Alfa Financial Software (Alfa) has today reported strong financial and operational performance results for the six months ended 30 June 2023. Revenue was up 21% to £52.9m compared to H1 2022 and operating profit up 19% on H1 2022 to £16.9m, as the business maintains investment in the future.
Whilst the market need for new software remains strong, Alfa remains conscious of the uncertain economic outlook and have built a resilient business with reduced customer concentration, operating across diverse markets both geographically and by asset class.
Supported by a growing subscription revenue base up 14%, new business demand remains strong and buying behaviour is unchanged.
Alfa’s strong first half was underpinned by a very good performance in software with revenues up 33%, largely driven by the significant increase in customer funded development days which increased 31% over last year.
Looking into the second half, Alfa plans to increase investment in software to ensure consistency with their full year product roadmap plans. As a consequence, Alfa’s full year expectations remain unchanged.
Alfa experienced continued diversification of their customer base in H1 2023, with their top five customers making up 36% of revenues, compared with 64% in H1 2019. In the first half of the year, 18 Alfa customers contributed revenue over £1m, compared with seven four years ago.
Alfa had two initial go-lives for customers in the period, one in America for automotive finance and an Alfa Start project in the UK. Continuing its global expansion, Alfa had a customer go-live in Mexico, taking the total number of countries in which Alfa Systems is live to 38.
Alfa continued to invest in people and products for future growth, with retention running at 95%. Alfa’s emission reduction targets have been validated by Science Based Target Initiative (SBTi) with a commitment to reducing Scope 1 and Scope 2 emissions by 42% by 2030, along with a commitment to Net Zero by 2050.
Andrew Denton, Chief Executive Officer of Alfa commented: "We have remained focused on operational excellence and delivering our strategy and this is demonstrated by the very strong results we have produced in the first half of 2023.
“Our high level of customer funded development, weighted more towards the first half this ,year, helped fuel strong growth for the period along with the growth in the team. We remain confident in our ability to convert our exceptionally strong pipeline into new customers with a number of sizeable contracts to execute over the Autumn.
“This alongside the inherent robustness of the asset finance software market and our continued investment in high-quality people, underpins our strong confidence in the outlook for the business."
Strategic progress – software and Net Zero
Alfa’s vision is to grow the company size naturally, whilst growing their impact rapidly and retaining their underlying culture. Key to this is delivering more concurrent implementations of the Alfa Systems product more efficiently.
Alfa is keen to continue to develop software that meets and exceeds customer and market needs as they evolve and as the regulatory and commercial environment continues to change, through a balance of customer funded development and self-funded development.
A software upgrade is released every 4 weeks and periodically Alfa releases a new version of Alfa Systems which highlights the step change functional and technical advancement that has been made since the last version.
The next major version release, the sixth since Alfa was formed 33 years ago, is due to be announced in the autumn of 2023. According to Denton, the new version six of the software will be “a friction-free upgrade with game changing advances”.
During the first half of 2023 Alfa has made progress in several eye-catching new areas which will be headline items in the new version release, including Alfa Compose and Environmental Accounting. These new environmental software items highlight that Alfa is a “business with a conscience” and hugely aware that their software can assist the asset finance industry to innovate around green products.
Focusing on environmental issues, Alfa have had their emission reduction targets validated by the Science Based Target Initiative (SBTi) and are committed to reducing Scope 1 and Scope 2 emissions by 42% by 2030, along with a commitment to Net Zero by 2050. This submission is an important milestone in Alfa’s journey, six years on from their Environmental Impact community being created.
Artificial intelligence (AI)
As industry interest in AI continues to build, Alfa seeks to investigate further ways in which they can deliver value to the asset finance industry through the use of AI.
With an existing key customer looking to greatly expand their usage of Alfa iQ in credit risk exposure and others showing significant interest in the workflow integrations, Alfa look to continue building on their strong base of products and modelling techniques.
Strong engagement with people
2022 was a year of strong recruitment at Alfa, and as a consequence a lower level of recruitment was expected in 2023, partly due to the improving retention trend which stood at 95% on 30 June 2023.
Alfa’s people strategy focuses on recruiting and attracting talent, followed by engaging and retaining those people. Matthew White, Chief Operating Officer at Alfa highlights the appeal of Alfa when recruiting talent as, “a stable and established, innovative and nimble company on the leading edge of technology, with a clear transparent strategy and strong ESG agenda and culture that is communicated well to engage everyone in a fun working environment”.
Steady market conditions
The macro-economic outlook remains uncertain at the moment, with high levels of inflation and higher levels of interest rates trying to reduce it. Alfa Systems is now operational in 38 countries; in automotive finance, equipment finance and wholesale and loan finance; for OEMs, banks and independents and across all asset classes. The breadth and diversity of Alfa's business interests help to insulate the business from economic uncertainty in individual geographies and sectors.
Along with Alfa's diverse revenue sources providing insulation against the current economic uncertainty, the market itself provides some protection. The asset finance market is a more secure form of lending and it has a history of gaining market share in uncertain times compared with non-asset backed lending markets although it is unlikely to be completely immune to these economic pressures.
In addition, the need for software is not associated with new business alone, large players in the market will have significant extant portfolios to manage whether they are writing new business or not and these portfolios will be subject to the same drivers of technical change as growing businesses.
Regulatory change, digitalisation and the growing need for flexibility continue to drive customers to review their systems, particularly those still running on legacy platforms, and they will continue to select more flexible modern systems.
With the asset finance software market remaining robust, new business demand at Alfa remains strong and buying behaviour is unchanged from this time last year and, as a consequence, Alfa’s full year expectations remain unchanged.