Alfa Financial Software: 2024 Annual Report and Accounts

Breakthrough Year:

Empowering the future of finance

Alfa Financial Software Holdings PLC

Annual Report and Accounts 2024

• 2 Our year in review

• 3 Investment case

• 4 About Alfa

• 5 Business model

• 6 CEO review

• 10 Market overview

• 12 Alfa Systems 6

• 14 Strategy in action

• 19 Key performance indicators

• 21 Financial review

• 25 Environmental, Social and Governance

• 29 Task Force on Climate-related Financial Disclosures

• 32 Streamlined Energy and Carbon Reporting

• 34 Risk management

• 37 Principal risks and uncertainties

• 46 Stakeholder engagement

• 49 Viability statement

Corporate governance

• 52 Chairman's introduction

• 53 Code compliance

• 54 Board of Directors

• 56 Company Leadership Team

• 57 Our governance framework

• 58 Board leadership and Company purpose

• 61 Board activities

• 62 Engaging with our stakeholders and Section

  172 Statement

• 66 Division of responsibilities

• 68 Composition, succession and evaluation

• 71 Nomination Committee Report

• 76 Audit and Risk Committee Report

• 83 Remuneration Committee Report

100 Directors' Remuneration

Policy

104 Alignment of Remuneration

Policy

105 Directors' report

110 Statement of Directors' responsibilities

Financial statements

112 Independent auditor's report

119 Consolidated statement of profit or loss and comprehensive income

120 Consolidated statement of financial position

121 Consolidated statement of changes in equity

122 Consolidated statement of cash flows

123 Notes to the consolidated financial statements

151 Company statement of financial position

152 Company statement of changes in equity

153 Notes to the Company financial statements

Additional information

• 158 Five-year history

• 159 Shareholder information

Alfa ESG:

2024 Sustainability Progress Report

1

Key highlights

1. Total Contract Value. See "Definitions" on page 19 for further information.

• 2. Earnings before interest, taxes, depreciation and amortisation, as a percentage of revenue.

• 3. Over the 12 months to December 2024, compared with 12 months to

• December 2023.

• 4. Operating free cash flow conversion. See "Definitions" on page 19 for further information.

• 5. Amounts paid during the financial year.

Our year in review

2024 has been a landmark year for Alfa, marked by key milestones in innovation, customer success, and expansion.

March

2024

2023

Pillar 1:

Efficiency

Fully optimised UX, with superpersonalised screen design.

Alfa awarded Monitor Best Company in Equipment Finance

2024 for

Innovation

March

Pillar 3:

Sustainability

January

Satisfying emerging business models, driven by net zero and

Pillar 2:

ESG regulation.

Total capability

May

Collaborative

Pillar 4:

Scalability

Truly always-on, financially coherent operation - without restriction.

July

Pillar 5:

Intelligent automation

September

Alfa System 6: Fully realised

Pillar 6:

ecosystem

Simple integration with market innovations and through Alfa's trusted partner network.

July

100th

US employee

October

500

employees worldwide

December

Fastest

full Alfa Systems go-live delivered Looking ahead

With strong momentum, we are well-positioned to continue delivering breakthrough innovations and long-term value.

Business model

Types of Revenue

• • Subscription revenue grew by 18% in 2024

  3

• • Both Software Engineering and Delivery revenue driving Subscription revenue

• • Alfa Systems 6 is SaaS only

CEO review

2024 Breakthrough Year

2024 has been a breakthrough year for Alfa. Another year of strong revenue growth overall powered by subscription revenue growth, with 50% of customers now on Alfa Cloud. A record number of customer wins giving a record TCV level. Ten new modules, delivering value to our customers and driving incremental sales. The launch of Alfa Systems 6 underlining the importance of product investment and innovation.

Business review Breakthrough year

We look back on 2024 as a year of breakthroughs, whilst maintaining our excellent delivery record, we:

• • Launched Alfa Systems 6

• • Moved to SaaS only sales strategy

• • Achieved landmark contract wins in all our markets

• • Generated record TCV of £221m

• • Grew total Alfa headcount to over 500 people

• • Grew our US operation to over 100 colleagues

• • Grew our customer base so that our top 5 customers now account for less than a third of our revenues

We have made significant strategic progress in 2024, increasing our functional lead over our competition with the release of Alfa Systems 6.

We have continued to grow the business despite the revenue headwinds from our transition from a perpetual licence to a SaaS model. We have an SaaS only sales strategy.

We had a record year for customer wins, converting eight customers from the late-stage pipeline, which led us in the second half of the year to increase our recruitment targets in both EMEA and the US.

The success we have had in winning US Auto clients means that we believe we are now the go-to solution for that market. We have also

CEO review continued

opened up a new area of this market with the introduction of our Total Originations capability as part of the Alfa Systems 6 launch.

We have continued to grow the Company, ending the year with global headcount in excess of 500, with over 100 people in the US, and at the same time we have maintained the extremely strong Alfa culture.

Our diversification across end markets and customers means that our top 5 customers now account for less than a third of our revenues, five years ago they were nearly two-thirds of our business.

Our delivery excellence remains a key differentiator for us, and this has continued in 2024 with twenty-six delivery events in the year.

Strong growth driven by fast growing subscription revenues

Financial performance was strong with continued growth in revenue and profit. Revenue was up 8% to £109.9m (2023: £102.0m) at actual exchange rates or up 9% at constant currency rates.

Subscription revenues continued to grow strongly, up 18% year on year largely driven by growth from existing customers. The impact of new customer wins on subscription revenues and margins will be much more pronounced after go-live, which depending on the project can take several years as contract volumes ramp up to full run rate on the system, acting as a foundation for future growth acceleration.

Delivery revenues were up 1% to £55.0m (2023: £54.6m). We expect stronger growth in 2025 as the implementation of new projects won in Q4 2024 start to ramp up.

Software Engineering revenue increased strongly in the second half, up 70% to finish the year at £17.4m (2023: £15.6m), up 12% on prior year and with a good pipeline of work for 2025.

We delivered strong growth in operating profit, increasing 14% to £34.3m (2023: £30.1m) on the back of the 8% growth in revenues at an improved gross margin of 64.5% (2023: 62.5%) which flows through to an improved operating margin of 31.2% (2023: 29.5%). Cash conversion in the year was 89% (2023: 115%); as expected this was lower than 2023 which benefited from an unusually high level of receipts just before the December 2023 year end. As the SaaS model becomes more embedded, cash conversion will trend over time to between 90%-100%. We finished the period with cash of £20.5m (31 Dec 2023: £21.8m).

Pipeline conversions driving very strong TCV growth

We saw very significant growth in our TCV through the year with the conversion of eight customers from the late-stage pipeline, with TCV reaching a record level of £221.3m at the end of the year. We have continued to see strong growth in our Subscription TCV but the most significant increases were in Delivery and Software Engineering TCV, as these increase immediately when contracts are signed. At the point of the contract win the Subscription TCV is relatively low, but increases over time as we get closer to go-live and full run-rate revenues.

We had 21 customers each contributing revenues of more than £2m in the period, up from 19 last year and up from just seven in 2019. Our top five customer concentration has significantly reduced to 32% of our revenues in 2024, compared with 61% in 2019. Our largest customer represented just 7% of our revenues in 2024.

Delivery and Software Engineering agility

In 2023 we saw more go-lives than any other year in Alfa's history. Following this in 2024 we have started work with an unprecedented number of large customers. We continue to focus on simplifying and increasing the speed of our implementations so that we can deliver more concurrent implementations. Alfa Cloud has been the most significant contributor to this process, allowing us to start implementations quickly and enabling us to demonstrate system functionality to clients much earlier in the project than before. At the year-end there were six implementations underway with Alfa Cloud.

The transition to new projects means that our software engineering teams have been pivoting in the second half of 2024 and into the first half of 2025 away from Alfa Systems 6 to supporting these new large projects with customer driven development. Whilst the focus may have shifted there continues to be ongoing investment into the product to maintain and grow our market lead.

We invested into our UK Equipment Start and US Auto Start products to facilitate further growth in these markets.

Expanding Alfa Systems 6 functionality

In 2024 we saw the complete launch of Alfa Systems 6. This has been a hugely important step in showcasing our ongoing product investment in both functional and technical capabilities. Functional investment increases our product capability for existing markets but also expands our addressable market.

Technical investment includes the use of the latest software tooling, including integration and AI capabilities.

The ten new modules that have been released cover additional functionality such as 24/7 and Compose; they also cover new financial product capabilities such as usage based charging and revolving credit facilities, opening up incremental sales opportunities. These new modules not only open up incremental sales opportunities to existing customers but also open up new markets for us in Commercial Finance and US Originations, which have the potential to significantly increase our addressable markets. We believe it is really important to continue to invest in both functional and technical areas and this will continue in 2025.

CEO review continued

Headcount growth, supported by strong retention

The successful conversion of the pipeline during the year resulted in us accelerating recruitment plans in the second half. Retention rates have remained very high, being 96% for the year. This demonstrates the continued strength of the Alfa culture which is a key driver of our success.

Headcount at the end of the year was up 6% at 502 (2023: 475) with average headcount in the period of 485 (2023: 463), up 5% on last year.

Strategic progress

Alfa is a software and delivery company.

Our strategy for creating long-term, sustainable business value is to:

• • Strengthen - grow our differentiation

• • Scale - increase our capacity

• • Sell - further profitable growth

• • Simplify - enable more concurrent implementations, more efficiently

During 2024 we have made good progress across all of these areas, with key highlights noted below.

Strengthen:

• • Launch of Alfa Systems 6

• • Refreshed our software development model

• • Invested in our people, increasing internal learning and development resources

• • Refreshed our induction approach for new joiners

Scale:

• • Increased headcount to over 500 people

• • Investigating an increase in our global footprint through further geographic smart hubs

• • Expanding addressable market into US Auto Originations and Commercial Finance

• • Improved process for partner onboarding

Sell:

• • Record eight wins

• • Sold first US Auto Originations implementation

• • Continuing sequential growth in subscription revenues

• • Moved to single-tenant SaaS only sales strategy

Simplify:

• • Completed enabling investment for our partner-led delivery MVP in UK Equipment

• • Completed an accelerated implementation with Alfa Start for a US Auto customer

• • Development of Alfa Start accelerator for US Equipment market

• • Improved migration tooling

• • Further automated testing to simplify upgrades

All of the above have contributed to making significant progress on our strategy, with the strongest evidence being revenue growth of 9% (at constant currency) comfortably exceeding average headcount growth of 5% and with Subscription revenues growing at 18% - the fastest growing revenue stream.

Capital return

We are a highly cash-generative business, with cash conversion of 89% in 2024, which as expected was down on 2023 due to some early receipts at the end of 2023. We expect cash conversion to trend towards 90-100% over time. We are committed to investing in our product and people to ensure that we continue to offer market-leading solutions and excellent delivery and service to our customers.

Our mechanism for returning capital is the payment of a regular, ordinary final dividend and we have a policy to grow this progressively. We will also consider special dividends when we have excess capital.

Notwithstanding the return of £22.1m excess cash to shareholders during the year through ordinary and special dividends, we ended the period with cash of £20.5m. As such, the Board has today proposed an ordinary dividend of 1.4 pence per share, up 8%, with an ex-dividend date of 29 May 2025, a record date of 30 May 2025 and a payment date of 27 June 2025. The ordinary dividend would amount to a total payment of c.£4.1m. In addition, the Board has decided to declare a special dividend of 2.4 pence per share, up 20% on the special dividend declared this time last year, with an ex-dividend date of 1 May 2025, a record date of 2 May 2025 and a payment date of 30 May 2025. The special dividend would amount to a total payment of c.£7.1m

Stable market conditions

Whilst over the last few years the macro environment has been uncertain, the asset finance market and demand for software within it has remained robust. 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. Alfa Systems is operational in 37 countries; in automotive finance, equipment finance, wholesale finance and loan finance; for OEMs, banks and independents and across all asset classes. The breadth and diversity of Alfa's business interests has helped insulate us from underlying economic uncertainty in individual markets as demonstrated by our ongoing track record of growth, our record TCV and strong pipeline.

Strong pipeline

We had a hugely successful year in 2024 in converting the late-stage pipeline, with a record eight customer wins coming out of the pipeline. We ended the year with eight customers in the late-stage pipeline, of which five we are already engaged in paid work under letters of engagements on implementations as we finalise commercial contracts. We are seeing good activity in the early-stage pipeline, reinforced by strong positive customer reaction to Alfa Systems 6 before and during the recent conference season.

We remain confident in both the demand for our best-in-class software and our ability to win work in the market.