Carl Zeiss Meditec
Annual Report 2022

Plain-text annual report

Alpha Group International plc Annual Report 2022 Company Overview 2022 Highlights 1 Introduction to Alpha Group 3 Strategic Report Chairman’s Statement 6 Chief Executive’s Statement 8 Chief Financial Officer’s Statement 24 Introduction to FX Risk Management 30 Introduction to Alternative Banking Solutions 38 Principal Risks & Uncertainties 44 Engaging our Stakeholders 55 Principal Board Decisions 58 Corporate Social Responsibility 60 Business Model 65 Corporate Governance Report Board of Directors 66 Corporate Governance Statement 68 Audit Committee Report 76 Remuneration Committee Report 80 Directors’ Report 84 Independent Auditor’s Report 88 Financial Statements Consolidated Statement of Comprehensive Income 98 Consolidated Statement of Financial Position 99 Consolidated Statement of Cash Flows 100 Consolidated Statement of Changes in Equity 101 Notes to the Consolidated Financial Statements 102 Shareholder Information 148 C5 Highlights FY2022 FINANCIAL HIGHLIGHTS − Strong financial performance delivered alongside a significant year of investment − Group revenue up 27% to £98.3m (2021 £77.5m) − FX Risk Management revenue up 22% to £69.5m (2021 £57.1m) − Alternative Banking Solutions revenue up 41% to £28.8m (2021 £20.4m) − Profit before tax including other operating income up 42% to £47.2m (2021 £33.2m) − Underlying1 profit before tax up 16% to £38.6m (2021 £33.4m) − FX Risk Management underlying operating margin of c. 39% − Alternative Banking Solutions underlying operating margin of c. 39% − Basic earnings per share, including interest income, up 50% to 86.8p (2021 57.7p) and on an underlying1 basis up 20% to 70.1p (2021: 58.3p) − Final dividend of 11 pence per share, payable on 12 May 2023 to shareholders on the register as at 14 April 2023, making a total dividend for 2022 of 14.4p (2021 11.0p) − Strong cash generation and debt free with £144m net assets, and £114m in adjusted net cash2 − Deferred revenue from account fees, which will be recognised over the next 12 months, increased to £4.9m (2021: £2.2m) OPERATIONAL HIGHLIGHTS − 19% increase in FX Risk Management client numbers, to 1,047 (2021: 881)3 REVENUE FY2022 (£) £98.3M 2022 2021 2020 £46.2m 2019 £35.4m £98.3m £77.5m UNDERLYING PROFIT BEFORE TAX (£) 1 £38.6M 2022 2021 2020 2019 £17.5m £14.6m £38.6m £33.4m REPORTED PROFIT BEFORE TAXATION (£) £47.2M £47.2m £33.2m 2022 2021 2020 £17.1m 2019 £ 13.5 − Average revenue per FX Risk Management client continued to BASIC EARNINGS PER SHARE (PENCE) increase − 141% increase in accounts invoiced4 within Alternative Banking Solutions, to 4,200 (2021: 1,746) − Employee headcount increased from 214 to 357 at the year end − 52% increase in FX Risk Management Front Office headcount to 102 (2021: 67) − Three new international offices launched in Luxembourg, Sydney and Milan, with a further office launching in Madrid in Q2 2023 − Launch of new employee growth share schemes, taking the total number of colleagues with a long-term equity interest in the Group to 1105 − Name changed to Alpha Group International plc (previously Alpha FX Group plc) − Listing on the Premium Segment of the Main Market intended for 2024 1 Underlying excludes the impact of other operating income and non-cash share-based payments. 2 Please refer to table calculating Adjusted Net Cash within Cash Flow & Balance Sheet section. 3 The Group exclude Training Accounts (those that have generated less than £10,000 in revenue since being onboarded) in order to provide a clearer picture of client growth and retention. 4 ‘Account’ refers to an account opened by clients to manage their funds, and that are live at the period end. 5 The Group defines a ‘long-term equity interest’ as an equity stake that is: held prior to the Company’s IPO; or held in the Group’s growth share schemes; or shares owned directly in one of the Group’s trading subsidiaries. 86.8P 2022 2021 2020 57.7p 31.7p 2019 27.7p 86.8p UNDERLYING BASIC EARNINGS PER SHARE (PENCE) 70.1P 2022 2021 2020 2019 32.8p 30.1p 70.1p 58.3p 1 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 COMPANY OVERVIEW ABOUT ALPHA Alpha Group Half fintech, half consultancy, wholly different. Alpha is a leading non-bank provider of financial Despite being an established company listed on solutions dedicated to corporates and institutions the London Stock Exchange, we remain relentlessly operating internationally. Providing services to clients focused on maintaining the same level of agility and situated across three continents, we blend deep client focus we had when we first began in 2009. expertise with cutting-edge technologies to provide These dynamics, combined with the passion of our an enhanced alternative to their traditional bank. people, have enabled us to make a substantial and enduring difference to our clients, and deliver a The key to our success is our team, over 350 people growth story to match. based across eight international offices, brought together by a high-performance culture and a partnership structure that empowers them to act as owners of our business. OUR DIVISIONS AND MARKETS DIVISION PRODUCTS FX Risk Management (“FXRM”) Alternative Banking Solutions (“ABS”) (est. 2009) (est. 2020) Risk Management Mass Payments Global Accounts Mass Payments MONETISATION Margins on Spot, Forward & Option Contracts Payment Fees Account Fees Payment Fees Margins on Spot Contracts CLIENTS Corporates & Institutions Institutions OFFICES London, Toronto, Amsterdam, Milan, Bristol, Sydney, Madrid1 London, Luxembourg, Malta 150 FX Risk Management 171 Alternative Banking Solutions 36 Central Services HEADCOUNT 1 Madrid expected to launch Q2 2023 2 3 Our History Our past performance is the result of being relentlessly focused on the future. COMPANY OVERVIEW OUR HISTORY 2023 2022 2021 Q2, 2023: Expected launch of FXRM sales office in Madrid. December 2022: Rebrands as Alpha Group International plc. October 2022: Launch of FXRM office in Sydney. March 2022: Launch of FXRM sales office in Milan. January 2022: Launch of ABS office in Luxembourg and FXRM sales office in Bristol. December 2021: Employee shareholder milestone, with over 100 employee shareholders. September 2021: Company formally launches global accounts solution for alternative investments (institutions). April 2021: Group completes decentralisation into FX Risk Management and Alternative Banking Solutions. March 2021: Launch of office in Malta, focused on alternative investment market. placing for investment, raising £20m. 2020 April 2020: Capital raise and share 2019 2018 October 2018: Capital raise and share January 2019: Company joins AIM- 100 listed on the London Stock Exchange. December 2018: Launch of mass payments platform. placing for investment, raising £20m. August 2017: Obtain FCA licence to provide derivatives. 2017 2009 February 2009: Alpha launches as FX Risk Management specialist to UK corporates. March 2020: Launch of FXRM sales office in Amsterdam. October 2018: Launch of FXRM sales office in Toronto. March 2018: Launch of Institutional division. April 2017: IPO on AIM with a market cap of c. £65m. 4 5 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Chairman’s Statement Clive Kahn I’m delighted to have overseen another year of excellent financial and strategic progress for the Group, characterised by continued expansion across our teams, clients and geographies. Through measured investment and the hard work of our people, we have fortified our position within our markets and continued to grow our two distinct divisions towards the massive potential we see ahead, whilst reinforcing our competitive advantages. Whilst double-digit growth in both revenue and I am delighted to have someone of Tim Powell’s operating profit are notable highlights, I have also calibre join the Board, and I look forward to working been deeply impressed by the level of discipline with him closely. At the same time, I would like and energy behind the scenes that has gone into to reiterate my wholehearted thanks to Tim Kidd setting and execution of strategy, and enhancing for the vital role he has played in the growth of our risk management and controls. Having joined the Company and wish him the very best in his Alpha as Chairman in 2016, just before its IPO, it is a retirement. pleasure to see the business evolving and maturing, whilst still retaining the same entrepreneurial flare and ambition that has made it such an exciting NAME CHANGE growth story. This unique dynamic, combined with In November 2022, we announced our decision to the strength of the leadership team, is creating an formally change the Group’s name from Alpha FX increasing sense of predictability when it comes to Group plc to Alpha Group International plc, with the our growth, and gives me great confidence in our London Stock Exchange TIDM for the Company also ability to execute on our future ambitions. changed to LON:ALPH from LON:AFX. BOARD OF DIRECTOR CHANGES From its establishment in 2009 the Group has specialised in providing FX solutions. However, The Group continues to benefit from a strong, we have now evolved to become a company that founder-led management team. In December 2022 delivers an increasing range of financial solutions we appointed Tim Powell to the Board as Chief to corporates and institutions. Our new name Financial Officer. With over 25 years’ experience therefore better reflects where we are today, as working in high-quality, fast growing public well as our increasingly global presence across the companies, 17 of which were at the London Stock markets in which we operate. It’s a small change, but Exchange, Tim brings a wealth of experience and one that reflects our achievements to date and the insight which will undoubtedly prove beneficial scale of our future ambitions. to Alpha in the next stage of its growth. Tim’s appointment followed the retirement of Tim Kidd as Chief Financial Officer in December 2022. STRATEGIC REPORT CHAIRMAN’S STATEMENT Clive Kahn Non-Executive Chairman DIVIDEND Following the strong full year results, the Board is pleased to declare a final dividend of 11.0p per share (2021: 8.0p). Subject to shareholder approval, the final dividend will be payable to Shareholders on the register at 14 April 2023 and will be paid on 12 May 2023. This represents a total dividend for the year of 14.4p per share (2021: 11.0p). LOOKING AHEAD “Since inception, Alpha has grown from strength to strength, and we are in an excellent position going into 2023.” Since inception, Alpha has grown from strength Lastly, I would like to thank all our people for their to strength, and we are in an excellent position contribution to our success and continued growth, as going into 2023. Whilst the macro challenges which well as our shareholders for their continued support characterised 2022 are likely to continue throughout throughout the year. I look forward to another year of much of this year, the Group has proven consistently growth for all involved in the Alpha journey. that, through hard work and prudent management of its resources, it can grow through even the most Clive Kahn testing conditions. We are still barely scratching Non-Executive Chairman the surface of our target market, and the size of our opportunity continues to grow as we expand into new products and geographies. We are already underway with our plans to accelerate our growth through further investment, and it is our firm belief this will prove transformational for the Group’s growth prospects. 6 7 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Chief Executive’s Statement Morgan Tillbrook I am pleased to report another strong year of growth, with Group revenue increasing 27% to £98.3m (2021: £77.5m), underlying profit before tax increasing 16% to £38.6m (2021: £33.4m) and reported profit before tax increasing 42% to £47.2m (2021: £33.2m). We achieved these results alongside a significant year of investment in our people, processes, and technologies, with a 67% increase in employee headcount, taking our team to over 350 people across eight global offices, strengthening the foundations for future growth. Importantly, these results were delivered during a Over the past few years, I have been pleased to year in which we took the time to further enhance receive feedback from investors who value the our standards and scalability, at times even throttling level of detail and context we provide in our trading back on short-term growth to achieve this. These updates. However, as time goes on, our story grows long-term decisions highlight the maturity and longer, and I therefore increasingly find myself torn commitment of the senior leadership team and will between the need to provide enough context for new enable us to accelerate our growth sustainably as we investors, without creating too much repetition for move into 2023 and beyond. existing ones. It remains a pleasure to work with a team that care To solve this dilemma, moving forward I will reference so passionately about their clients, colleagues, and relevant context via hyperlinks throughout our the long-term future of the business. The difference statements. This will give investors the flexibility to our people make in shaping Alpha’s growth story opt-in or out of additional detail, depending on their cannot be overestimated, and whilst this report level of familiarity (or interest!) in the subject. will go into great detail about all the various drivers of growth, ultimately what it all boils back down to is them. I would therefore like to thank all my colleagues for another exceptional year working GROUP ENVIRONMENT Over the last thirteen years, we have consistently together and I look forward to seeing what we can delivered organic revenue growth, alongside a achieve in 2023 and beyond. A NOTE ON DETAIL balanced programme of strategic investments that have expanded our market opportunity, deepened our differentiation, and made us increasingly attractive to work with. The focus of our investor relations program is to attract and retain shareholders who share our Importantly, market conditions have not always long-term vision, and I believe providing more been straightforward during this time. Indeed, our comprehensive and up to date disclosures is key introduction to public life in 2017 was swiftly followed to that. 8 by some of the greatest macro-economic events STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT Morgan Tillbrook Chief Executive Officer seen in a generation, with Brexit, COVID-19, the supply be unrealistic to think we have been immune to chain crisis, the Russia/Ukraine conflict, and (most this. With this in mind, we will be using the current recently) rising inflation, all testing our resilience. environment as a timely reminder to maintain a Despite this, we have continued to manage and grow strong cost discipline as we scale, especially as we through these challenges, and each time emerged a accelerate our investment. stronger and wiser business. At our IPO we had one office and one offering focused individual business environments of our FXRM and exclusively on UK corporates, and we were still barely ABS divisions in their respective sections later in scratching the surface of our addressable market. this statement. You will find more detailed explanations on the Today, however, we have two leading offerings that are decentralised and delivered through eight global offices, with a high-quality client base of corporates and institutions across three continents. Our market INFLATIONARY ENVIRONMENT & INTEREST RATES opportunity is therefore larger and more diversified In my discussions with investors throughout than it has ever been, and with our offerings continuing the year, inflation and rising interest rates were to evolve and pegged to business activities that understandably an area of interest. On balance, this are largely non-discretionary in nature, we are has been (and continues to be) a positive tailwind well-positioned to continue delivering predictable, for Alpha. In an economy where prices rise, the defensible long-term growth, even in challenging volume of currency our clients need to trade will macro-economic climates. also typically rise, putting us in a fortunate position where increasing commissions for our clients is Whilst the current inflationary environment will not not required. Rising interest rates meanwhile have alter our investment strategy, we are conscious enabled us to benefit from additional interest that as businesses grow larger, there is a propensity income of c. £9m, as reported in our January 2023 for unnecessary costs to creep in. Whilst we have trading update. maintained very strong margins over the years, it would 9 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Chief Executive’s Statement Continued This interest is being generated from our own are today, and their perspectives will make for an balances and sterling, euro and dollar denominated incredibly valuable read, even amongst our longest client funds that are aggregated and held overnight, standing investors. off balance sheet, as part of Alpha’s safeguarding arrangements for its alternative banking solution. We FX RISK MANAGEMENT (“FXRM”) anticipate this additional interest income will become even more material in the year ahead, but we are also Read the introduction on page 30 mindful that this is an unpredictable income stream HIGHLIGHTS and, if we return to a low interest rate environment, a potentially transitory one. With this in mind, we have chosen to recognise this as ‘other operating income’, not underlying revenue. Indeed, as one investor recently said to me: “the interest income is the cherry on the sundae… but nobody buys a sundae because of the cherry!” OUR OFFERINGS EXPLAINED Historically, I have provided brief overviews of our FX Risk Management (“FXRM”) and Alternative Banking Solutions (“ABS”) offerings within my own statement. In doing so however, I have often felt that brevity comes at the expense of clarity, and that we are in some respects oversimplifying what we do and, more − 22% revenue growth to £69.5m (2021: £57.1m) − Underlying profit before tax margin of c. 39% − 19% increase in FXRM client numbers to 1,047 (2021: 881) − 52% increase in FXRM Front Office headcount to 102 (2021: 67) − Average annual revenue per FXRM client continued to increase − Two new international offices launched in Sydney and Milan, with a third launching in Madrid in Q2 2023 − Launch of new online platform importantly, what differentiates us. Whilst some In its fourteenth year of trading, our FXRM division oversimplification will remain necessary in order to continued to deliver strong growth, with revenue protect commercially sensitive information, as our increasing to £69.5m (2021: £57.1m), and client competitive moat has widened, there are now areas numbers increasing to 1,047 (2021: 881). Behind these which we feel more comfortable sharing publicly. With this in mind, for the first time this year the numbers were some encouraging trends: our overall client concentration fell whilst average revenue per client continued to increase, reflecting our ability leaders of each of our divisions have prepared their to grow wallet share with existing clients whilst also own detailed explanations of our offerings, which can winning increasingly larger ones, as our reputation be read in: and balance sheet grow. − − Introduction to FX Risk Management pg 30 Introduction to Alternative Banking Solutions pg 38 Together, these overviews provide the most comprehensive explanations of our offerings to date, and I believe they are a must-read for anyone who wishes to properly understand what we do and what makes us distinctive. Alex Howorth (Group MD Additionally, we have continued to see increases in the average revenue generated by our Front Office Portfolio Manager’s (“PMs”) in their first, second and third years – something we call the “learning curve”. This reflects compounding improvements in our training, capabilities and reputation, along with the consistently high calibre of people that are being FXRM) and Adam Dowling (Group MD ABS) have been hired. instrumental in shaping their divisions into what they STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT 881 1,047 754 648 FXRM CLIENT NUMBERS 1,200 1,000 800 600 400 200 – 482 310 2017 2018 2019 2020 2021 2022 Notably, much of our existing team are still in the very number of new starters in 2022, who will naturally have early stages of their learning curves, meaning that a minimal contribution in their first year. Headcount our current headcount alone provides significant growth was also flat during 2020 as a result of capacity to support materially higher revenues. The COVID-19, resulting in an uplift in overall productivity. By hires from our recruitment team today are therefore contrast we only added eleven Back Office employees cementing our future growth prospects and giving in FXRM during the year compared to 35 in Front us far greater visibility over our growth trajectory. Office, improving our operational gearing. Additionally, the depth of senior talent within our teams continues to grow, providing us with strong FXRM GLOBAL RECRUITMENT foundations to develop emerging talent and support the scaling of the business. Our success in hiring is in no small part down to the efforts of our Front Office recruitment team. We set As we grow our headcount, Front Office productivity up this team in 2020, and during the first couple of is a key metric for us. We track this by looking at the years spent a lot of time learning how to build a high- total cumulative tenure of our Front Office, compared performing recruitment function and establishing a to our revenue growth. The graph below shows that core team. Equally important was making sure this we have been able to maintain productivity, despite team were deeply ingrained in the Alpha culture and international expansion into new markets, often intimately understood the role, our principles and seeded by our top performers, as well as a significant standards. e u n e v e R l a u n n A M R X F £80m £70m £60m £50m £40m £30m £20m £10m £0m Excludes 35 Front Office hires in 2022, as revenue contribution is minimal in first year. 300 250 200 150 100 50 0 l C u m u a t i v e y e a r s o f E x p e r i e n c e o f F r o n t O f f i c e 10 11 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Revenue Cumulative Years ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Chief Executive’s Statement Continued Three years on, and I can now say with confidence Our decision to ‘sunset’ these legacy systems in This was indeed the case, with revenues falling by We are also pleased to be finalising preparations that we have a team which not only knows what a 2021 in order to build upon a new greenfield stack 15% in the year. The office has however continued to launch a Spanish office at the end of Q2 2023 in strong Alpha candidate looks like, but can represent created a powerful step-change in the scope and to remain profitable, despite increasing investment Madrid. The Madrid team will be led by three highly our career opportunities in a compelling and pace of new product development. This is serving into a Back Office team to support our 24/7 service experienced, long-term Alpha employees who have authentic way. In 2022, the team really hit its stride, to add significant and growing value to our online capabilities, as well as a move to a new purpose-built been successfully penetrating these markets from with global Front Office headcount at the year-end capabilities, and with an exciting roadmap in place office space. We have learned from our experience in our London HQ since 2018, and have already built increasing to 102 (2021: 67), and a strong pipeline of for 2023, underpinned by a talented technology and Toronto, and expect the team to return to growth in a significant Spanish-speaking client base. Our STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT candidates going into 2023. product team, I am looking forward to sharing new 2023. As someone who was closely involved in Front Office recruitment for a long time, I know first-hand how difficult it can be to find the right candidates FXRM OFFICES developments in the months ahead. Our Amsterdam, Milan and Bristol offices all continue us with greater access to Spanish-speaking talent, as to make excellent progress. All three offices were well as increasing our attractiveness to clients who launched by employees with many years’ experience prefer to do business with suppliers that have a local presence in Spain is designed to enhance our growth prospects in Spanish-speaking markets by providing – both in terms of ability and culture. Not only is By way of a recap, at our IPO in 2017 we were a small working with the business, and are growing quickly presence. the recruitment market incredibly competitive, but team based in Reading, Berkshire. From there we under their stewardship: often the best hires are people who come from moved to London, before going on to launch FXRM FXRM CURRENT ENVIRONMENT unconventional backgrounds and are not actively sales offices in Toronto, Amsterdam, Milan, Bristol − Amsterdam (trading since April 2020) delivered looking for a new role. I am therefore very pleased and Sydney, with an office in Madrid expected to strong profit, with revenues up 69% on 2021 to 2022 was a year of extreme volatility within the with the progress the team has made, and believe launch in Q2 2023. this function provides a significant and global competitive advantage for the business moving Our London team continued to deliver strong revenue forward. To reflect this, I am also delighted to have growth of 13% in 2022, whilst remaining the incubator been able to include the recruitment team in our for talent that will go on to build Alpha’s presence in long-term equity schemes. FXRM TECHNOLOGY overseas markets. Our global expansion strategy in FXRM is focused on the identification and analysis of key overseas markets which not only fit in terms of market size, structure and culture, but where a local In May 2022, we were also proud to launch our presence is deemed highly accretive to growth. brand-new client platform for FX Risk Management, representing the culmination of many months of Where regulatory permissions allow, we prefer to hard work and dedication from our technology and initially test international markets by servicing them product teams. The new platform benefits from from our existing office. Once proven, we then go significantly enhanced functionality and a modern on to establish offices overseas, made up of people and intuitive user interface, designed to provide who have been through the ‘Alpha Academy’ and can clients with even greater visibility and efficiency therefore be relied upon to successfully export our when managing and reporting on FX. As a business selling standards and culture. that is both high-tech and high-touch, this platform is serving to further deepen our differentiation in this We do not underestimate that, for any company, space, and feedback has been very encouraging. launching new offices overseas is not without its challenges. In our H1 2022 results statement we Even after the upgrades made to date, the team’s notified the market that we could see challenges ambitions to build meaningful innovations is arising in our Toronto office and expected this to incredibly exciting. FXRM was where our business cause a reduction in their revenues for the year (H1 was born, and there was a considerable amount 2022 results statement). of legacy that had built up over the past decade. £6.4m; − Bristol1 (trading since January 2022) delivered revenues in excess of £2m; and − Milan (trading since March 2022) delivered revenues of £2m. 1 For any investors who are unfamiliar with why we chose to have a separate UK office in Bristol, I cover this in more detail in our our January 2023 RNS. foreign exchange markets, and against backdrops like this we are sometimes asked by stakeholders whether our FXRM division has benefited. The rationale behind this question is the belief that increased volatility leads to increased hedging – a view endorsed by many FX providers. However, this is where the fundamental difference between Alpha and its competitors is most pronounced. Alpha’s clients buy and sell currency for commercial Our most recent office launch in Sydney secured purposes, therefore volatility does not materially its regulatory licence in October and delivered change the overall amount they will need to transact. encouraging initial revenues in the last couple of For example, a client that needs to purchase $10 months of the financial year, with this momentum million over the next 12 months does not then need continuing so far into 2023. Investing in an office to purchase $15 million because the exchange in Sydney not only gives us access to some major rate has changed. In addition, the majority of regional Australian and Asian target markets but, Alpha’s clients hedge forecasted cash flows (as alongside our offices in Toronto and London, gives opposed to firm commitments). When hedging us the 24/7 capability to support our clients globally. firm commitments, it can make sense to increase This will allow us to service many more countries than the proportion hedged in times of volatility to gain we do today and supports our longer-term plans to certainty. However, when hedging cashflow forecasts, expand our regional teams. We are confident in our if we were to encourage clients to deviate away from ability to effectively export Alpha’s strong culture a predefined strategy and disproportionately hedge and have already had four established UK colleagues more, simply in response to increased volatility, emigrate to Australia to support this, alongside local we would be doing two things: 1) increasing their hires who are already experienced in the market. concentration to a particular exchange rate; and 12 13 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Chief Executive’s Statement Continued ABS OPERATIONAL SCALABILITY 2) increasing the amount of currency being hedged proper currency risk management strategy in place. further into the future. Whilst this would immediately Indeed, this will often be felt most by companies that boost our own revenues, the problem with this is have fallen victim to over-hedging or under-hedging two-fold. Firstly, if this exchange rate moves against as a result of poor advice. our clients, having an overconcentration to it will negatively impact their pricing and purchasing power, In Q4 2022, we started to see the headwinds from and potentially leave them exposed to large margin the global economic slowdown across the wider calls. And secondly, when that happens, we will marketplace and were aware that some businesses understandably lose the trust and business of our were overstocking in anticipation of supply chain clients, not to mention having compromised our own shortages. At the same time, we also saw less fund risk management principles in the process. As a risk and institutional flow due to reduced deal activity. management specialist, both outcomes would be Nonetheless, with a diversified client base, fantastic wholly inappropriate. team, and leading capabilities, we remain confident Ultimately, the only way such an approach to managing currency works is if a company can reliably and consistently predict the currency market. about our growth prospects. FXRM CREDIT ENVIRONMENT Unfortunately, however, despite all of the noise and Alpha provides tailored credit facilities against forecasts that are out there, such a firm doesn’t exist. the hedging instruments we offer to clients. Credit If it did, they wouldn’t need to make their money risk is mitigated by the quality and diversity of our exchanging other people’s currency! It is for these client base, alongside the robustness of our credit reasons that we do not see times of heightened controls and systems. Further mitigation comes uncertainty as an opportunity to increase revenues. from the fact that our terms and conditions ensure Instead, our approach is to help our clients maintain all future client trades are at our discretion. We can a balanced hedging profile by tailoring tried and therefore react quickly to changes in the macro tested risk management principles to the underlying environment or individual client profiles by refusing dynamics of their business. Our clients hedge in line future trades, thereby capping our exposure to past with a long-term, pre-agreed strategy – not off the trades only. This reduces our risk exposure and poses back of FX market volatility, or the accompanying significantly less risk than traditional credit facilities. commentary and fanfare that are prevalent in our In addition, unlike a typical lending/borrowing facility industry. we are only exposed to the deviation in MTM value of the FX contract (which could be in or out of the Our approach of helping clients hedge strategically money and on average has a length of six months) in line with a predefined programme driven by and not the notional value of the trade. commercial purposes means we do not experience the same revenue spikes that other providers might In a recessionary environment, the risk of any form off the back of volatility, but it does mean we can of credit default is naturally heightened, and Alpha be confident that we have provided our clients is not immune to this. Likewise, as our business with advice that is in their best long-term interests. grows and we underwrite more credit facilities, we This naturally then results in more consistent and are naturally exposed to more potential defaults. predictable performances for their businesses, as Importantly however, the risk of potential losses well as our own. Where volatility can help however, is factored into our expectations each year and is is in serving to highlight why it is important to have a inherent in any business that extends credit. STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT FY2023 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 s t n u o c c A e v i L f o r e b m u N S B A 1,000 FY2020 0 0 FY2022 FY2021 20 40 60 80 100 120 140 Full time equivalent – Client Services and Compliance We are also sector agonistic and therefore highly Significant progress has also been made in diversified across our marketplaces and continue to frontloading our hiring in order that we have the publish our sector concentration and top 20 client ability and maturity to scale significantly: headcount exposures on our website biannually. increased by 114% to 171 (2021: 80), with roles ALTERNATIVE BANKING (“ABS”) Read introduction on page 38 HIGHLIGHTS primarily in Compliance, Technology and Client Services. Whilst this is a solid financial performance in this division, the number of accounts onboarded was, in truth, lower than we originally planned for. This reflects the team’s strategic decision to throttle back 41% revenue growth to £28.8m (2021: £20.4m) on the number of accounts being onboarded in order − − 141% increase in live accounts invoiced to 4,200 (2021: 1,746) − Deferred revenue from account fees, which will be recognised over the next 12 months, increased to £4.9m (2021: £2.2m) to prepare for our global expansion and shift focus towards larger-scale strategic partnerships with corporate service providers and fund administrators. Such providers typically open and manage many thousands of accounts on behalf of alternative investment funds and, in a number of instances, are − Underlying Profit before tax margin of c. 39% not only opening individual accounts with us, but − 114% growth in headcount to 171 (2021: 80) Our Alternative Banking Solutions division was discreetly launched in 2020 with the vision to become the world’s first purpose-built provider of account solutions for the alternative investment industry. Just over three years later, the division has grown revenue by 41% in the year to £28.8m (2021: £20.4m) and increased its number of live accounts invoiced, to 4,200 (2021: 1,746). are now looking to conduct sizeable migrations of existing accounts currently held with their traditional banking providers, in order to benefit from our purpose-built solution. These partnerships represent an exciting step change in our growth opportunities in this division and provide us with the opportunity to significantly accelerate our current run rate. However, integrating with these partners not only takes time, but requires us to have the right foundations and teams in place 14 Room for a quote here somewhere? The one i picked might not be right 15 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Chief Executive’s Statement Continued to handle a step change in scalability. This has industry. This end-to-end software stack is only one ABS ENVIRONMENT meant carefully managing our rate of growth during half of the equation however, and is underpinned the year, in order to create bandwidth to accelerate by dedicated infrastructure, processes, blue-chip our investment in scalability, which will support banking relationships, and a team of over 170 people, faster growth globally in the future and ensure we solely focused on the alternative investment market. maintain excellent service levels. These investments Additionally, investment managers and their service have primarily been focused on: developing providers expect to see a strong level of governance, system integrations, increasing automation, and track record, balance sheet and experience when frontloading recruitment in Compliance, Client working with a non-bank – something that most Services & Technology, in anticipation of our growth non-bank entrants simply do not have. Incumbent trajectory. banks meanwhile continue to retrench – a trend that speaks to the deep levels of specialisation In light of these investments, we think it is important required to service this marketplace effectively and to provide some clarity around the operational profitably. scalability of ABS and how our headcount is evolving in both Malta and London. The chart on page 15 It has taken time and investment to build a solution represents the core headcount that is intrinsically that can effectively and sustainably service this linked to our cost to serve. We expect to see marketplace. Far from slowing down, we are now enhanced scalability through 2023 and beyond, about to embark on our most significant programme which is a by-product of the maturity of the team of investment to date in order to increase our first- coming through, our investment in processes and mover advantage and deepen our differentiation automation, and our partnership agreements. even further. Our ABS team in the UK is now Many of the partners we are working with (adjacent to our London HQ) which, when combined individually manage far in excess of the 4,200 with our ABS offices in Malta and Luxembourg, will accounts that have been opened by Alpha to date, provide space for over 400 people dedicated to the and fully support our decision to take a measured alternative investment industry over the next few preparing to move to their own dedicated office and controlled approach to this exciting next years. stage in our journey. We ended last year with 4,200 accounts, and we intend to have at least doubled Whilst we are only scratching the surface of the this to 8,400 by the end of 2023, and will continue European market, the service providers we are to keep the market updated on our progress. partnering with are global, and have already Importantly, the business we receive through expressed a strong desire for us to expand our our partnerships is also well-diversified across offering to North America and Asia. These regions a number of different service providers, with no are currently outside of our regulatory scope, concentrated exposure to any one service provider. but with the benefit of the interest tailwind, we have taken the opportunity to begin regulatory Whilst we remain vigilant to the potential for new applications in the US and Singapore. These entrants in this marketplace, we also know that applications are just one such example of our there are significant barriers to entry, and we have accelerated investment in scalability that is being a strong competitive advantage. After three years carried out to secure our global expansion. Providing of technical development, market testing, product these applications are accepted, this will open up optimisation and diagnosing the challenges that new revenue opportunities for the business, from alternative investment institutions face, we now existing partners who have already shown a strong provide a truly purpose-built platform for the appetite to work with us in these jurisdictions. STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT “The stronger a company’s pool of talent and culture, the better its ability to perform, evolve and adapt to the inevitable challenges that come with growth.” The alternative investment industry (within which our ABS division operates) saw a decline in deal activity in 2022 and investment managers naturally found fundraising more challenging as a result. Despite this, we continued to see high demand for account openings, and the team delivered strong growth. We believe there are three main reasons for this. Firstly, the c. 4,200 accounts that Alpha has onboarded to date, pales in comparison to the size of the overall market; Preqin tracks 160,000 funds globally and we estimate that each fund will have on average ten assets, each requiring accounts.1 Secondly, Alpha’s innovative offering has proved highly attractive and therefore remains in high demand. And thirdly, the alternative investment industry is With such a large market to go after, combined highly diversified across a variety of asset types, with the strength of Alpha’s unique offering, this investment timeframes and geographies, all of which opportunity is once again very much about Alpha provide a counterbalancing effect. For example, deploying our proven entrepreneurial skills to whilst investors reduced their appetite for some continue building a high-growth, high-value business. asset classes (e.g. private equity) this was offset 1 Preqin Global Report 2023: Alternative Assets by increased demand for (comparatively) lower risk assets such as private debt. OUR PEOPLE The combination of these three factors means that, In previous reports I have sometimes talked about even if the market was to slow down further, our the importance of talent and cultural ‘density’. The business would still be in a strong position to grow. principle is a simple one – the stronger a company’s Indeed, we did monitor a slowdown in trading going through existing accounts in the fourth quarter of pool of talent and culture, the better its ability to perform, evolve and adapt to the inevitable 2022, which temporarily reduced demand for FX challenges that come with growth. transactions. We believe this reflects the fact that some investors are holding onto their allocations in As a business scales, there is always a risk that the current environment – a view echoed by EY in their recent 2022 Global Alternative Fund Survey. Furthermore, the industry is still expected to grow over the medium term, with Preqin estimating an annualised rate of growth of 10.8% over the next five years to 2027.1 Finally, whilst many investment its density in these two areas will become diluted. Amongst other things, the pressure of resource gaps, managing budgets, and growth targets can lead people to compromise on their standards. It is for this reason that we remain relentlessly focused on ensuring we maintain high levels of managers are expected to hold their allocations for talent and cultural density as we scale, by ensuring the time being, the 2022 Global Alternative Fund survey indicated that those expecting to change will be increasing their allocations to alternative investments over the next three years. our investments in our people and culture are commensurate to the Company’s growth, and that we don’t compromise our standards and principles. 16 17 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Chief Executive’s Statement Continued BUILDING OUR TEAM As I have already mentioned, we made excellent progress in hiring throughout the year, with Group headcount at year end increasing by 67% to 357 (2021: 214). With a 67% increase in headcount, some investors may be concerned that we have compromised on our standards to deliver these numbers. In reality however, there are two important factors to take into consideration here. Firstly, with our hiring split across two fully decentralised divisions, the step change in headcount is divided up and therefore more manageable: 91 heads were added in ABS, 44 in FXRM, and 8 in Central Services. Secondly, whilst the percentage of employees that part ways with Alpha during their first six months has marginally reduced (a reflection of our improved hiring ability), it has not dropped dramatically because the principle of setting a high standard internally, from a competence and cultural perspective, remains intact. Ultimately, employee churn in the early months is a by-product of our best-in-class ambition. Whilst we will continue to focus on improving our ability to filter the right candidates, and develop and retain the best people, we are realistic that a certain level of employee turnover is a by-product of upholding the highest standards. EMPOWERING OUR TEAM At Alpha, our definition of a high-performance environment is “a place where everyone’s getting better”. From our work with Dr Ceri Evans, we’ve identified that the most important ingredient for everyone to be getting better is to have a speak- up culture. As our team grows and becomes more globally spread, it becomes increasingly important that we strive for a culture where employees feel empowered to “speak up” about where we can improve at every level, and in every aspect of our business. Doing so will enable us to better identify what holds us back, our blind spots, call out inconvenient facts and uncomfortable truths that need to be addressed, and moreover, keep learning and improving. We’ve learned from our work with Dr Evans that speaking up is not always easy for people to do. In fact, if left unchecked, many people’s natural bias is to do the exact opposite – whether that’s through fear of being wrong, exposing their own knowledge gaps, or coming across as defensive. Nonetheless, the evidence from decades of investigation and intervention in high-stake, high-pressure environments is that the foundation for reliability and excellence under pressure, is leadership that encourages and values honest communication and teamwork. Consequently, as a leadership team we are doubling down on this aspect of Alpha’s culture and are striving to be one of the best organisations in the world in this respect. Whilst we know this is a high bar, we see it as central to both our team’s individual growth, as well as the growth of the business as a whole. It is a privilege and a pleasure to have a close long-term working relationship with someone of Ceri’s calibre and the principle of a speak up culture is something that has been adopted by a number of ambitious organisations with great success. Indeed, Toto Wolff of Mercedes Formula 1 has on a number of occasions gone on record to credit Ceri’s impact himself. The idea of a ’speak up’ culture was first coined by Amy Edmondson (Professor of Leadership and Management at Harvard Business School) to describe companies that create ‘psychological safety’ in the workplace so that colleagues feel both safe and valued to ’speak up’. When people don’t feel they can speak up, their company’s ability to innovate, learn and grow is compromised. By contrast, an open and candid culture empowers people and unlocks enormous benefits for innovation, learning and risk management. STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT REWARDING OUR TEAM If you have the right people and right culture, you also need to make sure you have the right incentives. I’m passionate about ensuring every member of our team has an opportunity in front of them to learn more, earn more and ultimately progress their careers. For many this will include working towards becoming an equity partner in the business. When I launched our employee share ownership schemes, it was with two overarching thoughts. Firstly, I wanted a way for more people to share in the growth they created and be rewarded for the “An ownership mentality is incredibly powerful – it unlocks discretionary energy, new ideas and gets people to think long-term. ” were first launched in 2017, our share price has increased c. 700% and created c. £700m in additional hard work they put in. And secondly, I passionately value for shareholders. This, off the back of five believed that if we gave more people the opportunity to own a stake in the business, together we would go consecutive years of strong, organic growth, without any acquisitions, and often delivered against some on to deliver stronger and more sustainable growth. very challenging backdrops. An ownership mentality is incredibly powerful – it unlocks discretionary energy, new ideas and gets people to think long-term. Based on Alpha’s track record to date, shared With this in mind I am delighted that 48 employees will be rewarded with equity vesting in Q1 2023, in recognition of all their hard work and commitment. Additionally, it was also a pleasure to be able to ownership seems to be working. Since the schemes welcome 42 new colleagues onto our share schemes, taking our total number of Partners to 110 – a reflection of not only the part they’ve played in our growth story to date, but also the impact they will have on its long-term future. Moving forward, we remain committed to creating more employee shareholders as our company grows in order to reward high performance and loyalty, amplify our long-term culture, and ensure everyone has the opportunity to work towards becoming a shareholder. As founder-CEO, seeing the impact these schemes can have on people’s lives is undoubtedly the most rewarding part of my job. Importantly, these awards are also contingent on delivering a level of financial performance that ensures any dilution to existing holders is materially outweighed by the growth they created. For investors who are interested in reading more about how we achieve this, a detailed explanation can be found towards the end of our January RNS. 18 19 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Chief Executive’s Statement Continued LEADING OUR TEAM working at fast-growing public companies, 17 years of which were at the London Stock Exchange Group. With Adam Dowling and Alex Howorth leading the The team and I have had the pleasure of working with mind, we remain committed to providing inspiring office environments that reward our team for their hard work and enhance their performance and growth of our ABS and FXRM divisions, and excellent him for just over three months now, and his ability to well-being. bench strength across the wider Group, the business fit right in and hit the ground running, is testament to is on an exciting and stable trajectory. As CEO, I take his skill set and character. great pleasure in seeing the teams honing their strategy-setting and execution capabilities, and it is NEW OFFICES a privilege to be in a position where both divisions are executing so well. This is now providing me with 2022 and the start of 2023 have been characterised more bandwidth to focus on our longer-term Group by increasing investments in office space, with our strategy, and explore new opportunities that will teams in Amsterdam, Bristol, Malta and Toronto all enhance our growth, whilst creating some healthy moving to new purpose-built offices for the first distance from which I can challenge and evaluate time since their inception. Additionally, we have the FXRM and ABS strategies. From my time in signed heads of terms to split our London HQ into these strategy sessions, I can say with confidence two neighbouring offices to create dedicated HQs the business is maturing in all the right ways, for each of our divisions. Our existing office will whilst crucially retaining the start-up foundations now become home to our FXRM team, whilst our INVESTING FOR GROWTH IN 2023 As outlined in our January trading update, we find ourselves in a fortunate position where we are anticipating exceptional performance in 2023, driven by a combination of expected strong revenue growth and other operating income. Consequently, we have made the strategic decision to bring forward investment in our operational infrastructure, originally planned for 2024/2025, particularly within ABS. This investment is already underway and focused on accelerating future revenue growth and strengthening the long-term STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT “We run this business with a view of years and decades, as opposed to quarters and annual comparisons, and think this is a key advantage in creating strong, sustainable shareholder value over time.” of cultural density, operational agility and client new office will become home to our ABS team. Our scalability of this division. centricity that have underpinned our high-growth Central Services team meanwhile will have the luxury story. The combination of big business maturity of rotating between the two! and start-up flair (something I’ve often described Additionally, in the event that our Underlying earnings per share. How we set about achieving this Operating Profit (which excludes other operating is then determined by three strategies: (i) our FX Risk value for our shareholders and steadily enhance our as being “David and Goliath”) bodes extremely well Whilst FXRM and ABS are now very much two income) exceeds our expectations throughout the Management strategy; (ii) our Alternative Banking for both the trajectory and predictability of our separate business units, the offices are still only a year, we will look to make additional investments in Solutions strategy, and (iii) our Group Strategy. growth in the future. To have a leadership team 60 second walk away from one another, and we are discretionary initiatives (e.g. marketing campaigns that can operate so effectively at both ends of the keen to maintain interaction between each division. and regulatory applications) designed to further Our FXRM and ABS strategies are led by Alex spectrum is rare, and gives me great confidence and To this end, we will intentionally be ensuring there accelerate growth, without the initiatives becoming Howorth and Adam Dowling respectively, and are excitement for the future. are a number of “shared amenities” between the two embedded in our cost base. offices. focused on moat-widening activities that separate their businesses from their competitors. This is I also wish to extend one final farewell to our former Any accelerated investment will naturally be covered extensively in their business introductions CFO, Tim Kidd, who has now officially left the Group Our investment in office space is being driven by reflected in our operating margin in the short- (pg 30) and (pg 38). Our Group Strategy meanwhile after providing us with an extended notice period the growth within our teams, but most importantly, term, but Group profit before tax margins and the is concerned with smart capital allocation and following his January 2022 announcement of his our team’s desire to be in the office. Indeed, prior to absolute level of EPS will be enhanced by the other upholding the long-standing principles that will planned retirement. Tim has made an incredible, opening our second London HQ, demand had already operating income. The Board and I firmly believe support these moat-widening activities. These positive impact since joining us in 2016 ahead of exceeded capacity, to the extent our operational this accelerated investment program will further principles are: (i) Client Centricity; (ii) Operational our IPO – not just on the business, but on myself teams were having to work from the office (as enhance our long-term growth prospects and Agility; and (iii) Cultural & Talent Density. personally too. Whilst he will undoubtedly be missed, opposed to home) on rotation. In a climate where scalability in the medium to long-term. we look forward to keeping in touch with him as an many employers are struggling to encourage their honorary member of the team and we wish him all teams to return to the office, I consider this a great the best for the future. problem to have! Whilst I know having the flexibility to work from home can be valuable, I fully support GROUP STRATEGY Moving forward we will continue to invest our capital and deliver initiatives that support all three of our strategies, align to the principles above, and When it comes to business, strategy can often be embrace a long-term horizon. We run this business With Tim Kidd retiring, I was delighted to officially our team’s desire to regularly come together under overly complicated. At its most basic level, Alpha’s with a view of years and decades, as opposed to welcome our new CFO, Tim Powell, to the Board in one roof and believe it has significant benefits for objectives are relatively simple. We want to: (i) win quarters and annual comparisons, and think this December. Tim Powell brings a wealth of experience performance, collaboration, and culture. With that in new clients; (ii) retain existing ones; and (iii) grow is a key advantage in creating strong, sustainable our share of their wallet, to build long-term intrinsic shareholder value over time. 20 21 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Chief Executive’s Statement Continued CAPITAL ALLOCATION PREMIUM LISTING OUTLOOK As our offerings have become more diversified, We have hugely enjoyed our journey on AIM since our our cash conversion has continued to grow and, IPO in 2017 and have seen the sizeable benefits that combined with the interest rate tailwinds, we are the public markets can offer. now in a position where as at 31 December 2022 we have net assets of £144.5m (2021: £109.8m), Being a public company has not only enabled including £114.4m of adjusted net cash (2021: us to raise capital to grow and create employee £88.2m). shareholders, but it has also greatly enhanced our reputation amongst the global corporates and Our overarching preference is to allocate capital institutions that we work with, who take confidence into high-confidence organic growth initiatives, from our public market status, as well as the within both existing and potential new business increased transparency and governance that comes units. Such initiatives include: expanding our with this. territories, extending and improving product lines, or any other moat-widening opportunities that As a business that is growing in size, becoming more separate us from competitors. global, and gaining interest from increasingly larger clients, particularly within the institutional space, In view of the Group’s confidence in the sizable and we believe a Main Market Premium listing will serve exciting market opportunities that are presented to further enhance our reputation and support our to us, it is the Board’s belief that, after maintaining market penetration as we move into new countries our progressive dividend policy, retaining and and engage larger clients. At the same time, Premium deploying this cash within the business will deliver Listing reporting standards will naturally lead to Through our successful track record of investment, innovation and expansion, our foundations for growth have never been stronger and our market opportunity has never been larger. These dynamics, combined with our team’s hard work and dedication, are generating high levels of demand for our services. The current macro environment requires appropriate levels of caution and prudence. However, we have proven over the last fourteen years that we can navigate and grow through many testing conditions and have become stronger and more resilient with every new challenge. Trading since 31 December 2022 has been positive and in line with our expectations. Looking ahead to the rest of the year, we are confident in delivering strong revenue and profit growth, whilst also delivering on our recently announced intention to bring forward investment in our operations, thereby STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT The quantum and variability of the interest on client balances will create some volatility in Other Operating Income based on variables that are largely outside of our control and that have limited correlation to the underlying performance of the business. As a reminder, the interest income is dependent on the amount of client cash we hold, its currency, and the interest rates we are able to obtain. With this in mind, we will continue to focus our trading updates and performance reviews on underlying metrics, while we will share the blended average client balances and interest rates through our website on a quarterly basis, in order to provide a mechanism for stakeholders to model this interest income themselves. So far this year, the blended average balances has been £1.6bn and the blended average interest rate has been 2.8%. As disclosed in the accounts, we have also hedged some of this interest income through interest rate swaps (see notes 10 & 15). significant levels of growth and deliver the best higher levels of governance and disclosure, both of accelerating our growth plans. THANK YOU value for shareholders long-term. As a company which we know will be well-received by our clients, where top management has a significant proportion banking partners and investors alike. of their worth concentrated in company stock, we are investing alongside you with each of these decisions. As well as providing cash for investment, a strong balance sheet is also important to our counterparties, as a healthy cash profile is required as collateral for hedging facilities, regulatory capital, and also provides our clients with confidence. We will of course review our cash position on a regular basis, and if we feel our cash position becomes greater than we require, will look to reassess. We are however earning strong returns on deploying our capital and are confident in our ability to do so in the future. “We believe a Main Market Premium listing will serve to further enhance our reputation and support our market penetration as we move into new countries and engage larger clients.” Throughout the current uncertainty within the banking sector, our operations have remained unaffected and our balances have remained stable. As a reminder, Alpha safeguards 100% of its clients’ cash in segregated safeguarding accounts with Tier 1 counterparties consisting of Barclays Bank, Citi Bank, Goldman Sachs and Lloyds Bank. In addition, unlike a bank, Alpha does not use client cash to issue loans and therefore 100% of client held funds remain in cash at all times. I would like to end by thanking all of our team for their hard work throughout 2022 to deliver another record performance. When I look at the numbers delivered, it is humbling to think that behind this incredible growth story is still a relatively small team of just over 350 people, and that shortly we hope to be taking our business to the Main Market of the London Stock Exchange. It is a privilege to work amongst people with the energy, passion and commitment that they all bring to work each day, and I look forward to seeing what we can achieve together in the rest of TREATMENT OF OTHER OPERATING INCOME 2023. Whilst the Group is likely to continue benefitting from material levels of interest rate income on our client balances, it is important we do not let this distract from the underlying performance of the business, which is the Board’s main measure to judge success against our expectations. Morgan Tillbrook Chief Executive Officer 22 23 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Financial Review Tim Powell, CFO 2022 has seen strong growth across both divisions with total revenues increasing 27% to £98.3m (2021: £77.5m). FX Risk Management revenue grew 22% to £69.5m, whilst Alternative Banking Solutions grew 41% to £28.8m. FX RISK MANAGEMENT The FX Risk Management division focuses on supporting corporates and institutions that trade currency for commercial purposes through the Group’s sales teams located in London, Toronto, Amsterdam, Milan, Bristol and Sydney. Revenue grew by 22% over the prior year to £69.5m (2021: £57.1m) with strong growth across all regions except Canada. Revenue growth remained strong in the London FX Risk Management business, up £6m (13%) with a further £6m (70%) of growth coming from our overseas offices and Bristol. Total revenue from hedging products (forwards and options) has increased by 23% against the prior year from £40.7m to £50.1m. The revenue from forward transactions represents the difference between the rate charged to clients and the rate paid to banking counterparties. The underlying operating profit margin of the division was c. 39%, (2021: c. 44%) with the decrease primarily being driven by the first-year costs of our new offices in Bristol, Milan and Sydney. Excluding these new offices the Corporate margin would have been c. 47%. ALTERNATIVE BANKING SOLUTIONS Alternative Banking Solutions revenue grew substantially from £20.4m in the prior year to £28.8m in 2022 driven by an increased number of accounts and greater ancillary payment and spot fees. FXRM Growth 22% £6m £6m £6m £3m £98m £9m £108m £78m £20.4m £57.1 m ABS Growth 41% £29m £69m 2021 Revenue FXRM London Office FXRM Overseas Offices ABS Account Revenue ABS Payment & Spot Revenue 2022 Revenue Other operating income 2022 Income FXRM ABS STRATEGIC REPORT FINANCIAL REVIEW Tim Powell Chief Financial Officer Account fee revenue increased by £6m (260%) to underlying profit before tax in the year increased by £8m, as the number of accounts being managed 16% to £38.6m. Statutory profit before tax increased increased by 141% from 1,746 to 4,200 and we by 42% to £47.2m (2021: £33.2m). generated a full year of income from accounts opened in the prior year. Revenue from annual The year ended 31 December 2022 was another account fees is recognised on a straight-line basis year of significant investment. Overall headcount over the 12 months from the date the account increased in the year from 214 to over 350 at 31 was opened or renewed. At 31 December 2022 December 2022 to support future long-term growth. deferred revenue was £5m (2021: £2m), that will be The underlying profit before tax margin decreased recognised as revenue in 2023. slightly to 39% (2021: 43%) reflecting the increased levels of investment and increase deferred account The underlying operating profit margin of the revenue. However, the statutory profit before tax ABS division was c. 39%, (2021: c. 42%). This small margin significantly increased to 48% (2021: 43%) reduction on 2021 was predominately due to reflecting the other operating income. the timing mismatch of in-year investment and increased account fees deferred. GROUP PROFITABILITY OTHER OPERATING INCOME As outlined in our October 2022 and January 2023 trading updates, the current interest rate Underlying profit is presented in the income environment has allowed the Group to benefit from statement to allow a better understanding of the additional interest income predominantly generated Group’s financial performance on a comparable from its client balances, as well as a small proportion basis from year to year. The underlying profit from its own. With the number and size of client excludes the impact of the other operating income balances growing, this has contributed £9.3m of and the share-based payments. On this basis, the interest income in the last four months of 2022 (2021: £nil). 24 25 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Financial Review Continued 41% £44m FXRM Margin 2022: c.39% ABS Margin 2022: c.39% £18m 2022 Corporate* 9% £5m 2022 Toronto 38% £15m £6m 47% £6m £3m 38% £5m £2m 40% £24m £9m 2022 Amsterdam 2022 Institutional FXRM** 2022 Institutional ABS** 2022 Alpha Pay Operating Profit Revenue * Corporate division is primarily London but also includes other offices not disclosed elsewhere (Bristol, Milan, and Sydney) **For the purpose of deriving margins for ABS and FX Risk Management, the cost base of the Institutional division have been allocated based on revenue. It is worth noting that the Group is only able to obtain underlying rates. The effective tax rate in 2021 reflected attractive interest rates on these overnight client cash a one-off charge for the internal transfer of clients balances because of our ability to aggregate numerous between our UK and Malta operations, excluding this individual client balances, many of which are transitory the effective tax rate in 2021 would have been 19%. We in nature and typically only held for 24 hours. expect this effective tax rate to increase in 2023 driven by the UK’s increase in corporation tax rates to 25%. Whilst the increased interest stream from client balances is a positive boost for the Group and a natural by-product of our increasingly diversified product EARNINGS PER SHARE offering, we are mindful that aspects of its dynamics Underlying basic earnings per share increased 20% in are driven by macroeconomics beyond our control. the year to 70.1p (2021: 58.3p), whilst basic earnings per As outlined in October, we have therefore chosen share were 50% higher at 86.8p (2021: 57.7p), driven by to recognise interest income on client balances as the interest income. ‘other operating income’, not revenue from operating activities. The interest income generated on our own cash is shown as underlying finance income. TAXATION KEY PERFORMANCE INDICATORS The Group monitors its performance using several key performance indicators which are reviewed at operational and Board level. The key financial The effective tax rate for the period was 17% (2021: performance indicators are revenue, underlying 22%). The decrease in effective rate is primarily due profit before tax, profit before tax, margin, number of to SME R&D tax credits and the impact of the SAYE FXRM clients, number of ABS client accounts, and the scheme. This also reflects the mix of profits across our number of FXRM Front Office staff. global subsidiaries without any material changes in STRATEGIC REPORT FINANCIAL REVIEW CASH FLOW AND BALANCE SHEET The overall net assets of the Group increased in the In the year ended 31 December 2022, 60% of the revenue in the year was derived from products where the revenue is converted into cash within a few days of the trade date (2021: 60%). Including other operating income, cash conversion increased to 63% in 2022. This has continued to have a positive impact on the Group’s cash flow. On a statutory basis, net cash and cash equivalents increased in the year by £29m to £137m. The Group’s statutory cash position can fluctuate significantly from day to day due to the impact of changes in, collateral paid to banking partners, margin received from clients, early settlement of trades, or the unrealised mark to market profit or loss from client swaps. These movements result in an increase or decrease in cash with a corresponding change in other payables and trade receivables. Therefore, in addition to the statutory cash flow, the Group presents an adjusted net cash summary excluding these items, shown below. On this basis, adjusted net cash increased in the year by £26m to £114m. year by £35m to £144m. Looking ahead, and as stated in our January Trading update, investment in 2023 is expected to increase as we bring forward investment in our operations (in particular in our Alternative Banking Solutions division), originally planned for 2024/25 and beyond. This investment is already underway and is focused on accelerating future revenue growth and strengthening the long-term scalability and sustainability of our business. DIVIDEND Following the strong full year results, the Board is pleased to declare a final dividend of 11.0p per share (2021 – 8.0p). Subject to shareholder approval, the final dividend will be payable to shareholders on the register at 14 April 2023 and will be paid on 12 May 2023. This represents a total dividend for the year of 14.4p per share (2021: 11.0p). Tim Powell Chief Financial Officer Net cash and cash equivalents Variation margin paid to banking counterparties Margin received from clients* Net MTM timing loss from client drawdowns and extensions within trade receivables Adjusted net cash** 31 December 2022 £’000 31 December 2021 £’000 136,799 44,876 181,675 (70,204) 2,912 114,383 108,044 8,380 116,424 (34,363) 6,129 88,190 * Included in ‘other payables’ within ‘trade and other payables’. ** Excluding collateral received from clients, collateral paid to banking counterparties, early settlement of trades and the unrealised mark to market profit or loss from client swaps. 26 27 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 STRATEGIC REPORT KEY PERFORMANCE INDICATORS Key Performance Indicators The following KPIs are used to track the performance of the business against the Group’s strategy on page 21. REVENUE FXRM CLIENT NUMBERS 1 The income from services and products provided to The number of clients that have generated revenues clients during the year. in excess of £10,000 over the previous 12 months. £98.3M 1,047 £98.3m £77.5m 2022 2021 2020 2019 2018 £46.2m £35.4m £23.5m 2017 £13.5m 2022 2021 2020 2019 2018 2017 482 310 1,047 881 754 648 UNDERLYING PROFIT BEFORE TAX 2 FXRM FRONT OFFICE HEADCOUNT Profit before interest, tax, exceptional items and The number of employees in Front Office employed share-based payments. by the Group as at 31 December of each year. £38.6M 102 2022 2021 2020 2019 2018 2017 £17.5m £14.6m £10.0m £6.8m £38.6m £33.4m 102 2022 2021 2020 2019 2018 2017 67 66 64 51 32 PROFIT BEFORE TAX ABS LIVE ACCOUNTS INVOICED £47.2M £47.2m £33.2m 2022 2021 2020 £17.1m 2019 £13.5m 2018 £9.7m 2017 £5.6m The number of accounts opened by clients that were live at the period end. 4,200 2022 2021 1,746 4,200 1 The Group excludes Training Accounts (those that have generated less than £10,000 in revenue since being onboarded) in order to provide a clearer picture of client retention for the purposes of these figures. 2 Underlying excludes the impact of non-cash share-based payments, Other operating income, and in the prior years, exceptional property-related costs. 29 2828 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Our Businesses FX Risk Management WHAT WE DO AND WHO WE DO IT FOR REVENUE FY2022 (£) Our FX Risk Management division focuses on supporting corporate and institutional clients that need to buy or sell currency for commercial purposes, either from buying and selling goods and services overseas, or from the underlying value of an asset or liability. The clients that we support are regularly impacted by movements in exchange rates, creating material risk that can significantly impact their performance and profitability. We support them by providing strategies and technologies that enable them to mitigate risk by managing currency volatility more easily and effectively. We service a highly diversified client base through our Corporate and Institutional teams in London, Toronto, Amsterdam, Milan, Bristol, Sydney and (imminently) Madrid, and our revenues are derived from executing forward, option and spot contracts on a matched principal basis. We are sector agnostic, in a non-cyclical market, working across a multitude of currencies and continents, and are thus highly diversified. We estimate the global market opportunity for our FXRM division to be worth c. $170bn in revenue terms, meaning we are barely scratching the surface. £69.5M (2021: £57.1M) CLIENT NUMBERS 1,047 (2021: 881) % GROUP REVENUE 71% WHAT PROBLEM ARE WE SOLVING? To understand the distinctiveness of our model, one must first understand the following three considerations: (i) the ongoing challenge that businesses with a recurring exposure to currency volatility are faced with, (ii) what a well-balanced hedging solution looks like, and (iii) the set of FX- related conditions that create a web of complexity, and often suboptimal decision making, for businesses to MARKET AT A GLANCE navigate through. STRATEGIC REPORT OUR BUSINESSES The possible solutions will consider the commercial risk posed to the business because of volatility itself (indicating what an organisation needs to do to protect themselves), the cash position and credit worthiness of the business (indicating what they can afford to do), and the risk appetite and commercial objectives of the decision makers (indicating what they would like to do). When considering the answers to the above, it’s important to first consider what “bad” looks like. Essentially this falls into one of the two camps mentioned above: under-hedging (hedging too little, including nothing) or over-hedging (hedging too much). For organisations that are hedging cash-flow forecasts, the implications of under or over-hedging can be significant. For corporates it can materially impact their purchasing and pricing power; and for funds it can impact their investment performance. In Alex Howorth Group MD, FX Risk Management Some examples of the questions that decision both cases, this results in reduced competitiveness makers continuously need to consider when hedging and profits. Additionally, over-hedging can also lead include: how to fix the rate and how not to, when to to margin calls that result in cash-outflows that can fix the rate and when not to, how much is too much, negatively affect the business. and how much is not enough. Only by answering these questions correctly can decision makers The aim is to ultimately get the balance right and ultimately avoid the problem of under or over- ensure that profits aren’t unnecessarily eroded, hedging. commercial objectives aren’t unnecessarily obstructed, and the day to day running of the ii. What ‘good’ risk management looks like business is not negatively impacted. Understandably To develop a well-balanced hedging solution, the this is easier said than done. Part of the difficulty first step is to start with the business itself. We in answering these questions and striking the right cannot, with any integrity, propose a solution to a balance stems from the fact that decision makers business without understanding how their business are faced with a web of complexity and distraction works. Thus, our primary focus is to obtain a deep from the FX market itself. understanding of an organisation’s operating model, any supply chain considerations, their target iii. Fear, Greed, & Sub-Optimal Decision Making market, competitive landscape, profit margins, cash FX is unpredictable and volatility is not linear. As a constraints (cyclical or not), pain points that make result, whilst there is risk from unfavourable volatility, the day-to-day operations harder to navigate, and, there is also “opportunity” from favourable currency importantly, the core commercial short, medium, and swings. It is not uncommon therefore for businesses long-term objectives of the key decision makers and to be driven by a desire on the one hand to protect $170bn global revenue opportunity 1 i. The challenge our clients face owners. Non-banks hold a fraction of the market <0.05% market share globally Any organisation with an ongoing exposure to currency volatility must continuously and appropriately determine how to protect their business against the risk that currency volatility creates. This can range from hedging firm commitments, through to their margins, and on the other, to increase their profitability. The combination of both introduces This understanding gives us a base foundation from two quite strong emotional drivers into the decision- which a strategic hedging programme can then be making equation – fear and greed – an age-old built. The next step is to determine how to protect human problem which negatively influences the the business against currency volatility itself. At this performance of a hedging strategy. 1 Estimate based on Mckinsey Global Payments Report 2022. hedging cashflow forecasts. The latter of these is point we want to explore the following questions: (i) more complex, and where clients naturally face the biggest challenge – and this is where Alpha focuses its proposition and differentiates itself the most. how much to hedge, (ii) which instrument to use, (iii) When faced with such unpredictability, the one thing when to hedge, and (iv) how often to revisit these that people will often seek the most is reassurance. questions. Often however they find this in the wrong places. 30 31 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022FX Risk Management Continued As such it’s quite normal for decision makers to seek undesirable exchange rate in the future – hence the If this approach is fundamentally flawed though, why And in terms of sustainability – we believe it is easier counsel from those “in the know” about which way gamble. Despite the odds being firmly against the don’t more providers choose to challenge the short- to keep the clients you have, by providing sound risk the market is likely to move. This usually comes in client, these instruments remain highly alluring to term cycle? The answer to this is simple – people are management advice that delivers consistent results the form of market commentaries or forecasts, and many. despite this approach producing suboptimal results human with emotional drivers that are unfortunately over the long-term. easy to sell to, and the commercial opportunity to when measured over the medium to long-term, to The final challenge relates to the ongoing conflict of monetise this with short-term market opinions and/ Ultimately, by avoiding the path of least resistance, this day it remains the default service offering by interest created by the traditional commission model or speculative products, is inherently easier and we set out to remain a business that is long-term, STRATEGIC REPORT OUR BUSINESSES both banks and non-banks alike. within non-banks. Notably, the immediate short-term lucrative in the short-term. “When faced with such unpredictability, the one thing that people will often seek the most is reassurance. Often however they find this in the wrong places.” earning potential for the individuals involved in the sale and dealing of FX, often stands to compromise the integrity of their hedging advice in terms of timing, quantum, and product. The conditions that our clients face can therefore be summarised as follows: significant sums of risk linked to a recurring business decision, overseen by human beings who are prone to making imperfect decisions, linked to a variable that is hard to predict and can both boost or cripple performance, with instruments that vary wildly and can be difficult to understand, and influenced by advice that often has a short-term focus and can be self-serving in nature. If it sounds like a lot, it’s because it is! The Short-term Trap In our experience, most banks are more passive and Collectively the problems outlined above serve to risk averse, sending generic in-house forecasts and fuel fear and greed tendencies, and subsequently analysis en-masse to their customer base, usually via suboptimal decision making, at a time when a email. Our non-bank competitors on the other hand balanced and strategic approach to managing typically actively engage in providing businesses currency is often needed the most. We refer to this with personal predictions and opinions, as well as the Short-term Trap. as producing generic commentary and in-house forecasts. The obvious question to ask is, if the Short-term Trap leads to such suboptimal outcomes, why then Adding to the complexity is the plethora of financial does it persist? Ultimately, the answer to this lies in instruments available to businesses, which can the fact that international businesses will always be also be placed into one of two camps; (i) genuine faced with a recurring decision to buy or sell currency risk management products with a commercial (this will never go away), and as long as that decision purpose, and (ii) speculative products that are akin remains intrinsically linked to a live moving variable to gambling. Regarding the speculative products, (FX rates), it will continue to create the conditions these instruments serve no logical purpose in a for success or failure. Furthermore, in an industry genuine risk management strategy, and tend to offer where FX providers and the global media continue immediate short-term benefits by providing a more to indulge and promote FX market forecasts and favourable exchange rate today, at the expense commentary, a convention is established that lures of committing the client to a potentially more business into believing there is genuine value and credibility in relying on them. high-growth, and a global leader in its space. However, by leaning into a more difficult path our challenge becomes, how can we navigate it successfully? This comes down to three core HOW WE DIFFERENTIATE – “THE ALPHA WAY” If the traditional way of doing things is easier, why components: our Business Philosophy, our have we chosen a more difficult path? Ultimately Performance Culture, and our Remuneration System. this comes down to three things – integrity, purpose, and sustainability. In terms of integrity – we know the short-term model is not in the long-term interest of PILLAR 1. OUR BUSINESS PHILOSOPHY our clients. In terms of purpose – we are genuinely Over the past fourteen years we have made it our passionate about solving the problem of currency mission to distinguish ourselves away from the short- risk for our clients; in an industry fixated on the term, FX-focused, and sales-led services that have direction of FX markets and being part of the fanfare always been abundant in the market. We have sought that surrounds them, we are proud to be different to challenge preconceived ideas of what “good” looks and have a clear vision to become the global leader like by prioritising the commercial development and in FX risk management. acumen of our people, and engaging in conversations that seek to genuinely understand our clients’ businesses and what they truly need, rather than what they might want, or have become accustomed to. Risk management led Our approach to managing currency volatility is risk management led, not FX market led. We know that nobody can reliably predict the currency market, and to pretend otherwise would compromise our clients’ commercial objectives. Our belief is that any conversations around currency markets and “when” to buy should only take place after a clearly defined risk management strategy is in place. It is for this reason, that we don’t consider ourselves, nor position ourselves, as FX market experts, and therefore unlike our peers, since inception we have never published FX market commentary, analysis or forecasts. In fact, we don’t believe the notion of an FX market expert even exists or carries any legitimacy at all. 32 33 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022FX Risk Management Continued A risk management culture, like Alpha’s, versus one is a business conversation – one that evaluates the A winning mindset Ultimately our people are our most treasured asset, that indulges market commentary and forecasts, are client’s business dynamics, competitive environment, Across all divisions and departments, we want and we demand a lot from them. For our people-led mutually exclusive and deliver distinctly different and commercial objectives, in order that we can to be considered exceptional at what we do and model to remain sustainable it’s imperative we invest STRATEGIC REPORT OUR BUSINESSES outcomes. Keeping it simple In terms of the hedging products we recommend to our clients, we know that, used in the right way, simple products are, in the vast majority of cases, far more effective than complex or speculative ones at managing currency risk. To support this ethos, we incentivise our people by deliberately paying significantly lower rates of remuneration on more complex products, whilst celebrating and over-rewarding scenarios where we successfully talk clients down from more complex ones, to using simple ones. Our philosophy has always been to avoid the path of least resistance and challenge clients on what they need versus what they want. Business conversations not sales conversations Effective strategy requires a deep understanding of how a client’s organisation works, in order to diagnose their challenges and build an appropriate solution. This cannot be achieved by talking to a client about their generic “FX requirements” only to put forward a pre-conceived FX solution. This is just a sales conversation. What is needed instead “A risk management culture, like Alpha’s, versus one that indulges market commentary and forecasts, are mutually exclusive and deliver distinctly different outcomes.” then tailor appropriate risk management principles to their unique circumstances. Only by adopting this approach can a well-balanced hedging strategy be achieved. Summary Our business philosophy intrinsically takes us down a more challenging path, but we believe this leads to more meaningful and sustainable results. By forging long-term relationships with our clients based on value, credibility, and trust, the rewards that follow (which are proven to compound overtime) create strong earning potential for our people, and strong sustainable value for our investors. Everyone wins. PILLAR 2. OUR PERFORMANCE CULTURE Our second core component is our performance culture. We are relentlessly committed to cultivating a team-oriented performance environment that runs through the entire organisation. We believe highly effective, team-led systems drive higher levels of performance, versus a cluster of highly talented individuals working independently and focused on self-interest. But team-led systems need organising, they need direction, and they need purpose – our performance culture is our second core component and acts as a central pillar in helping us achieve this. It has several sub-components, the first of which is development. Everyone’s getting better In many organisations, development is something which is reserved for more junior people, and the more senior you become the less you are expected to develop. We do not subscribe to this notion, and instead our focus on development is both top down and bottom up, from our most entry level people, to our most senior. By creating an environment where everyone is getting better, seeking out their next level of performance, and addressing inconvenient facts or uncovering uncomfortable truths, we continuously elevate our collective potential. pursue excellence in every field. Throughout the in them appropriately. organisation, we emphasise that, whoever you are and whatever role you play, we all have an obligation Summary to achieve and uphold a reputation of excellence. Our In any high-performing sports team, what separates people knowingly sign up to this when they join, it is those who finish first, from those who don’t, is one of our most important guiding principles and, their intent. Individually and collectively, they train unsurprisingly, it is not for everyone. that extra bit harder, they create a culture where Enjoying the journey 1% improvements are both valued and sought out, they empower and elevate one another, and they Performance environments can be mentally and constantly look to invest in areas that will make the physically taxing, and we don’t want our people to boat go that little bit faster. We subscribe to the become slaves to performance or burn out. Thus, belief that business is no different. It’s one of the we place a huge amount of importance on the main reasons we have established an exciting and third sub-component of our performance culture, long-standing relationship with a world-renowned which is ensuring this journey remains enjoyable for performance coach, Dr Ceri Evans, who, in addition everyone. Yes, we want to get better, and yes we want to Alpha, works with some of the world’s most to operate at an elite level, but we also want this to respected and successful sports teams. be fun – not least because we believe enjoyment is an integral ingredient to performing at a higher level. DIFFERENTIATION AT A GLANCE THE TRADITIONAL WAY THE ALPHA WAY FX Market “Experts” Risk Management Experts Sales & FX market conversations Business & risk management conversations Publish market predictions & commentary Avoid the noise and distraction of the markets Recurring revenue targets No recurring revenue targets since inception Promote complex products Promote simple products Sell clients what they want Sell clients what they need High volumes of low-value clients Low volumes of high-value clients 34 35 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 STRATEGIC REPORT OUR BUSINESSES FX Risk Management Continued PILLAR 3. OUR REMUNERATION SYSTEM OUR STRATEGY Our remuneration system is the third component of Our (i) Business Philosophy, (ii) Performance Culture our model and is designed to both complement our and (iii) Remuneration System ultimately serve to business philosophy and regulate our performance create what we call our “economic moat” – a term culture. originally coined by Warren Buffett to describe a business’ ability to maintain a competitive edge over As a fast-growing business with growth expectations its competitors. from investors, one could envisage a conflict between our long-term principles and results- i. Our Business Philosophy oriented environment. We however feel the two are Helping our clients ignore the “noise” of the FX aligned and show this through strong leadership markets and providing them with effective, long- and a clear cultural direction. We then reinforce our term, commercially focused FX risk management approach with very deliberate and well-designed strategies. remuneration structures. Despite our strong track record of growth, since inception, our Front Office employees have never had a recurring revenue target for existing clients – not at the individual client level or across their wider portfolio. We believe this is not only unique in our industry, but also in sales environments. Instead, we opt solely for monthly new business targets that are deliberately modest and static. We believe this approach is critical in driving the right behaviour at the outset of a new client relationship and in delivering consistent positive client outcomes over the long-term – which then leads to high levels of retention. Ultimately, we want our people to prioritise client retention and acting in the long-term interests of their clients, rather than be influenced by the need to hit a short-term recurring revenue target. We also use remuneration to both incentivise and disincentivise our people relative to the complexity of the products they sell (i.e. the more complex the product, the lower the remuneration). We believe in most instances the simplest solution or product should always be prioritised, which often means less revenue today, but more over time. In an industry where the sale of complex products is often overly rewarded, and the people that sell them are pedestalled as experts, this is a key cultural difference. ii. Our Performance Culture Fostering a high-performance environment where everyone is getting better, delivering to a high standard, and having fun along the way. iii. Our Remuneration System Remuneration that is aligned to the long-term interests of our clients, with no recurring revenue targets at a portfolio or client level since inception. Given the size of our market opportunity, our strategy is therefore largely focused on the following three areas: 1. Exporting our Business Philosophy and Performance Culture overseas – we will continue to ensure the Alpha ‘watermark’ is exported into new overseas markets. 2. Attracting, developing and retaining exceptional people – we will continue to build a highly talented team where everyone is getting better. 3. Innovation focused on enhancing our service offering and operations – we will continue to improve the effectiveness and efficiency of both our client offering as well as our own internal operations. Alex Howorth Group MD, FX Risk Management 36 37 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Our Businesses Alternative Banking Solutions WHO ARE WE HELPING? REVENUE FY2022 (£) Our global accounts solution has been purpose- built for alternative investment managers and, just as importantly, the corporate service providers and fund administrators that support them (“Service Providers”). These clients typically require local accounts in key investment jurisdictions for their £28.8M (2021: £20.4M) investment vehicles. Such investment vehicles LIVE ACCOUNTS INVOICED typically belong to the following fund types: private equity, private debt, venture capital, real estate, infrastructure and fund of funds, and will be used for purposes such as asset sales, purchases, or distributions. As our reputation and capabilities have grown, we are seeing increasing levels of interest from service providers that wish to partner with us. These organisations are responsible for managing a number of back-office activities on behalf of funds and their underlying investment entities, including: opening and managing of accounts, sending of payments, and FX execution. Such service providers can range significantly in size, with our existing partners estimated to be managing anywhere between 2,000 and 30,000 investment entities each. Each of these 4,200 (2021: 1,746) % GROUP REVENUE 29% THE PROBLEM investment entities will typically require their own Whether you are an investment manager or one of local account, therefore representing a significant their service providers, opening and managing bank undertaking for these service providers. Data company Preqin tracks 160,000 alternative fund profiles globally, and we estimate that each fund will have on average ten assets, each requiring accounts. Based on these calculations, we are barely scratching the surface of the market. Our competition is almost exclusively banks. accounts in key investment jurisdictions is often a time- consuming, resource-intensive and unreliable process. GLOBAL MARKET OPPORTUNITY AT A GLANCE 160,000 alternative investment funds 1 Our clients operate globally, with their funds > 1.6 million entities domiciled in key investment jurisdictions, in particular Europe, Singapore (Asia) and the USA (Americas). Our existing regulatory scope means we can currently service each fund’s European business, however we are in the process of expanding our global reach with 50 key corporate service providers <1 % market share applications in the US and Singapore underway. 1 Preqin Global Report 2023: Alternative Assets STRATEGIC REPORT OUR BUSINESSES The difficulty these traditional providers face when servicing this marketplace, naturally invites the question, “Why have no new providers entered this space?”. Here, the reality is simple – you need three key things: segment focus and expertise, dedicated processes and systems, and importantly, a balance sheet and track record that can be trusted. As a publicly listed company with a strong balance sheet and a track record of processing tens of billions in transactions, even Alpha still comes under significant amounts of due diligence and scrutiny before service providers and investment managers open an account with us. Any fintech seeking to service this calibre of client however would rarely have the expertise, track record, balance sheet, or blue-chip local banking relationships, to get a robust solution up and running. Ultimately, our own success in this space was only possible because of the Adam Dowling Group MD, Alternative Banking Solutions Whilst this can be a significant headache for maturity of our core business and ability to become individual investment managers, these problems a specialist “start-up” through our decentralisation are amplified considerably for the service providers strategy. Our clients now benefit from dedicated tasked with managing many thousands of accounts people, processes and technologies, alongside the on their behalf, day-in, day-out. For these service capabilities of an established PLC business, a strong providers, the sheer number of interactions across Group Balance Sheet, and a track record they can all their bank accounts for workstreams such trust. It’s a rare combination and one that provides us as onboarding, ongoing KYC, payments, FX, and with a significant competitive advantage. reporting, is staggering. Furthermore, if the quality of these interactions is poor or inefficient, it leads to significant pain and cost for the service provider. We WHAT WE DO are on a mission to bring down the number of these At Alpha we have built the world’s first accounts interactions, whilst simultaneously raising their quality. solution dedicated to the alternative investment industry. Our clients benefit from people, processes To understand the scale of this problem and why and technology that have been purpose-built for it exists, it is helpful to explain the availability of their industry, and this makes a significant difference options in the marketplace today. Traditional banks to both the efficiency and service levels they receive have generalised, low-touch offerings built on legacy – whether they are an investment manager managing systems that are designed to handle standard multiple accounts, or a service provider, managing corporate and retail clients at scale. They are not thousands. built to handle the specialised and often complex nature of alternative investment structures, or meet Our aim is for every interaction with clients to be the needs of service providers managing thousands as efficient and streamlined as possible, whilst of accounts. This (as I will outline later) requires also remaining highly controlled and compliant. a high-tech, high-quality service, underpinned by Once again, whilst this makes a big difference to specialised teams, processes and technologies. As a investment managers, for service providers that are result, for traditional providers, servicing these entities managing thousands of accounts for hundreds of to a high standard and efficiently is simply not viable. different investment managers, the benefits of these Consequently, traditional banks’ appetites to service efficiencies are compounded significantly, and make this marketplace has been gradually decreasing, and a sizeable difference to their day-to-day operations with it, any investment in improving the quality of their and thus the quality and profitability of their own offerings. service offerings. 38 39 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Alternative Banking Solutions Continued Consequently, many of the upgrades we are making payments and FX transactions at key stages HOW WE’RE DOING today, are now focused on enhancing the needs and throughout their lifecycle, which provide additional experience of the service providers by streamlining revenue opportunities. Importantly, providing clients processes and unlocking new efficiencies. with an account also gives us the opportunity to Monetisation build enduring relationships with the investment managers. This means that, even when the existing In terms of monetisation, we typically generate assets or funds come to the end of their lifecycles revenues through annually recurring subscription (typically 5-7 years), we will have the opportunity to fees against each account that is opened. A number work with the investment manager on their other of these accounts will often then go on to process investments and funds in the future. DIFFERENTIATION AT A GLANCE THE TRADITIONAL WAY THE ALPHA WAY One-size-fits all approach, servicing mass volumes People, processes and technology dedicated to the of corporate and retail clients alternative investment industry Low-touch reactive service delivered by generalist High-quality proactive service delivered by teams specialist teams Generic compliance processes and manual, Bespoke compliance processes and streamlined resource-intensive onboarding onboarding Slow and unreliable account opening times Fast and reliable account opening times Inability to access local accounts in key investment Local accounts available across key investment jurisdictions jurisdictions Ancillary revenue obligations and minimum spends Fixed and transparent annual fee, with no ancillary required to keep accounts opened obligations or minimum spends STRATEGIC REPORT OUR BUSINESSES “When combined, our new offices will provide space for 400+ people in ABS, evenly distributed across Malta and London, with a small team in Luxembourg.” OUR PERFORMANCE CULTURE Our Global Accounts Solution was publicly launched in September 2021 and has already grown to service over 4,200 investment entities, underpinned by a dedicated team of 171 people. This led to annual revenues growing 41% last year to £28.8m (2021: £20.4m). During this time, we have also solidified our relationship with key service providers and, having demonstrated the quality of our offering over the past three years, are now entering into formal strategic partnerships. Such partnerships represent an exciting step-change in our growth prospects within this division, and have the potential to not only increase the incremental volume of our pipeline, but also present exciting opportunities for mass migrations of accounts currently held with traditional providers. With this in mind, much of our attention is now turning to ensuring we continue to scale our processes, people and technology to secure Whilst the FXRM division is predominantly made this next stage in our growth. up of Front Office teams, our own division is largely made up of Back Office teams. Like FXRM however, In the last year, we have increased our headcount by we share ambitious targets and objectives, and over 90 people to 171, and are now preparing to move fostering a high-performance culture of our own has into our own dedicated HQ in London, along with a therefore been key. new office in Malta. When combined, these offices will provide the space for over 400 people in ABS, evenly Having settled on our definition of a high- distributed across Malta and London, with a small performance culture – “a place where everyone’s team in Luxembourg. getting better” – our focus has turned to creating a practical, enjoyable and scalable development Alongside these exciting ambitions, I also feel there framework which can ensure this remains a reality are a number of areas where we can develop and as we grow. To help us develop and roll out this improve as a team. Whilst our revenue numbers are framework, we have partnered with world-renowned strong, I still believe we can get better at identifying performance coach and consultant psychologist, Dr and capturing the FX and payments opportunities that Ceri Evans. The framework we have built with Ceri is can be linked to the accounts we are opening, albeit unique to Alpha and designed to enable people to not all accounts will have an FX element as some of achieve their “Next Level of Performance” or “NLP”. our alternative investment clients will raise funds in In simple terms an NLP is about creating clarity the same currency they invest. Whilst it’s frustrating to in an individual’s mind about what their next level Accounts managed via multiple banks, platforms All accounts managed through a single platform, think we are missing these, it’s also exciting to realise of performance looks like, as well as a personal and logins built for service providers Legacy technology, built for the mass market Cutting-edge technology purpose-built for alternative investments that even small improvements here could make a roadmap to bridge the gap between their current big difference to our revenue and profit generation. reality and their desired future state. Ultimately, The next stage of our CRM development will link our the compounded effect of having each and every Institutional FX Risk Management and our Alternative person in the team focused on achieving their NLP, is Banking Solutions together, and I believe this will fostering an environment in which everyone is getting create notable improvements in our ability to secure better, and thereby creating a powerful momentum more FX and payments opportunities moving forward. in the business. 40 41 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022STRATEGIC REPORT OUR BUSINESSES Alternative Banking Solutions Continued OUR STRATEGY Our vision over the next few years is to be recognised as the global leader in financial services, that is built to empower the alternative investment industry. The market opportunity in front of us is huge, and we are looking to scale at pace. Last year we ended with 4,200 accounts, and we intend to finish 2023 having at least doubled this to 8,400. Like our FXRM division, we use Warren Buffett’s concept of an “economic moat” when thinking about strategy. For Alternative Banking Solutions, our economic moat can be summarised as follows: − Purpose-built processes and technologies − Highly specialised teams with deep domain knowledge − A trusted provider and partner, with a strong track record and reputation “The market opportunity in front of us is huge, and we are looking to scale at pace. Last year we ended with 4,200 accounts, and we intend to finish 2023 having at least doubled this to 8,400.” iii) Increasing our presence and brand awareness in key investment jurisdictions – We will expand our global presence in key Our long-term strategy moving forward is focused on investment jurisdictions through new offices, widening our economic moat in each of these areas marketing, global banking relationships and new as we scale. This will be achieved by: regulatory licenses, with Singapore and the USA both key areas of interest for us. i) Increasing operational scalability, whilst remaining highly specialised – Moving forward we will continue to upgrade and evolve our accounts solution to ensure we remain the Our deep levels of specialisation and high levels of leading provider in this space. Equally, we are already service have enabled us to grow quickly; it is now looking at ways to provide solutions beyond this. Our key that we ensure the foundations are in place to ambition is to become the leading bank alternative scale this sustainably. ii) Deepening our relationships and technical integrations with key service providers – to the alternative investment space; our focus is the market, not the product, and we aim to solve a broader range of client challenges, by stripping out complexity and bureaucracy and leveraging our bespoke Alternatives infrastructure and expertise. Through our partnership teams, we will continue Ultimately, we are deeply committed to this space, to double down on our strategic relationships with listening to our clients and developing high-value key service providers, to drive greater advocacy solutions that meet their needs. with our existing partners, whilst also creating new partnerships. Adam Dowling Group MD, Alternative Banking Solutions 42 43 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Principal Risks & Uncertainties Tim Butters, Chief Risk Officer We remain focused on identifying, understanding, and managing our key risks, whilst embedding our risk management framework across the group, to ensure strong oversight and accountability. Headcount across the risk and control functions continues to grow in line with the business to provide control, oversight, and monitoring. 2022 has seen the further addition of experienced hires to the team and the establishment of our Internal Audit function. OUR APPROACH TO RISK MANAGEMENT Alpha has independent external audits across We adopt a ‘three lines of defence’ model to manage our principal business risks, in line with enterprise risk management best practices. FIRST LINE OF DEFENCE Primary responsibility for managing risk through the design and implementation of appropriate controls. This sits with operational management who own and manage their risks. (i) Compliance & AML (including safeguarding) (ii) Information Security, (iii) Finance (including Settlements), and (iv) Technology. The Risk Committee together with the Audit Committee decides quarterly whether any additional external audits should be scoped. Where appropriate, insurance policies are used to further reduce the impact of risks manifesting as losses. ENTERPRISE RISK MANAGEMENT FRAMEWORK Our Enterprise Risk Management (“ERM”) framework SECOND LINE OF DEFENCE provides assurance to the Board on the sound Comprised of the Risk, second-line Compliance, and Legal teams, who work with the first line to help build and monitor the first line of defence controls. The second line ensures that levels of risk against risk appetite are reported to the Board and escalated when exceeded. THIRD LINE OF DEFENCE Internal Audit, along with other third-party reviewers, provide independent assurance to the Board on the effectiveness of the risk management framework and the operation of the first and second lines of defence. management of existing and emerging risks and the effectiveness of our internal controls. 1. Group Strategy Risk is a core consideration when setting strategy and business plans. Risks that can impact the delivery of the strategy are proactively identified to ensure we can manage them accordingly. 2. Risk Appetite Set by the Board, the risk appetite defines how much risk we are willing to take in pursuit of our strategic objectives. Our risk appetite ensures the ongoing monitoring and management of prudent levels of operational, compliance, financial, strategic, and information risk, whilst enhancing shareholder value. 44 STRATEGIC REPORT PRINCIPAL RISKS & UNCERTAINTIES Tim Butters Chief Risk Officer Our risk appetite is established by qualitative The amber thresholds allow for early identification of risk appetite statements and measured through risks that are regularly occurring, picking up velocity quantitative key risk indicators (“KRI”) metrics. or approaching appetite limits. The red thresholds To stay within our appetite, we always observe are set to appetite; a level of risk more than the red a compliant legal and regulatory regime whilst limit is seen as ‘out of appetite’ and reportable to the applying best practices, including: Board. − Creating a clear framework of accountability 3. Risk profile and responsibility that is transparent and This is the current measure of the level of risk the allows for better decision-making; business is exposed to. Key risk indicators and − Recognising that our two divisions face different and common risks, and will therefore set policies, procedures, and the necessary reporting mechanics to ensure and validate that risks are understood, monitored, managed, and controlled; − Recruiting, retaining, and developing our people to embed a culture that reflects the risk appetite. risk limits determine the Group’s risk profile and indicate whether we are operating within appetite. We continue to invest in risk infrastructure to provide better insight into our risk profile. 4. Risk Culture and Governance The executive team are full-standing members and regular attendees of the monthly Risk Committee. Oversight of the risk management framework is governed by the Risk Committee under delegated authority from the Board. This buy-in and tone from The appetite statements provide clarity on the the top ensure a strong risk culture is propagated scale and type of activities we wish to undertake, throughout the organisation. and the Board has set a two-tiered limit approach to the quantitative metrics (KRIs) of amber and red 5. Risk Policies thresholds. Policies are used to clearly define a consistent approach to risk management across the group and to assign accountability. 45 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Principal Risks & Uncertainties Continued Group Strategy 1 Risk Reporting and Monitoring 8 Controls Testing 7 6 Identification and Assessment ENTERPRISE RISK FRAMEWORK 5 Risk Policies Risk Appetite 3 Risk Profile 2 4 Risk Culture and Governance 6. Identification and Assessment – Principal Risks In addition to internal controls testing, Alpha To be managed, risks need to be identified and undergoes several internal and external audits per understood. Alpha utilises several approaches to annum whereby our controls are independently do so, from risk assessments and workshops, to reviewed. Any findings are tracked by the Internal STRATEGIC REPORT PRINCIPAL RISKS & UNCERTAINTIES Principal Risks & Uncertainties FY2022 We assess, manage and mitigate risks in order to deliver on our purpose and strategy. Risk Type: Cyber And Data Security Security is a vital part of Alpha’s fabric and is integral to ensuring the sensitive data we process on behalf of our clients maintains confidentiality, integrity, and availability. The Group faces the risk of its operating systems failing and the failure to safeguard business-critical data and systems. MOVEMENT Unchanged RISK MITIGATIONS AND UPDATE − Security awareness training and workshops were a key focus for the group in 2022 and will remain so in 2023 and beyond. We continue to provide all new staff with security awareness training workshops and refresher training. We continue to subject our staff to complex phishing simulations ensuring heightened vigilance around emails. − Our software development teams attend specialist training to increase security awareness, as well as secure coding best practices. − We have increased technical expertise in the security team, to mature the level of internal testing as well as the incident response ensuring risk has a ‘seat at the table’ in operational Audit function through to closure and via the Group capabilities. and strategic decisions. In total, we have over a Risk Committee. hundred risks in our risk register which we monitor closely. 7. Controls testing 8. Risk Reporting and Monitoring Reporting provides oversight of the firm’s risk profile against appetite and identifies new risks We continuously work towards strengthening or increasing exposures that may become out of our controls testing framework, with key controls appetite. Daily scenario testing ensures appropriate frequently tested to assess their design and management of liquidity and credit risk. operational effectiveness. This gives us a more proactive approach to risk management, with the results of the assessments reported to the Risk Tim Butters Committee ensuring clear accountability for the Chief Risk Officer firm’s key controls. This is complemented by ad-hoc ‘deep-dives’ where, in response to internal or external developments, specific areas of the business may be targeted for a more in-depth review. − We have an ongoing programme to review all security controls in support of our journey towards industry-leading certifications and attestations. − A purple team testing exercise was carried out on both our internal and external infrastructure evaluating the effectiveness of our security controls. − We leverage top-tier cloud service providers. In line with the shared responsibility model, we ensure our responsibility regarding data security is fulfilled in line with best practices, a defence-in-depth approach, control testing, and training. − We have renewed and increased the coverage of our comprehensive cyber insurance policy. 46 47 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Principal Risks & Uncertainties Continued Risk Type: Regulatory Risk Risk Type: Operational Risk The Group faces the risk of failing to adhere to its regulatory and legal requirements. Failure could see the Group The Group is subject to the risk of loss resulting from inadequate or failed internal processes, people, systems, exposed to significant regulatory penalties and reputational damage. Additionally, any new regulation or changes or external events. This can include incorrect inputting or execution of a trade or settlement, internal fraud, to existing regulations may require the Group to increase its spending on regulatory compliance and/or change and financial reporting delays or errors. business practices. RISK MITIGATIONS AND UPDATE MOVEMENT RISK MITIGATIONS AND UPDATE MOVEMENT − We maintain robust policies, procedures, systems and controls, Increased − The Risk team oversees our operational risk framework working Unchanged STRATEGIC REPORT PRINCIPAL RISKS & UNCERTAINTIES Reason for movement: We have a scalable regulatory framework and work with industry bodies and local advisers to ensure we adhere to regulation; however as we continue our geographical expansion the regulatory risk increases due to local nuances. and monitoring and assurance programs. These ensure continued compliance with our regulatory obligations. − We have strong relationships with best-in-class financial crime consultancies which we utilise to provide independent advice and assurance on our compliance processes. − Independent external audits are conducted on our AML and safeguarding processes and controls. − We have integrated with several RegTech providers to ensure we have the best and most innovative tools at our disposal. Our new transaction monitoring provider will go live in 2023 enabling us to enhance and fine-tune the ongoing monitoring of our client base. − The Compliance team continues to appropriately increase its headcount to accommodate regulatory and business needs, including hiring resource to ensure local expertise and compliance in newly licensed jurisdictions. − The governance of compliance risk via Risk Committee forums reflects the prioritisation of compliance within Alpha’s long-term objectives and goals. − Our dedicated quality assurance and compliance monitoring functions have been enhanced further this year showing our commitment to high levels of oversight and accountability. closely with risk champions in each first-line team to ensure risks are proactively identified. − Firmwide risk and control self-assessments are conducted in each department at least twice a year to identify risks and controls at an inherent and residual level. − We have a clear control framework in place and key controls are regularly tested for effectiveness by the risk team. We have significantly increased the number of controls we test. − We maintain a strict division between Front and Back Office functions to ensure Back Office remains independent and attentive to any errors that Front Office may have caused. We have further strengthened our lines of defence model this year. − Internal fraud risk is minimised through investment in compliance resources and functions, pre-employment screening of all employees, maintaining strict delegated authority limits, segregation of duties, and regular monitoring and oversight across different management functions. The Group has comprehensive insurance policies to partially indemnify against the risk of fraud from an internal member of staff. − We promote a positive speak-up culture so risk events are proactively identified and escalated. − We continue to invest and focus on retaining a scalable operating model, with a particular ongoing focus on automation and straight- through processing to reduce operational risk further. − Business continuity run-books contain detailed continuity measures, for different scenarios that can adversely impact key systems supporting significant processes. − Ongoing internal reviews and reconciliations are carried out by qualified and experienced employees, with oversight from the Audit Committee, Board and External audit. 48 49 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Principal Risks & Uncertainties Continued Risk Type: Credit Risk Credit risk is inherent in Alpha’s business model. The Board accepts that credit losses are a function of our trading, and we take a risk-based approach to balance revenue opportunities against the risk of default. We are exposed to credit risk if a client fails to deliver currency at maturity of the contract and/or fails to deposit margin when a margin call is made. Alpha’s credit risk is equal to the negative fair value of the contract minus any deposit held at the time of cancellation. RISK MITIGATIONS AND UPDATE MOVEMENT − We have a dedicated Credit team with significant experience who Increased Reason for movement: Macroeconomic backdrop of rising interest rates, high inflation, and the potential of recession. review all credit requests and conduct ongoing reviews throughout the duration of the contract. The frequency of these reviews is driven by the risk level of each client as well as any material macro event that may affect our client base. − Although we provide our clients with credit facilities for hedging, our terms and conditions enable all future customer trades to be at our discretion, therefore we can react quickly to changes in the macro environment or individual client profile, capping our exposure to past trades only. This significantly reduces our risk exposure and poses significantly less risk than providing traditional credit facilities. − We conduct ongoing stress testing of our credit book to simulate stressed market conditions. In 2022 particular emphasis has been put on our exposure to Eastern European currencies and clients exposed to high interest rates and energy costs. − Second-line oversight of credit exposures and policy adherence is performed by the Risk team. − Top client concentrations are monitored closely and disclosed on our website by currency pair. STRATEGIC REPORT PRINCIPAL RISKS & UNCERTAINTIES Risk Type: Strategic Risk Risk is inherent in any strategy. To ensure we execute effectively we need to understand and actively manage our MOVEMENT Unchanged strategic risks. RISK MITIGATIONS AND UPDATE − We have a clearly defined strategy, which we continue to successfully execute, and key risks to delivery are identified and reviewed regularly. − Regular and open dialogue between Execs and Non-execs at the Plc Board level on execution risk and Group strategy occurs before moving into new markets. Alpha’s Board has extensive experience in entering new markets and scaling businesses, which it applies when considering new opportunities. − A succession plan is in place and approved by the Board for all key roles. Key management have entered into contracts that provide notice periods for the Group’s protection. The Group has a comprehensive key- person insurance policy in place. − We hold strong, transparent relationships with multiple banking partners and remain aligned on risk appetite. Risk Type: Technology Risk Technology underpins most businesses and Alpha is no different. We rely on the uptime and availability of in-house and third-party systems. A failure in this technology could disrupt both our own and our clients’ businesses. RISK MITIGATIONS AND UPDATE MOVEMENT − Our critical platforms are hosted by tier-one providers in the cloud with Decreased resiliency built-in. − Stringent release and change management processes are in place. We have implemented code analysis tools to check for vulnerabilities as the code is being written, as well as implementing more quality control gates. − We use Amazon Web Services Security Hub for visibility across our entire AWS estate. − We have released a new client-facing portal and decommissioned the legacy Risk Management/Alpha Pay platform. − We have implemented a Software Developer Security Training program. − We have tightened administrator permissions and built-in approval processes around permission changes. Reason for movement: We continue to remove legacy technology and our platforms are fully cloud- based. 50 51 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Principal Risks & Uncertainties Continued Risk Type: Liquidity Risk Alpha operates a matched principal brokerage model, meaning that it immediately executes a matching trade with its banking counterparties on receipt of client orders. Liquidity risk arises if Alpha is unable to meet its financial obligations when they fall due. This could result from an overextension of credit facilities or a large move in a currency pair that Alpha has a large exposure to. If Alpha were unable or restricted to meet its trading capital requirements this could result in its banking counterparties closing out positions or even terminating the financing facilities currently provided. MOVEMENT Decreased Reason for movement: Our cash position has further increased, driven by cash conversion, profitable trading and interest earned. RISK MITIGATIONS AND UPDATE − Our terms of business enable us to collect margin from clients in response to adverse market moves (margin calls). Alpha benefits from netting where we are called to place margin from our banking counterparties on a netted currency pair basis, whereas we can call our clients for margin on a gross basis. − Key risk indicators act as an early warning system to alert the Board to conditions that could potentially lead to a period of stretched liquidity. − Our cash position has increased significantly due to profitable trading and interest accrued on balances. − The Senior Management team reviews forecasts and cash flows regularly to determine whether the Group has sufficient cash reserves to meet future working capital requirements and to take advantage of business opportunities. − We perform liquidity analysis at a net currency and FX cross basis, including client margin call versus bank margin call to identify any funding shortfall. − We conduct client and overall book stress testing with circuit breakers in place. − Further improvements have been made to our daily cash calculation which allows greater visibility on the components of our cash position and the ability to track cash flows. − Top client concentrations are closely monitored and are disclosed on our website by currency pair. − Additional liquidity providers have been approved, reducing the concentration risk to our banking counterparties. STRATEGIC REPORT PRINCIPAL RISKS & UNCERTAINTIES Risk Type: Dispute Risk Whilst a client may not default on a contract, they may dispute its validity. With the challenging macro backdrop, there is a risk clients may try to renege on trades that have gone against them. RISK MITIGATIONS AND UPDATE MOVEMENT − Thematic deep dive on dispute risk has been conducted to ensure Increased this risk is kept to a minimum. Reason for movement: The macroeconomic backdrop of rising rates, high inflation, and the potential of a recession may lead to clients being opportunistic. − All trades have evidence attached to them of the trade instruction. − All derivative trades are reviewed by the compliance team, ensuring trades are booked in line with regulation and policy. − All credit facilities are reviewed by the credit team, ensuring credit agreements are executed correctly. − Our Compliance Monitoring team samples a percentage of all trades to ensure all documents are correct and present and evidence is attached to trades. − Controls regarding the disclosure of complex derivative products to our clients are in place, including compulsory monthly valuation reports sent to all authorised signatories, and trade confirmations sent to the director(s) in addition to authorised contacts. − We have proactively engaged a dispute risk lawyer to review our processes. − The Risk team control tests the above processes to ensure they are operating effectively. Risk Type: Reputational Risk Alpha is highly regarded in our industry. Maintaining this reputation is important to retain our existing clients, expand our client base, and preserve our strong relationships with our banking partners. There is a risk that an unforeseen event may adversely affect Alpha’s reputation, impacting future profitability. KEY TOPICS MOVEMENT − We have a marketing and communication strategy that includes Unchanged detailed and open public reporting. − We pride ourselves on strong cultural values and a positive risk and compliance culture. − We maintain an open and proactive dialogue with our banks and the regulators to provide high levels of transparency and comfort. − We have a contract with a cyber security and reputation management company, which provide an online impersonation takedown service to minimise, where possible, brand impersonation. 52 53 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 STRATEGIC REPORT ENGAGING WITH OUR STAKEHOLDERS Engaging with our Stakeholders Section 172(1) of the Companies Act 2006 requires the Directors to act in a way they consider would be most likely to promote the success of the Company for the benefit of its members as a whole, taking into account the matters set out below. The Board believes that engaging with stakeholders leads to better decision making and is therefore critical to our long-term success. SECTION 172 MATTER RELEVANT SECTIONS OF ANNUAL REPORT The likely consequences of any decision in the − Business Model (pg 65) long term − Strategies (pg 21,36,42) − Stakeholder engagement (pg 55) The interests of the company’s employees − Stakeholder engagement (pg 56) − Corporate Social Responsibility (pg 60) The need to foster the company’s business − Stakeholder engagement (pg 56) relationships with suppliers, customers and others − Corporate Social Responsibility (pg 60) The impact of the company’s operations on the − Corporate Social Responsibility (pg 60) community and the environment The desirability of the company in maintaining a − Corporate Governance Statement (pg 74) reputation for high standards of business conduct The need to act fairly between stakeholders of − Stakeholder engagement (pg 55) the company Communities & Environment We value the opportunity to support organisations and causes that are important to our stakeholders and us. HOW WE ENGAGED KEY TOPICS KEY OUTCOMES − Fundraising activities for three − Which charities our − Facilitated funding for our charities: Motor Neurone Disease employees wish to chosen charities Association, Lymphoma Action, support − Awareness for charitable and and Mind. − Direct engagement with Climate Impact Partners as part of the Carbon Neutral Protocol − How we can raise environmental causes boosted money and awareness across the business and to our for each cause wider stakeholders − Environmental − Became a certified sustainability and supporting our Carbon Neutral company by supporting the Acre Amazonian Rainforest Amazonian Rainforest REDD+ REDD+ project in Brazil project in Brazil 54 55 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Employees Clients Our people are what set us apart from our competition, providing a leading level of service that enables us to Understanding the needs and challenges facing our clients is central to our growth strategy. grow our business. HOW WE ENGAGED KEY TOPICS KEY OUTCOMES HOW WE ENGAGED KEY TOPICS KEY OUTCOMES STRATEGIC REPORT ENGAGING WITH OUR STAKEHOLDERS − Company-wide employee − Current performance and strategy − Future objectives and strategy − Resource planning − Learning, development and career progression − Recognising exceptional achievements − Charity and fundraising initiatives engagement surveys, with results and actions presented back to teams and Board − 360 feedback surveys carried out on Senior Management − Quarterly wrap-ups to celebrate wins and recognise exceptional performances − Quarterly townhalls held within each division to present progress against strategy, future focus, and recognise key achievements − Following investor roadshows, CEO & CFO host employee roadshows with each division − Regular team-building exercises, including an annual company-wide trip abroad − Fortnightly strategy meetings attended by all department heads, chaired by divisional MDs − − − Introduced flexible and reduced working hours Increased communication between Central Services teams and FXRM and ABS Increased involvement amongst a wider group of colleagues with world- renowned performance coach, Dr Ceri Evans − Process for salary reviews has been standardised across the business to ensure fairness and transparency − Working from home policy created Business Partners & Suppliers Our partners and suppliers enable us to enhance our offering and provide better solutions to clients and employees. HOW WE ENGAGED KEY TOPICS KEY OUTCOMES − Sharing of key regulatory − Company performance announcements − Direct engagement between Executive Directors and key suppliers and partners − Senior Management engage with key suppliers and provide key updates to Executive Directors − Customer service delivery − Company strategy − Audit and risk committee information − Risk, governance and compliance − Diversity and inclusion − Enhanced products and service by leveraging suppliers’ capabilities − We continue to partner with a number of high-quality partners that understand our business and the vital part they play in our long-term ambitions − Increasing focus on diversity with our recruitment partners − The customer experience − Regulations and compliance − New products and features − Reasons for choosing Alpha − Enhanced product offerings, both online and offline, to provide a better customer experience − Client feedback implemented into our product development roadmap − Subsequently grew product and technology teams in order to continue supporting client-led new product development − Client surveys are sent out to all new customers with results shared with CEO and MDs − Attendance at over 40 industry events throughout the year − Active memberships with seven key industry associations − Direct engagement between Directors and key clients − Client-facing employees share feedback with senior management, which is put forward to the Board for consideration where appropriate − Email updates on upcoming developments and releases, with feedback requested Our Shareholders We value the views of our shareholders and the financial commitment they’ve made to support our growth. HOW WE ENGAGED KEY TOPICS KEY OUTCOMES − Our CEO and CFO hold meetings with major shareholders following interim and full year results to discuss the Group’s performance − Shareholder analysis is presented once a quarter to inform Directors of key changes − Shareholder feedback report is obtained independently and anonymously after half and full year roadshows and shared with the Board − All shareholders were invited to submit questions to the Board at the Annual General Meeting − Company performance − Company strategy and long-term vision − Key risks and governance − Alpha’s business model − Market opportunities − Dividend strategy − Impact of macro- environment − ESG − Provided greater clarity over our strategy and market opportunity in the Alternative Banking Solutions space as well as future growth plans for FXRM − − − Launched a new investor relations website with greater breadth and depth of information Increased the number of performance metrics available to investors Increased the level of detail in our trading updates and interim and full year reports 56 57 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Principal Board Decisions Strategy & Business Performance STRATEGIC REPORT PRINCIPAL BOARD DECISIONS In accordance with section 172 of the Companies Act 2006, the Board regularly considers the likely consequences of our strategy and long-term decisions, taking into account the interests of all our stakeholders. The table below highlights some of the key decisions taken throughout the year by the Board, and, along with the stakeholder engagement on page 55, the key considerations and stakeholder groups that were taken into account when making those decisions. Succession Planning & Retention KEY BOARD DECISION KEY CONSIDERATIONS STAKEHOLDERS CONSIDERED Approved the Ensuring the new CFO had the skills, − Shareholders appointment of Chief experience and knowledge to fulfil the Financial Officer, Tim role and enable the Group to deliver on Powell, to the Board. its growth ambitions, whilst also being a − Employees − Customers strong cultural addition to the team. Approved the adoption Ensuring we can continue to attract and − Shareholders of the F, G and H Growth retain employees that are capable of Share Schemes. creating exceptional levels of growth and customer service, whilst also ensuring the benefits of that extra-level of growth far outweighs the impact of dilution − Employees − Customers Risk Management KEY BOARD DECISION KEY CONSIDERATIONS STAKEHOLDERS CONSIDERED Reviewed and approved Considered the level of risk Alpha was − Shareholders the Group’s Risk Appetite. willing to accept based on its strategic objectives of: maintaining capital adequacy, delivering stable earnings growth, ensuring stable and efficient access to funding and liquidity, and maintaining stakeholder confidence. − Employees − Customers − Suppliers KEY BOARD DECISION KEY CONSIDERATIONS STAKEHOLDERS CONSIDERED Approved regulatory Providing accurate, clear and detailed − Shareholders communications, communications to give our stakeholders including all reports and the best possible understanding of how accounts. our business is performing and where we − Customers − Partners & Suppliers are going. Approved the Group’s Evaluating the appropriateness of the − Shareholders three-year strategy as growth targets, and the strategies set out part of an away-day to achieve them over the next 12 months. strategy workshop. Diagnosing key challenges and what will − Customers − Employees be needed to overcome them. Approved the launch of Evaluating the market opportunity, − Shareholders the Australian office. growth strategy, key challenges, and likely return on investment. − Customers − Employees Treatment of client Approved the treatment of client interest − Shareholders interest. as “Other operating income” and to exclude it from underlying non-GAAP measures. Operational & Financial Planning KEY BOARD DECISION KEY CONSIDERATIONS STAKEHOLDERS CONSIDERED Approved the H1 2022 Ensuring we continue to invest in the − Shareholders reforecast and FY 2023 resources and capabilities needed to budget. deliver on our growth plans and provide a market-leading customer experience, whilst also maintaining attractive profit margins. − Customers − Employees Approved dividend policy Providing attractive returns to − Shareholders and payment of interim shareholders, whilst ensuring that and final dividend. dividend payments do not compromise long-term strategic growth investments. Approved the Group’s Ensuring the name positioned the − Customers name change to Alpha company appropriately in its marketplace, Group International plc. in light of its growing product range and future ambitions. 58 59 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Corporate Social Responsibility At Alpha, sustainable business practices aren’t just about doing the right thing. We believe that when embraced in the right way, they can become a long-term driver of superior financial performance and make for a better-quality company and investment. ENVIRONMENTAL Nevertheless, the Group does believe in further STREAMLINED ENERGY AND CARBON minimising its impact where possible. Our London- REPORTING (SECR) The Group is required to report under the Streamlined Energy & Carbon Reporting (SECR) framework. The Group’s operations have inherently low emissions, and we attained our carbon neutral certification in January 2022 by partnering with Natural Capital Partners and offsetting our carbon emissions from January 2021. Our SECR reporting covers the energy consumption and Greenhouse Gas (GHG) emissions for the year ended 31 December 2022 including scope 1, 2 and 3 emissions. The table below shows the energy and GHG emissions from business activities involving the combustion of gas and fuels, the purchase of electricity, and business travel in both kWh and tCO2e. We have selected an intensity metric based on the energy consumption per employee of Alpha Group; this is 263kg CO2e / employee. The key driver for the decrease in the intensity ratio between 2021 and 2022 is due to the increase of headcount within the same office footprint in London. Over this time, the emissions generated from the office space did not materially change. We will use this intensity ratio to monitor our energy efficiency performance over time. The Group’s operations are largely limited to its offices and have an inherently low environmental impact. based HQ was built in 2019 with sustainability at the forefront of its design, with water recycling and a 71% improvement in operational energy consumption over a standard office fit-out. We have a mostly paperless marketing model, and our team endeavour to separate waste and recycle all office supplies where possible. Other steps we have taken include: automating office lights to turn off when not being used, zero use of plastic cups, and the Cycle to Work scheme to encourage environmental travel. We will be targeting a reduction in the average emission generated through the use of business travel per employee. We also carefully consider suppliers and their values before onboarding them. SECR Methodology The figures quoted within this report include electricity invoices and expense reimbursement claims for business travel. Conversion factors used to calculate are taken from the ‘Government conversion factors for company reporting of greenhouse gas emissions’. CARBON NEUTRAL We are proud to be a Carbon Neutral company and have been offsetting all of our carbon emissions since 2021, through our partnership with Natural Capital Partners (“NCP”). STRATEGIC REPORT CORPORATE SOCIAL RESPONSIBILITY Unit 31 December 2022 31 December 2021 kWh 348,709 254,576 TOTAL ENERGY USE COVERING ELECTRICITY, GAS, OTHER FUELS AND TRANSPORT Total emissions generated through combustion of gas Total emissions generated through use of purchased electricity tCO2e tCO2e Total emissions generated through use of other fuels tCO2e Total emissions generated through use of business travel tCO2e Total emissions generated through use of water and waste tCO2e Total gross emissions INTENSITY RATIO (TOTAL GROSS EMISSIONS PER HEADCOUNT) tCO2e kgCO2e PER AVERAGE EMPLOYEE 0 72 0 8 0.7 81 0 52 0 6 0.5 59 263 320 Working with Natural Capital Partners we support We chose this project in recognition of the the Acre Amazonian Rainforest REDD+ project enormous role that The Amazon rainforest plays in Brazil. This project delivers approximately in reducing carbon in the atmosphere, and the 360,000 tonnes of emission reductions each year, staggering amount of biodiversity that stands to be alongside initiatives focused on achieving, zero lost as a result of environmental degradation and hunger, no poverty and protecting endangered deforestation. 90% of Brazil’s Acre state is forested, and vulnerable species. Carbon revenues but the current rate of destruction means that by generated through our partnership with Natural 2030 this could decline to 65% - a trend we hope to Capital Partners are used to finance: play our part in reversing. − Forest protection: using physical boundaries to restrict access to forested areas, and patrols to deter destruction and monitor conservation efforts. − Sustainable development activities: engaging and supporting local communities to address the reasons for deforestation, and restructure local economies towards sustainable land use and forest conservation, ultimately with the intention of improving food security, income, healthcare and education. SOCIAL DIVERSITY & INCLUSION We are committed to ensuring Alpha is a diverse and inclusive place to work. We operate a true meritocracy, recruiting and promoting people based on their attitude, skills, and experience. We do not discriminate between employees or prospective employees on the grounds of age, race, disability, religion, gender, education, or any other criteria. Fundamentally, we believe that the more diverse a business is, the greater its potential performance. 60 61 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 STRATEGIC REPORT CORPORATE SOCIAL RESPONSIBILITY STRATEGIC REPORT CHAIRMAN’S STATEMENT Corporate Social Responsibility Continued Our stance on diversity not only forms expectations quizzes, and several sponsored half marathons. we have for ourselves, but also the recruitment We have also been fortunate to have representatives partners we work with too. To this end, we review of MNDA present to our team to increase awareness every partner to ensure that their policies and and advocacy for the work they do. standards around diversity align with our own. Upon the completion of our diversity and inclusion chosen to raise money for Lymphoma Action this survey in Q2 2023, we are also preparing to launch year, after one of our colleagues received a diagnosis our first D&I working Group. This working group of Hodgkins Lymphoma last year. Alongside our support for MNDA, our team have also is designed to create an environment where the perspectives of people from different backgrounds Lymphoma Action has played a key role in supporting can be understood, to enable people from all our colleague and their family throughout their backgrounds to pursue successful careers at Alpha, recovery journey, and is now a charity that will always and for Alpha to benefit from wider cultural diversity. be close to our hearts. Fundraising events during Our role as an employer is then to provide the the year included a sponsored football match and support and tools to enact the changes that matter. a charity auction, and the team are committed to Progress was also made during 2022 on achieving continue supporting this importance cause in the greater gender balance in senior management future. We also wish our colleague all the best in their positions: % Female Board Group Colleagues As at 31 Dec 2022 As at 31 Dec 2021 17% 32% 17% 33% Senior Management 35% 27% CHARITABLE SUPPORT At the start of 2022 the Alpha team chose the Motor Neurone Disease Association (“MNDA”) as their charity partner for the year. MNDA focuses on improving access to care and research for people living with motor neurone disease, and a number ongoing recovery, and are committed to continuing to support them personally during their treatment period. PERSONAL DEVELOPMENT Personal development is an intrinsic part of Alpha’s high-performance culture and our vision to create “a place where everyone gets better”. Our initiatives have been covered extensively in the statements of our CEO and Group MDs, but are also summarised again below: − Access to world-class performance coaching and workshops with Dr Ceri Evans − Investment in external training and qualifications − Accelerated career progression within a fast- growing business of colleagues had personal connections to this − Surrounding great people with great people organisation. To support the incredible work of this organisation our team hosted a number of internal fundraising events, including: sport screenings, cake sales, − Regular opportunities to move roles and departments through our “cross-fit” initiative 62 63 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 STRATEGIC REPORT OUR BUSINESS MODEL Our Business Model Business can be complicated. We strive to make it less so. OUR RESOURCES PEOPLE PROCESSES TECHNOLOGY PARTNERS CAPABILITIES 350+ people speaking 20+ languages, brought together by a high- performance culture, led by an experienced leadership team with a founder-CEO. Streamlined but robust systems and processes, enabling quick and controlled decision making, with increasingly high levels of automation. Low-legacy, modular technologies, that are always evolving, in order to more effectively and efficiently meet the needs of our team and clients. Working in partnership with leading suppliers and channel partners enhances our business model and enables us to reach a wider audience. Well-capitalised, debt free and profitable, with a high-quality and diverse product offering, and a strong reputation. ▼ OUR STRATEGY Our overarching objective is to grow our business by delivering on our KPIs (see pg 29). This is achieved by delivering on our FX Risk Management Strategy (pg 36), our Alternative Banking Solutions Strategy (pg 42) and our Group Strategy (pg 21). ▼ GUIDED BY OUR BEHAVIOURS Act as One Be Humble Seek Reality Expect More Make Moves ▼ THE VALUE WE CREATE EMPLOYEES CLIENTS SHAREHOLDERS PARTNERS COMMUNITIES Providing outstanding earning and learning potential for everyone who works with us and the opportunity to own a stake in the business through share option incentive schemes. Solutions that make a substantial and enduring difference to our clients. Delivering sustainable long-term returns to our shareholders. As our business continues to grow, so do the opportunities for our business partners who work with us. Fundraising and volunteering for our chosen charities and environmental causes. 100+ Continued growth 700%+ 9 3 Employee Shareholders. in Avg. revenue per client 2021-22. Share price growth IPO 2017-FY2022. Banking counterparties. Charities supported in 2022. ▼ OUR PURPOSE To create an exceptional community full of opportunity that works hard but lives well. COMMUNITY OPPORTUNITY All of the above stakeholders we work with: Employees, Clients, Shareholders, Partners and Communities. The growth and rewards that come from playing a part in our community’s success. 64 65 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022The Board CORPORATE GOVERNANCE BOARD OF DIRECTORS Morgan Tillbrook Chief Executive Officer Tim Powell Chief Financial Officer Tim Butters Chief Risk Officer Clive Kahn Non-Executive Chairman Lisa Gordon Non-Executive Director Vijay Thakrar Non-Executive Director Skills & Experience Skills & Experience Skills & Experience Skills & Experience Skills & Experience Skills & Experience Tim Powell brings over 20 years of experience working in high-quality fast-growing public companies. 17 of these years were at the FTSE 100 listed, London Stock Exchange Group (“LSEG”). He was CFO of the LSEG’s largest subsidiary, London Stock Exchange, and was finance lead for the $27bn acquisition and integration of Refinitiv. Tim is a Chartered Accountant and graduated with an engineering degree from Birmingham University. Tim joined Alpha in 2019 with over 15 years’ experience in risk management, including as Head of Risk at World First, the global payments provider, and Mako Trading, a leading derivatives market maker. Beginning his career at Mitsubishi UFJ Securities, Tim has experience across both financial and non-financial risk and is Certified by the Global Association of Risk Professionals having achieved their FRM designation. Morgan founded Alpha in 2009 and has over 20 years’ experience building and leading fast-growing companies across technology and financial services. Self-funded and debt free up until its IPO in 2017, the company has delivered fourteen years of profitable and organic growth, alongside a consistent track record of strategic investments which have expanded the company from a sole provider of FX Risk Management solutions in the UK, to a global leader of a diverse (and growing) range of financial solutions. Outside of Alpha, Morgan successfully competes in the British GT racing championship. He is also a passionate angel investor to several exciting early- stage companies. Clive has over 35 years of experience in financial services, particularly in FX and payments. He previously served as Chief Financial Officer and Chief Executive Officer of Travelex, the global foreign exchange business, as well as CEO of Cardsave, a credit card acceptance and payments solutions business. In addition to his role as Non-Executive Chairman of Alpha, Clive is CEO of takepayments LTD, a payment solutions business. Clive is also a Chartered Accountant. Lisa has over 25 years’ Board experience in Executive and Non-Executive roles at both listed and private companies. She began her career as an equities investment analyst and subsequently spent many years in strategy and business development roles in the media and technology sectors. Lisa currently holds a number of Non- Executive positions which include Chairman, Cenkos Securities Plc; Senior Independent Director, M&C Saatchi Plc; Non-Executive Director, JP Morgan Mid Cap Investments Trust Plc and Non- Executive Director, Magic Light Pictures. Vijay is a Chartered Accountant with extensive strategic, commercial and governance experience with fast growth listed companies, and was previously a Partner at EY and Deloitte, chairing Deloitte’s mid cap listed companies’ practice. He has served on various Boards as a Non-Executive, including The Quoted Companies Alliance and Quorn Foods. Vijay is currently Chairman of The Alumasc Group plc, Treatt plc, and at RSM Group (Remuneration Committee Chair). Maintaining Skill Set Maintaining Skill Set Maintaining Skill Set Maintaining Skill Set Maintaining Skill Set Maintaining Skill Set As CEO of a regulated and high-growth FX solutions business, Morgan’s experience is kept up to date by nature of his day-to-day role. He also attends a variety of meetings and events to support his personal development and is an avid reader of self-development literature. As CFO of Alpha, Tim keeps his skills and experience up to date by nature of his day-to-day role. Furthermore, as a Chartered Accountant he undertakes Continuous Professional Development (CPD) training, alongside a variety of technical courses and subscriptions to professional publications. Tim’s experience is kept up to date by the nature of his day-to-day role. He is a member of the Global Association of Risk Professionals and undertakes regular CPD training. Nomination Committee Member None None As Chief Executive Officer of a regulated and high-growth payments business, Clive’s skills and experience are kept up to date by nature of his current role. He also attends a variety of skill-focused conferences. Lisa’s skills and experience are kept up to date by nature of her current roles. She also attends numerous NED CPD training events and professional seminars. Vijay stays up to date by virtue of his roles and CPD that he continues to undertake, including attendance on various update webinars and training events. Audit Committee Member Nomination Committee Chair Remuneration Committee Member Audit Committee Member Nomination Committee Member Remuneration Committee Chair Audit Committee Chair Nomination Committee Member Remuneration Committee Member Appointed: 2009 Appointed: 2022 Appointed: 2021 Appointed: 2016 Appointed: 2017 Appointed: 2021 66 67 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Corporate Governance Statement “The Board recognises the value and importance of high standards of corporate governance and ensuring that all of its practices are conducted transparently, ethically and effectively.” This section sets out our approach to governance and provides further information on how the Board and its committees operate. In compliance with the AIM rules for Companies, the Group has chosen to formalise its governance policies by complying with the QCA Corporate Governance Code for Small and Mid-Sized Quoted Companies (the “QCA Code”). Clive Kahn Non-Executive Chairman CORPORATE GOVERNANCE REPORT QCA CODE PRINCIPLE RELEVANT SECTION(S) OF THE ANNUAL REPORT 1. Establish a strategy and business model which Business Model pg 65 promote long-term value for shareholders. Strategies pgs 21, 36, 42 2. Seek to understand and meet shareholder needs Engaging with Stakeholders (s172) pg 57 and expectations. Corporate Governance Statement pg 74 3. Take into account wider stakeholder and social Engaging with Stakeholders (s172) pg 55 responsibilities and their implications for long-term Corporate Social Responsibility pg 60 success. 4. Embed effective risk management, considering Principal Risks pg 44 both opportunities and threats throughout the organisation. Corporate Governance Statement ► Internal Controls & Risk Management pg 74 5. Maintain the Board as a well-functioning, balanced Board of Directors pg 66 team led by the Chair. Corporate Governance Statement ► Board Composition pg 71 6. Ensure that, between them, the Directors have Board of Directors pg 66 the necessary up-to-date experience, skills and Corporate Governance Statement ► Board capabilities. Effectiveness pg 72 7. Evaluate Board performance based on clear Corporate Governance Statement ► Board and relevant objectives, seeking continuous Effectiveness pg 72 improvement. Remuneration Committee Report ► Remuneration Policy pg 80 8. Promote a corporate culture that is based on ethical Corporate Governance Statement ► Business values and behaviours. Culture, Behaviour & Ethics pg 73 Business Model pg 65 9. Maintain governance structures and processes Corporate Governance Statement pg 69 that are fit for purpose and support good decision- Remuneration Committee Report pg 80 making by the Board. Audit Committee Report pg 76 10. Communicate how the Company is governed Corporate Governance Statement pg 72 and is performing by maintaining a dialogue with shareholders and other relevant stakeholders. Engaging with Stakeholders (s172) pg 55 Further information is also published on our website: alphagroup.com/investors/corporate-governance 68 69 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Corporate Governance The Board The Board is responsible for the proper management of the Group by formulating, reviewing, approving and BOARD COMPOSITION HOW THE BOARD OPERATES monitoring the Group’s strategy, budgets, corporate actions and risk appetite. CORPORATE GOVERNANCE REPORT AUDIT COMMITTEE NOMINATION COMMITTEE REMUNERATION COMMITTEE The Audit Committee determines and examines any matters relating to the financial affairs of the Group, including the terms of engagement of the Group’s auditors and, in consultation with the auditors, the scope of the audit. In addition, it considers the financial performance, position and prospects of the Group and ensures they are properly monitored and reported on, alongside reviewing regulatory announcements. The Audit Committee meets not less than three times in each financial year and has unrestricted access to the Group’s auditors. The Audit Committee is chaired by Vijay Thakrar and its other members are Lisa Gordon and Clive Kahn, both of whom are independent Non- Executive Directors and have recent and relevant financial experience. The Nomination Committee reviews and recommends nominees as new Directors to the Board. The Nomination Committee meets as the Chairman of the committee requires. The Remuneration Committee reviews the performance of the Executive Directors and sets their remuneration, determines the payment of bonuses to the Executive Directors and considers the Group’s long-term incentive arrangements for employees. In exercising this role, members of this committee have regard to the recommendations put forward in the QCA Corporate Governance Code and to industry benchmarks. The Nomination Committee is chaired by Clive Kahn; its other members are Lisa Gordon, Vijay Thakrar and Morgan Tillbrook. The Remuneration Committee is chaired by Lisa Gordon and its other members are Clive Kahn and Vijay Thakrar, both of whom are independent, Non-Executive Directors. KEY AREAS OF ACTIVITY KEY AREAS OF ACTIVITY KEY AREAS OF ACTIVITY − Financial reporting and market updates − Internal control and risk management reviews − External audit − Review of the Risk Register − Engage with Chief Risk Officer and Risk Committee − Review of complaints register − Review strategy and performance with Executive Directors & Senior Management − Assesses the adequacy of the knowledge pool of Non- Executive Directors − Assesses the adequacy of representativeness of Non- Executive Directors − Approve the appointment of any new Non-Executive Directors − Succession planning for Executive Directors and Senior Management − Oversight of Executive Remuneration policy − Review of Director’s remuneration against benchmark data − Setting and appraisal of performance targets − Reviewing equity incentive schemes The Board is responsible to shareholders for the The Board maintains a flexible, efficient and effective successful stewardship of the Group and sets the management framework within an entrepreneurial strategy for its long-term success. It is important that environment, aiming to deliver long-term growth for the Board contains the right mix of skills, experience shareholders. Matters reserved for the attention of and knowledge in order to deliver the strategy of the Board which are reviewed annually include the the Group. As such, the Board comprises three Group’s: Executive Directors and, including the Chairman, three independent Non-Executive Directors. The − Objectives and strategy Board considers all three Non-Executive Directors − Structure and capital to be fully independent within the meaning of the UK Corporate Governance Code. Tim Powell (Chief Financial Officer) joined the Board as a new Executive Director on 5 December 2022. The Chairman and Chief Executive have distinct roles. The Chairman’s primary responsibility is the − Financial reporting, controls and dividend policy − Regulatory reporting and controls − Risk management, internal controls and governance − Significant contracts or investments − Shareholder communications delivery of the Group’s corporate governance and the − Board membership, succession planning and effective operation of the Board of Directors, whilst other appointments the Chief Executive is responsible for the operation − Remuneration of Senior Management of the Group in order to deliver on its strategic objectives. The Chairman has a clear separation from the day-to-day business of the Group which allows − Delegation of authority him to make independent decisions. BOARD COMMITTEES The Board has established an Audit Committee, Remuneration Committee and Nominations Committee, each with formally delegated duties and responsibilities and with written terms of reference. Each Committee comprises Non-Executive Directors of the Group. No new independent external advice was sought by the Board or its Committees during the period. Full details on each committee can be seen on page 70. The Board believes that the size and composition of the Board is appropriate given the size and stage of development of the Group and, as per the individual biographies, that the Directors bring a desirable range of skills, experience, personal qualities and capabilities in light of the Group’s challenges and opportunities, whilst at the same time ensuring that no individual(s) can dominate the Board’s decision making. All Board Directors are subject to election at their first Annual General Meeting and to re-election annually thereafter. Given the Group intention to move to the Main Market, we will look to add another Non-Executive Director to the Board in 2023. 70 71 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Corporate Governance Continued BOARD MEETINGS FY2022 Board Remuneration Committee Nomination Committee Audit Committee SCHEDULED MEETINGS Clive Kahn Lisa Gordon Vijay Thakrar Morgan Tillbrook Tim Kidd1 Tim Powell2 Tim Butters 6 6 6 6 6 6 1 6 2 2 2 2 2 2 0 0 1 1 1 1 1 1 0 0 3 3 3 3 3 3 1 3 1 Tim Kidd resigned from the PLC board on 5 December 2022 2 Tim Powell joined the Board on 5 December 2022 BOARD MEETINGS BOARD EFFECTIVENESS The Board held 12 scheduled Board meetings during An assessment of the Board’s effectiveness was the year. Non-Executive Directors also communicate undertaken by the Board in October 2021, led by the directly with Executive Directors and Senior Management between formal Board meetings. Group’s Chairman. Key areas of focus included: The Chairman and the CFO plan the agenda for each Board meeting in consultation with all other Directors. The agenda is issued with supporting papers ahead of the Board meetings, along with − The effectiveness of the Board in setting strategy − Appropriateness of KPIs and management information − Risk management appropriate information required to enable the Board − Shareholder engagement to discharge its duties. Directors are expected to attend all Board meetings − Corporate governance − Effectiveness of the committees and the Committee meetings for which they − Appropriateness of the Board’s composition and are members. The table below shows Director’s skills in order to discharge its duties attendance at scheduled Board and Committee meetings during the year. The review highlighted the Board’s strengths across these areas and recommended some minor actions that could be taken in 2022 to enhance its effectiveness. In addition, the Board intends to instruct an independent company to conduct a Board effectiveness review in 2023. CORPORATE GOVERNANCE REPORT The skills and experience of the Board are outlined in Anonymous employee engagement surveys are their biographical details on page 66. Their experience conducted annually and the company’s “Speak and characteristics give them the ability to deliver and Up Culture” also ensures that all employees are challenge the Group’s strategy for the benefit of all its empowered to feedback on culture and behaviours, stakeholders. The Board keeps succession planning regardless of tenure or seniority. under review and monitors the progress and success of the development plans which have been established Integrity is everything at Alpha and underpinned by for relevant employees, with a particular focus on our principle of not only “Knowing what’s right” but ensuring over time all senior management positions most importantly “Doing what’s right”. The Directors have at least one internal successor. The Nomination believe that the main determinant of whether a Committee also monitors the length of tenure of the business behaves ethically and does the right thing is Chairman and Non-Executive Directors and the mix and the quality of its people. skills of the Directors. BUSINESS CULTURE, BEHAVIOURS AND ETHICS The Directors have responsibility for ensuring that individuals employed by the Group demonstrate the highest levels of integrity and undertakes reviews of The Group has a clearly defined vision and purpose its employees regularly. In addition, the Group has along with key behaviours and principles. ‘Cultural a formal Bribery and Anti-Corruption Policy and a Density’ is a core strategic pillar for the business, Share Dealing Code. and as the company continues to scale, we believe retaining our culture and high ethical standards will be key to maintaining our high performance and TIME COMMITMENTS delivering on our objectives, strategy and business The Directors recognise the need to commit the model. necessary amount of time to fulfil their roles, as outlined in their letters of appointment. The Board is satisfied that the Chairman and Non-Executive Directors are able to commit the sufficient time to the Group’s business. There has been no significant change in the Chairman’s time commitments since his appointment. DEVELOPMENT The Company Secretary ensures that all Directors are kept up to date on any relevant changes in legislation and regulations, with the assistance of the Group’s advisers where appropriate. Executive Directors are subject to the Group’s performance development review process, through which their performance against predetermined objectives and their personal and professional developments needs are considered. 72 73 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 CORPORATE GOVERNANCE REPORT Corporate Governance Continued INTERNAL CONTROLS & RISK MANAGEMENT Anonymous feedback from institutional investors The Board has ultimate responsibility for the Group’s control and risk management environment, all of which are designed to manage and mitigate risks that may undermine its strategic objectives. Such systems can only provide a reasonable but not absolute level of assurance against material loss or misstatement. The Audit Committee monitors and reviews the Group’s internal control procedures and reports its conclusions and recommendations to the Board. As further described on page 78 of the Audit Committee report, the Group has an established framework of risk management and internal control systems, policies and procedures in place, including an internal audit function. is obtained and shared with the Board following its interim and final results roadshows, and a quarterly breakdown of the share register are provided to the Board for consideration. During the year, shareholders requested that greater breadth and depth of information would be beneficial in respect of Alpha’s Alternative Banking Solutions division. Greater levels of disclosure have subsequently been provided in the Group’s recent trading updates and this annual report. ANNUAL GENERAL MEETING (“AGM”) The Group’s AGM will take place at 9:00am on 17 May 2023. The Notice of AGM and explanatory notes on all resolutions are provided alongside all copies of the annual report mailed to shareholders. Digital copies RELATIONS WITH STAKEHOLDERS are also available via the Group’s website. The Group is committed to ensuring it engages with all of its stakeholders to ensure their needs and considerations are taken into account in its decision making. Further details can be found on page 55. SHAREHOLDER COMMUNICATIONS The Group maintains communication with both current and potential institutional shareholders through one-to-one meetings with the Chief Executive Officer and Chief Financial Officer, particularly following the publication of its interim and full year results, as well as ad-hoc meetings and conference calls. Private shareholders are encouraged to attend the Annual General Meeting at which the Group’s activities are considered and questions answered. The Group’s website has a dedicated investor relations page which contains the latest information, including its most recent results. New and potential investors will soon also have the opportunity to submit questions at any time throughout the year via the investor relations website, and all responses will be published for everyone to see. 74 75 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022CORPORATE GOVERNANCE AUDIT COMMITTEE REPORT Audit Committee Report Vijay Thakrar Non-Executive Director On behalf of the Board, I am pleased to present the Audit Committee report for the year ended 31 December 2022. The Audit Committee is responsible for ensuring that the financial performance of the Group is properly reported and reviewed. Its role includes: monitoring the integrity of the financial statements (including annual and interim accounts and results announcements), monitoring the work of the internal audit function, reviewing internal control and risk management systems, reviewing any changes to accounting policies, reviewing and monitoring the extent of the non-audit services undertaken by external auditors, and advising on the appointment of external auditors. The Audit Committee met at three scheduled meetings during the year and also held meetings, independent of management, with BDO LLP, the Company’s external auditors. Vijay Thakrar Non-Executive Director, Audit Committee Chair DUTIES REVENUE RECOGNITION The Committee discussed the treatment of ROLE OF THE EXTERNAL AUDITOR The main items of business considered by the Audit Given the different nature of the Company’s income Committee during the year included: streams from FX Risk Management and Alternative − Review of the 2022 external audit plan and audit revenue recognition treatment adopted for the Banking Solutions, the Committee discussed the engagement letter − Review of the 2022 internal audit plan and outputs from its work − Consideration of key audit matters and how they are addressed − Review of the effectiveness of the external audit process − Monitoring the integrity of the financial statements and Annual Report, and of any trading updates provided externally − Going concern review different streams with management and with the auditors, who have confirmed that the Company’s treatments accord with relevant accounting standards. CREDIT RISK In light of the changes within the macro-economic environment in 2022, the Committee discussed the likelihood of customer defaults and their impact on the Group’s financial performance. The Committee discussed with management the processes for mitigating credit risk and management confirmed that − Consideration of regulatory developments and adequate safeguards are in place to reduce the risk of their impact customer defaults from arising. As a result of considering the above matters, the COMMISSIONS Committee focused on the following matters considered to potentially have a material impact on its financial results. Commissions are paid to key employees based on a percentage of revenues. Starting from 1 March 2022, a new procedure was set up such that the commissions are adjusted based on the risk profile of the product. commissions with management who consider the nature to be in line with industry standards. The auditors have also reviewed the same and concluded that the accounting treatment of commissions is appropriate. FAIR VALUE OF OPEN TRADES Accounts receivable include unrealised profits on open trades as at the year end. The Committee discussed with management the accounting treatment applied to determine the fair value of open positions, who confirmed that the methodology is consistent with previous years, and the auditors have also reviewed the same and concluded that it is appropriate. CREDIT VALUATION ADJUSTMENT (CVA) The Committee has discussed with management the CVA methodology adopted. Management have confirmed that the CVA methodology is broadly consistent with previous years, with the addition of some developments. The auditors have also reviewed the Company’s CVA and concluded that it is appropriate. The external auditor, BDO LLP, was initially appointed in the financial year to 31 December 2016, following a formal tender process, and was reappointed at the Company’s 2020 AGM. As a result of the five-year rotation policy to enhance auditor independence, the incumbent audit partner was appointed for the 2021 audit. No changes were made for the 2022 audit to ensure continuity of service. The Audit Committee monitors the relationship to ensure that auditor independence and objectivity are maintained. The Committee is satisfied with BDO’s independence but will keep under review the need for an external tender. The breakdown of fees between audit and non-audit services is provided in Note 5 of the Group’s financial statements. The Committee monitors the non-audit fees. Having reviewed the auditor’s independence and performance, the Audit Committee recommends that BDO LLP be reappointed as the Group’s auditor at the next AGM. 76 77 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 CORPORATE GOVERNANCE AUDIT COMMITTEE REPORT Audit Committee Report Continued AUDIT PROCESS The auditor prepares a plan for the audit of the full period financial statements. The audit plan sets out the scope of the audit, areas to be targeted, and audit timetable. This plan is reviewed and agreed in advance by the Audit Committee. Following the audit, the auditor presents its findings to the Audit Committee for discussion, including management letter points detailing areas for improvement. The Audit Committee monitors management’s actions in respect of such recommendations. INTERNAL AUDIT In the year ended 31 December 2022 the Group created an internal audit function, due to the increasing complexity of the business and geographical spread. The Committee sanctioned the appointment of an experienced internal auditor with relevant industry experience to lead the function, who commenced employment in February 2022. The Committee has approved the Internal Audit Charter, effectively. In particular, the Committee ensures that the Company’s Chief Risk Officer, who chairs the Company’s Risk Committee, which meets monthly to consider the principal risks facing the Company, presents a regular update of the Risk Committee’s work to the Board. WHISTLEBLOWING The Group has a whistleblowing policy which enables employees of the Group to confidentially report matters of concern. OUR PRIORITIES FOR THE YEAR AHEAD During 2023, the Committee will focus on: − Assessing the workstream, effectiveness and composition of the new internal audit function. − Continuing to assess any ongoing changes to the regulatory environment, business practices and risk profile of the Group. Internal Audit Policy, and established a direct and − Considering the reporting of the Group’s open line of communication between the Audit Chair performance to ensure it continues to align with and the Head of Audit. The Committee also approved the way the business is run. and oversaw an Internal Audit plan for 2022. This plan was executed independently from the Alpha management team, with any findings arising from audit activity reported to the Audit Committee. − Continuing to monitor with the Board, as a whole, the risks facing the Company and ensuring that appropriate resources and experience are provided to help mitigate these. Vijay Thakar Non-Executive Director Audit Committee Chair RISK MANAGEMENT AND INTERNAL CONTROLS As described on page 74 of the corporate governance report, the Group has established a framework of risk management and internal control systems, policies and procedures. The Board as a whole is responsible for reviewing the risk management and internal control framework and ensuring that it operates effectively. During the year, on behalf of the Board, the Committee has reviewed the framework, and the Committee is satisfied that the internal control systems in place are currently operating 78 79 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Remuneration Committee Report Lisa Gordon Non-Executive Director I am pleased to present the 2022 remuneration report, which sets out the remuneration policy and the remuneration paid to the Directors for the year. Alpha Group International plc is listed on the Alternative Investment Market (AIM) and, as such, in the interests of transparency, the following disclosures are prepared on a voluntary basis for the Group. MEMBERS OF THE REMUNERATION COMMITTEE EXECUTIVE DIRECTORS’ SERVICE CONTRACTS Details of the Remuneration Committee are provided in the Corporate Governance Statement. Executive Director Required written notice by both the Company and individuals REMUNERATION POLICY Morgan Tillbrook 12 months The Group’s policy is that the Executive Directors’ remuneration package should be sufficiently competitive to attract, retain and motivate those Directors to achieve the Group’s objectives without making excessive payments. Remuneration is reviewed each year in light of the Group’s business objectives. The Remuneration Committee’s intention is that remuneration should reward achievement of objectives and that these align with shareholder’s Tim Powell 6 months Tim Butters 6 months NON-EXECUTIVE DIRECTORS SERVICE CONTRACTS interests over the medium-term. Remuneration The Non-Executive Directors do not have service consists of a basic salary, performance-related contracts but are appointed under letters of bonus, long-term incentive plan and pension appointment. Appointment letters are intended to contributions. be for a two-year term. No compensation is payable in the event of a Non-Executive not being re-elected. Performance-related bonuses are based on The Board determines the terms and conditions of achievement of the Group’s budget for both revenue the Non-Executive Directors. and profit, both of which are key KPIs for the Group. The Committee ensures that the balance between fixed and variable remuneration helps to ensure DIRECTORS’ REMUNERATION objectives are aligned. The Committee believes that The table on the following page summarises the total the dual focus on revenue and profit performance is gross remuneration of the Directors who served in integral to ensuring delivery of shareholder value. the year ended 31 December 2022. 80 CORPORATE GOVERNANCE REMUNERATION COMMITTEE REPORT Lisa Gordon Non-Executive Director, Remuneration Committee Chair BASE SALARY INCREASE believes that the best outcome for all stakeholders The only changes made to Director’s Remuneration in 2022 was to increase the salary of the CFO, Tim Kidd, from £225,000 to £250,000 and the CRO, Tim Butters, from £160,000 to £200,000. The Committee carried out a review where Directors’ Remuneration was benchmarked against businesses in a similar sector and/or delivering similar growth and returns for shareholders. In light of this review, it was concluded that the salaries of Tim Butters and Tim Kidd were not aligned to these benchmarks. The Committee was to increase base salary to a level where it is aligned to the wider market. The Committee will continue to undertake an annual benchmark review. Tim Powell was appointed to the Board on 5 December 2022. His salary for the year ended 31 December 2022 was £225,000. This has been apportioned in the following table from the date of his appointment. YEAR ENDED 31 DECEMBER 2022 Basic salary /fee Bonus* Pension Share-based payment EXECUTIVE £ £ Morgan Tillbrook 500,000 500,000 Tim Kidd (resigned 5 December 2022) Tim Butters Tim Powell (appointed 5 December 2022) NON-EXECUTIVE Clive Kahn Lisa Gordon Vijay Thakrar 232,192 174,144 200,000 16,331 52,500 52,500 52,500 – – – – – £ 3,557 – 3,750 – – – – £ – – Other £ Total £ 5,130 1,008,687 1,318 407,654 23,894 15,928 819 – 228,463 32,259 – – – – – – 52,500 52,500 52,500 81 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Remuneration Committee Report Continued YEAR ENDED 31 DECEMBER 2021 DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS CORPORATE GOVERNANCE REMUNERATION COMMITTEE REPORT Basic salary /fee Bonus* Pension Share-based payment EXECUTIVE £ £ Morgan Tillbrook 500,000 187,500 Tim Kidd 225,000 84,375 Tim Butters (appointed 7 October 2021) NON-EXECUTIVE Clive Kahn Lisa Gordon Vijay Thakrar (appointed 19 May 2021) 37,699 7,068 45,000 45,000 27,808 – – – £ 2,813 – 663 – – – £ – – Other £ 3,871 3,288 Total £ 694,184 312,663 2,168 177 47,775 – – – – 45,000 1,258 – 46,258 27,808 *The bonus arrangement for Morgan Tillbrook and Tim Kidd for the year ended 31 December 2022 was a maximum bonus of 200% of basic salary for Morgan Tillbrook and 150% for Tim Kidd, based on the Group’s achievement against key performance indicators (year ended 31 December 2021: bonus awarded was 50% of basic salary). For the Executives, the Annual Bonus Plan is based The highest paid Director was paid £1,008,687 during on the Groups achievement against key performance the year (2021: £694,184). The average earnings within indicators. The calculation is aligned to revenue and the Group for the year ending 31 December 2022 profit growth, with a maximum bonus requiring the excluding Directors was £72,707 (2021: £78,259). Group to achieve a minimum outperformance of 25% above its internal budget. The Executive remuneration policy for the year ended December 2023 is set out in the table below: EXECUTIVE Morgan Tillbrook Tim Powell Tim Butters Base salary £ Maximum bonus % 500,000 225,000 250,000 200% 125% Nil Pension £ 3,750 3,750 3,750 The following table summarises the shareholding and share interests of the Directors at 31 December 2022. AS AT 31 DECEMBER 2022 BENEFICIALLY OWNED EXECUTIVE Morgan Tillbrook Tim Butters Tim Powell NON-EXECUTIVE Clive Kahn Lisa Gordon Vijay Thakrar 6,823,644 22,998 – 355,000 25,665 2,400 Tim Butters is a participant in the E and F Growth A resolution to accept the Remuneration Committee Share Schemes. Full details of the scheme are Report will be put to shareholders at the Annual provided in Note 24 of the Consolidated Financial General Meeting, and the Committee will conduct a Statements. Following the revenue growth target full annual review of the policy. of 25% being met for the year ended 31 December 2021, he was awarded 23,010 shares in March 2022. Following the revenue growth target of 20% being met for the year ended 31 December 2022, it is estimated that upon exercise of the put options, he Lisa Gordon will receive 22,641 shares in March 2023. Non -Executive Director Remuneration Committee Chair At 31 December 2022 Tim Powell had no beneficial interest in the shares of the Company. He is a participant in the F Growth Share Scheme which was established prior to his appointment as a Director. Full details of the scheme are provided in Note 24 of the Consolidated Financial Statements. 82 83 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Directors’ Report The Directors present their Annual Report and the audited financial statements for the year ended 31 December 2022. The corporate governance statement on page 68 also forms part of this Director’s Report. BUSINESS REVIEW An analysis of the Group’s development (including likely future developments) and performance is contained in the Chairman’s Statement, CEO’s Statement and Our Strategy. Information on the financial risk management strategy of the Group and its exposure to its principal risks & uncertainties section of the report on page 44. PRINCIPAL ACTIVITY Alpha Group International plc (the “Company”) is a public limited company incorporated and domiciled in England and Wales. The registered office of the Company is Brunel Building, 2 Canalside Walk, London W2 1DG. The registered company number is 07262416. The Company presents a list of its subsidiaries in note 14. The Company’s principal activity is the development of financial strategies and technologies for global corporates and institutions covering: FX risk management, mass payments and account openings. RESULTS AND DIVIDEND Non-Executive Clive Kahn Lisa Gordon Vijay Thakrar Biographical details, along with committee responsibilities, are provided on page 66. DIRECTORS’ INTERESTS The Directors’ interests in the Group’s shares and options over ordinary shares are shown in the remuneration report on page 83. CHARITABLE DONATIONS The Group put on a number of charitable events throughout the year with employees, which resulted in c. £4,500 of employee donations to the company’s fundraising account, alongside a Group donation of £1,972. Most funds however are raised directly via employees’ individual fundraising pages. POLITICAL DONATIONS The Group has not made any political donations in the past, nor does it intend to make them in the future. The Group shows its results for the year in the statement of comprehensive income on page 98. ENVIRONMENT Details of the proposed final dividend for the year The Group believes in minimising its impact to the are included on page 120. DIRECTORS The Directors of the Company during the year were: Executive Morgan Tillbrook Tim Kidd (resigned 5 December 2022) Tim Butters Tim Powell (appointed 5 December 2022) 84 environment where possible and is a certified carbon neutral company. More details on the measures it has taken are set out on page 60. EQUAL OPPORTUNITIES We are committed to ensuring our workplace is equal, diverse and inclusive. We operate a true meritocracy, recruiting and promoting staff based on their attitude, CORPORATE GOVERNANCE DIRECTORS REPORT skills and experience. We do not discriminate FINANCIAL INSTRUMENTS between employees or prospective employees on the grounds of age, race, disability, religion, gender, education, or any other criteria. We are also committed to ensuring all employees feel respected and are able to perform to the best of their ability. The financial risk management objectives and policies of the Group, including credit risk, market risk, liquidity risk, interest rate risk and currency risk, are provided in note 17 to the Consolidated Financial Statements. EVENTS AFTER THE REPORTING PERIOD SHARE CAPITAL STRUCTURE On 17 February 2023, the Group entered into an interest rate swap for a notional amount of up to $400m to fix the rate of interest receivable on US Dollar cash balances held in respect of the Group’s client cash balances. With the interest rate swap, the Group receives a fixed rate of interest and pays a Details of changes in the Group’s share capital are disclosed in note 20 of the Consolidated Financial Statements. SHARE OPTIONS SCHEMES floating interest rate based on SOFR, the difference Details of employee share schemes are set out in between the rates results in the Group receiving a note 24 to the Consolidated Financial Statements. fixed rate of interest. The contract commences in August 2023 and expires in August 2025 with a net interest rate receivable of 4.14%. Hedge accounting is applied in accordance with IFRS 9. PURCHASE OF OWN SHARES There was no purchase of own shares in the period. Following the vesting of the B Growth Share Scheme GOING CONCERN for the year ended 31 December 2021, the Company will be issuing 549,137 shares in March 2023 and 88,015 shares in March 2025 to an ex-employee as part of a settlement agreement. Following the vesting of the C Growth Share Scheme for the year ended 31 December 2022, the Company will be issuing 171,810 shares in March 2023. Following the vesting of the E Growth Share Scheme for the year ended 31 December 2022, the Company will be issuing 161,064 shares in March 2023. Following the second year of vesting of the Alpha FX Institutional Limited share scheme for the year ended 31 December 2022, the Company will be issuing 123,768 shares in March 2023. Following the first year of vesting of the Alpha Foreign Exchange (Canada) Limited share scheme for the year ended 31 December 2022, the Company will be issuing 8,395 shares in March 2023. As described in note 2 of the financial statements, the Group has carried out a Going Concern assessment. The Directors believe the Group is in a strong financial position due to its profitable operations and strong cash generation, and therefore that the Group has adequate resources to continue its operations for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. RESEARCH & DEVELOPMENT The Company has a continuous programme of development expenditure as part of its focus on evolving its service offering through technological innovation. Capitalised internal development expenditure is disclosed in note 11 of the accounts. All other development expenditure is recognised in the Statement of Comprehensive income. BRANCHES The Group has three branches outside of the United Following the first year of the vesting for the D Share Kingdom located in The Netherlands, Italy and scheme for the year ended 31 December 2022, the Australia. Company will be issuing 111,085 shares in March 2023. 85 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022CORPORATE GOVERNANCE DIRECTORS REPORT the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. By order of the board Simon Kang Company Secretary 21 March 2023 Directors Report Continued FUTURE DEVELOPMENTS Company law requires the Directors to prepare financial WEBSITE PUBLICATION The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of The board intends to continue to pursue the business strategy as outlined in the strategic report on page 21. STAKEHOLDER INVOLVEMENT POLICIES The Directors believe that the involvement of employees, clients and suppliers is an integral part of the Group’s culture and plays a key part in its decision making and growth to date. For more information, view pages 55-59. AUDITOR AND DISCLOSURE OF INFORMATION TO AUDITOR statements for each financial year. Under that law the Directors have elected to prepare the Consolidated Financial Statements in accordance with UK adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006. 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 and profit or loss of the Group and the Company for the period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors BDO LLP were appointed as auditors on 7 December are required to: 2016 and are continuing in office. In accordance with s489(4) of the Companies Act 2006 a resolution − select suitable accounting policies and then apply for their reappointment will be proposed at the them consistently; forthcoming Annual General Meeting. As far as the Directors are aware, there is no relevant audit information of which the Company’s auditor is unaware, and each Director has taken all reasonable steps that he or she ought to have taken to make himself or herself aware of any relevant audit information and to establish that the Group’s − make judgements and accounting estimates that are reasonable and prudent; − state whether they have been prepared in accordance with UK adopted international accounting standards subject to any material departures disclosed and explained in the financial statements; and auditors are aware of this information. − prepare the financial statements on the going ANNUAL GENERAL MEETING The Annual General Meeting will be held at 9.00am on 17 May 2023 at the offices of Bird & Bird LLP, 12 New Fetter Lane, London EC4A 1JP. The Notice of Annual General Meeting and the ordinary and special resolutions to be put to the meeting are mailed with hard copies of this report, or are available to view on our website. STATEMENT OF DIRECTORS RESPONSIBILITIES The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. concern basis unless it is appropriate to presume that the Company will continue in business. 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 company’s financial position and enable them to ensure that the financial statements comply with the requirements of 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. 86 87 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Independent auditor’s report To the members of Alpha Group International Plc Opinion on the financial statements In our opinion: − the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2022 and of the Group’s profit for the year then ended; − the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards; − the Parent Company financial statements have been properly prepared in accordance with Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). 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 United Kingdom Generally Accepted Accounting responsibilities for the audit of the financial Practice; and − the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of Alpha Group International Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2022 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity, statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remain 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 FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. CORPORATE GOVERNANCE INDEPENDENT AUDITOR’S REPORT − We considered the risks identified and independent sources. We also performed judgements made by the Directors as most retrospective testing to compare prior year’s likely to adversely affect the Group’s and forecasts to current year actual results to Parent Company’s available financial resources evaluate the reliability and reasonableness of and challenged the Directors on their historic forecasts. appropriateness based on our understanding of the business, results of our audit work and the relevant macro economic factors. − The risks and judgement the Directors considered as most likely to impact the business and where we challenged were: − A major client default or loss of a major client: In doing so we considered the reduced client concentration risk in the forward and options business based on revenue. − Free cash position: We reviewed the Directors cash flow forecast for a period of at least 12 months from the date of signing these financial statements. We reviewed the Directors downside scenario considering the impact of rising interest rates, inflation and contraction in the UK economy on the operations and Group’s internal forecast including related assumptions. − Impact of climate risks on long-term strategy, financial projections, and viability of the business. − Reasonableness of bad debt provisions and valuation adjustments including credit value adjustments (CVA). − We also considered the adequacy of the Group’s capital regulatory requirements. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. − Reliability of the forecasts prepared by the Directors were compared to relevant published data and to data obtained from reputable Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. COVERAGE 96% (2021: 97%) of Group profit before tax 100% (2021: 99%) of Group revenue 100% (2021: 100%) of Group total assets the Company Statement of Financial Position, the CONCLUSIONS RELATING TO GOING CONCERN KEY AUDIT MATTERS 2022 2021 Company Statement of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included: Existence and accuracy of revenue Appropriateness of Credit Value Adjustments (CVA) Fair value of growth shares MATERIALITY Group financial statements as a whole £1.9 million (2021: £1.7 million) based on 5% of profit before tax less other operating income (2021: 5% of profit before tax). 88 89 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Independent auditor’s report Independent auditor’s report Continued Continued AN OVERVIEW OF THE SCOPE OF OUR AUDIT Our involvement with component auditors KEY AUDIT MATTER HOW THE SCOPE OF OUR AUDIT ADDRESSED THE KEY AUDIT MATTER CORPORATE GOVERNANCE INDEPENDENT AUDITOR’S REPORT Our Group audit was scoped by obtaining an For the work performed by component auditors, understanding of the Group and its environment, we determined the level of involvement needed including the Group’s system of internal control, and in order to be able to conclude whether sufficient assessing the risks of material misstatement in the appropriate audit evidence has been obtained financial statements. We also addressed the risk of as a basis for our opinion on the Group financial management override of internal controls, including statements as a whole. Our involvement with assessing whether there was evidence of bias by component auditors included the following: the Directors that may have represented a risk of material misstatement. The Group comprises the Parent Company and 14 subsidiaries (2021: 10). Alpha Group International Plc, − Instructions were issued to the component auditors detailing the scope, the risk assessment, timing of their work and the allocated component materiality thresholds; Alpha FX Limited. Alpha FX Institutional Limited and − We conducted numerous virtual meetings Alpha FX Europe Limited have been determined to be significant components. With the exception of Alpha FX Europe Limited, the audits of all significant components were performed by the Group engagement team. The audit of Alpha FX Europe Limited was performed by our network firm in Malta with the Group engagement team performing additional specific audit procedures on material through the planning, execution and completion stages of the audit; − We performed a detailed review of the submitted reporting deliverables and reviewed the work undertaken by our component auditor by reviewing their working papers, and findings where necessary. financial statements areas. Key audit matters We determined that the Alpha Foreign Exchange (Canada) Limited and Alpha FX Italy Limited were not significant component for the purposes of the Group audit. For these entities, specific audit procedures on material financial statements areas were performed by the Group engagement team. The financial information of Alpha FX Netherlands, a non-significant component, was subject to review procedures performed by the Group engagement 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, including 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 team. All other entities are not trading currently or statements as a whole, and in forming our opinion are dormant and have no impact on the Group audit. thereon, and we do not provide a separate opinion on these matters. Existence and The risk relating to the FX Hedging Our procedures included the following: accuracy of revenue revenue stream revolves around the existence and accuracy of revenue The Group’s revenue recorded in the year. Existence refers recognition policy to the risk that trades did not occur is included with the or were overstated, accuracy refers to accounting policies in the risk that calculations identifying note 2 and segment the revenue amounts to be recorded reporting on revenue contain errors. is included in note 4 The Group’s reported FX Hedging revenue drives the level of sales commissions payable to front office staff and is a key metric in the Group’s Growth Share Scheme used to incentivise directors, key Management and certain staff, which further increases the risk over the existence of revenue recognised. For Alternative Banking Solutions, the risk lies in the payments revenue which is recognised on a monthly basis in line with the minimum monthly fee agreed with customers subject to adjustments for other fees e.g. monthly bank charges based on volume collections or payments transactions are added. There is a risk that the calculations identifying the revenue amounts to be recorded contains errors. For these reasons we considered the existence and accuracy of revenue to be a key audit matter. We reviewed the revenue recognition policy applied by management to each of the Group’s revenue streams and considered its compliance with IFRS15 ‘Revenue from Contracts with Customers’ with a specific focus on existence and accuracy of revenue. For FX Hedging revenue, we tested a sample of matched principal spot, forward and option contracts to verify the existence and accuracy of revenue, with reference to underlying supporting trade tickets and third party information recorded with the relevant banking counterparty. We recalculated the profits arising from the trades and tested key inputs into the calculation to the relevant underlying supporting documents outlined above. We agreed a sample of the Alternative Banking Solutions revenue (payments revenue) to supporting documentation. This included obtaining revenue confirmations from a sample of customers on the payments revenue generated via the Alternative Banking Solutions Platform to assess the existence and accuracy of revenue recognised. Key observations: Based on the procedures performed we consider the recognition of revenue to be appropriate and in line with the requirements of the reporting framework. 90 91 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Independent auditor’s report Continued KEY AUDIT MATTER HOW THE SCOPE OF OUR AUDIT ADDRESSED THE KEY AUDIT MATTER Appropriateness Alpha Group International plc holds Our procedures included the following: of Credit Value a large open forward book of trades adjustment- CVA not yet settled at year end. Under We performed credit reviews on a sample basis accounting standards any open to confirm that the credit ratings which are a The Group’s derivative positions at year end are key input into the CVA calculation are accurate accounting policy required to be held at fair value. and in compliance with the credit risk rating is included with the methodology. This included reviewing external accounting policies At each reporting date management information supporting the ratings. Our sample note 2 and the reassess the fair value of open covered all risk bands allotted by management. significant judgments trades, which includes adjusting in relation to Credit the carrying value of the forward With the assistance of our internal valuations valuation adjustment book with reference to their mark to experts we assessed the appropriateness of is set out in note 3 market forward rates as well as an the CVA methodology and related assumptions. assessment of the credit worthiness of We performed a recalculation of the credit their counterparties along with other valuation adjustment and compared against inputs. The amount of the adjustment Management’s own assessment. We also represents the difference between checked that the calculations are in line with the net carrying amount and the value the CVA methodology. of the future expected cash flows associated with the receivables. With the assistance of our internal valuations experts we also assessed whether the input Management is required to exercise data from external parties is appropriate and is a significant level of judgement in reflective of the risk faced by the Group. their assessment of the credit value adjustment which involves key inputs We considered the alternative scenarios and with high estimation uncertainty. This sensitivities provided by management which presents a significant risk of material included adjusting key inputs of CVA with misstatement in the appropriateness reasonable alternative changes to ascertain of the credit value adjustment and reasonableness of CVA inputs and their impact completeness and accuracy of data in on CVA as a whole. the CVA model. We assessed the completeness and accuracy of input data in the model to underlying supporting documentation on a sample basis with specific focus of two way testing (tracing data and inputs from source to model and model to source) on credit risk rating, mark to market (MTM) rates and other trade specific data. Key observations: Based on the procedures performed we consider the CVA Methodology (including related assumptions) to be reasonable. 92 CORPORATE GOVERNANCE INDEPENDENT AUDITOR’S REPORT KEY AUDIT MATTER HOW THE SCOPE OF OUR AUDIT ADDRESSED THE KEY AUDIT MATTER Fair value of growth During the year, the Group issued five With the assistance of our internal valuations shares new share schemes. experts we assessed the fair value valuation of “F, G, H, Alpha FX Institutional Limited, Alpha Foreign See Note 2 on The key input is the fair value applied Exchange (Canada) Limited share schemes” by accounting policy to the new growth shares schemes on Share based which is highly subjective and requires performing the following procedures: − Assessing the appropriateness of the payments and note use of Management judgment and methodology and model used; 24 for additional estimates which inherently creates disclosures the risk of material misstatement in respect of valuations applied to the schemes. For certain schemes, Management uses their own expert for assessing the fair value of these share schemes. − Comparing market inputs used to information independently sourced from Bloomberg and S&P Capital IQ; and − Calculating the fair value of the options at each grant date using appropriate inputs and a recognised model in order to provide a fair value crosscheck of the options. Accounting for growth shares under With the assistance of our internal valuations IFRS2 Share based payments is complex of which the risk of error is further heightened by added complexity due to the modifications to the existing share schemes. Other assumptions include volatility assumption, risk free rate, expected life among others. The disclosures needed in respect of these schemes are also complex, creating a presentation risk in the financial statements. In addition certain disclosures are required by the Companies Act 2006 and IAS24 for transactions with Directors and Related Parties. We have therefore identified the fair value of growth shares as a key audit matter experts we have reviewed managements experts work on share schemes including challenging management on the appropriate accounting treatment of these shares and related modifications. In addition we determined whether the vesting criteria are met as per terms and conditions of the share scheme agreement. We performed a review of the share issue documents such as agreements and related accounting entries in respect of new and existing share schemes, including the share option charges relating to the current year. We corroborated management forecasts with our work in going concern and other areas to ascertain whether managements forecast used for the fair value of growth shares is consistent across different financial statement areas. We reviewed the disclosures made by Management to confirm if they were consistent with our audit work performed and in line with the requirements of the relevant accounting standard. Key observations: Based on our audit work performed, we consider the judgements and estimates made by management in the valuation of growth shares to be reasonable and the related disclosures to be appropriate. 93 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Independent auditor’s report Continued OUR APPLICATION OF MATERIALITY immaterial as we also take account of the nature We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as shown below: Component materiality We set materiality for each significant component of the Group based on a percentage of between 7% and 95% (2021: 8% and 95%) of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. CORPORATE GOVERNANCE INDEPENDENT AUDITOR’S REPORT Component materiality ranged from £0.132 million the extent otherwise explicitly stated in our report, to £1.8 million (2021: £0.14 million to £1.6 million). In we do not express any form of assurance conclusion the audit of each component, we further applied thereon. Our responsibility is to read the other performance materiality levels of 65% (2021: 65%) information and, in doing so, consider whether the of the component materiality to our testing to other information is materially inconsistent with the ensure that the risk of errors exceeding component financial statements, or our knowledge obtained in materiality was appropriately mitigated. the course of the audit, or otherwise appears to be Reporting threshold materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives We agreed with the Audit Committee that we would rise to a material misstatement in the financial report to them all individual audit differences in statements themselves. If, based on the work we excess of £38.6K (2021: £33.6K). We also agreed to have performed, we conclude that there is a material report differences below this threshold that, in our misstatement of this other information, we are view, warranted reporting on qualitative grounds. required to report that fact. OTHER INFORMATION We have nothing to report in this regard. The directors are responsible for the other OTHER COMPANIES ACT 2006 REPORTING information. The other information comprises the information included in the annual report other than Based on the responsibilities described below and Group financial statements Parent company financial statements the financial statements and our auditor’s report our work performed during the course of the audit, 2022 £ million 2021 £ million 2022 £ million 2021 £ million Materiality 1.9 1.7 0.7 1.6 Basis for determining materiality 5% of Profit before tax less other operating income 5% of Profit before tax 1% of total assets 95% of Group Materiality Rationale for the benchmark applied Performance materiality Basis for determining performance materiality Investors are the principal stakeholders and are primarily interested in profitability. The entity is an asset based entity and serves as a holding company for Group therefore total assets was considered to be an appropriate benchmark. Limited to a percentage of Group materiality based on our assessment of component aggregation risk. Investors are the principal stakeholders and are primarily interested in profitability. Due to rising interest rates, the Group has earned a significant amount of interest income which has been eliminated to arrive at a profit more reflective of investors interest. 1.24 1.1 0.4 1.04 65% of Materiality 65% of Materiality 65% of Materiality 65% of Materiality This is based on our expected value of known and likely misstatements in the current year, and Management’s attitude to proposed adjustments. The Group has extended its geographical range and has some complex estimates involved in the financial statements. This is based on our expected value of known and likely misstatements in the current year, and Management’s attitude to proposed adjustments. thereon. Our opinion on the financial statements we are required by the Companies Act 2006 and ISAs does not cover the other information and, except to (UK) to report on certain opinions and matters as described below. Strategic report and Directors’ report 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 Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. Matters on which we We have nothing to report in respect of the following matters in relation to which the are required to report by exception Companies Act 2006 requires us to report to you if, in our opinion: − 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; or − certain disclosures of Directors’ remuneration specified by law are not made; or − we have not received all the information and explanations we require for our audit. 94 95 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Independent auditor’s report Continued RESPONSIBILITIES OF DIRECTORS respect of irregularities, including fraud. The extent As explained more fully in the Statement of Directors’ Responsibilities, 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. to which our procedures are capable of detecting irregularities, including fraud is detailed below: We gained an understanding of the legal and regulatory framework applicable to the Group and Parent Company, and the industry in which it operates and considered the risk of acts by the Group and Parent Company which would be contrary to applicable laws and regulations, including fraud. These included but were not limited to compliance with the Companies Act 2006, the applicable accounting standards, AIM Rules, Corporation Tax Act 2010 and the Financial Conduct Authority (FCA) regulations. We assessed compliance with applicable laws and regulations and performed audit procedures on these areas as considered necessary. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF Our procedures included: 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 − enquiry with the management and those charged with governance regarding how the Group and Parent Company is complying with those legal and regulatory frameworks and whether there were any known instances of non-compliance, or any actual, suspected or alleged fraud; − assessment of the Group’s compliance with applicable taxation regulations with the assistance of tax specialists; and are considered material if, individually or in the − review of board and audit committee meeting aggregate, they could reasonably be expected to minutes for any known instances of non-compliance, influence the economic decisions of users taken on or any actual, suspected or alleged fraud; and the basis of these financial statements. − review of legal correspondence and those from the regulator for any instances of non-compliance with Extent to which the audit was capable of detecting laws and regulations. irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in We performed risk assessment procedures to identify the risk of material misstatement due to irregularities including fraud (fraud risks) and identified events or conditions that could indicate an incentive or pressure to commit fraud or provide CORPORATE GOVERNANCE INDEPENDENT AUDITOR’S REPORT an opportunity to commit fraud. We identified the A further description of our responsibilities is areas most susceptible to fraud to be management available on the Financial Reporting Council’s override of controls, revenue recognition (existence website at: www.frc.org.uk/auditorsresponsibilities. and accuracy) including the related traders This description forms part of our auditor’s report. commission earned on the FX Hedging revenue. Our procedures in response to the above included: USE OF OUR REPORT This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Justin Chait (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London, UK 21 March 2023 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). − The procedures set out in the key audit matters section of our report; − In addressing the risk of fraud through management override of controls, we tested the appropriateness of a sample of journal entries and other adjustments in the general ledger by agreeing to supporting documentation and evaluated the business rationale of any significant transactions that were unusual or outside the normal course of business and testing of accounting estimates due to risk of management bias; and − Incorporating unpredictability procedures into our audit approach. We communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including component engagement teams and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. We also reviewed the result of component audit teams procedures performed in this regard. Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. 96 97 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Consolidated Statement of Comprehensive Income For the year ended 31 December 2022 Consolidated Statement of Financial Position As at 31 December 2022 Company number: 07262416 Year ended 31 December 2022 Year ended 31 December 2021 As at 31 December 2022 As at 31 December 2021 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION REVENUE Other operating income Operating expenses OPERATING PROFIT Underlying operating profit Other operating income Share-based payments expense Finance income Finance expenses PROFIT BEFORE TAXATION Underlying profit before taxation Other operating income Share-based payments expense Taxation PROFIT FOR THE YEAR Attributable to: Equity holders of the parent Non-controlling interests PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME: Items that may be reclassified to the profit or loss: Exchange gain/(loss) on translation of foreign operations Loss recognised on hedging instruments Tax relating to items that may be reclassified TOTAL COMPREHENSIVE INCOME FOR THE YEAR Attributable to: Equity holders of the parent Non-controlling interests TOTAL COMPREHENSIVE INCOME FOR THE YEAR Earnings per share attributable to equity owners of the parent (pence per share) − basic − diluted − underlying basic − underlying diluted 98 Note 4 4 5 6 6 8 9 9 9 9 £’000 98,332 9,278 (60,722) 46,888 38,274 9,278 (664) 784 (458) 47,214 38,600 9,278 (664) (8,164) 39,050 36,372 2,678 39,050 1,382 (639) 160 39,953 37,275 2,678 39,953 86.8p 83.8p 70.1p 67.7p £’000 77,471 - (44,143) 33,328 33,588 - (260) 536 (681) 33,183 33,443 - (260) (7,140) 26,043 23,531 2,512 26,043 (148) - - 25,895 23,383 2,512 25,895 57.7p 55.1p 58.3p 55.7p NON-CURRENT ASSETS Intangible assets Property, plant and equipment Right-of-use assets Derivative financial assets TOTAL NON-CURRENT ASSETS CURRENT ASSETS Cash and cash equivalents Derivative financial assets Other receivables Fixed collateral TOTAL CURRENT ASSETS TOTAL ASSETS EQUITY Share capital Share premium account Capital redemption reserve Merger reserve Retained earnings Translation reserve EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Non-controlling interests TOTAL EQUITY CURRENT LIABILITIES Derivative financial liabilities Other payables Deferred income Lease liability Current tax liability TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Derivative financial liabilities Other payables Deferred tax liability Lease liability TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Note 11 12 13 15 19 15 18 19 20 20 20 20 20 20 15 22 13 15 22 8 13 £’000 4,814 3,248 11,848 27,819 47,729 136,799 99,119 6,821 4,726 247,465 295,194 84 53,513 4 667 84,220 1,258 139,746 4,707 144,453 42,764 77,272 4,924 1,407 3,781 130,148 7,317 222 1,387 11,667 20,593 150,741 295,194 £’000 2,995 2,323 6,136 17,335 28,789 108,044 58,551 9,807 3,506 179,908 208,697 82 50,783 4 667 54,189 (124) 105,601 4,193 109,794 36,697 39,998 2,193 450 3,847 83,185 7,745 - 1,061 6,912 15,718 98,903 208,697 The Consolidated Financial Statements of Alpha Group International plc were approved by the Board of Directors on 21 March 2023 and signed on its behalf by: M J Tillbrook Director T Powell Director 99 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Consolidated Statement of Cash Flows For the year ended 31 December 2022 Consolidated Statement of Changes in Equity For the year ended 31 December 2022 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2022 Year ended 31 December 2021 Note £’000 £’000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation Other operating income Finance income Finance expense Amortisation of intangible assets Intangible assets written off Depreciation of property, plant and equipment Depreciation of right-of-use assets Property, plant and equipment written off Share-based payment expense (Increase)/decrease in other receivables Increase/(decrease) in other payables (Increase) in derivative financial assets Decrease in financial assets at amortised cost Increase in derivative financial liabilities (Increase)/decrease in fixed collateral CASH INFLOWS FROM OPERATING ACTIVITIES Other operating income received Tax paid NET CASH INFLOWS FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Payments to acquire property, plant and equipment Payments to acquire right-of-use assets Expenditure on intangible assets NET CASH OUTFLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Issue of ordinary shares by Parent Company Issue of shares to non-controlling interests in subsidiary undertakings Dividends paid to equity owners of the Parent Company Dividends paid to non-controlling interests Payment of lease liabilities – principal Payment of lease liabilities - interest Net interest received/(paid) NET CASH (OUTFLOWS) FROM FINANCING ACTIVITIES INCREASE IN NET CASH AND CASH EQUIVALENTS IN THE YEAR Net cash and cash equivalents at beginning of year Net exchange gains/(loss) NET CASH AND CASH EQUIVALENTS AT END OF YEAR 6 6 11 11 12 13 12 12 11 21 13 13 19 47,214 (9,278) (784) 458 1,573 43 764 1,154 50 664 (1,547) 40,006 (51,052) 5,803 5,000 (1,220) 38,848 7,490 (7,486) 38,852 (1,739) (46) (3,435) (5,220) 996 46 (4,810) (1,877) (891) (452) 729 (6,259) 27,373 108,044 1,382 136,799 33,183 - (536) 681 950 121 589 809 - 260 127 (14,235) (21,894) 11,778 26,851 519 39,203 - (4,666) 34,537 (661) - (1,992) (2,653) 26 327 (4,505) (1,739) (121) (344) (308) (6,664) 25,220 82,972 (148) 108,044 BALANCE AT 1 JANUARY 2021 Profit for the year Other comprehensive income Transactions with owners Shares issued on vesting of share option scheme Issue of shares to non- controlling interests in subsidiary undertakings Shares repurchased from non-controlling interests Shares issued in relation to SAYE share scheme Forfeiture of shares in subsidiary Share-based payments Dividends paid BALANCE AT 31 DECEMBER 2021 Profit for the year Other comprehensive income Transactions with owners Shares issued on vesting of share option scheme Issue of shares to non- controlling interests in subsidiary undertakings Issue of shares in relation to subsidiary earnout Forfeiture of shares in subsidiary Shares issued in relation to SAYE share scheme Share-based payments Dividends paid BALANCE AT 31 DECEMBER 2022 Share capital Share premium account Capital redemption reserve Merger reserve Retained earnings Translation reserve Total Total Non- controlling interests £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Attributable to the owners of the Parent 80 50,582 4 667 35,631 24 86,988 3,653 90,641 - - 2 - - - - - - - - 175 - - 26 - - - 82 50,783 - - 2 - - - - - - - - - - 1,906 - 824 - - - - - - - - - - - 4 - - - - - - - - - - - - - - - - - - 23,531 - 23,531 2,512 26,043 - (148) (148) - (148) (164) - 56 - (620) 260 (4,505) - - - - - - - 13 - 56 26 (13) - 107 107 (162) (106) - 26 (620) (165) (785) 260 - 260 (4,505) (1,739) (6,244) 667 54,189 (124) 105,601 4,193 109,794 - 36,372 2,678 39,050 1,382 903 - - - - - - - - - 36,372 (479) (2) - (1,801) 87 - 664 (4,810) - - 903 - 46 46 (105) - (228) (141) - - 824 664 - - 105 87 824 664 - - - - - - - 84 53,513 4 667 84,220 1,258 139,746 4,707 144,453 (4,810) (1,877) (6,687) 100 101 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Notes to the Consolidated Financial Statements For the year ended 31 December 2022 1. GENERAL INFORMATION FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Basis of consolidation The Consolidated Financial Statements consist of the financial statements of the ultimate Parent Company (Alpha Group International plc) and all entities controlled by the Company (its subsidiaries). i. Subsidiaries Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and Alpha Group International plc, formerly Alpha FX Group plc (up until 19 December 2022), (the “Company”) is a public limited circumstances indicate that there may be a change in any elements of control. company having listed its shares on AIM, a market operated by The London Stock Exchange, on 7 April 2017. The Company is incorporated and domiciled in the UK (registered number 07262416) and its registered office is Brunel Building, 2 Canalside ii. Transactions eliminated on consolidation Walk, London, England, W2 1DG. The Consolidated Financial Statements incorporate the results of the Company and its subsidiary undertakings. The Group’s principal activity is the development of financial strategies and technologies to assist corporates and institutions in their FX risk management, mass payments and account opening requirements. The principal accounting policies adopted in the preparation of the Consolidated Financial Statements are set out in note 2. 2. ACCOUNTING POLICIES Basis of preparation The Consolidated Financial Statements have been prepared in accordance with UK international accounting standards using the measurement bases specified by UK IFRS for each type of asset, liability, revenue or expense. The Consolidated Financial Statements are presented in Pounds Sterling (“£”), and all values are rounded to the nearest thousand (“£’000”) except where otherwise indicated. The principal accounting policies adopted in the preparation of the Consolidated Financial Statements are set out below and have been applied consistently throughout all periods presented, unless otherwise stated. The preparation of Consolidated Financial Statements in conformity with adopted UK IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in note 3. The Consolidated Financial Statements are prepared on the historical cost basis except for those detailed within ‘Financial Instruments’ below. a) b) New standards, interpretations and amendments effective from 1 January 2022: − There are no new standards, interpretations and amendments which became mandatorily effective for the current reporting period which have had any material effect on the financial statements of the Group. New standards, interpretations and amendments not yet effective: − There are no IFRS interpretations that are not yet effective that would be expected to have a material impact on the Group. Intragroup balances, and any gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial information. iii. Non-controlling interests Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. In accordance with IFRS 10, the Group recognises any non-controlling interest at the non-controlling interest’s proportionate share of the acquiree’s net assets on a transaction-by-transaction basis. The Group treats transactions with the non-controlling interest as transactions with equity owners of the Group. For purchases from non-controlling interests the difference between the fair value of consideration paid and the relevant share of net assets acquired is recorded in equity. Segmental reporting In accordance with IFRS 8 ‘Operating Segments’, an operating segment is defined as a business activity whose operating results are reviewed by the chief operating decision makers and for which discrete information is available. Operating segments are reported in a manner consistent with the internal management reporting provided to the chief operating decision-makers. The chief operating decision-makers responsible for allocating resources and assessing performance of the operating segments are identified as the Group’s Chief Executive Officer and Chief Financial Officer. Going concern The Board has concluded that it is appropriate to adopt the going concern basis, having undertaken a review of financial forecasts and available resources. The Group meets its day-to-day working capital requirements through its strong cash reserves. As at 31 December 2022, the Group had a healthy liquidity position with £136.8m of cash and cash equivalents (see note 19) of which the Group’s adjusted net cash excluding client funds was £114.4m (see the Financial Review), with no debt financing commitments. The Group has net current assets of £117.3m at 31 December 2022 and net assets of £144.5m. In assessing going concern, management have considered any potential effects of Russia’s ongoing invasion of Ukraine, the current cost of living crisis and rising interest rate environment on the Group and its customers. Alpha’s products and services are largely non-discretionary in nature and Alpha has limited direct or indirect exposure to Russia and therefore Any new or amended accounting standards or interpretations that are not yet mandatory have not been early adopted. we do not anticipate any significant impact to the business from these events. 102 103 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY20222. ACCOUNTING POLICIES [CONT.] Going concern [cont.] This assessment has considered the impact on the Group’s operations, its 2023 budget and 2024 internal forecast. Given the nature of the above events, severe downside scenarios have been modelled where revenue targets are missed by up to 40% together with the assumption that a number of clients are unable to meet their mark-to-market obligations, resulting in bad debts. Even in these scenarios, the Group has strong liquidity, no external debt and the availability of mitigating actions that would allow it to meet its financial liabilities as they fall due. These mitigating actions, should they be required, are all within management’s control and could include reducing new recruitment, lowering commission or bonus payments, and reducing capital expenditure. The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its Consolidated Financial Statements. Revenue FX Hedging When the Group enters into a foreign exchange contract with a client, it immediately enters into a separate matched contract with its banking counterparty. Spot and forward revenue is recognised when a binding contract is entered into by a client and the rate is fixed and determined. In accordance with IFRS 15, revenue is recognised at this point in time as the performance obligation is satisfied by transferring control of the contract to the client. Revenue represents the difference between the rate offered to clients and the rate the Group pays its banking counterparties. Options revenue is recognised when a binding contract is entered into by a client and the revenue is fixed and determined. In accordance with IFRS 15, revenue is recognised at this point in time as the performance obligation is satisfied by transferring control of the contract to the client. Revenue represents the difference between the premiums paid by clients and the premium the Group pays to its banking counterparties. Payments and collections Alternative Banking Solutions provides payment and collection services and receives revenue from both banking fees and spot transactions. Banking fees are charged for (but are not limited to) electronic payments in and out of accounts (e.g. Faster Payments, CHAPS, International payments and collections) and implementation fees. Revenue is respect of banking fees is recognised when a payment is executed. Revenue is recognised at this point in time as the performance obligation is satisfied by transferring control of the contract to the client. Annual account fees Revenue from annual account fees is recognised on a straight-line basis over the 12 months from the date the account is opened, resulting in deferred income on the face of the Consolidated Statement of Financial Position. The initial set-up of the account may only happen upfront at a single point in time (with the associated fee being charged at this point), but the ongoing access to the account (particularly through access to the portal) and other ancillary services are provided to the customer throughout the period the account is open. On an annual basis, each account is reviewed from a compliance perspective and subsequently charged a renewal fee for the following 12 months. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Other operating income Other operating income is made up of interest generated from client cash balances, as a result of the increased interest rate environment (further detail within note 4). Whilst the increased interest stream is a positive boost for the Group and a natural by-product of our increasingly diversified product offering, we are mindful that aspects of its dynamics are driven by macroeconomics beyond our control. We have therefore chosen to recognise interest income on client balances as ‘other operating income’, not revenue on the face of the Consolidated Statement of Comprehensive Income. The recent changes to the interest rate environment has meant that these accounts can be interest bearing, whilst maintaining the safeguarding requirements. The Group is able to obtain attractive interest rates on these overnight client cash balances only because of its ability to aggregate numerous individual client balances, many of which are transitory and typically only held for 24 hours. Under the terms of the Electronic Money Licence (EMI) the Group is not able to pass any of the interest earned back to the clients. Interest earned on Alpha’s own cash is recognised within finance income in the Consolidated Statement of Comprehensive Income. Underlying measures The Group reports underlying operating profit, underlying EPS and underlying Profit before taxation. These measures are not measures of performance under IFRS and should be considered in addition to, and not as a substitute for, IFRS measures of financial performance and liquidity. The Group uses non-GAAP performance measures as key financial indicators as the Board believe these better reflect the underlying performance of the business. Underlying items exclude other operating income from client balances and share award costs. Foreign currency translation The Group’s consolidated historical financial statements are presented in pounds sterling, which is the functional currency of the Parent. Transactions and balances Transactions in foreign currencies are initially recorded by the Group entities at the functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date. All differences are taken to the Consolidated Statement of Comprehensive Income. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the date of the initial transaction. The gain or loss arising on translation of non-monetary items is recognised in other comprehensive income and accumulated in the translation reserve as a separate component of equity. Group companies The results and financial position of Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: − assets and liabilities at each period end are translated at the prevailing closing rate at the date of the consolidated statement of financial position; − income and expenses for each period within the Consolidated Statement of Comprehensive Income are translated at the average rate for the period; and − on consolidation, exchange differences arising from the translation of overseas operations are recognised in other comprehensive income and accumulated in the translation reserve as a separate component of equity. On disposal of a foreign operation, the cumulative translation differences are transferred to the Consolidated Statement of Comprehensive Income as part of the gain or loss on disposal. 104 105 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY20222. ACCOUNTING POLICIES [CONT.] Impairment Financial instruments Financial Assets Initial measurement Impairment provisions are recognised under the general approach according to a three-stage expected credit loss impairment model. Impairment provisions represent the difference between the present value of all contractual cashflows and the present value of expected future cashflows. Impairment losses are recognised in the Consolidated Statement of Comprehensive Income. The Group performs an assessment of a significant increase in credit risk on an annual basis. In accordance with IFRS 9, the Group can apply the policy election for trade receivables. The Group All financial assets are measured initially at fair value less transaction costs. The Group’s financial assets include derivatives recognises lifetime expected credit losses under the simplified approach. The Group has performed a re-assessment not designated as hedging instruments (foreign exchange forward and option contracts with customers and banking of lifetime expected credit losses at 31 December 2022. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION counterparties), derivatives designated as hedging instruments (foreign exchange forward and interest rate swap contracts with customers and banking counterparties) and amortised cost assets (financial assets at amortised cost, other receivables, cash and cash equivalents and fixed collateral). Subsequent measurement IFRS 9 divides all financial assets into two classifications - those measured at amortised cost and those measured at fair value. Where assets are measured at fair value, gains and losses are recognised in the Consolidated Statement of Comprehensive Income. The classification of a financial asset is made at the time it is initially recognised, namely when the Group becomes a party to the contractual provisions of the instrument. If certain conditions are met, the classification of an asset may subsequently need to be reclassified. Following initial measurement, the Group measures its financial assets at fair value through profit or loss or amortised cost, based on the business model for managing the financial instruments and the contractual cash flow characteristics of the instrument. Fair value through profit or loss This category comprises in-the-money derivatives and out-of-money derivatives where the time value offsets the negative intrinsic value (see “Financial liabilities” section for out-of-money derivatives classified as liabilities). Other than derivative financial instruments which are not designated as hedging instruments, the Group does not have any financial assets at fair value through profit or loss. Amortised cost The Group’s financial assets measured at amortised cost comprise other receivables and cash and cash equivalents in the consolidated statement of financial position. These assets arise principally from financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, and where applicable, less provision for impairment. De-recognition of financial assets Financial assets will be de-recognised when the contractual rights to the cash flows from the assets have expired, or when the Group transfers its contractual rights to receive the cash flows and substantially all of the risk and rewards of the assets have been transferred. Management’s judgement is applied in determining whether the contractual rights to the cash flows from the transferred assets have expired or whether the Group retains the rights to receive cash flows on the assets but assume an obligation to pay for those cash flows. Financial liabilities Classification The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, subsequently carried at amortised cost including directly attributable transaction costs. The Group has not applied the option to designate any financial liabilities as measured at fair value through profit or loss that were previously measured at amortised cost. The Group’s financial liabilities include derivative financial liabilities and trade and other payables. De-recognition of liabilities A financial liability is de-recognised when the obligation under the liability is discharged, substantially modified, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the Consolidated Statement of Comprehensive Income. Offsetting financial instruments When there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability immediately, financial assets and liabilities are offset, and the net amount reported in the consolidated statement of financial position. Derivative financial instruments Derivative financial assets are carried as assets when their fair value is positive and liabilities when their fair value is negative. Changes in the fair value of derivatives are included in the Consolidated Statement of Comprehensive Income. The Group’s derivative financial assets and liabilities comprise of forward and option foreign exchange contracts, and interest rate swap contracts. The Group undertakes matched principal broking involving undertaking immediate back-to-back derivative transactions with counterparties. These transactions are classified as financial instruments at fair value through profit or loss and are shown gross, except where a netting agreement, which is legally enforceable, exists and the intention is for the asset and liability to be settled net. The credit valuation adjustment (“CVA”) reflects the credit risk of the counterparties inherent in the valuation of the derivative financial instruments. The adjustment represents the estimated fair value of protection required to hedge the counterparty credit risk. The adjustment takes into account counterparty exposure, applicable collateral arrangement and default probability rates. Derivative financial instruments and hedge accounting The Group uses derivative financial instruments to hedge part of its exposure to foreign exchange and interest rate risks. All derivative financial instruments are initially measured at fair value on the contract date and are also measured at fair value at subsequent reporting dates. 106 107 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY20222. ACCOUNTING POLICIES [CONT Derivative financial instruments and hedge accounting [cont.] Hedge accounting is applied to financial assets and financial liabilities only where all of the following criteria are met: − The hedging relationship consists only of eligible hedging instruments and eligible hedged items. − At the inception of hedge there is formal designation and documentation of the hedging relationship, the Group’s risk management objective and strategy for undertaking the hedge, the hedged item and hedging instrument, and how the hedge effectiveness will be assessed; − An economic relationship exists between the hedged item and the hedging instrument; − Credit risk does not dominate changes in value; and − The hedge ratio is the same for both the hedging relationship and the quantity of the hedged item actually hedged and the quantity of the hedging instrument used to hedge it. If derivatives do not qualify for hedge accounting, any changes in the fair value of the derivative financial instrument are recognised in the income statement as they arise. Hedge relationships are classified as cash flow hedges where the derivative financial instruments hedge the Group’s exposure to variability in cash flows resulting from a highly probable forecasted transaction. These include the exchange rate risk of interest receivable denominated in foreign currency and interest rate risk. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION − Level 1 quoted (unadjusted) market prices in active markets for identical assets or liabilities. − Level 2 valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. − Level 3 valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities based on the nature, characteristics and risks of the inputs into the valuations and the level of the fair value hierarchy as explained above. Taxes Current income tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Deferred income tax Deferred income tax is provided on all temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on the tax rates that have been recognised directly in other comprehensive income and the ineffective portion is recognised immediately in the income enacted or substantively enacted by the balance sheet date. statement. If the hedging derivative expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for hedge accounting, or the hedge designation is revoked, hedge accounting is discontinued prospectively. Cash and cash equivalents Cash and cash equivalents comprise cash balances and deposits held at call with banks. For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above. Cash held as collateral with banking counterparties for which the Group does not have immediate access, is shown as fixed collateral on the face of the Consolidated Statement of Financial Position. Other payables Other payables are initially stated at fair value and subsequently measured at amortised cost using the effective interest method. Other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. They are classified as current liabilities if payment is due in one year or less. If payment is due at a later date, they are presented as non-current liabilities. 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 Group uses valuation techniques that are appropriate to 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 financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority. Employee benefits Pension obligations The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group. Contributions made by the company are charged to the Consolidated Statement of Comprehensive Income. Share-based payments The Group issues equity-settled share-based payments to Directors and employees of the Group through the Growth Share Schemes, Approved and Unapproved Options Schemes. Equity-settled share-based schemes are measured at fair value, excluding the effect of non-market-based vesting conditions, at the date of grant using an appropriate option pricing model. The Growth Shares Schemes have been valued using a Monte Carlo Simulation Approach due to the existence of market-based conditions. Non-market-based conditions exist over revenue-based targets which require management to estimate the probability of meeting these conditions. The Approved and Unapproved Options Schemes have been valued using a Black Scholes option pricing model as only a service- based condition exists. Both schemes require the estimation of appropriate attrition rates to estimate the number of share options which are likely to vest. The fair value of the shares or share options is recognised over the vesting period to reflect the value of the employee services received. The charge relating to grants to employees of the Company is recognised as an expense in the Consolidated Statement of Comprehensive Income. 108 109 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY20222. ACCOUNTING POLICIES [CONT.] Depreciation [cont] Property, plant and equipment Owned assets FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Short-term/low value exemptions Payments associated with leases with a lease term of twelve months or less and leases of low-value assets are recognised as an expense in the Consolidated Statement of Comprehensive Income on a straight-line basis. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in Property, plant and equipment is stated at cost less accumulated depreciation and where applicable, impairment losses. share premium as a deduction from the proceeds of the new shares to which they relate. Depreciation Depreciation is charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the estimated useful lives of each item of property, plant and equipment. Estimated residual values are included in the calculation of depreciation. The estimated useful lives of property, plant and equipment are as follows: Improvements to property Fixtures and fittings Computer equipment - - - Period of lease 4 to 5 years straight line 3 years straight line Intangible assets Intangible assets consist of internally developed software and domain names. Expenditure on internally developed software is capitalised if the costs can be reliably measured, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group has sufficient resources to complete the development and to use or sell the asset. The assets are initially recorded at cost including labour, directly attributable costs and any third-party expenses, and amortised over their useful economic lives of 3 years from the date of first use. Impairment of property, plant and equipment and intangible assets Tangible and Intangible assets are assessed for any indicators of impairment at each balance sheet date or if there are any indicators of impairment. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. The recoverable amount is determined on an individual asset by asset basis. When the recoverable amount is less than its carrying amount, the asset is considered impaired and is written down to its recoverable amount. Leases In accordance with IFRS 16, the Group recognises a right-of-use asset and corresponding liability at the date at which the leased asset is available for use. Right-of-use assets are recorded initially at cost and amortised on a straight-line basis over the lease term. Cost is defined as the net present value of the lease liabilities plus any initial costs and dilapidation provisions less any lease incentives received. The right-of-use asset is tested for impairment if there are any indicators of impairment. The lease liability is measured at the present value of the lease payments, discounted at the rate implicit in the lease, or if that cannot be readily determined, at the lessee’s incremental borrowing rate specific to the term, country, currency and start date of the lease. The finance cost is charged to the Consolidated Statement of Comprehensive Income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle the obligation. Provisions are only recognised if the amount can be estimated reliably. Provisions are measured based on the best estimates of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material. 3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of the Group’s financial statements requires management to make estimates, judgements and assumptions about the carrying amounts of assets and liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liability affected in the future. The estimates and underlying assumptions are reviewed on an ongoing basis. In the process of applying the Group’s accounting policies, management has made the following judgements and estimates which have the most significant effect on the amounts recognised in the Consolidated Financial Statements. Significant estimates Impairment of financial assets The Group recognises impairment provisions under the general approach according to a three-stage expected credit loss impairment model. Impairment provisions represent the difference between the present value of all contractual cash flows and the present value of expected future cashflows. To calculate the present value of the future expected cash flows, management must make an estimate of expected future cash flows and apply an appropriate discount factor, estimated using the latest market information. When assessing future cash flows and discount factors the Group takes the following into account: − Changes in the credit quality of the borrower or instrument − The Groups liquidity and free cash position − Forward-looking macroeconomic factors (upside and downside). An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Impairment losses are recognised in the Consolidated Statement of Comprehensive Income. The Group performs an assessment of significant increase in credit risk on an annual basis. Credit value adjustment The credit value adjustment of £3.4m (2021: £5.2m) has been calculated by management based on the assumption that the Group will be unable to collect all the receivable amounts due under the contract terms, and therefore, is a method of counterparty credit risk management. In order to calculate expected future cash flows, management make an estimate using the latest real-time market information, risk ratings of the clients and experience. 110 111 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS [CONT.] Significant judgements Development costs Development costs that are directly attributable to the development of a project are capitalised based on management’s Revenue in the table below is in accordance with the methodology used for preparing the financial information for management, for each operating segment. Although a proportion of the revenue from EU clients is initially booked through Alpha FX Europe Limited in Malta, revenue in the table below has been reallocated to the relevant entity where the sales team is located. Within 2022, the Group opened offices in Milan Italy, Sydney Australia and Bristol. All of these offices service Corporate clients assessment of the likelihood of a successful outcome for each project. This is based on the management’s judgement that the from their local offices. The results of these new offices are included within the Corporate London Segment. Additionally, there project is technologically, commercially and economically feasible in accordance with IAS 38 Intangible Assets. In determining were costs associated with Alpha Europe (based in Luxembourg) which have been shown 50/50 within Institutional and Alpha the amount to be capitalised, management makes assumptions regarding the expected future cash generation of the project, i.e. Pay. Under IFRS 8 these segments do not meet the quantitative reporting thresholds in 2022. The revenue of these offices in Group revenue, and the expected period of benefits. Details of capitalised development costs are shown in note 11. aggregate was £4.5m and underlying loss before taxation in aggregate was £1.6m. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Share-based payments As described in note 2, equity settled share awards are recognised as an expense based on their fair value at date of grant. The fair value of equity settled growth shares scheme and unapproved share options are estimated through the use of option valuation models which require an element of judgement in assessing the inputs. Judgement is also exercised in assessing the number of options subject to non-market vesting conditions that will vest. Client balances Where client balances are held by the Group, as part of its EMI obligations those funds must be held in segregated accounts, not available for use by the Group, and must comply with regulatory safeguarding compliance requirements. The Group is not a party to the contractual provisions nor a beneficial owner of the funds. As a result, the Group has determined that it does not have sufficient ownership or control over these balances to include them and their corresponding liability on the Groups Statement of Financial Position. 4. SEGMENTAL REPORTING During the year, the Group generated revenue from the sale of forward currency contracts, option contracts, foreign exchange spot transactions and fees received from payments collections and cash accounts. The Group has five reportable operating segments under the provisions of IFRS 8, based on the individually reportable subsidiaries and divisions. These five segments are: − Corporate London represents revenue generated by Alpha FX Limited’s Corporate clients serviced from the London head office. − Institutional represents revenue from Alpha FX Institutional Limited, which primarily services funds. − Corporate Toronto represents revenue generated by Alpha Foreign Exchange (Canada) Limited, serviced from Toronto, Canada. − Corporate Amsterdam represents revenue generated by Alpha FX Netherlands Limited, which services corporate clients from Amsterdam, The Netherlands. − Alpha Pay, a division of Alpha FX Limited which services clients who require international payments and accounts. The offering is distributed via our European Corporate offices and Alpha FX Institutional Limited as well as Alpha Pay’s own sales team. The chief operating decision makers, being the Group’s Chief Executive Officer and the Chief Financial Officer, monitor the results of the operating segments separately each month. Key measures used to evaluate performance are revenue and profit before taxation. Management believe that these measures are the most relevant in evaluating the performance of the segment and for making resource allocation decisions. In April 2021, the Group decentralised into two divisions; Alternative Banking Solutions and FX Risk Management. These two divisions are now the key drivers to the Group strategy and growth of each operating segment. Revenue for each operating segment has been split by the two divisions, as this reflects how the chief operating decision-makers manage the business. 112 2022 Corporate London Institutional Corporate Toronto Corporate Amsterdam FX Risk Management* Alternative Banking Solutions** TOTAL REVENUE Underlying operating profit Finance income Finance costs Underlying profit before taxation Other operating income Share-based payments PROFIT BEFORE TAXATION £’000 43,332 581 43,913 18,457 779 (146) 19,090 468 (632) 18,926 £’000 15,133 4,703 19,836 7,325 - (83) 7,242 4,412 (32) 11,622 £’000 4,698 - 4,698 536 - (31) 505 - - 2021 Corporate London Institutional Corporate Toronto Corporate Amsterdam FX Risk Management* Alternative Banking Solutions** TOTAL REVENUE Underlying operating profit Finance income Finance costs Underlying profit before taxation Share-based payments PROFIT BEFORE TAXATION £’000 34,166 61 34,227 15,955 536 (526) 15,965 (228) 15,737 £’000 11,069 4,565 15,634 6,485 - (57) 6,428 (32) 6,396 £’000 5,497 - 5,497 1,745 - - 1,745 - 1,745 Alpha Pay £’000 846 £’000 5,500 Total £’000 69,509 28,823 888 22,651 6,388 3,095 - (68) 23,497 98,332 8,861 38,274 5 (130) 784 (458) 3,027 8,736 38,600 - - 4,398 - 9,278 (664) Alpha Pay £’000 3,369 14,961 18,330 Total £’000 57,036 20,435 77,471 7,776 33,588 - (98) 536 (681) £’000 2,935 848 3,783 1,627 - - 1,627 7,678 33,443 - - (260) 1,627 7,678 33,183 505 3,027 13,134 47,214 * FX Risk Management represents revenue derived from foreign exchange forward, spot, and option contracts provided to corporate and institutional clients, primarily for the purpose of hedging commercial foreign exchange exposures. ** Alternative Banking Solutions represents revenues derived from fees and foreign exchange spot contracts generated from the provision of cross border payments, collections and annual account fees to corporates and institutions. 113 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 4. SEGMENTAL REPORTING [CONT.] Revenue by product Foreign exchange forward transactions Foreign exchange spot transactions Option contracts Payments, collections and account fees TOTAL Non-current assets for each country is as follows: Non-current assets United Kingdom Malta The Netherlands Canada Other TOTAL NON-CURRENT ASSETS Revenue by region of customer United Kingdom Europe Canada Rest of world TOTAL 31 December 2022 £’000 31 December 2021 £’000 41,073 29,027 9,046 19,186 98,332 31,945 26,053 8,779 10,694 77,471 31 December 2022 £’000 31 December 2021 £’000 29,811 14,400 2,434 1,063 21 47,729 23,435 5,155 183 16 - 28,789 31 December 2022 £’000 31 December 2021 £’000 39,414 47,542 4,962 6,414 98,332 23,024 36,678 5,601 12,168 77,471 All revenue is from external customers and is based on the location of those customers. Other operating income Interest is earned on overnight deposits with several credit institutions all ‘A’ rated with the leading rating agencies. The amount of interest earned is dependent on several variables: − The absolute balance we hold, which can move significantly from day-to-day − The mix of currency balances we hold, and; − The interest rate environment and rates that can be obtained from credit worthy institutions. Interest income is a natural by-product of our accounts solution, and as such is an uncontrollable income stream for the Group, which would be transitory if we return to a low interest rate environment. We have therefore chosen to recognise interest income on client cash balances as ‘other operating income’, not revenue. In 2022 material interest income was only earned over the last four months of the year. During this time the blended average client balances and interest rates were £1.6bn and 1.5% respectively (£0.8bn and 0% respectively in the prior year). FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 5. OPERATING PROFIT Operating profit is stated after charging/(crediting): Depreciation of owned property, plant and equipment Amortisation of internally generated intangible assets Depreciation of right-of-use assets Rental costs for short-term leases Property, plant and equipment written off Impairment of intangible assets Staff costs (note 7) Estimated probability of default in relation to Norwegian client Bad debt expense Net foreign exchange (gains)/losses Audit fees Audit fees in respect of the Group, Company and subsidiary financial statements Non Audit fees Fees in respect of CASS Limited Assurance 6. FINANCE INCOME AND EXPENSES FINANCE INCOME Interest on bank deposits Finance income to reverse the discount relating to the Norwegian client* Other interest receivable TOTAL FINANCE COST Interest on bank deposits Finance cost on dilapidation provision Finance cost on lease liabilities (note 13) TOTAL 31 December 2022 £’000 31 December 2021 £’000 764 1,573 1,154 787 50 43 31,713 (27) 235 (274) 550 7 589 950 809 179 - 121 21,680 (243) 2,869 118 335 7 31 December 2022 £’000 31 December 2021 £’000 622 55 107 784 - 507 29 536 31 December 2022 £’000 31 December 2021 £’000 - (6) (452) (458) (337) - (344) (681) * During 2022 the remaining provision balance of £55,533 relating to the Norwegian client was reversed in finance income. 114 115 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 7. EMPLOYEE COSTS Staff costs, including directors’ remuneration, were as follows: Wages and salaries Social security costs Share-based payment charge Other pension costs EMPLOYEE BENEFIT EXPENSE INCLUDED IN OPERATING PROFIT 31 December 2022 £’000 31 December 2021 £’000 27,312 3,062 664 675 31,713 18,936 2,075 260 409 21,680 The average number of employees, including the Executive Directors, was as follows: Executive Directors Sales, administration and support staff TOTAL Remuneration of key management personnel 31 December 2022 No. 31 December 2021 No. 3 305 308 2 182 184 8. TAXATION Tax charge CURRENT TAX: UK Corporation tax on the profit for the year UK Corporation tax on the internal transfer of clients* Adjustments relating to prior years Overseas Corporation tax on the profit for the year TOTAL CURRENT TAX DEFERRED TAX Origination and reversal of temporary differences Adjustments relating to change in rate TOTAL DEFERRED TAX TOTAL TAX EXPENSE Factors affecting tax charge for the year Key management personnel represent those personnel who have authority and responsibility for planning, directing and Profit on ordinary activities before tax controlling the activities of the Group, including the Non-Executive Directors. Key management remuneration and benefits include: Wages and salaries Social security costs Share-based payments Defined contribution scheme TOTAL 31 December 2022 £’000 31 December 2021 £’000 3,234 335 58 26 3,653 2,233 225 8 16 2,482 During 2022, retirement benefits accrued to 7 Directors (2021: 5) who are regarded as key management personnel within the Group in respect of defined contribution pension schemes. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31 December 2022 £’000 31 December 2021 £’000 8,056 - (591) 216 7,681 483 - 483 8,164 5,816 892 (282) 279 6,705 237 198 435 7,140 31 December 2022 £’000 31 December 2021 £’000 47,214 8,971 499 (837) (591) - 292 (170) - 8,164 33,183 6,305 392 - (282) 198 (365) - 892 7,140 Profit on ordinary activities multiplied by the effective standard rate of UK corporation tax of 19% Effects of: Expenses not deductible for tax purposes Additional R&D deduction Adjustments relating to prior years Adjust closing deferred tax in respect of change in future rate of taxation Different tax rates applied in overseas jurisdictions Trading losses brought forward UK corporation tax on internal transfer of clients* TOTAL TAX CHARGE FOR THE YEAR * When planning for the possibility of a no-deal Brexit and in response to the limited scope covering financial services within the Free Trade Agreement, a wholly-owned subsidiary was established in Malta in March 2021. This enabled the Group to continue to service all clients without disruption both now and in the future. As a result, a number of clients were transferred from Alpha FX Limited in the UK to Alpha Europe Limited in Malta which crystallised a one-off UK tax charge of £892,095 in 2021 for the transfer of business. At the year ended 31 December 2022 the Group had unused oversea tax losses amounting to £182,079 (2021: £169,539) for which no deferred tax asset has been recognised. Alpha FX Europe Limited’s carried forward tax losses of £169,539 were utilised in the year ended 31 December 2022. 116 117 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 9. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for the year attributable to equity holders of the Parent, by the weighted average number of ordinary shares in issue during the financial year. Diluted earnings per share additionally includes in the calculation, the weighted average number of ordinary shares that would be issued on conversion of any dilutive potential ordinary shares. The dilutive effect is calculated on the full exercise of all potentially dilutive ordinary share options granted by the Group. 8. TAXATION [CONT.] Deferred tax The deferred taxation liability is based on the expected future rate of corporation tax of 25% (2021: 25%) and comprises the following: LIABILITIES At 1 January UK tax charge relating to current year UK tax charge relating to change in future tax rates Tax charge relating to foreign exchange rate movements Tax charge on other comprehensive income TOTAL DEFERRED TAX LIABILITY 31 December 2022 £’000 31 December 2021 £’000 The Group additionally discloses an underlying earnings-per-share calculation that excludes the impact of share-based payments, other operating income and their tax effect, which better enables comparison of financial performance in the current year with comparative years. 1,061 483 - 3 (160) 1,387 626 237 198 - - 1,061 Basic earnings per share Diluted earnings per share Underlying – basic Underlying – diluted 31 December 2022 pence 31 December 2021 pence 86.8p 83.8p 70.1p 67.7p 57.7p 55.1p 58.3p 55.7p The UK deferred tax liability as at 31 December 2022 and as at 31 December 2021 relates to the tax effect of timing differences in respect of fixed assets. The deferred tax also includes charges through other comprehensive income. Deferred tax on each component of other comprehensive income is as follows: CASH FLOW HEDGES Losses recognised on hedging instruments Exchange differences arising on translation of foreign operations TOTAL TAX CHARGE ON OTHER COMPREHENSIVE INCOME 31 December 2022 31 December 2021 Before tax £’000 Tax £’000 After tax £’000 Before tax £’000 Tax £’000 After tax £’000 (639) 160 (479) - - - 1,382 - 1,382 (148) - (148) 743 160 903 (148) - (148) The calculation of basic and diluted earnings per share is based on the following number of shares: Basic weighted average shares Contingently issuable shares Diluted weighted average shares 31 December 2022 No. 31 December 2021 No. 41,923,407 1,482,706 43,406,113 40,773,748 1,925,202 42,698,950 The earnings used in the calculation of basic, diluted and underlying earnings per share are set out below: Profit after tax for the year Non-controlling interests Earnings – basic and diluted Other operating income Share-based payments Taxation impact of the above Earnings – underlying 31 December 2022 £’000 31 December 2021 £’000 39,050 (2,678) 36,372 (9,278) 664 1,637 29,395 26,043 (2,512) 23,531 - 260 - 23,791 118 119 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 10. DIVIDENDS 12. PROPERTY, PLANT AND EQUIPMENT FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Final dividend for the year ended 31 December 2020 of 8.0p per share Interim dividend for the year ended 31 December 2021 of 3.0p per share Final dividend for the year ended 31 December 2021 of 8.0p per share Interim dividend for the year ended 31 December 2022 of 3.4p per share 31 December 2022 £’000 31 December 2021 £’000 - - 3,375 1,435 4,810 3,276 1,229 - - 4,505 All dividends paid are in respect of the ordinary shares of £0.002 each. The Directors propose that a final dividend in respect of the year ended 31 December 2022 of 11.0p per share amounting to £4,641,621 will be paid on 12 May 2023 to all shareholders on the register of members on 14 April 2023. This dividend is subject to approval by shareholders at the AGM and has not been accrued as a liability in these Financial Statements in accordance with IAS 10 ‘Events after the reporting period’. 11. INTANGIBLE ASSETS COST At 1 January 2021 Additions Impairment AT 31 DECEMBER 2021 Additions Impairment AT 31 DECEMBER 2022 AMORTISATION At 1 January 2021 Charge for the year AT 31 DECEMBER 2021 Charge for year Impairment AT 31 DECEMBER 2022 NET BOOK VALUE At 1 January 2021 At 31 December 2021 AT 31 DECEMBER 2022 Internally generated software £’000 Domain names £’000 2,672 1,955 (121) 4,506 3,410 (621) 7,295 598 940 1,538 1,557 (578) 2,517 2,074 2,968 4,778 - 37 - 37 25 - 62 - 10 10 16 - 26 - 27 36 Total £’000 2,672 1,992 (121) 4,543 3,435 (621) 7,357 598 950 1,548 1,573 (578) 2,543 2,074 2,995 4,814 COST At 1 January 2021 Additions Write offs AT 31 DECEMBER 2021 Additions Write offs Reclassification* AT 31 DECEMBER 2022 DEPRECIATION At 1 January 2021 Charge for the year Write offs AT 31 DECEMBER 2021 Charge for the year Write offs AT 31 DECEMBER 2022 NET BOOK VALUE At 1 January 2021 At 31 December 2021 AT 31 DECEMBER 2022 Leasehold improvements £’000 Fixtures & fittings £’000 Computer equipment £’000 1,453 - - 1,453 1,167 - 147 2,767 199 149 - 348 206 - 554 1,254 1,105 2,213 790 220 - 1,010 239 (116) (147) 986 237 159 - 396 189 (84) 501 553 614 485 756 441 (1) 1,196 333 (377) - 1,152 312 281 (1) 592 369 (359) 602 444 604 550 Total £’000 2,999 661 (1) 3,659 1,739 (493) - 4,905 748 589 (1) 1,336 764 (443) 1,657 2,251 2,323 3,248 * £146,866 of tangible assets were incorrectly classified as Fixtures and fittings in the prior year and have since been reclassified to Leasehold improvements in the current year. During the year, assets with a cost of £493,030 were written off. The resulting loss was £50,337. 120 121 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 13. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES Amounts recognised in the Consolidated Statement of Comprehensive Income Leases where the Group is a lessee are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets and leases with a term of 12 months or less. In October 2022, a lease was signed for new premises in Malta. The lease has a contractual start date of 30 November 2022 and is a ten-year lease with a break option at 5 years. After the end of the rent-free period of six months, rent of €461,700 Depreciation charge on right-of-use assets (note 5) Interest on lease liabilities (note 6) Rental costs for short-term leases (note 5) (£409,715) is payable per annum, subject to a 3% increase after one year, and a subsequent rent review of no more than TOTAL 31 December 2022 £’000 31 December 2021 £’000 1,154 452 787 2,393 809 344 179 1,332 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 3% per annum. The incremental borrowing rate used to discount lease liabilities at initial inception is 4.7%, based on management’s assessment. On initial recognition of the lease, a right-of-use asset of £3,557,614 was recognised. In October 2021, a lease was signed for new premises in Amsterdam. The lease has a contractual start date of 1 January 2022 and has been accounted for as a right-of-use asset and a lease liability from that date. It is a ten-year lease with a break option at 6.5 years. The incremental borrowing rate used to discount lease liabilities at initial inception is 1.6%, based on management’s assessment. On initial recognition of the lease, a right-of-use asset of £2,173,543 was recognised. The Group signed two further leases for new premises which commenced in the year, one in Bristol for five years and one in Toronto, Canada for seven years. On initial recognition of these leases, a right-of-use asset of £297,999 was recognised in respect of the Bristol lease and a right-of-use asset of £836,785 was recognised in respect of the Toronto lease. In May 2019, the Group signed a ten-year lease for the Head Office Premises in London expiring in May 2029. The rent is subject to a rent review after five years and the lease does not contain any break clause. The incremental borrowing rate used to discount lease liabilities at initial inception is 4.5%, based on management’s assessment (2021: 4.5%). Right-of-use assets At 1 January Additions Depreciation charge for the year AT 31 DECEMBER Lease liabilities At 1 January Additions Finance cost (note 6) Payments in the year AT 31 DECEMBER Analysis: Current Non-current TOTAL LEASE LIABILITIES 31 December 2022 £’000 31 December 2021 £’000 6,136 6,866 (1,154) 11,848 6,945 - (809) 6,136 31 December 2022 £’000 31 December 2021 £’000 7,362 6,603 452 (1,343) 13,074 1,407 11,667 13,074 7,483 - 344 (465) 7,362 450 6,912 7,362 The rental costs for short-term leases amounting to £786,931 (2021: £178,919) relate to leases of less than one year for premises at our other overseas operations. 14. SUBSIDIARIES The Group’s subsidiaries as at 31 December 2022 are as follows: Name DIRECT HOLDING Alpha FX Limited Alpha Agency Solutions Ltd INDIRECT HOLDING Alpha FX Institutional Limited Alpha Foreign Exchange (Canada) Limited Alpha FX Netherlands Limited Alpha FX Europe Limited Alpha FX Italy Limited Alpha Europe Alpha FX Australia Pty Ltd AGI Financial Pte. Ltd. Alpha Financial Solutions Ltd Alpha FS Ltd Alpha FX Group Limited Alpha FS Group Ltd Country of incorporation Proportion of ordinary shares held England1 England1 England1 Canada2 England1 Malta3 England1 Luxembourg4 Australia5 Singapore6 England7 England7 England7 England7 100% 100% 78.5% 74.7% 93.5% 100% 100% 100% 100% 100% 100% 100% 100% 100% Active Non-trading Active Active Active Active Active Active Active Non-trading Dormant Dormant Dormant Dormant Registered addresses: 1. Brunel Building, 2 Canalside Walk, London, UK, W2 1DG 2. Suite 2400, 745 Thurlow Street, Vancouver BC, Canada, V6E 0C5 3. 4. 171, Old Bakery Street, Valletta VLT1455, Malta 17 Boulevard F.W. Raiffeisen, L-2411 Luxembourg, Grand Duchy of Luxembourg 5. c/o Intertrust Australia Pty Ltd, Suite 2, Level 25, 100 Miller Street, North Sydney, NSW 2060 6. 7. 14 Robinson Road #12-01/02, Far East Finance Building, Singapore (048545) 128 City Road, London, United Kingdom, EC1V 2NX The principal activity of the Group and its subsidiary undertakings is the development of financial strategies and technologies to 122 123 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 14. SUBSIDIARIES [CONT.] assist corporates and institutions in their FX risk management, mass payments and account opening requirements. More detail on each subsidiary undertaking is provided in note 4. Shares in all indirect subsidiary holdings are held by Alpha FX Limited. The accounting year-ends of all subsidiaries is 31 December 2022. During the year, there were amendments to share schemes in three subsidiaries. In March 2022, Alpha FX Limited’s shareholding in Alpha FX Institutional Limited decreased from 79.4% to 78.5% following an adjustment to the employee share ownership incentive scheme to include additional key employees and following the first vesting of the share scheme. In June 2022 Alpha FX Limited reduced its shareholding in Alpha Foreign Exchange (Canada) Limited from 75.0% to 74.7%, after an allotment of shares to key employees. In November 2022, Alpha FX Limited increased its shareholding in Alpha FX Netherlands Limited from 83.5% to 93.5% as part of a share buy-back due to a termination of an employment contract. More information regarding the share schemes is included in note 24. 15. DERIVATIVE FINANCIAL ASSETS AND FINANCIAL LIABILITIES Derivative financial assets not designated as hedging instruments Foreign currency forward and option contracts with customers Foreign currency forward and option contracts with banking counterparties 31 December 2022 31 December 2021 Fair value £’000 Notional principal £’000 Fair value £’000 Notional principal £’000 116,515 16,521,973 69,634 10,625,685 10,194 4,787,695 5,738 5,892,363 Other foreign exchange forward contracts 229 16,592 514 17,570 126,938 21,326,260 75,886 16,535,618 Analysis: Current Non-current TOTAL DERIVATIVE FINANCIAL ASSETS 31 December 2022 £’000 31 December 2021 £’000 99,119 27,819 126,938 58,551 17,335 75,886 Derivative financial liabilities not designated as hedging instruments FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Foreign currency forward and option contracts with customers Foreign currency forward and option contracts with banking counterparties 31 December 2022 31 December 2021 Fair value £’000 Notional principal £’000 Fair value £’000 Notional principal £’000 47,706 6,164,718 42,720 8,467,787 1,736 5,711,465 1,722 7,950,554 49,442 11,876,183 44,442 16,418,341 Derivative financial liabilities designated as hedging instruments Foreign currency forward contracts Interest rate swap contracts Total Derivative financial liabilities 31 December 2022 31 December 2021 Fair value £’000 Notional principal £’000 Fair value £’000 Notional principal £’000 286 353 639 21,648 205,000 226,648 - - - - - - 31 December 2022 31 December 2021 Fair value £’000 Notional principal £’000 Fair value £’000 Notional principal £’000 50,081 12,102,831 44,442 16,418,341 Analysis: Current Non-current TOTAL DERIVATIVE FINANCIAL LIABILITIES 31 December 2022 £’000 31 December 2021 £’000 42,764 7,317 50,081 36,697 7,745 44,442 124 125 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 15. DERIVATIVE FINANCIAL ASSETS AND FINANCIAL LIABILITIES [CONT.] 16. FINANCIAL INSTRUMENTS Items that will be reclassified to the Consolidated Statement of Comprehensive Income: Movement in year Cash flow hedges Losses recognised on hedging instruments Exchange differences arising on translation of foreign operations Tax relating to items that may be reclassified 31 December 2022 £’000 31 December 2021 £’000 (639) 1,382 160 903 - (148) - (148) Since the Group’s inception, it has historically operated in a low interest rate environment. However, since Q3, 2022, when interest rates started to rise, the Group started to receive a large amount of interest on its own free cash balances as well as client cash balances. In line with the Group’s treasury policy, we have entered into interest rate swap contracts to manage interest rate risk, see further details below. Interest rate swap contracts Forward foreign exchange contracts and options fall into level 2 of the fair value hierarchy as set out in note 2. Level 2 comprises those financial instruments which can be valued using inputs other than quoted prices that are observable for the asset or liability either directly (i.e., prices) or indirectly (i.e., derived from prices). The fair value of forward foreign exchange contracts is measured using observable forward exchange rates for contracts with a similar maturity at the reporting date. The fair value of option foreign exchange contracts is measured using an industry standard external model that best presents the unpublished interbank valuations. There were no transfers between level 1 and 2 during the current or prior year. The fair value of all other financial assets and financial liabilities is approximate to their carrying value. The principal financial instruments of the Group, from which financial instrument risk arises, are as follows: a) Financial assets per statement of financial position FAIR VALUE ASSETS 31 December 2022 £’000 31 December 2021 £’000 The interest rate swap contracts designated as hedging instruments relate to transactions entered into in December 2022 to Derivatives not designated as hedging instruments (note 15) fix the rate of interest receivable on cash balances held by the Group in respect of its own free cash balances as well as client cash balances. With the interest rate swap, the Group receives a fixed rate of interest and pays a floating interest rate based on SONIA, the difference between the rates results in the Group receiving a fixed rate of interest. The contracts commence in June 2023 with expiries in June 2025 and June 2026, with an average net interest rate receivable of 4.1%. Upon expiry of the contracts or if they no longer qualify for hedge accounting, the deferred gains/losses in comprehensive income relating to the Group’s own free cash balances will be reclassified within finance income and those relating to client cash balances will be reclassified within other operating income. The hedging ratio at year end was 1:1. The hedge effectiveness will be reassessed at each reporting date. Foreign currency forward contracts The forward contracts designated as hedging instruments relate to hedges entered into in December 2022 to fix the exchange rate of interest receivable denominated in dollars and euros. The contracts have monthly expiries up to December 2023. The deferred gains/losses in comprehensive income will be reclassified within other operating income upon expiry of the contracts or if they no longer qualify for hedge accounting. The hedging ratio at year end was 1:1. The hedge effectiveness will be reassessed at each reporting date. Net gains/(losses) on financial assets at fair value through profit or loss Foreign exchange derivatives 31 December 2022 £’000 31 December 2021 £’000 274 274 (118) (118) Derivatives not designated as hedging instruments are intended to reduce the level of foreign currency risk for expected future cash flows. The tables above show the fair value of those foreign exchange forward contracts as at each year-end. TOTAL FAIR VALUE ASSETS AMORTISED COST ASSETS Financial assets at amortised cost Other receivables excluding prepayments Cash and cash equivalents Fixed collateral TOTAL AMORTISED COST ASSETS TOTAL FINANCIAL ASSETS 126,938 126,938 - 4,384 136,799 4,726 145,909 272,847 75,886 75,886 5,803 2,542 108,044 3,506 119,895 195,781 b) Financial liabilities per statement of financial position FAIR VALUE LIABILITIES Derivatives not designated as hedging instruments (note 15) Derivatives designated as hedging instruments (note 15) TOTAL FAIR VALUE LIABILITIES OTHER PAYABLES MEASURED AT AMORTISED COST Other payables and accruals TOTAL OTHER PAYABLES TOTAL FINANCIAL LIABILITIES 31 December 2022 £’000 31 December 2021 £’000 49,442 639 50,081 75,903 75,903 125,984 44,442 - 44,442 41,173 41,173 85,615 126 127 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY202216. FINANCIAL INSTRUMENTS [CONT.] c) Offsetting financial assets and financial liabilities Financial instruments at fair value through profit or loss represent immediate back-to-back derivative transactions with banking counterparties and are reported as financial assets and financial liabilities in the consolidated statement of financial position. The transactions are subject to ISDA (“International Swaps and Derivatives Association”) Master Agreements and similar master agreements which provide a legally enforceable right of offset in the normal course of business, the event of a default and the event of insolvency or bankruptcy. In accordance with the master agreements, contracts with banking counterparties are assessed daily on a net basis. However, contracts with clients are assessed daily on a gross basis, and therefore shown as separate financial assets and financial liabilities in the consolidated statement of financial position. 2022 Derivative financial assets Derivative financial liabilities 2021 Derivative financial assets Derivative financial liabilities Gross fair value £’000 186,868 (154,248) Gross fair value £’000 122,508 (99,444) Amounts subject to enforceable netting arrangements Fair value offset £’000 (59,930) 59,930 Net derivative financial asset/(liability) (Note 15) £’000 126,938 (49,442) Fixed collateral £’000 4,726 - Amounts subject to enforceable netting arrangements Fair value offset £’000 (46,622) 46,622 Net derivative financial asset/(liability) (Note 15) £’000 75,886 (44,442) Fixed collateral £’000 3,506 - Variation margin offset £’000 - 44,876 Variation margin offset £’000 - 8,380 17. FINANCIAL RISK MANAGEMENT Objectives, policies and processes for managing and the methods used to measure risk There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods, unless otherwise stated in this note. Financial assets principally comprise trade and other receivables, cash and cash equivalents, fixed collateral and derivative financial assets. Financial liabilities comprise trade and other payables, shareholder loans and derivative financial liabilities. The main risks arising from financial instruments are credit risk, liquidity risk, market risk, foreign currency risk, and interest rate risk, each of which are discussed in further detail below. The Group monitors and mitigates financial risk on a consolidated basis. The Group has implemented a framework to ensure that risk management practices appropriate to a listed company are in place. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION The Group operates under the Three Lines of Defence approach to risk management. This framework is overseen and enforced by the Risk Committee and Board. 1. First Line is risk management: Primary responsibility for strategy, performance and risk management lies with the Executive Team and the Heads of each department. 2. Second Line is risk oversight: The Risk, Compliance, Finance and Legal Teams provide risk oversight. 3. Third Line is independent assurance: Independent assurance on the effectiveness of the risk management systems. Specialist external reviews provide an additional line of defence. Credit risk Credit risk is inherent in Alpha’s business model. The Board accepts that credit losses are a function of our trading model, and the Group takes a risk-based approach to balance revenue opportunities against the risk of default. Credit risk is the risk that a client fails to deliver currency at maturity of a contract and/or fails to deposit margin when a margin call is made which could ultimately lead to a financial loss. Where the Group provides credit to customers, this is subject to credit verification checks and an in-depth underwriting process by our Credit Team based on both quantitative and qualitative factors. Credit policies are aimed at reducing the impact of losses, credit terms will only be granted to customers who satisfy a creditworthiness assessment and demonstrate an appropriate payment history. The client terms and conditions and the credit facility confirmation letter highlight the client’s margin terms and requirement to provide collateral. This provides further mitigation to the credit exposure and reduces the risk of potential disputes. The Group evaluated the concentration of risk as low with respect to derivative financial assets arising from contracts with counterparties. This is due to the fact that no single customer represents a significant proportion of the total value of customer contracts and the business has historically low levels of counterparty default. Client credit exposures are monitored daily. Stress tests are carried out to assess and minimise client credit risk exposures under various market volatility scenarios. Counterparty risk The Group relies on third party institutions in order to trade with clients. To reduce counterparty credit risk, the Group only trades with institutional counterparties with robust balance sheets, high credit ratings and strong capital resources. The Group monitors the creditworthiness of institutional counterparties on an ongoing basis. As part of the Group’s business continuity procedures settlement lines have been established with several institutional counterparties in order to reduce the impact of business disruption as a result of counterparty risk. Liquidity risk Liquidity risk is the risk that the Group may encounter difficulty in meeting its financial obligations as they are due. Extensive controls are in place to ensure that liquidity risk is mitigated. The Group’s liquidity requirements are reviewed daily, and the Group employs stress testing to model the sufficiency of its liquidity in stressed market scenarios. The ability of clients to pay margin and settle contracts is monitored with automated triggers and alerts configured into the Group’s systems. The Group maintains cash reserves and continues to increase these reserves relative to its trading activity on an ongoing basis. The Group attempts to ensure it maintains (as closely as possible) a balanced position in each currency, with regular stress testing of its net long/short position in a particular currency against sudden and unforeseen market movements (“Black Swan Events”). The Group has sufficient cash resources to pay its debts and contractual liabilities as they fall due. Consequently, management does not believe that the Group has a material exposure to liquidity risk. 128 129 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 17. FINANCIAL RISK MANAGEMENT [CONT.] Market risk Market risk is minimised by the operation of matched derivative transactions, whereby all derivatives sold to customers are matched on a back-to-back basis with an offsetting derivative from a banking counterparty. The Group is only exposed to the net position of its derivative assets and liabilities and this position is collateralised on a daily basis. The Group may from time to time buy treasury hedges from its banking counterparties, that are not matched with the client, to limit the tail risk of individual trades. The treasury hedges involve buying an option and therefore the Group has the right to trade rather than an obligation so there is no downside risk on these transactions. Interest rate risk Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest bearing financial assets and liabilities used by the Group. Interest bearing assets comprise cash and cash equivalents which are considered short- term liquid assets. It is the Group’s policy to settle derivative financial liabilities arising from contracts with customers (included within trade payables) and other payables within the credit terms allowed. Therefore, the Group generally does not incur interest on overdue balances. In 2022 the interest receivable on cash and cash equivalents was managed using derivative instruments to hedge interest rate risk (note 15). Foreign currency risk Foreign currency risk refers to the risk that non-sterling revenue earned on a transaction may fluctuate due to changes in foreign currency rates. The Group is exposed to foreign currency risk on revenue, expenses and net assets that are denominated in a currency other than sterling. The principal currencies giving rise to this risk vary from period to period depending on the currency of transactions undertaken by the Group. Details of the foreign currency cash balances can be found in note 19. The Group manages its exposure to currency movements in line with its Treasury Policy. Client money received in a foreign currency is deposited in a bank account of the same currency, netting off to provide a natural hedge. The Group reduces its exposure to foreign exchange by retranslating excess cash in foreign currencies into sterling on a regular basis. The Group hedges a proportion of its unrealised profits through foreign exchange contracts designated as fair value through profit or loss. The Group’s policy is to reduce the risk associated with the revenue denominated in foreign currencies by using forward FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Year ended 31 December EURO: 10% weakening in the £/€ exchange rate 10% strengthening in the £/€ exchange rate US DOLLAR: 10% weakening in the £/$ exchange rate 10% strengthening in the £/$ exchange rate CANADIAN DOLLAR: 10% weakening in the £/$ exchange rate 10% strengthening in the £/$ exchange rate Impact on profit after tax Impact on equity 2022 £’000 4,624 (3,784) 2,546 (2,083) 384 (314) 2021 £’000 4,613 (3,774) 1,269 (1,039) 408 (334) 2022 £’000 3,540 (2,897) 1,187 (971) 410 (335) 2021 £’000 573 (469) 386 (316) 305 (250) The sensitivities in the table above do not include the impact of foreign exchange hedges in place to optimise cash management across the Group. By including the impact of hedges in place throughout 2022, the impact of a 10% weakening of the pound on profit after tax would have been £804k and £1,733k (2021: £2,081k and £779k) for Euro and US dollar respectively. Similarly, the impact of a 10% strengthening of the pound on profit after tax would have been -£658k and -£1,418k (2021: -£1,703k and -£638k) for Euro and US dollar respectively. Exchange rates for financial year 2022 2021 EURO: Average rate Closing rate US DOLLAR: Average rate Closing rate CANADIAN DOLLAR: Average rate Closing rate 1.1730 1.1269 1.2369 1.2027 1.6080 1.6295 1.1630 1.1909 1.3751 1.3543 1.7244 1.7112 fixed rate currency hedges. The settlement of these forward foreign exchange contracts is expected to occur within the The impact of a change of 10% has been selected as this is considered reasonable given the current level of exchange rates following twelve months. Changes in the fair values of forward foreign exchange contracts are recognised directly in the and the volatility observed both on a historical basis and market expectations for future movement. consolidated statement of comprehensive income. Foreign currency risk – sensitivity analysis Management of capital The Group’s objectives when managing capital are to maximise shareholder value whilst safeguarding the Group’s ability The Group’s principal recurring foreign currency transactions are in Euros, US Dollar and Canadian Dollar. The table to continue as a going concern. The Group’s policy is to maintain a capital base and funding structure that retains creditor opposite shows the impact on the Group’s operating profit and equity, of a 10% change in the exchange rate of the and market confidence, provides flexibility for business development, ensures adherence to regulatory requirements, whilst principal currencies, euro, US dollar and Canadian dollar. optimising returns to shareholders. The Group monitors its total equity as shown in the consolidated statement of financial position. In order to maintain or adjust the capital structure, the Company may issue new shares, adjust the dividends paid to shareholders or buy back shares. 130 131 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY202218. OTHER RECEIVABLES Financial assets at amortised cost Other receivables Prepayments 19. CASH 31 December 2022 £’000 31 December 2021 £’000 - 4,384 2,437 6,821 5,803 2,542 1,462 9,807 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value. All changes in financial liabilities arising from financing activities, other than the lease liabilities taken out in 2019 and 2022, are due to cash flow movements and are shown in the consolidated statement of cash flows within cash flow from financing activities. 20. CAPITAL AND RESERVES Share capital AUTHORISED, ISSUED AND FULLY PAID At 31 December 2022 At 31 December 2021 No. £’000 No. £’000 Ordinary shares of £0.002 each 42,196,554 84 40,964,225 82 Cash and cash equivalents comprise cash balances and deposits held at call with banks. Fixed collateral comprise cash held as collateral with banking counterparties for which the Group does not have immediate access. Number of shares Cash balances included within derivative financial assets (see note 15) relate to the variation margin called by banking counterparties regarding out of the money trades. Cash and cash equivalents Variation margin called by counterparties (note 16) Fixed collateral TOTAL CASH Cash at bank is made up of the following currency balances: British pound Euro US Dollar Canadian Dollar Norwegian Krone Chinese Renminbi Other currencies 31 December 2022 £’000 31 December 2021 £’000 136,799 44,876 4,726 186,401 108,044 8,380 3,506 119,930 31 December 2022 £’000 31 December 2021 £’000 86,421 61,325 20,565 4,070 7,622 3,307 3,091 186,401 90,072 (22,705) 50,046 1,376 25 395 721 119,930 The Norwegian Krone and Chinese Renminbi balances of £7,621,894 and £3,307,134 at 31 December 2022 represent short- term timing differences over the year end. The Norwegian Krone balance represents cash in transit over the year end. The Chinese Renminbi balance was received from a client on 30th December and subsequently paid out to a banking counterparty on the first working day of 2023. AT 1 JANUARY 2021 Shares issued on vesting of share option schemes AT 31 DECEMBER 2021 Shares issued on vesting of share option schemes AT 31 DECEMBER 2022 Ordinary shares 40,123,568 840,657 40,964,225 1,232,329 42,196,554 The following movements of share capital occurred during the year ended 31 December 2022: On 21 March 2022, the Company issued 1,123,946 new shares following the vesting of shares under the B, C and E Growth Share Schemes and the Institutional Share Scheme. On 25 March 2022, the Company issued 99,386 new shares in respect of shares issued following the vesting of the SAYE share scheme. The Company issued a further 8,997 new shares in respect of shares issued following the vesting of the SAYE share scheme, between April 2022 and June 2022. The following movements of share capital occurred during the year ended 31 December 2021: On 23 March 2021, the Company issued 822,873 new shares following the vesting of shares under the B and C Growth Share Schemes. On 23 March 2021, the Company issued 2,403 new shares in respect of shares issued following the early exercise by an employee of the SAYE share scheme. On 19 April 2021, the Company issued 2,596 new shares in respect of shares issued following the early exercise by an employee of the SAYE share scheme. On 10 September 2021, the Company issued 12,785 new shares in respect of shares issued to a former employee of Alpha FX Institutional Limited as part of a settlement agreement. 132 133 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 20. CAPITAL AND RESERVES [CONT.] Below shows summarised financial information for each subsidiary and division that has non-controlling interests that are material to the Group. The amount disclosed are before intra-group eliminations. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Share premium account In the year ended 31 December 2022 the share premium account increased by £1,905,507 following the vesting of shares under the Institutional Share Scheme. The share premium account increased by a further £823,771 following the vesting of the SAYE share scheme. In the year ended 31 December 2021 the share premium account increased by £175,341 due to shares vesting as a result of a settlement agreement. The share premium account increased by a further £25,986 as a result of shares vesting due to two early exercises of the SAYE scheme. Capital redemption reserve The capital redemption reserve of £3,701 arose following the buy-back of shares in prior years. Merger reserve The merger reserve of £666,529 was created in October 2016 as a result of the share for share exchange with non- controlling interests. The merger relief reserve represents the difference between the fair value and nominal value of shares issued on the acquisition of non-controlling interests, where the Company has taken advantage of merger relief. Retained earnings Represents accumulated profits attributable to equity owners of the parent less accumulated dividends. Translation reserve The translation reserve of £1,257,974 (2021: (£123,429)) represents the foreign exchange differences arising from the translation of the net investment in foreign entities. 21. NON-CONTROLLING INTERESTS Non-controlling interests (“NCI’s”) include the following: − Alpha Foreign Exchange (Canada) Limited (“Canada”) in which the NCI’s shareholding increased from 25% to 25.3% in April 2022 following the launch of the Canada share scheme, and reduced to 18% in September 2022. A further 4.3% of the shares are held by employees, but these shares are not included in the NCI as the shares confer no upfront economic rights to their holders and as such, are not entitled to receive dividends, receive notice of, attend, speak or vote at general meetings of the Company and are not entitled rights to participate in any distributions upon a liquidation or capital reduction of the Company. − Alpha FX Institutional Limited (“Institutional”) in which the NCI’s shareholding reduced from 20.0% to 15.4% in March 2022. A further 6.1% of the shares are held by employees, but these shares not included in the NCI, in line with the reasoning above for Canada. − Alpha Pay, a division of Alpha FX Limited in which voting shares held by the NCIs decreased from 8.21% at the start of the year to 7.53% in January 2022. A further 11.23% of the shares are held by employees, but these shares are not included in the NCI, in line with the above. − Alpha FX Netherlands Limited (“Netherlands”) in which the NCI’s shareholding decreased from 16.5% to 6.5% in November 2022. Institutional Canada Alpha Pay Netherlands 31 Dec 2022 £’000 31 Dec 2021 £’000 31 Dec 2022 £’000 31 Dec 2021 £’000 31 Dec 2022 £’000 31 Dec 2021 £’000 31 Dec 2022 £’000 31 Dec 2021 £’000 Revenue 19,836 15,634 4,698 5,497 23,496 18,330 6,388 3,783 4,412 9,342 1,511 - 5,175 1,070 - 371 66 - 4,398 1,473 368 10,495 790 - 6,219 804 - 1,960 311 - 1,627 269 (1,023) (910) (182) - (408) (829) (264) - 3 13,612 5 7,292 (2,729) 10,886 (3,531) 3,766 1,064 1,191 (960) 1,295 16 1,184 (228) 972 - 1,595 - 804 2,434 3,126 - - (2,553) 1,595 804 3,007 183 1,905 (199) 1,889 Other operating income Profit after taxation Profit allocated to non- controlling interests Dividends declared to non-controlling interests AT 31 DECEMBER Assets Non-current assets Current assets Liabilities Current liabilities NET ASSETS 22. OTHER PAYABLES CURRENT: Other payables Other taxation and social security Accruals NON-CURRENT: Dilapidation provision TOTAL OTHER PAYABLES 31 December 2022 £’000 31 December 2021 £’000 70,204 1,369 5,699 77,272 222 222 77,494 34,363 1,018 4,617 39,998 - - 39,998 Other payables consist of margin received from clients and client-held funds. The carrying value of other payables classified as financial liabilities measured at amortised cost, approximates fair value. 134 135 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 23. RELATED PARTY TRANSACTIONS AND BALANCES Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions, or one other party controls both. The Group operates several growth share schemes where shares in subsidiary entities are awarded to employees and are converted into shares in the Company at a future date based on pre-determined vesting criteria. External tax valuations for share schemes are obtained from an independent third party prior to issue. Indemnities are also obtained from all employees for any future tax liabilities that may arise. Subsidiaries The Parent Company of the Group is Alpha Group International plc. Note 14 provides information about the subsidiaries and the holding company. Details of the ultimate controlling party can be found in note 25. Should any additional payroll tax liabilities arise, in the first instance, they would be paid by the subsidiary company and the tax indemnities would ensure recovery of any additional tax liabilities from the growth shareholders. The Board has assessed that should such an event occur, there would not be a material impact on the Group’s net assets or the result for the year. Transactions between the Group and its subsidiaries have been eliminated on consolidation and are not disclosed in this B Growth Share Scheme note. Key management personnel The Group considers its key management personnel to be the Directors of Companies within the Group. Under the B Growth Share Scheme, selected employees of the Group who were employed prior to the Company’s IPO in 2017, were issued with B shares in Alpha FX Limited. The rights attaching to the B shares include a put option which, when exercised, enable the shareholder to convert the B shares into ordinary shares of the Company. Following the exercise of 341 B Growth Shares in respect of the year ended 31 December 2020, 630,279 shares in Alpha Group International plc were issued as consideration in March 2022. Due to the impact of COVID-19, the issuance of these shares had been The compensation of the Directors of the Company, together with their shareholding, is included in the Remuneration deferred from March 2021 with all future issuances similarly deferred by a year. Committee report on page 80. Loans with key management personnel In March 2022, following the revenue growth target for the year being met in respect of the year ended 31 December 2021, 333 B Growth Shares were exercised when the share price of the Company was 1909p. As a result, 549,137 shares in Alpha Group As at 31 December 2022 there was a loan balance outstanding with A J Hall, a Director of Alpha FX Institutional Limited, International plc were due to be issued as consideration in March 2023 and 88,015 shares to an ex-employee in March 2025 as part of amounting to £97,791 (2021: £63,650) and a loan balance outstanding with S J Marsh, a Director of Alpha FX Institutional a settlement agreement. This represents the final vesting of the B Growth Share Scheme. Limited, amounting to £130,185 (2021: £173,850). Both loans were in respect of shares that were issued partly paid. These balances will be repaid in part on the second vesting of the Institutional shares in March 2023 (see note 26). The intention is The share-based payment charge of the B Growth Shares in the year ended 31 December 2022 was £nil (2021: £nil). for the remainder of the loan balances to be repaid via a deduction from dividend payments throughout 2023. Transactions with key management personnel C Growth Share Scheme During the year, Alpha FX Limited traded gross foreign currency contracts with; M J Tillbrook £2,291,400 (2021: £nil) and M E In October 2018, the Group adopted a C Growth Share Scheme, under which 863 C ordinary shares (“C Shares”) in Alpha FX Limited Stuart £30,853 (2021: £49,768), on an arms length basis. (the “Company”) were issued to full-time employees of the Group (“C Share Growth Scheme”). During the year, Alpha FX Limited purchased services totalling £1,900 (2021: £nil) from C I Kahn, on an arms-length basis, in The C Shares confer no upfront economic rights to their holders and in particular holders of the C Shares are not entitled to receive relation to tickets for a sporting event. dividends, receive notice of, attend, speak or vote at general meetings of the Company and are not entitled rights to participate in any distributions upon a liquidation or capital reduction of the Company. In December 2022, the Group booked and paid for 2023 business travel to Australia for a Director, that included personal expenses due to his family being in attendance, this amounted to £26,000. As intended when the prepayment was made, this The C Shares contain a put option, such that, when and to the extent vested, they can be converted into ordinary shares in the amount was subsequently fully reimbursed in early 2023. Other entities During the year, the Group purchased goods and services totalling £391,128 (2021: £511,516) on an arms-length basis from Klarify Group Limited, a multi-cloud and cyber security specialist in which M J Tillbrook has a 42% (2021: 42%) beneficial ownership. 24. SHARE-BASED PAYMENTS Group. The rate of conversion is that the C Shares will be regarded as worth a pro rata share of the share price gain of Alpha Group International plc above a hurdle price of 550p based upon the market price of Alpha Group International plc at the time of allotment. Upon conversion, the number of ordinary shares in Alpha Group International plc that a C Shareholder will receive is such number of ordinary shares whose value is equivalent to the Group’s closing share price at the conversion date. Conversion is only permitted to the extent that the C Shares have vested. The C Share Growth Scheme includes a requirement for Group revenue to grow 20% in 2022 and 20% in 2023 in order for vesting to occur. The gain that a C Shareholder can receive is capped at a ceiling on the maximum market capitalisation of Alpha of £650m. As a result, the C Shareholders will be entitled to a pro rata share of the gain in market capitalisation of Alpha between the hurdle price at the time of allotment and the market capitalisation ceiling of £650m. If a participating employee either leaves employment with Employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby the Group or commits a performance breach (broadly conduct detrimental to the business and reputation of the Group), the Group is employees render services as consideration for equity instruments (equity-settled transactions). entitled to buy back the relevant C Shares at cost. The Group recognised a total expense related to all the above equity-settled share-based payment transactions in the year In March 2022, 186 C Growth Shares were exercised in respect of the year ended 31 December 2021. As a result, 219,494 shares in ended 31 December 2022 of £663,624 (2021: £259,782). Alpha Group International plc were issued as consideration in March 2022. 136 137 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY202224. SHARE-BASED PAYMENTS [CONT.] C Growth Scheme [cont] Based on share price of the Company of 1850p as at 31 December 2022 and following the revenue growth target for the year being met for the C Growth Shares, it is estimated that upon exercise of the put options in respect of the year ended 31 December 2022, the Company will issue 171,853 shares in March 2023. The share-based payment charge of the C Growth Shares in the year ended 31 December 2022 was a credit of £17,918 (2021: charge of £123,024). E share growth scheme In 2020 the Group adopted an E Share Growth Scheme under which 882 E ordinary shares (“E Shares”) in Alpha FX Limited were issued to full time employees of the Group (“E Share Growth Scheme”). The E Shares contain a put option, such that, when and to the extent vested, they can be converted into ordinary shares in the Group. The E Shares will vest in four equal tranches, occurring annually, starting on 31 December 2021 until 31 December 2024. Vesting will require Group revenue growth of 25% in 2021, 20% in 2022, 20% in 2023 and 20% in 2024. The rate of conversion of the E Shares, is a pro rata share of the market capitalisation gain of Alpha above a hurdle price of £300m. The gain that an E Shareholder could receive is capped through placing a ceiling on the maximum market capitalisation of Alpha of £650m. The result of doing so is that the E Shareholders will be entitled to a pro rata share of the gain in market capitalisation of Alpha between £300m and the market capitalisation ceiling of £650m. Upon conversion, the number of ordinary shares in the Group an E Shareholder will receive is such number of ordinary shares whose value is equivalent to the Group’s closing share price at the conversion date. Conversion is only permitted to the extent that the E Shares have vested. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION G and H Share Growth Scheme In June 2022 the Group awarded 360 shares under the G Share Growth Scheme and 265 shares under the H share scheme. The G and H Shares contain a put option, such that, when and to the extent vested, they can be converted into ordinary shares in the Group. The shares will vest in five tranches, occurring annually, in respect of the Financial Years for 2022, 2023, 2024, 2025 and 2026. The shareholders will be able to vest 12.5% of their holding for Financial Year 2022, 12.5% for Financial Year 2023, 25% for Financial Year 2024, 25% for Financial Year 2025 and 25% for Financial Year 2026. Vesting for each Financial Year for the G shareholders will require revenue from the London Corporate division (and any future corporate division in Spain) to grow by 5.5% in Financial Year 2022, 15% in Financial Year 2023, 15% in Financial Year 2024, 15% in Financial Year 2025 and 15% in Financial Year 2026. Vesting for each Financial Year for the H shareholders is subject to 2 revenue targets being met, with shareholders being entitled to vest 50% of their holding for each Financial Year in respect of each target being met. The first revenue target is for the London Corporate division (and any future corporate division in Spain) to grow by 5.5% in Financial Year 2022, 15% in Financial Year 2023, 15% in Financial Year 2024, 15% in Financial Year 2025 and 15% in Financial Year 2026. The second target is for the revenue from all the global corporate divisions to grow by 18.6% in Financial Year 2022, 20% in Financial Year 2023, 20% in Financial Year 2024, 20% in Financial Year 2025 and 20% in Financial Year 2026. The rate of conversion that the G and H Shares will be regarded as worth, is a pro rata share of the market capitalisation gain of Alpha above a hurdle price of £740m. The gain that a shareholder could receive is capped through placing a ceiling on the maximum market capitalisation of Alpha of £1,867m. The result of doing so is that the G and H Shares will be entitled to a pro rata share of the gain in market capitalisation of Alpha between £740m and the market capitalisation ceiling of £1,867m. Upon conversion, the number of ordinary shares in Alpha that a shareholder will receive is such number of ordinary shares whose value is equivalent to Alpha’s closing share price at the conversion date. Conversion is only permitted to the extent that In March 2022, 197 E Growth Shares were exercised in respect of the year ended 31 December 2021. As a result, 174,345 the G and H Shares have vested. shares in Alpha Group International plc were issued as consideration in March 2022. Based on share price of the Company of 1850p as at 31 December 2022 and following the revenue growth target for the year being met for the E Growth Shares, it is estimated that upon exercise of the put options in respect of the year ended 31 December 2022, the Company will issue 161,097 shares in March 2023. The share-based payment charge of the G and H Growth Shares in the year ended 31 December 2022 was £328,772 (2021: £nil). Details of the outstanding shares in Alpha FX Limited in respect of the above schemes are as follows: The share-based payment charge of the E Growth Shares in the year ended 31 December 2022 was £148,660 (2021: £69,713). 31 December 2022 F Share Growth Scheme In June 2022 the Group issued an initial 285 shares under the F Share Growth Scheme with a further 99 shares issued in November 2022. The F Shares contain a put option, such that, when and to the extent vested, they can be converted into ordinary shares of the Group. The F Shares will vest in four equal tranches, occurring annually, in respect of the Financial Years for 2023, 2024, 2025 and 2026. Vesting for each Financial Year will require Group revenue growth of 20% in Financial Year 2023, 20% in Financial Year 2024, 20% in Financial Year 2025 and 20% in Financial Year 2026. The rate of conversion that the F Shares will be regarded as worth, is a pro rata share of the market capitalisation gain of Alpha above a hurdle price of £740m. The gain that an F shareholder could receive is capped through placing a ceiling on the maximum market capitalisation of Alpha of £1,867m. The result of doing so is that the F Shares will be entitled to a pro rata share of the gain in market capitalisation of Alpha between £740m and the market capitalisation ceiling of £1,867m. Upon conversion, the number of ordinary shares in Alpha that an F Shareholder will receive is such number of ordinary shares whose value is equivalent to Alpha’s closing share price at the conversion date. Conversion is only permitted to the extent that the F Shares have vested. The share-based payment charge of the F Growth Shares in the year ended 31 December 2022 was £172,204 (2021: £nil). B Growth Share Scheme no. C Growth Share Scheme no. E Growth Share Scheme no. F Growth Share Scheme no. G Growth Share Scheme no H Growth Share Scheme no. Outstanding at beginning of year Granted in the year Exercised in the year* Forfeited in the year OUTSTANDING AT END OF YEAR 358 - (333) (25) - 568 - (186) (81) 301 882 - (197) (83) 602 - 384 - (23) 361 - 360 - - - 265 - - 360 265 * The 328 B shares that were exercised in March 2022 in respect of the year ended 31 December 2021 and the shares in the Company will not be issued until March 2023 and March 2025. 138 139 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 24. SHARE-BASED PAYMENTS [CONT.] G and H Share Growth Scheme [cont] Outstanding at beginning of year Granted in the year Exercised in the year* Forfeited in the year OUTSTANDING AT END OF YEAR 31 December 2021 B Growth Share Scheme no. C Growth Share Scheme no. E Growth Share Scheme no. 709 - (351) - 358 568 - - - 568 882 - - - 882 *The 351 B shares that were exercised in the year were in respect of the year ended 31 December 2020 and the shares in the Company were issued in March 2022. The fair value of the Growth Share Schemes was calculated using a Monte Carlo simulation model. The model considers historical and expected dividends, and the share price volatility of the Group relative to that of its competitors, to predict the share performance. When determining the grant date fair value of awards, service and non-market performance conditions are not considered. However, the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. The inputs used for fair valuing the awards at the date of grant were as follows: B Growth Share Scheme C Growth Share Scheme E Growth Share Scheme F, G & H Growth Share Schemes Expected volatility % Risk free interest rate % Option life (years) Starting equity value (£m) SAYE scheme 25.0% 0.09% 3 £33.6m 25.0% 0.75% 5 45% - 55% 0.10% 5 40% 2.3% 5 Following the vesting of the SAYE scheme, the Company issued 108,383 shares in 2022. Alpha FX Institutional Limited Alpha FX Institutional Limited was incorporated in 2018, and at 31 December 2022 is owned 15.4% by the management team. FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION In March 2022, employees exercised their option to convert 4.62% of their holding in respect of the year ended 31 December 2021. As a result, 99,828 shares in the Company were issued as consideration. Based on share price of the Company of 1850p as at 31 December 2022, it is estimated that the Company will issue 123,792 shares as consideration for employees converting 4.99% of the equity in respect of the year ended 31 December 2022. The share-based payment charge in the year ended 31 December 2022 was £31,906 (2021: £31,906). Alpha Foreign Exchange (Canada) Limited In 2019 the Group announced the share ownership plan for Alpha Foreign Exchange (Canada) Limited which is 25% owned by management. Under the agreement, management can exchange 25% of the shares they hold in the subsidiary for new ordinary shares in the Company in each of the financial years ended 31 December 2022, 31 December 2023, 31 December 2024 and 31 December 2025. As the shares held by the management in the subsidiary is reduced over time, Alpha FX Limited’s shareholding over the subsidiary will commensurately increase. In April 2022 the Group adjusted the employee share ownership incentive scheme for Alpha Canada to include additional key employees. The new shares are structured in a similar way to the shares issued to existing employee shareholders of Alpha Canada and will vest in four equal tranches, for each of the financial years ending 31 December 2024, 31 December 2025, 31 December 2026 and 31 December 2027. Based on share price of the Company of 1850p as at 31 December 2022, it is estimated that the Company will issue 8,397 shares as consideration for an employee converting 4.5% of their equity in respect of the year ended 31 December 2022. Alpha Pay In 2019 the Group announced that it had put in place an employee share ownership incentive scheme for certain individuals employed in the Group’s newly formed business division, Alpha Pay). A new class of shares (“D Shares”) in Alpha FX Limited was created. The value of the D Shares will be linked to the performance of the Alpha Pay business. Under the initial share award, from March four years (with the final option being exercisable in March 2026). At conversion, and in exchange for converting their D shares into shares in the Group, the APS Participants’ holding of D Shares in Alpha FX Limited will commensurately decrease and the Group’s holding will commensurately increase. Following the continued success of Alpha Pay, in December 2021 the Group adjusted the employee share ownership scheme to include additional new employees to support the ongoing growth of the division. As a result, a new class of non-dividend bearing and non-voting D3 shares and D4 shares were issued. The value of the D3 Shares and D4 Shares will be linked to the performance of the Alpha Pay business and are structured in a similar way to the existing D shares issued in 2019. The D3 Shareholders will have £186.6m £300.0m £740.0m 2023, the Alpha Pay Participants will have the option to convert 25% of their holding of D Shares into Group shares each year for With the initial share award, the individuals have the option to convert a percentage of their holding into Group shares over a the option to convert 25% of their holding of D3 Shares into ordinary shares of the Group each year for four years commencing four-year period, based upon strict performance criteria, with the first year of conversion being the year ended 31 December from March 2024 (with the final option being exercisable in March 2027). The D4 Shareholders will have the option to convert 25% 2021. At conversion, and in exchange for converting their shares into the Group, Alpha FX Limited’s shareholding over Alpha FX of their holding of D4 Shares into Group Shares each year for four years commencing from March 2025 (with the final option being Institutional Limited will commensurately increase. exercisable in March 2028). At conversion, and in exchange for converting their D3 shares and D4 Shares into Group Shares, the D3 shares held by the D3 Shareholders and the D4 Shares held by the D4 Shareholders in Alpha FX Limited will commensurately In 2019 the Group adjusted the employee share ownership incentive scheme to include additional key employees. These decrease and the Group’s holding will commensurately increase. individuals have the option to convert a percentage of their holding into Group shares over a four-year period, based upon strict performance criteria, with the first year of conversion being the year ended 31 December 2022. Following the continued success of the Institutional Division, the Group further adjusted the employee share ownership incentive At 31 December 2022 the Group owned 81.2% of the issued shares of the division (31 December 2021: 81.6%). However, for accounting purposes, the Group’s share of the profits and voting rights at 31 December 2022 was 92.5% (31 December 2021: 91.8%). scheme in March 2022 to include additional key employees. The new shares are structured in a similar way to the shares issued Based on share price of the Company of 1850p as at 31 December 2022, it is estimated that the Company will issue 111,028 shares to previous employee shareholders of Alpha Institutional, and will vest in four equal tranches, for each of the financial years as consideration for an employee converting 3.7% of their equity in respect of the year ended 31 December 2022. ending 31 December 2024, 31 December 2025, 31 December 2026 and 31 December 2027. 140 141 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY202224. SHARE-BASED PAYMENTS [CONT.] Alpha FX Netherlands Limited Following the establishment of our Netherlands business in 2020, in May 2021 the Group announced a new share scheme to incentivise key personnel within Alpha FX Netherlands Limited. These individuals have the option to exchange 25% of the shares they hold in Alpha FX Netherlands Limited for new ordinary shares in the Company for each of the financial years ended 31 December 2023, 31 December 2024, 31 December 2025 and 31 December 2026. The shares exchanged will be valued with reference to an 8x multiple of underlying profit after tax achieved by Alpha FX Netherlands Limited. As the shares held by the management in the subsidiary is reduced over time, Alpha FX Limited’s shareholding over the subsidiary will commensurately increase. At 31 December 2022 the Group owned 93.5% of the issued shares of Alpha FX Netherlands Limited (31 December 2021: 83.5%). 25. ULTIMATE CONTROLLING PARTY The Directors believe that there is no ultimate controlling party of the Group. 26. EVENTS AFTER THE REPORTING PERIOD On 17 February 2023, the Group entered into an interest rate swap for a notional amount of up to $400m to fix the rate of interest receivable on US Dollar cash balances held in respect of the Group’s client cash balances. With the interest rate swap, the Group receives a fixed rate of interest and pays a floating interest rate based on SOFR, the difference between the rates results in the Group receiving a fixed rate of interest. The contract commences in August 2023 and expires in August 2025 with a net interest rate receivable of 4.14%. Hedge accounting is applied in accordance with IFRS 9. Following the vesting of the B Growth Share Scheme for the year ended 31 December 2021, the Company will be issuing 549,137 shares in March 2023 and 88,015 shares in March 2025 to an ex-employee as part of a settlement agreement. Following the vesting of the C Growth Share Scheme for the year ended 31 December 2022, the Company will be issuing 171,810 shares in March 2023. FINANCIAL STATEMENTS COMPANY STATEMENT OF FINANCIAL POSITION Company Statement of Financial Position As at 31 December 2022 Company number: 07262416 NON-CURRENT ASSETS Investments TOTAL NON-CURRENT ASSETS CURRENT ASSETS Trade and other receivables Current tax asset TOTAL CURRENT ASSETS TOTAL ASSETS EQUITY Share capital Share premium account Capital redemption reserve Merger reserve Retained earnings TOTAL EQUITY CURRENT LIABILITIES Trade and other payables TOTAL CURRENT LIABILITIES TOTAL EQUITY AND LIABILITIES Year ended 31 December 2022 Year ended 31 December 2021 Note £’000 £’000 4 5 8 6 53,076 53,076 11,927 51 11,978 65,054 84 53,513 4 667 10,779 65,047 7 7 65,054 52,398 52,398 10,518 249 10,767 63,165 82 50,783 4 667 11,609 63,145 20 20 63,165 Following the vesting of the E Growth Share Scheme for the year ended 31 December 2022, the Company will be issuing The Company reported a profit for the year ended 31 December 2022 of £3,351,205 (2021: £10,199,472). 161,064 shares in March 2023. The financial statements of Alpha Group International plc were approved by the Board of Directors on Following the second year of vesting of the Alpha FX Institutional Limited share scheme for the year ended 31 December 21 March 2023 and signed on its behalf by: 2022, the Company will be issuing 123,768 shares in March 2023. Following the first year of vesting of the Alpha Foreign Exchange (Canada) Limited share scheme for the year ended 31 December 2022, the Company will be issuing 8,395 shares in March 2023. M J Tillbrook Director T Powell Director Following the first year of the vesting for D Share scheme for the year ended 31 December 2022, the Company will be issuing 111,085 shares in March 2023. 142 143 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022Company Statement of Changes in Equity For the year ended 31 December 2022 Notes to the Company Financial Statements For the year ended 31 December 2022 FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS Called up share capital Share premium account Capital redemption reserve Merger reserve Retained earnings Total equity 1. BASIS OF PREPARATION The financial statements have been prepared under the historical cost convention and with Financial Reporting Standard 100 Application of Financial Reporting Requirements (“FRS 100”) and Financial Reporting Standard 101 Reduced £’000 £’000 £’000 £’000 £’000 £’000 Disclosure Framework (“FRS 101”). BALANCE AT 1 JANUARY 2021 80 50,582 Profit for the year Transactions with owners Shares issued on vesting of share option scheme Shares issued in relation to SAYE share scheme Share-based payments Dividends paid - 2 - - - - 175 26 - - BALANCE AT 31 DECEMBER 2021 82 50,783 Profit for the year Transactions with owners Shares issued on vesting of share option scheme Issue of shares in relation to subsidiary earnout Shares issued in relation to SAYE share scheme Share-based payments Dividends paid - 2 - - - - - - 1,906 824 - - 4 - - - - - 4 - - - - - - 667 5,688 57,021 - - - - - 10,200 10,200 (2) - 228 175 26 228 (4,505) (4,505) 667 11,609 63,145 - - - - - - 3,351 3,351 (2) - - 631 - 1,906 824 631 (4,810) (4,810) BALANCE AT 31 DECEMBER 2022 84 53,513 4 667 10,779 65,047 In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore, these financial statements do not include: − certain comparative information as otherwise required by IFRS; − certain disclosures regarding the Company’s capital; − a statement of cash flows; − the effect of future accounting standards not yet adopted; − the disclosure of the remuneration of key management personnel; and − disclosures of related party transactions with other wholly owned members of Alpha Group International plc group of companies. In addition, and in accordance with FRS 101 financial instrument disclosure exemptions have been adopted because equivalent disclosures are included in the Company’s Consolidated Financial Statements. These financial statements do not include certain disclosures in respect of: − share-based payments; or − financial instruments (other than certain disclosures required as a result of recording financial instruments at fair value); or − fair value measurement other than certain disclosures required as a result of recording financial instruments at fair value. The financial statements are prepared in pounds sterling (“£”), and all values are rounded to the nearest thousand (“£’000”) except where otherwise indicated. 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted are the same as those set out in note 2 to the Consolidated Financial Statements except as noted below. Investments in subsidiaries and associates are stated at cost less, where appropriate, provisions for impairment. 3. PROFIT FOR THE YEAR As permitted in section 408 of the Companies Act 2006, the Company has elected not to present its own statement of comprehensive income for the year. The Company reported a profit for the financial year ended 31 December 2022 of £3,351,205 (2021: £10,199,472). The auditor’s remuneration for audit and other services is disclosed in note 5 to the Consolidated Financial Statements. 144 145 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY20224. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS The Company’s investment in the share capital of Alpha FX Limited and details of the subsidiary companies are disclosed in note 14 to the Consolidated Financial Statements. Balance at 1 January Share for share exchange Issue of share capital in subsidiary BALANCE AT 31 DECEMBER 31 December 2022 £’000 31 December 2021 £’000 52,398 678 - 53,076 2,065 333 50,000 52,398 The additional investments in the year represent share-based payments for employee share schemes in the subsidiary company and a buyback of shares from employees that left the business in the year. 5. TRADE AND OTHER RECEIVABLES Amount owed by Group undertaking 31 December 2022 £’000 31 December 2021 £’000 11,927 11,927 10,518 10,518 During the year, no impairment provisions have been made against any class of debtor. 6. TRADE AND OTHER PAYABLES Accruals 7. EMPLOYEE COSTS 31 December 2022 £’000 31 December 2021 £’000 7 7 20 20 The Company did not have any employees during the year (2021: nil). All staff are employees of the subsidiary undertaking. 8. SHARE CAPITAL Details of the share capital of the Company are included in note 20 to the consolidated accounts. 146 147 ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022 Shareholder Information REGISTERED OFFICE Brunel Building 2 Canalside Walk London W2 1DG COMPANY ADVISERS & CORPORATE BROKER Liberum Capital Limited Ropemaker Place, Level 12 25 Ropemaker Street London EC2Y 9LY SHARE REGISTRARS Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA FINANCIAL PR & ADVISORS Alma PR Limited 71 - 73 Carter Lane London EC4V 5EQ AUDITORS BDO LLP 55 Baker St Marylebone London W1U 7EU LEGAL ADVISERS Bird & Bird LLP 12 New Fetter Lane London EC4A 1JP This document has been printed on Splendorgel, a paper sourced from well man managed, responsible FSC® certified forests and other controlled sources. The paper has been balanced with the World Land Trust, an international conservation charity, who offset carbon emissions through the purchase and preservation of high conservation value land. Designed by Camber, printed by Perivan. 148 CBP00019082504183028ALPHA GROUP INTERNATIONAL PLC REPORT AND ACCOUNTS FY2022ALPHA GROUP INTERNATIONAL PLC Brunel Building 2 Canalside Walk London W2 1DG www.alphagroup.com 

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