Alfa Financial Software, a leading developer of software for the asset finance industry, has reported a strong financial and operational performance in its full year 2021 results. Revenue for the twelve months ending 31 December 2021 hit £83.2 million, up 5% on the previous year, while operating profit increased by 3% to £24.7 million.
Duncan Magrath, Alfa CFO (pictured), said the results did not do full justice to the company’s performance, pointing out that stripping out currency changes over the period, revenues saw a 9% leap, increasing to 17% if one-off licence income from 2020 was excluded.
“Our financial and operational delivery was really strong over the year. But what we are really proud of is the quality of that revenue. Our customer concentration has dropped from 61% to 37%, meaning we have less exposure to any one customer. We’ve also seen a 30% increase in subscription revenues, and the number of subscription customers has also gone up. There’s a more sold base to the business and we have a very strong order book,” Magrath reported.
Alfa reported a strong conversion of its pipeline, with total contract value rising 18% to £133 million, up from £113 million in 2020. The company’s top five customers now account for 37% of revenues , compared to 48% the previous year and 61% in 2019.
Alfa CEO Andrew Denton said the company “relentless delivery focus” had been critical to its performance. “We went live 27 times in 2021, and we smashed by 60% the previous year, which was itself a record. That’s down to our people capability, with our staff retention rate at over 70% for the whole year. 2021 also saw a 54% increase in the use of days from our partners,” he noted.
During another year where the business and its customers endured continued Covid disruption in operations and which ended with the prospect of further geo-political turmoil, Denton said it was now widely acknowledged that businesses were living through a period of immense change.
“Digital used to be optional for many people, but it’s now a mandatory tool in the box. We’ve spotted in our late stage pipeline that there are a lot of retail banking customers – and that means legacy systems. Through Covid, they’ve realised they can’t operate without being agile and flexible, and their current operations do not allow them to do that.
“For example, one of our biggest US customers with many millions of assets on their books, when Covid hit, they were able to offer forbearance deals to all their customers over a weekend. Lenders have realised they really do need to get rid of legacy systems and evaluate their choices, so that they have systems which will allow them to pivot quickly if the unthinkable does happen,” Denton explained.
That need to be able to react quickly is set to continue in 2022, with potential new challenges including the possibility of cyber attacks as part of the round of economic sanctions imposed as a result of the Russian attacks on Ukraine.
Denton argued that this is likely to be another factor in companies’ decision to replace legacy systems, and also a driver in the increased interest in hosting and outsourcing services.
“If you look at many old systems they have a lot of vulnerability, not least because they have often been overlaid with other systems in an attempt to improve functionality, which means there is less control over interfaces. There’s often a hard shell, but around a soft interior, whereas what you need is granular security and a strategy to manage growth,” he said.
Alfa has also recently announced its first revenue generating work for Alfa iQ, a partnership with Bitfount, to deploy artificial intelligence and machine learning capabilities, having spent 2021 investigating what the use case for AI was within the asset finance arena.
“It’s fair to say that lots of technology is a solution looking for a problem, but we have been convinced that there is a use case for AI, in areas such as building a credit scorecard, optimising workflow, and residual value setting, and we’ve been collaborating with our customers to test these hypotheses,” Denton explained.
The project currently underway is looking at ways to improve credit decisioning, by increasing the frequency with which scorecards are updated according to the changing credit climate, and using a different approach to parameterising credit risk models.
“Early results suggest you can halve the levels of bad debt by changing the model. We could be looking at ‘scorecard as a service’, whereby you automate the creation of the model which can be refreshed every month.
“In the B2B lending world, you can actually predict bad debt by spotting potential triggers before they happened. If you could do that consistently, then you have the potential to ameliorate the situation by, for example, moving the payment date or offering a six-month payment holiday,” Denton maintained.
As regards the prospects for 2022, another year where disruption on a national and global scale seems inevitable, Denton is upbeat.
“The market opportunity for Alfa is very exciting. We have good visibility of work for 2022, and assuming we continue our excellent recent record of attracting and retaining talent, we will see good revenue growth in 2022, albeit with some additional margin pressure due to salary inflation and return to normal costs. With the improving quality of our revenue mix, the strategic improvements made across the business, the quality of our people and strength of the intellectual property in our software, we have great confidence in Alfa's prospects," he declared.