liabilities

Non-current liabilities

Amounts owed to subsidiaries
Total non-current liabilities

Total liabilities

Capital and reserves

Ordinary shares

Retained earnings
Total equity

Total liabilities and equity

Note

2019

2018

1(a)

1(c)

1(d)

1(e)

1(d)

347,436

346,800

287

106

393

187

273

347,829

347,073

3,448

168

661

4,277

32,516

36,793

300

310,736

311,036

347,829

1,556

152

–

1,708

32,201

33,909

300

312,864

313,164

347,073

The above retained earnings includes a loss of £2.8 million for the 2019 financial year (31 December 2018: £(80.4) million).
See the statement of changes in equity on page 152 for further details.

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

The Company financial statements on pages 151 to 157 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

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 151

Financial statementsStrategic reportAdditional informationGovernanceCompany statement of changes in equity

£’000s

Balance as at 1 January 2018

Total comprehensive loss for the period

Employee share schemes – value of employee services
Balance as at 31 December 2018

Total comprehensive loss for the period

Employee share schemes – value of employee services
Balance as at 31 December 2019

Note

Called-up
share capital

300

–

300

–

–
300

Retained
earnings

392,998

(80,402)

268

Total equity

393,298

(80,402)

268

312,864

313,164

(2,764)

636
310,736

636
311,036

As 31 December 2019 £0.9 million (31 December 2018: £0.3 million) of retained earnings balance relates to reserves held to
settle the Alfa employee share schemes, and does not qualify as distributable reserves.

152 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Company notes to the financial statements

1. Financial assets and financial liabilities

This note provides information about Alfa Financial Software Holdings PLC’s (the “Company”) financial instruments, including:

• An overview of all financial instruments held by the Company:

– Other receivables (note 1(a));

– Amounts owed by subsidiaries (note 1(b))

– Cash and cash equivalents (note 1(c));

– Amounts owed to subsidiaries (note 1(d)); and

– Other payables (note 1(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 Company holds the following financial assets and liabilities:

£’000s

Financial assets at amortised cost

Other receivables (note 1(a))

Cash and cash equivalents (note 1(c))
Total financial assets at amortised cost

£’000s

Financial liabilities at amortised cost

Amounts owed to subsidiaries (note 1(d))

Other payables (note 1(e))

Accruals
Total financial liabilities at amortised cost

2019

2018

287

106

393

187

273

2019

2018

35,964

33,757

168

661

152

–

36,793

33,909

Financial assets – Basic financial assets, including trade and other receivables, cash and bank balances and other receivables,
are initially recognised at transaction price, unless the arrangement constitutes a financing transaction.

At the end of each reporting period financial assets measured at amortised cost are assessed for objective evidence of
impairment. If an asset is impaired the impairment loss is the difference between the carrying amount and the present value
of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit
or loss.

Financial liabilities – Basic financial liabilities, including trade and other payables and trading balances and loans from
subsidiaries are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the
debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. The Company
derecognises financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or expired.

1(a) Other receivables
Other receivables include prepayments for professional fees, other operating expenses and VAT receivable.

Other receivables are classified as current assets if receipt or recovery is due within one year or less.

At 31 December 2019, other receivables relate to prepayments of £174,000 (2018: £158,000) and VAT receivables
of £113,000 (2018: £29,000).

1(b) Amounts owed by subsidiaries
Amounts owed by subsidiaries are unsecured, interest-free and repayable on demand. The carrying amounts of such receivables
are considered to be the same as their fair values due to their short term nature.

Amounts owed by subsidiaries is nil (2018: nil).

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 153

Financial statementsStrategic reportAdditional informationGovernanceCompany notes to the financial statements

1. Financial assets and financial liabilities continued
1(c) Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand.

£’000s

Cash and cash equivalents

1(d) Amounts owed to subsidiaries
£’000s

Amounts owed to subsidiaries – current

Amounts owed to subsidiaries – non-current

Total amounts owed to subsidiaries

2019

106

2018

2019

3,448

32,516

35,964

2018

1,556

32,201

33,757

Current amounts owed to subsidiaries of £3.5 million relates to operating expenses owed (2018: £1.6 million) and non-current
amounts owed of £32.5 million reflects a loan of £29.2 million principal, repayable in 10 years, and accrued interest, accruing at
2% over the applicable base rate.

1(e) Other payables
Other payables are obligations to pay social security and other taxes or other operating expenses.

Other payables are initially recorded at fair value and subsequently measured at amortised cost. As the total carrying amount
is due within the next 12 months from the balance sheet date, the impact of applying the effective interest method is not
significant and therefore the carrying amount equals to the contractual amount or the fair value initially recognised.

Payables are classified as current assets or liabilities if receipt or payment is due within one year or less.

Other payables relate to accruals of social security and other taxes of £53,000 (2018: £56,000) and trade creditors of £115,000
(2018: £96,000).

2. Investments in subsidiaries
Subsidiaries – Subsidiaries are all entities over which the Company has control. The Company controls an entity when the
Company 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.

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 Company. The country of incorporation or registration is also each subsidiary’s
principal place of business.

Investments in subsidiary undertakings are stated at cost, including those costs associated with the acquisitions, less provision
for any impairment in value. Where events or changes in circumstances, including an adverse movement in the share price,
indicate that the carrying amount of an investment may not be recoverable, an impairment review is performed. An impairment
write down is recognised to the extent that the carrying amount of the asset exceeds the higher of the fair value less cost to sell
and value in use.

Any subsidiary undertakings sold or acquired during the year are included up to, or from, the dates of change of control.
Where control of a subsidiary is lost it is recognised in the profit or loss.

£’000s

Cost

As at 1 January

Capital contributions to subsidiaries

Impairment charge

As at 31 December

2019

2018

346,800

424,560

636

–

347,436

268

(78,028)

346,800

154 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

All subsidiaries have a 31 December year end. The below percentages held by company and Group refer to ordinary shares held.

Alfa Financial
Software Group Limited

Alfa Financial
Software Limited

Alfa Financial
Software Inc

Alfa Financial Software
Australia Pty Limited

Alfa Financial
Software NZ Limited

Registered address
and country of
incorporation

Moor Place,
1 Fore Street Avenue,
London, EC2Y 9DT, UK
Moor Place,
1 Fore Street Avenue,
London, EC2Y 9DT, UK

350N Old Woodward
Avenue, Birmingham,
MI 48009, USA

Level 57 MLC Centre,
19-29 Martin Place,
Sydney, NSW 2000,
Australia

Level 1 Building B,
600 Great South Road,
Greenlane,
Auckland 1051,NZ

Principal activity

Holding company

Software and services

Alfa Financial
Software GmbH

Bockenkheimer
Landstraße 20,
60323 Frankfurt am Main,
Germany

Software and services

Held by
Company
2019

100%

Held by
Group
2019

100%

Held by
Company
2018

100%

Held by
Group
2018

100%

–

100%

–

100%

The carrying amount of the investment is £347.4 million at 31 December 2019 (2018: £346.8 million). The recoverable
amount was determined based on the market capitalisation of the Company as at 31 December 2019 of £360.0 million.
As the carrying value was in excess of the recoverable amount, no impairment charge has been recognised as of the reporting
date. The recoverable amount is sensitive to fluctuations in the market capitalisation of the Company. Reductions in market
capitalisation below the carrying amount of the investment since the reporting date may lead to an impairment of the
investment in future reporting periods. If the market capitalisation of the Company of £231.3 million as at 31 March 2020
remains unchanged at 31 December 2020, this would indicate a potential impairment of the investment of up to £116.1 million.

3. Employee share schemes

There is no charge in the income statement for share-based payments. Any charges for share-based payments have been
recognised as an increase in the cost of investment in subsidiaries. For full details of the Group’s share-based payments,
refer to note 6 to the consolidated financial statements.

Under the rules of the Company’s LTIP plans, in October 2018 and November 2019, selected employees of the Company’s
subsidiaries were granted LTIPs in the form of conditional awards over ordinary shares in Alfa. 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. The cost of the share based remuneration is passed to the relevant subsidiary.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 155

Financial statementsStrategic reportAdditional informationGovernanceCompany notes to the financial statements

4. Called-up share capital

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

Each ordinary share has a par value of 0.1 pence. All shares are fully paid and have equal voting rights.

Issued and full paid

At 31 December 2018
At 31 December 2019

5. Dividends

Shares – Ordinary

£’000s

300,000,000
300,000,000

300
300

Dividends are recognised through equity when approved by Alfa’s shareholders or on payment, whichever is earlier.

No dividend has been declared or paid for the year ended 31 December 2019 (2018: nil).

6. Directors’ remuneration

The company has no employees other than the Directors. Full details of the Directors’ compensation and interests are set out in
the Directors’ Remuneration report on pages 101 to 104.

7. Financial risk management

The Company’s exposure to financial risks is managed as part of the Group's financial risk management. Full details about the
Group’s exposure to financial risks and how these risks could affect the Group’s future financial performance are given in note 13
to the consolidated financial statements.

8. Related party and ultimate controlling party

The Company has taken advantage of the exemption under FRS 102:33.1A from disclosing transactions with other members of
the Group.

The immediate and ultimate parent undertaking is CHP Software and Consulting Limited, which is the parent undertaking
of the smallest and largest group to consolidate these financial statements. The registered office of the immediate and ultimate
parent undertaking is Moor Place, 1 Fore Street Avenue, London EC2Y 9DT and copies of the financial statements of CHP
Software and Consulting Limited can be obtained from this address. The ultimate controlling party is Andrew Page.

9. Subsequent events

The Directors note that the outbreak of Coronavirus (Covid-19) during early 2020 may have a significant impact on the Company
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 Company 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.

156 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

10. Basis of preparation and accounting policies

Alfa Financial Software Holdings PLC is a public company limited by shares and is incorporated and domiciled in England.
These financial statements are the separate financial statements for the Company.

The registered office is Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, United Kingdom. The registered no. of Alfa
is 10713517.

The principal activity of the Company is to act as a holding company.

11. Statement of compliance and basis of preparation

The financial statements of Alfa Financial Software Holdings PLC have been prepared in compliance with Financial Reporting
Standard 102, the Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland (‘‘FRS 102’’) and
the Companies Act 2006.

The principal accounting policies applied in the preparation of these financial statements are set out above. These policies have
been consistently applied to the years presented, unless otherwise stated.

These financial statements have been prepared on a going concern basis, under the historical cost convention. The Directors
have used the going concern principle on the basis that the current profitable financial projections of the Company and
its subsidiaries indicate they will continue in operation for the foreseeable future. As described in Note 1(a) to the
Consolidated financial statements, this has included an assessment of the likely impact of Covid-19 including additional
downside stress testing.

The Company financial statements have been prepared in pounds sterling which is the functional and presentational currency
of the Company and have been presented in £’000s.

As permitted by section 408 of the Companies Act 2006, entity statements of profit and loss and comprehensive income are
not included as part of these financial statements. The parent company meets the definition of a qualifying entity under
FRS 102 and has therefore taken advantage of the disclosure exemptions available to it in respect the presentation of a cash
flow statement.

The loss for the financial period to 31 December 2019 was £2.8 million (2018: £(80.4) million).

12. Critical accounting judgements and key sources of estimation uncertainty

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates
will, by definition, seldom equal the related actual results. There were no critical accounting judgements that would have a
significant effect on the amounts recognised in the parent company financial statements. The carrying amount of investments in
subsidiaries is a key source of estimation uncertainty. Further information is presented in note 2.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 157

Financial statementsStrategic reportAdditional informationGovernanceGlossary of terms

Admission: On 1 June 2017, Alfa’s shares were admitted for
trading on the Main Market of the London Stock Exchange.

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.

Adjusted EBIT margin: Adjusted EBIT margin 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 as a proportion of
revenue.

AFSGL: Alfa Financial Software Group Limited.

AGM: The Annual General Meeting of the Company.

Alfa: The Group or Alfa Financial Software Holdings PLC
and its subsidiary undertakings (as defined by the Companies
Act 2006).

API: Application Programming Interface. A computing
interface to a software component or a system, that defines
how other components or systems can use it. It defines the
kinds of calls or requests that can be made, how to make them,
the data formats that should be used, the conventions to
follow, etc.

Articles: The Articles of Association of the Company.

Automotive finance: Automotive finance includes new
and used cars. Our customers can be banking institutions
providing finance to dealers, OEMs or independent sellers
of automotive vehicles.

Banks: Customers classified as banking institutions are finance
entities associated with regulated banking groups.

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

Billings: These are amounts invoiced in year. This differs from
revenue as defined by IFRS due to the release of deferred
income in relation to licence payments and maintenance
agreements and accrued income.

Board: The Board of Directors of Alfa Financial Software
Holdings PLC.

BPO: Business process optimisation, the task of improving
business processes for efficiency gains.

Captive: Wholly owned subsidiaries of retailing or
manufacturing firms that help customers finance purchases.

CGU: Cash-generating unit.

CODM: Chief Operating Decision Maker.

Companies Act: The Companies Act 2006 (as amended).

Company: Alfa Financial Software Holdings PLC, a company
incorporated in England and Wales with registered number
10713517 whose registered office is at Moor Place, 1 Fore
Street Avenue, London, EC2Y 9DT, United Kingdom.

158 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

Company Leadership Team (CLT): A body of senior members
of the Alfa team which provides input and recommendations
to support the CEO.

Constant currency: Management provide percentage
increases or decreases in revenue or Adjusted EBIT to
eliminate the effect of changes in currency values. The
comparative results are derived by re-calculating non British
pounds denominated revenue and/or expenses using the
average monthly exchange rates of this year and applying it to
the comparative periods results, excluding gains or losses on
derivative financial instruments.

Corporate website: www.alfasystems.com

Directors: The Directors of the Company whose names are set
out on pages 76 to 77.

Disclosure and Transparency Rules: The Disclosure and
Transparency Rules made under Part VI of the Financial
Services and Markets Act 2000 (as amended).

Docker containers: A Docker container image is a lightweight,
standalone, executable package of software that includes
everything needed to run an application: code, runtime,
system tools, system libraries and settings.

Dynamic Lease: Telematics based financing option that
enables customers to adjust the leasing rates to the actual use
of the vehicle, introduced by Daimler Truck Financial into the
US finance market in early 2020.

EONIA: Euro Overnight Index Average. The effective
overnight reference rate for the euro. Now replaced by
ESTER (ESTR, €STR).

EPS: Earnings per share.

Equipment finance: Equipment finance covers a myriad of
asset types, although at Alfa we predominantly service the
lending for agriculture, manufacturing, mining, construction
and transportation equipment.

ESTER (ESTR, €STR): Euro Short Term Rate. An interest rate
benchmark that reflects the overnight borrowing costs of
banks within the eurozone.

Exceptional items: Items that, by virtue of their nature
and incidence, have been disclosed separately in order
to draw them to the attention of the reader of the
financial statements.

FRC: The Financial Reporting Council.

FVTPL: Fair value through profit or loss.

GDPR: General Data Protection Regulation. A legal
framework that sets guidelines for the collection and
processing of personal information from individuals who
live in the European Union.

GHG: Greenhouse gases.

Group: Alfa Financial Software Holdings PLC and its subsidiary
undertakings (as defined by the Companies Act 2006).

Headcount: Represents the number of Alfa team
members under contracts of employment as at 31 December
of each year.

HMRC: Her Majesty’s Revenue & Customs.

I&S: Implementation and Support (“I&S”) expense.

IAS: International Accounting Standard(s).

IFRS: International Financial Reporting Standard(s) as
adopted for use in the European Union.

IFRS IC: International Financial Reporting Standards
Interpretations Committee.

IoT: Internet of Things.

Independents: Independent customers are customers
who are neither part of a regulated banking group nor
manufacturers of the asset being financed.

IPO: Initial public offering of the Company’s Ordinary Shares
immediately post-admission on 1 June 2017.

JSON over HTTP: A modern inter-system API protocol for
communication and coordination, used by REST
(Representational State Transfer) protocols.

KPI: Key performance indicator.

LTIP: The Company’s Long Term Incentive Plan.

Maintenance: Maintenance revenues are invoiced annually 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.

Non-Executive Directors: The Non-Executive Directors of
the Company designated as such on pages 76 to 77.

OEMs: Original equipment and automotive manufacturers.

Ongoing development and services (ODS): ODS revenues
represent 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.

Operating free cash flow conversion: Operating free cash
flow is calculated as cash from operations, less gains and losses
on settlement of derivative instruments and margin calls, less
capital expenditures, less total lease payments in respect of
IFRS 16 (which was applied for the first time in the year ended
31 December 2019) and adding back IPO-related expenses.
Operating free cash flow conversion represents Operating
free cash flow generated as a proportion of Adjusted EBIT.

Ordinary shares: The ordinary shares with a nominal value
of 0.1 pence each in the share capital of the Company.

PDMR: Person Discharging Managerial Responsibilities

POSKit: The Alfa toolkit for building point of sale applications.

PostgreSQL: Also known as Postgres, a free and open-source
relational database management system (RDBMS) which
emphasises extensibility and SQL compliance

Prospectus: The Company’s prospectus dated 26 May 2017
prepared in connection with the Company’s Admission.

R&PD: Research and product development.

Retention rate: Represents the retention of Alfa employees
over the previous 12 month period, excluding any managed
staff attrition.

RoE: Rest of Europe

RoW: Rest of World.

SDLC: Software development lifecycle. A process that
produces software with the highest quality and lowest cost in
the shortest time possible. SDLC provides a well structured
flow of phases that help an organisation to quickly produce
high-quality software which is well tested and ready for
production use.

SG&A: Sales, general and administrative expenses.

Shareholder: A holder for the time being of ordinary shares
of the Company.

SOFR: Secured Overnight Financing Rate. An influential
interest rate that banks use to price US dollar-denominated
derivatives and loans.

Software implementation: 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.

SONIA: Sterling Overnight Index Average. The effective
overnight interest rate paid by banks for unsecured
transactions in the British sterling market.

TCO: Total cost of ownership

The Code: The UK Corporate Governance Code published by
the FRC in July 2018.

VAT: UK value added taxation.

Webhooks: A method of augmenting an application with a
custom callback to another application via HTTP. This can be
used to provide notification or request a calculation or action
from another system.

WLTP: World harmonized light-duty vehicles test procedure.
A lab test that applies to all new vehicles registered since
September 2018, to check how they perform in everyday
driving conditions.

Alfa Financial Software Holdings PLC Annual Report and Accounts 2019 | 159

Financial statementsStrategic reportAdditional informationGovernanceUseful Information

Alfa Financial Software Holdings PLC
Registered Office

Moor Place
1 Fore Street Avenue
London
EC2Y 9DT

www.alfasystems.com

T+44 (0)20 7588 1800
Registered Number: 10713517
Stock code: ALFA

Investor relations
ir@alfasystems.com

Media relations
Tulchan Communications LLP

Auditor
Deloitte LLP

Brokers
Barclays Bank plc
Numis Securities Ltd

Corporate lawyer
White & Case LLP

Remuneration advisors
Mercer Kepler
Tapestry Global Compliance LLP
Skyfall Consulting Limited

Registrar/shareholder queries
Equiniti Limited
Aspect House,
Spencer Road,
Lancing, West Sussex
BN99 6DA

Telephone 0345 609 0810 and outside the UK +44 (0)121 415 7071

Online: help.shareview.co.uk (from here, you will be able to securely email Equiniti with your enquiry).

160 | Alfa Financial Software Holdings PLC Annual Report and Accounts 2019

This report is printed on GenYous.
Manufactured at a mill that is FSC®accredited.

Printed by Principal Colour.

Principal Colour are ISO 14001 certified,
Alcohol Free and FSC®Chain of Custody certified.

Designed and produced by SampsonMay
Telephone: 020 7403 4099 www.sampsonmay.com

Moor Place
1 Fore Street Avenue
London EC2Y 9DT
UK

+44 (0)20 7588 1800