ALFA FINANCIAL SOFTWARE HOLDINGS PL

Annual Report • Apr 11, 2022

Alfa Financial Software Holdings PLC 213800C5UOZHUTNUGA28 2021-01-01 2021-12-31 213800C5UOZHUTNUGA28 2020-01-01 2020-12-31 213800C5UOZHUTNUGA28 2020-12-31 213800C5UOZHUTNUGA28 2021-12-31 213800C5UOZHUTNUGA28 2019-12-31 213800C5UOZHUTNUGA28 2020-01-01 2020-12-31 ifrs-full:IssuedCapitalMember 213800C5UOZHUTNUGA28 2020-01-01 2020-12-31 alfa:OwnSharesMember 213800C5UOZHUTNUGA28 2020-01-01 2020-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800C5UOZHUTNUGA28 2020-01-01 2020-12-31 ifrs-full:RetainedEarningsMember 213800C5UOZHUTNUGA28 2020-01-01 2020-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 213800C5UOZHUTNUGA28 2020-01-01 2020-12-31 alfa:CostOfSalesMember 213800C5UOZHUTNUGA28 2020-01-01 2020-12-31 alfa:SalesGeneralAndAdministrativeExpensesMemberMember 213800C5UOZHUTNUGA28 2021-01-01 2021-12-31 ifrs-full:IssuedCapitalMember 213800C5UOZHUTNUGA28 2021-01-01 2021-12-31 alfa:OwnSharesMember 213800C5UOZHUTNUGA28 2021-01-01 2021-12-31 ifrs-full:RetainedEarningsMember 213800C5UOZHUTNUGA28 2021-01-01 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 213800C5UOZHUTNUGA28 2021-01-01 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800C5UOZHUTNUGA28 2019-12-31 ifrs-full:IssuedCapitalMember 213800C5UOZHUTNUGA28 2019-12-31 alfa:OwnSharesMember 213800C5UOZHUTNUGA28 2019-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800C5UOZHUTNUGA28 2019-12-31 ifrs-full:RetainedEarningsMember 213800C5UOZHUTNUGA28 2019-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 213800C5UOZHUTNUGA28 2020-12-31 ifrs-full:IssuedCapitalMember 213800C5UOZHUTNUGA28 2020-12-31 alfa:OwnSharesMember 213800C5UOZHUTNUGA28 2020-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800C5UOZHUTNUGA28 2020-12-31 ifrs-full:RetainedEarningsMember 213800C5UOZHUTNUGA28 2020-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 213800C5UOZHUTNUGA28 2021-12-31 ifrs-full:IssuedCapitalMember 213800C5UOZHUTNUGA28 2021-12-31 alfa:OwnSharesMember 213800C5UOZHUTNUGA28 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800C5UOZHUTNUGA28 2021-12-31 ifrs-full:RetainedEarningsMember 213800C5UOZHUTNUGA28 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember iso4217:GBP xbrli:shares iso4217:GBP xbrli:shares Stepping into our opportunity Alfa Financial Software Holdings PLC Annual Report and Accounts 2021 Find out mor e online at alfasystems. com We are all about software & delivery Alfa is a leading provider of software and services to the global auto and equipment finance industries. We deliver our leading- edge technology with smart, diverse people, makingourcustomers future-ready. Strategic repor t 1 Financial highlights 4 Softwar e 6 Subscription 8 Services 10 A t a glance 12 Chief Executive ’ s r eview 16 Market o verview 18 Business model 20 Investment case 22 Company strategy 24 Strategy in action 25 People 26 Partnering 28 Strategic Inv estment 30 Alfa iQ 32 Cloud Hosting 34 Alfa Start 36 Ke y performance indicators 38 Financial r eview 44 Risk management 46 Principal risks and uncertainties 52 Viability statement 54 Section 172 statement 58 Environmental, S ocial & Governance Governance 71 Chairman’ sintroductiontogo vernance 74 Board of Dir ectors 76 Company Leadership T eam 77 Board leadership & company purpose 81 Division of responsibilities 86 Composition, succession & evaluation 90 NominationCommitteeReport 94 Audit&RiskCommitteeReport 100 Directors’ Remuneration R eport 103 Directors’RemunerationP olic y 112 Annual Report on Remuneration 122 Directors’ r eport 127 Statement of Dir ectors’ responsibilities Financial stat ements 129 Independent auditor’ s report 137  Consolidateds tatementofpr otorlossand comprehensiv e income 138  Consolidateds tatementofnancialposition 139   Consolidatedstatementofchangesinequity 140  Consolidateds tatementofcasho ws 141 Notes to the consolidated nancialstatements 173   Companystatementofnancialposition 174  Companystatementofchangesinequity 175 Notestothecompanynancialstatements Other information 179 Glossary of terms 180 Shareholder inf ormation Group revenue (£m) 2021 £83.2m £78.9m £64.5m £71.0m 20 20 20 19 20 18 Operating profit (£m) 2021 £24.7m £ 23.9m £ 13.7m £ 22.4m 20 20 20 19 20 18 Cash (£m) 2021 £23.1m £ 37.0m £ 58.8m £ 44.9m 20 20 20 19 20 18 Operating profit margin 2021 29.7% 30.3 % 21.3 % 31.5 % 20 20 20 19 20 18 Dividends paid (£m) 2021 £32.7m £ 44.2m 20 20 Number of subscription customers 2021 31 28 25 28 20 20 20 19 20 18 Employee retention 2021 87% 93 % 83 % 88 % 20 20 20 19 20 18 Employee engagement 2021 78% 74% 55% 68% 20 20 20 19 20 18 Customer concentration (top 5) 2021 38% 48 % 61% 59 % 20 20 20 19 20 18 * Calculation revised, 2020, 2019 and 2018 restated, see KPI page 37. Contents Financial highlights Non-financial highlights Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 1 STRA TE GIC REPORT Alfa is an 2 Alfa Financial So ftware Holdings PLC Annual R eport and Account s 2021 IP company The IP that exists in AlfaSystems has been built up over 30 years of working and specialising in the auto and equipment finance industry. It is the core of our business and the heart and lungs of our customers’ operations. Key to the success of Alfa today is the launch, in 2010, of Alfa Systems v5. This was built with the future in mind: 100% web-based and 100% Java – making it fully digitally enabled and cloud native. Itis constantly evolving to meet the needs oftoday’s customers.   Readmoreaboutourin vestmentinIP onpages28-29 Big company impact.  Vision T o gr ow our company siz e naturally , but gro w our impact rapidly – always retaining our underlying cultur e. Key to this is delivering mor e concurrent Alfa implementations, more efficiently , with a world-class product. W e will have a big company impact, but a small company f eel.   Forourpurposeandidentity ,turnto page 10 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 3 STRA TE GIC REPORT Market-leading software Dec 2020  Dec 2021   SOFTWARE Our Alfa Systems software is at the heartofsome of the world’s largest andmostinnovative auto and equipment finance companies. 4 Alfa Financial So ftware Holdings PLC Annual R eport and Account s 2021 REVENUESTREAMS                      What is included in the software revenue stream? Software r evenues include rev enues fromrecognition of customised licence rev enue, one-off licence f ee s and any dev elopment fees charged to customers on a day rate basis. What happened in 2021? Ev er y f our weeks we r elease a new v ersion ofthe software, and so ther e w ere 13newreleases in 2021. W e also rolled out Mercury , our new User Interface, to 11customers, whose users are now benefiting from it s built-in accessibility and cleanand modern en vironment. W e had 27 go-liv es during the year including 5 ne w implementations of v5. Of the new v5 implementations, 2 wer e upgrades from v4, as a consequence new licence rev enues were r elatively low in the y ear . Offsetting this was an increase in the number of dev elopment days charged to clients. Software revenue (£m) 2021 13.6 20.0 20 20 Software revenue (%)  56% 28% 16% Front office is used to refer totheauto and equipment finance point of sale. Middle office repr esent s every thing that happens between the creation of a quote and having a live finance schedule for a deliv ered asset. Back office includes all in-life contract-management transactions such as billing and collection, and all customer service s transactions such as address changes and payment reschedules and wherethe complex accounting takes place. “ A f ter ver y c are fu l ev a luation and con sideration, we selec ted A l fa be cause we felt it’ s a gr eat in nov ative plat form for us, and so fa r we have be en please d w ith t heir produc t capabil it y . I fee l li ke t he overa ll m atch be t we en our t w o compan ies and c ult ure, par t icu larly arou nd in nov ation a nd ESG , real ly helped u s ma ke t h is de cision. ” Shamim Mohammad EVP, Chief Information & Technology Officer, CarMax Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 5 STRA TE GIC REPORT Reliable cloud hosting Dec 2020  Dec 2021   SUBSCRIPTION Our cloud hosting services have grown rapidly and the robustness of the built in services and the ability to simplify and accelerate implementations make them an attractive choice for customers. 6 Alfa Financial So ftware Holdings PLC Annual R eport and Account s 2021 REVENUESTREAMS Subscription revenue (£m) 2021 23.5 18.1 20 20 Subscription revenue (%)  56% 28% 16% Alfa cloud hosting services • Customised automated task scheduling with monitoring and aler ting • Automated patching and deplo yment s of Alfa Systems • Agility to create, destroy and r esize environments • Disaster recovery leveraging manag ed ser vices with annual te st • Automated database backup and on-r eque st copying of data betweenenvironments • 24/7 threat monitoring and annual penetration testing • ISO 27001 and SOC2 audited processes • Envir onment and per formance monitoring with automat ed aler ting                  What is included in the subscription revenue stream? Subscription r evenues include recurring rev enues paid on a monthly or annual basis, including subscription licence rev enues, maintenance and cloud hosting . What happened in 2021? 2021 built on the significant progress we made in 2020 in dev eloping our cloud hosting ser vices. There wer e nine go-live ev ents for the hosting team in 2021, three of these were f or new implementations, with the remainder being upgrade ev ents. We continue to focus on increasing subscription licence sales both when customers are looking to take our hosting service s, but even wher e they wishtodeploy in their o wn cloud. “ W e neede d a sy stem t hat w as f it for p ur p ose a nd fit for the fut ure: A l fa v5 met t hose cr iteria. A lf a v5 w il l g ive Close Brother s A sset Fin ance s ca labil it y , but als o ni mbleness that’ s a prerequi site in a c ha ngi ng env i ronment. W e operate i n a numbe r of juris dic tion s and c ha nges are con sta nt, whether t hat ’ s regu lator y , accou nti ng , or justinter na l report i ng , we’ re go ing to be i n a much st ronger position todeal w ith change quick ly and more econom ic al ly . ” Neil Davies CEO, Commercial, Close Brothers Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 7 STRA TE GIC REPORT Quality delivery with quality people Dec 2020  Dec 2021   SERVICES The quality of our people, the knowledge sharing embedded in the organisation and the inherent IP within our software, means that our delivery record is second to none. 8 Alfa Financial So ftware Holdings PLC Annual R eport and Account s 2021 REVENUESTREAMS Services revenue (£m) 2021 46.1 40.8 20 20 Services revenue (%)  56% 28% 16%              What is included in the services revenue stream? Services revenues are r evenues from any w ork done for customers including pre-implementation, implementation w ork, and ongoing service s, but excludesany r evenue fr om development work. What happened in 2021? 2021 saw a continuation of our strong deliv er y record underpinned b y the gro wth in our p ool of client-facing people and placement of par tner resources on customer project s. W orking 100% remotely we successfully completed five new implementations of Alfa v5, continued ongoing implementation and v5 upgrade projects, and provided ongoing service s across the majority of our existing customer base. W e continue to invest in the development of our people and in the quality and efficiency of our delivery mo del, as well as building and lev eraging our partner ecosystem to enable more concurrent implementation pr oject s. Implementation milestones 1995 Alfa v3 launched 2003 Alfa v4 launched 2021 35% of customers using hosting 2017 Alfa hosting launched 2010 Alfa v5 launched 2020 Alfa Start launched “ W e’ re ver y pleased w ith the product, we’ ve got a ver y strong t ea m at A l fa support i ng us. W e’ ve go t multiple supp l iers, but Al fa a re by far a nd aw ay t he be st per form i ng par t ner t hat we ha ve , in ter m s of the b ehav iour s t hey op erate w ith asa norga ni sat ion – t hey’ re extre me ly p ro fe ss i on al. ” Russ Fitzgerald Chief Information Officer, Hampshire Trust Bank 2019 4.6m contract por tfolio go-live Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 9 STRA TE GIC REPORT Our purpose and identity T o deliv er our leading-e dge t echnolog y with smar t , diverse people, making our customers future-r e ady . W e are a softwar e and deliv er y company . 10 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 A TAGL AN CE 7% 58% 35% 56% 28% 16% 24% 17% 59% What we do Where we do it Who we do it for Services W e p erformed implementation or ongoing service s for 28 customers during the year . All of our rev enues are for the sale of softwar e and related service s. This split is to help understanding of changes in busines s activity . EMEA W e had 21 cus tomers based in Europe andAfrica, as at 31 December 2021. Alfa Systems has been implemented andislivein 16 EMEA countries, with a furtherexpansion under way into additional countries over the next f ew years. Original equipment manufacturers OEMs include both equipment and automotive manufacturers, whose main purpose is the sale of theasset rather than the provision of financing. Software W e had 21 cus tomers during the year wherew e pro vided development services. In addition, we had 7 customers where w e recognised a por tion of the customised licence in the period, and 6 customers where there was point-in-time licence r ecognition inthe year . America W e primarily ser ved cus tomers across the US out of offices in Michigan and T exas, although US customers are also supporte d from the UK. W e have deep experience of the USA automotiv e finance sector and a gro wing presence in equipment finance. Banks Customers classified as banking institutions are financeentities associated with regulated banking groups. Subscriptions A t 31 Decemb er 2021, we had 31 subscription customers, up from 28 last year . Of these, 12 were taking hosting service s at the end of the year . Rest of the World W e have operations inAustralia and New Zealand specialising in both automotive and equipment finance. As at 31 De cember 2021 we had 26 team members in this region. Independents Independent customers are customers who are neither part of a regulated banking group nor manufacturers of the asset being financed. Independent customers tend to be smaller , both in por tfolio volumes and personnel using Alfa Systems. Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 11 STRA TEGIC REPOR T Strong performance W e s aw a strong performance throughout 2021 with good progr ess across all par t s ofour business. W e have c ontinued to deliver successful implementations with increased usage of our scalable and reliable cloud hosting solution, at the same time as releasing significant enhancements to oursoftware. W e have seen excellent sales growth reflected in our contracted orders with T otalContract V alue ( T CV) of £133m up 4%since 30 September 2021 and 18% in the twelve months since 31 De cember 2020. The pipeline has continued to streng then underpinning our confidence in the future gro wth of the busine ss. In another difficult year f or our people, with the disruption and uncertaint y from the ongoing impact from CO VID-19, we have continued to focus on our culture and w e are pleased to see that translate into high employ ee eng agement scor es. The resulting high retention rates and our ability to continue to attract high-calibre people intoAlfa, support s our ability to gr ow our headcount in a tight labour market. The strong conv ersion of our pipeline and continued investment in our product and processes have enabled our growing workf orce to r emain fully utilised. F inancial per formance has also been strong. Rev enue of £83.2m (2020: £78.9m) was up 5% on last year , or 14% compared with 2020rev enues of £73.3m, after excluding one-off licence r evenue fr om a five year contract extension. T o suppor t the growth in the business av erage headcount in the period was 383 (2020: 341) , a 12% increase which increased salar y cost s. Hosting cos ts also increased as that business grew ov er last year . Both of these were partially offset by a full twelv e months of reduced trav el and office cost s compared with 2020. Overall operating pro fit up £0.8m to £24.7m (2020: £23.9m) with the rev enue increase of £4.3m partially offset by increased cost s of £3.5m, whilst maintaining operating profit margin at 30% (2020: 30%) . Cash conversion was strong at 114% (2020: 114%) and we finished the period with net cash of £23.1m (31 Dec 2020: £37.0m) after payment of £32.7m ofdividends in the calendar year . W e have continued to diversify our rev enue base with our top five customers now repr esenting 37% of our revenues in 2021 compared to 48% in 2020 and 61% in 2019.W e have continued to deepen our relationships acr oss our customer base, leading to more customers making a material rev enue contribution to our business. W e had 14 customers contributing rev enues of more than £2m in the year , up from 10 in 2020 and 7 in 2019. “ We started 2021 with a strong fi nan ci al an d d el ive ry performance and maintained this through the whole of the year. 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.” Andrew Denton Chief Executive Officer 12 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 CEO’ SREVIEW Alfa’ s culture has meant that from the early days of f orming the business we have focused on creating a positive, sustainable impact on society . It is ple asing that our underlying strength in ESG is now being reflected in improv ed ESG scores, including the Carbon Disclosure Project and b y achieving an ISS ESG ‘P rime’ rating. ISS ES G takes an absolute bes t-in-class approach byindustry , so companies are categorised as‘Prime ’ if they achieve/ ex ceed the sustainability per formance requirements (the ‘Prime threshold’) defined by ISS ESG for each specific industr y in the ESG Corporate Rating. Subscription Subscription r evenues have gr own rapidly ov er the last couple of years and comprise any r evenues that are r ecurring including monthly or annual maintenance billing, cloud hosting ser vices and bundle d licence, maintenance and hosting contract s. W e have transitioned to a ‘ cloud firs t’ approach to sales bec ause we see real benefit s in the spe ed of implementation forcustomers and they see benefit s in the reliability of the service and built-in tools, including automated monitoring, patching and scheduling. We anticipate that the majority of new customers will take a hosted service and all of the current v4 to v5 upgrades are moving into a hosted v5 envir onment. In addition we expe ct that new customers will increasingly take bundled licence, hosting and maintenance contracts, fur ther improving the stickiness of the customer base. W e now ha ve sev en customers taking cloud hosting ser vices for live pr oduction environments and have fiv e customers taking hosting ser vices during design and implementation, most of which will become live production customers, to give a total of tw elve customers taking hosting ser vices, up from ten at the end of2020. The number of customers with ongoing maintenance contracts has increased to 29from 27 at the end of 2020. Software Our strategy is to continue to develop oursoftware, to ensur e that we meet industr y and customer nee ds as they evolv e and asthe regulatory environment chang es. W e release a new update of Alfa every fourw eeks, each one of which makes enhancements available to customers that add to their ability to ser ve their o wn customers. This maintains our edge as a leading pro vider of auto and equipment finance software. During 2021 we inv este d in impro ving the efficiency of our software development; all part of our continuing drive for simplification. W e se e the focus of dev elopment in 2022 mov e towards customer facing functionality improv ements, as cus tomers continue to innovate and r eact to the changing demands of the market. W e are also looking to expand our capacity to deliver ne w developments, and consequently we are in detailed planning for creating a new virtual development hub in P ortugal to augment our London development teams. Our differentiators      Delivery track record Our bes t practice methodologies and specialise d knowledge of auto and equipment finance enable us to deliver large system implementations and highly complex business change projects. With an excellent deliv ery record over three dec ades in the industr y , Alfa’ s track record is unrivalled. Unify systems Alfa Systems helps customers reduce complexity by consolidating disparate legacy sys tems, integrations and workar ounds. Alfa Systems remo ves these inefficiencie s byusing a single platform with a single database. Innovate and challenge  Multi-entity , multi-regulatory , mu lt i- currency and multilingual. W e react quickly in a complex and changing market and adapt to match business requir ement s and c us t om er needs as they evolve. Create an omnichannel experience W e emp ower customers, dealers andvendors thr ough enhanced self-service and omnichannel technology . Perform through  Alfa Systems is designed ground-up with the latest te chnology to allow easy integration into other systems and to work in a web en vironment with scalable per formance, pr oven f or a 10 million contract por tfolio . Achieve operational agility Streamline operations thr ough process automation, acr oss diff erentfunctions andgeographies. Achieve greater control, connected processes and aseamless flow o finformation . Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 13 STRA TEGIC REPOR T Despite more of an internal focus on development in 2021 w e did significantly advance our ability to ser vice Wholesale customers which is a new and significant vertical market for Alfa. These enhancement s allow support for all asset type s, spee dier access to funds for Wholesale cus tomers while tracking and managing contracts through the early stages and allowing f or bulk changes to Wholesale contract cur tailment schedules. We no w have tw o customers using our Wholesale functionalit y and one of our major contract wins in the first half was for a Wholesale-only cus tomer . W e have also deliver ed improv ement s in the areas of configuration manag ement, credit decisioning, busine ss rule creation and regulatory suppor t for Eur opean market s. The new user interface (UI) that we launched last year is now in production witheight customers and these new UI approaches hav e been use d to develop collections and cur tailment s functionality . As expected overall so ftware rev enue reduced compared with last year due to the reduction in brand new Alfa implementations and consequently there was a reduction in licence income, although this was partially offset by incr eased development days f or existing customers, including those upgrading from Alfa S ystems v4 to v5. Services Services revenues are derived fr om all of the work on implementations and other services but exclude dev elopment days on new and existing customers (which is shown in software) . W e hav e continued to deliver avery high level of service to customers, whilst operating remotely during the period. In 2021 in the UK we saw g o-lives on an AlfaStart project , implementing for new business following the acquisition by another customer and, two v4 to v5 upgrades. In Eur ope we saw the continuation of a multi-country implementation across a further four European countries, and in the US a brand new implementation for an automotive client and the launch of thr ee new modules for an existing customer . W e have gro wn our customer-serving team, howe ver a greater pr opor tion of their time was spent on software development which shows in software. Within services there was a reduction in new implementation work, of fset by the implementation of v4 to v5 upgrades. W e have also gro wn our access to par tner resources and during the year w e had partners op erating with us for sev en customers, which is up from four customers for the last year . In 2020 there was some large systems integration w ork done by a partner which normally would not be within the scope of our work, and if this was excluded total partner days were up 54%. Our partner programme is a key enabler of our gro wth and we will expand this fur ther . W e will create plans to develop partner-led delivery which would be a significant step forward from partners simply augmenting our existing resources. Alfa iQ – putting theory  Alfa iQ spent 2021 engaged in prototyping work with Alfa customers which successfully validated the busines s benefit of ar tificial intelligence and machine learning applications within the asset finance industr y . Alfa iQ has now been engaged by two leading organisations, one providing automotiv e finance and the other business finance, to implement artificial intelligence and machine learning solutions within their businesse s, which will generate r evenue in 2022. The projects build on two different applications of ar tificial intelligence and machine learning in asset finance: impro vements to originations and workflowoptimisation. Up until no w Alfa iQ has r elied on using resources from Alfa and Bitf ount, the joint ventur e par tners, howe ver we ar e now actively r ecruiting into the joint venture. In the period Alfa iQ achieved ISO 27001certific ation. Strong engagement with  W e have balanced the issues of s afety along with recognising the mental health impacts of lockdowns. W e have not r equired anyone to come to the offices during the pandemic who did not want to, but when allo wed, we hav e opened up the office for those who want to be there. Each department or team has created its own char ter for the wa y it wishes to work and we ar e implementing these now . W e have continued to arrange remote e vents to keep engagement high, ranging from short presentations on work and lif e topics through to Company-wide hackathons, inno vation days and conf erences. Engagement and retention ha ve r emained high, and we continue to be able to attract high-quality diverse people to Alfa, howev er we r ecognise that the market remains tight for quality software engineers and so we work har d to ensure that we ar e the employ er of choice. With this in mind, we hav e a very full agenda in our global HR function, where activity has included updating our approach to on-boarding and to learning and development as w ell as an ongoing re view of rewar ds and benefit s. Employ ee share ownership has always been impor tant to Alfa and we intr oduced a Save as Y ou Earn (SA YE) share scheme in the UK and an Employ ee Stock Purchase Plan (ESPP) shar e scheme in the USA. Capital return W e remain a strongly cash generative business. W e continuously review our strategy and as sess the funds ne eded topursue that strategy and then review theoptions for an y excess funds. When presenting our 2020 results we committed to star ting a programme of r egular dividends, and we r emain committed to doing this through the declaration of a single ordinary dividend each year alongside our “ Engagement and retention has remained high, and we continue to be able to attract high-quality diverse people to Alfa, however we recognise that the market remains tight for quality software engineers and so we work hard to ensure that weare the employer of choice.” 14 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 CEO’ SREVIEWCONTINUED full-year r esult s. De spite the payment of a regular dividend, w e expect to continue to generate ex cess c ash and so from time to time we will also look whether to return it. Having made an assessment of our potential inv es tment needs and reviewing our internal for ecas t s for the next 12-18 months we declared a special dividend of 10 p ence per share, f or a total payment of £30m, which means that we will hav e generated total dividends for shar eholders over the last 12 months of 26 pence per share or £77m. Looking forwards it remains our intention to continue to pay a r egular dividend, and to gro w this progressively , but in addition we announced a share buyback programme in January 2022 to sp end up to £18m ov er the next 18 months to buy back our shares, partly to s atisfy share option vestings, but with the majority to be held in T reasury and/ or cancelled. Robust market conditions While the underlying auto and equipment finance market did initially see a dip in activity following widespread CO VID-19 lockdowns, it has broadly been reco vering since H2 2020. This continued through 2021 and we now see generally fa vourable market conditions, recognising that whilst we hav e no direct exposure to ev ents in Ukraine and Russia, it is too early to say what the medium term impacts on the macroe conomic outlook may be. Regarding the asset finance softwar e market, since the initial disruption of the uncertaint y caused by COVID-19 in H1 2020, we hav e seen no adverse impact on our market. Indee d, the remote w orking practices that companies have been forced to adopt, and are increasingly looking to be standard practice going f orwards, has accelerated moves towar ds a digital strategy , alongside increased focus on system flexibility and reliability , and increasing r egulator y and legacy push factors, both of which Alfa is well positioned to benefit from. Good conversion of late  When we announced our 2020 results wehad a strong late-stage pipeline, but highlighted the impor tance of converting this into signed contract s and that conv er ting prospect s into signed contract s was taking longer than normal. During the year we ha ve con verted seven prospect s into wins and added an additional five prospect s, without losing any , so finishing the year with eight pr ospe cts. This succe ss in conv er ting the late-stage pipeline demonstrates that we have a compelling proposition. Since the end of 2021 w e have added one additional prospect and conv er ted one into a win so that we currently ha ve eight prospects in our late-stage pipeline. It is not only the quality of our software that gives us such a strong conv ersion of prospect s, but our strong delivery record. An increasing tr end has been the move towar ds customers looking to implement Minimum Viable P roduct (MVP ) solutions suppor ted by Alfa Start . This has the advantage of getting us on the gr ound faster , demons trating the quality of our software and people. Outlook The market opportunit y for Alfa is v er y exciting and w e have g ood visibility of work for 2022. W e know there is a tight talent market at the moment, but assuming we continue our excellent r ecent record of attracting and retaining talent, we will see good rev enue growth in 2022, albeit with some additional margin pressure due to salar y inflation and return to normal costs. With the strategic improv ements made across the business, the quality of our people and s trength of the intellectual property in our soft ware, w e have gr eat confidence in Alfa’ s prospect s. Andrew Denton Chief Executive Officer 8 March 2022 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 15 STRA TEGIC REPOR T        MARKETOVER VIE W Global trends Global economic recovery continues, with the focus shifting to the after-effects of a relativ ely shor t-lived recession. Supply chain disruption and surging demand hav e contributed to global inflation; and used asset s hav e soared in value whilst new inv entor y remains low . The climate emergency is for cing consumers and businesse s to look at ways to impro ve their carbon footprint. Auto and equipment finance companies play a critical role in this change, pro viding the world with ev er impro ving green technologies. What this means for Alfa today The ability to refinance assets or onb oard used asset s provides our customers with theability to thrive in times of low inv entory , but also pro vide tools for supporting the circular economy . Usage-based billing is fullyconfigurable, allowing client s to build flexible financing solutions. Our customers are also configuring gr een financing products, including loc al gov ernment subsidies and recording key emissions dataagainst their asset s. Alfa Systems is a highly configurable platform which often r esult s in our customers being well positioned to facesuch challenges. Demand is str ong worldwide as finance companies continue to look to implement r esilient, flexible and modern technolog y landscape s. What this means for Alfa tomorrow Alfa continues to keep a close eye on trends and shift s within the geographies and industries in which we operate. Recent years hav e highlighted that , often, these shif ts are unfor ese en. This highlights the imp ortance of flexibility and configurability within our solution, pro viding customers with features that not only satisfy the requirements of today but that can be applied to the challenges of tomorro w . USA It was expe cted that delinquencies in the USA automotive finance market would spike as forbearance pr ogrammes came to an end, but this has yet to materialise to the anticipated extent. Supply chain issues and inflation continue todisrupt originations, but low rates and atrend towar ds long er terms are k eeping payments affordable and demand high. Equipment demand r emains high withfuture pr ospect s looking strong dueto continued industr y confidence andincreased go vernment infrastructurespending. What this means for Alfa today Alfa support s the largest pro viders inboth the equipment and automotiv eindustrie s, suppor ting their businessthrough periods of challenge andoppor tunity . The ability for clients to repor t in real time on their por tfolio allo ws them to track industr y trends as well as portfolio and process per formance. This allows our clientsto identify ar eas of concern and oppor tunity , such as the ability to introduce new products or streamline k eyprocesses ahead o f a for ecas ted spikein volume. What this means for Alfa tomorrow Alfa’ s continued focus on automation, configurability and connectivity keeps our customers prepared f or any future after-effects of the pandemic. Our internal inv es tment process continues to introduce key pr oduct features required by a number of our clients, such as expanding our collections and credit offerings. Europe More aggressive sustainability targets amongst European captives have pr esented a challenge to pr ovide green assets to the mass market. Usage-based products continue to be an area of dev elopment as pro viders react to higher demand f or more flexible, cost- efficient and sustainable ways of utilising asset s while retaining pr ofitability and managing residual risk. Large multinational pro viders are looking to reduce technology overheads by selecting a single pro vider that can suppor t multiple countries and an evolving product landscape. What this means for Alfa today Alfa Systems pro vides configurable suppor t for usage-based products, allowing client s to configure bespoke off erings. Reporting and configuration management capabilities allow client s to accurately monitor the per formance o f their new products and iteratively impro ve upon them. Configurable subsidy management allows customers to manage an ev er- changing landscape of green incentives across multiple jurisdictions. Alfa’ s pr oduct flexibility and deliv ery experience acr oss E urope means it is well placed to implement multi-countr y projects successfully . Furthermore, a wealth of experience in our home market along with our UK Alfa Start off ering allows us to deliver high-quality solutions at a low er cost . What this means for Alfa tomorrow Alfa’ s pr oduct inv estment allows our customers to stay up to date with product and regulatory developments. Furthermore, Alfa continues to invest in and innovate its delivery methodolog y , building on an already pr oven deliv er y track recor d. This places us in the be st position to meet the needs of our cus tomers as they juggle large-scale change in a number of ar eas, such as meeting their sustainabilit y targets. 16 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Australia and New Zealand Covid-19 has continued to dominate the agenda for man y organisations, with the auto and equipment finance sector being noexception. It’ s incr easingly clear that organisations with modern technolog y and processes have been better able to adapt to new ways of w orking. Throughout 2021 Alfa has worked with our clients in Australia and New Zealand to suppor t both them and their end customers. While smaller , the market in Australia and New Zealand is remarkably diverse. Australia in particular has a large equipment finance market led by the mining and ra w materials sector , and automotive finance leasing has continued to show strength in both countries. What this means for Alfa today Strong and long-lasting r elationships remain key to our success, with our ability to suppor t the gro wing operations of our existing clients being a k ey measur e of that success. Alfa’ s ability to suppor t a broad range of agr eement typ es on a single platform is an advantage in smaller mark et s with a high level of pr oduct diversification, and we continue to see strong demand. What this means for Alfa tomorrow F irst and foremost our key objective f or 2022 is the execution of our existing projects, along side the suppor t of our existing customers. W e expect to see business practice s driving towar ds more and more automation and pr ocess supp ort , both areas in which Alfa is very well placed. Technology trends Artificial intelligence and machine learning remain points of interest , with more possible applications being uncover ed as new market trends and challenges emerg e. One example is residual value modelling, both as supply chain issues continue and customers lo ok for more flexible usage models. Delivery requirements often drive technology requirement s too, with agile delivery models demanding sc alable cloud solutions. Our customers are looking to decrease the technology footprint managedby their internal teams, reducing the ongoing ov erheads that come with on-premise deplo yment. The emphasis on data only gro ws stronger with more customers realising the value that big data pro vides. Robust API connectivit y isof paramount importance as auto and equipment finance providers look to coalesce asset , contract, telematics and other data to pro vide clearer views of profitability and efficiency . What this means for Alfa today Alfa has been at the forefront o f the digital rev olution in auto and equipment finance, and Alfa Systems has a rich application programming inter face (API) allowing seamless connectivity . W e’ve continue d to increase the br eadth of ser vices available and also expande d the integration patterns suppor ted by Alfa Systems, such as Amazon SQS and HTTP transpor t typ es for outbound mess aging. Inv es tment into our cloud hosted offering continues. W e recognise the importance of secure and resilient cloud architectur es and these are key considerations in the design of our service, which we continually monitor through client engagement and internal procedures, such as disaster recovery tes ts. Alfa’ s joint ventur e, Alfa iQ, continues to explore the use o f machine le arning in auto and equipment finance. The industr y presence of Alfa iQ has increased thr ough thought leadership and confer ence activity , driving the adoption of AI in the auto and equipment finance market. What this means for Alfa tomorrow The industr y continues to focus on utilising new technologies in innovative ways and Alfa’ s inv estment mirrors this appetite, ensuring we ar e designing solutions that c an place our customers at the forefr ont of technology trends.   Mo rein for ma ti ono nAl faiQc anb e  found on page 30. Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 17 STRA TEGIC REPOR T BUSINESSMO DEL Markets See market o verview page 16 Culture and values Seemoreaboutour culture and values page62 Inputs Value creation Leadingcompaniesrequire innovation and customer -specific enhancements to stay ahead Autoandequipmentfinance isheavilyregulat ed–  regulatorychangerequir es  software chang es New mark et s and geographies requireso ftwaredev elopment Gro wing Company pro vides career dev elopment and re wards for our people So ftware Leading-edge technologyand innovation attractssmart, diverse people Pe ople Sma r t ,di ve rsep e op le  improv e our software 18 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 R ev enue Subscriptions Ser vices So ftware Financial returns for shareholders See Financial r evie w page38 Positive impact  SeeESGsection page58 Outputs Delivery Retain for potential future needs Cash Solutions for leading auto andequipmentfinance companies  Newmark etentry Expanding our addressable market Our delivery track recor d and market-leading software driv e recommendations and additional sales Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 19 STRA TEGIC REPOR T 1  3 INVESTMENTC A SE Purpose-built for auto and equipment enterprises globally, developed to meet the current and future needs of the industry. Alfa Systems is a leading auto and equipment financesoftware platform Strongly positioned ina large resilient addressable market with clear structural growth drivers W e have an establishe d position of leadership in the auto and equipment finance software market, underpinned byour experience, ourtrack r ecord of delivery , and our in-depth unders tanding of the industr y . Changing regulations (f or instance risk -freerates) , the ne ed for digital capabilities (accelerating as a result ofchanges in customer processes due tothe globalpandemic) and theneed to replace ag eing infrastructure andoutdated systems are driving underlying demand for Alfa Systems. W e are committed to growing our market share b y recruiting the smarte st pe ople, maintaining and developing our leading- edgetechnolog y , and surpassing customer expectations through delivery excellence. 20 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   3 Constant innovation delivers leading-edge technology embedding strong long-term customer relationships Alfa has inv es ted significantly in the development of its technolog y platform to ensure it is secure, r eliable, resilient andscalable to gro w with our customers’ busine ss ambitions. Our suite of integrated modules canbedeployed and configured as afullend- to-end solution cov ering theentireauto and equipment finance lifecycle or alternatively to pro vide stand-alone suppor t for functional or product areas. Our hosted solution adds fur ther value byreducing implementation timescales andpr ovides a single, resilient, actively monitoredinfrastructure. Our strong, long-term customer relationships drive r ecurring revenues aswell as pr oviding refer ences for newpr ospect s. Strong cash generation delivering a strong balancesheet supporting growth plans We have a clear strategy anda cash generative modelthat enables us to fund our growth internally A robust   of cash (2020: £37m) andno bank debt (2020: £nil) An impressive cash conversion rate  (2020: 114%) W e have multi-year relationships with our customers, built on our consistent delivery . Our dierentiated businessmodel is dicultto replicate 30 years and growing With an excellent deliv er y histor y over three decade s in the industr y , Alfa’ s track record is unrivalled. Our business model t ypically involv es the sale and deployment of our auto and equipment finance software platform into large enterprises, that hav e highly complex andvarying requirements. W e are able to leverage our understanding of these complexities to enhance Alfa Systems – asignificant selling point for new pr ospect s. Our Alfa Start methodology enablesusto deliver asubscription-based service rapidly to smaller , less complex customers. W e have establishe d a partner net work that extendsour sales channel and enable s us to increaseour capacity to implement more Alfa Systems, hence lev eraging our IP . Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 21 STRA TEGIC REPOR T Our strategy for creating long-term sustainable business value A Group r evenue B Operating profit C Operating profit margin D Cash E Operating free cash flowconv ersion F T otal contract value (TCV) G Headcount H Retention rate I Employ ee eng agement J Greenhouse gas emissions (tCO 2 e) Key COMP A NYSTR A TEGY Strategic priorities Description Our objectives Link to KPIs 1  Strengthen Grow our differentiation of market-  W e will continue to offer a supportive, diverse and collaborative w orking envir onment and be considered to bean employer of choic e. W e will maintain our le ading-edge technology and ensure it s secure, effective deliv er y to make our people, and customers, future-ready . Our target mark et s inform and dir ect our product dev elopment. W e will maintain our unriv alled track record f or delivering larg e system implementations and highly complex business change project s. • Retain and attract the best people • Support our pe ople through flexible w orking • Encourage inclusivity and div ersity • Pr ovide career development and learning opportunities • Make a positive impact t o contribute to a more sustainable future • F oster innovation throughout the compan y • Rein vest in the product to increase value f or customers and prospect s • Seiz e market oppor tunities for new pr oduct s • Continue to dir ect product roadmap by tar get markets • Integrate Alfa S ystems with be st-of-breed solutions • Successful deliv er y of all Alfa implementation projects andongoingservice s • Maintain strong customer engagement and loyalty A B C D E F G H I J 2  Sell Focus on cloud-hosted, subscription  W e will retain our market-leading position and grow our shar e of the enterprise auto and equipment finance sector . Our target markets inform and direct our sales and marketing effort . • Gro w target mark et share • Gro w cloud-hosted, subscription s ales • Gro w incremental sales to existing customers • Impro ve pr ospect eng agement and sales process A B C D E F G H I J 3  Scale Increase our capacity for developing  W e will increase product engineering and delivery capacit y , enabling rev enuegrowth. • Impro ve pr oduct engineering sc alability • Increase de velopment capacity • Increase deliv ery c apacity A B C D E F G H I J 4  Simplify Simplifying our product, implementations and processes   W e will continue to invest in simplification to achieve our vision ofdelivering mor e concurrent Alfa implementations, more efficiently witha world-class product. • Simplify our suppor ted code sets and platforms • Simplify our product development • Simplify our implementation and upgrade delivery approach • Impro ve operational efficiency • Impro ve manag ement information and control A B C D E F 5  Synergise Develop our partner ecosystem,    W e will work with a select group of partners to create additional sale s channel oppor tunities and increase ourdelivery capabilitie s whilst maintaining quality . • Leverag e our par tner ecosystem for sales • Scale and lev erage our partner e cosystem for deliv er y • Add to our partner ecosys tem • Continuous impro vement of Alfa P artner programme A B C D E F 6  Start Improve our offering for smaller auto and equipment finance providers as   W e will b ecome a market leader inthevolume market o f the auto and equipment financeindustr y . • Continuous impro vement of Alfa S tar t delivery • Continuous impro vement of Alfa S tar t product • Win customers in the volume market, based on Alfa Start proposition • Continue inv estment mo del for v olume market A B C D E F 22 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Strategic priorities Description Our objectives Link to KPIs 1  Strengthen Grow our differentiation of market-  W e will continue to offer a supportive, diverse and collaborative w orking envir onment and be considered to bean employer of choic e. W e will maintain our le ading-edge technology and ensure it s secure, effective deliv er y to make our people, and customers, future-ready . Our target mark et s inform and dir ect our product dev elopment. W e will maintain our unriv alled track record f or delivering larg e system implementations and highly complex business change project s. • Retain and attract the best people • Support our pe ople through flexible w orking • Encourage inclusivity and div ersity • Pr ovide career development and learning opportunities • Make a positive impact t o contribute to a more sustainable future • F oster innovation throughout the compan y • Rein vest in the product to increase value f or customers and prospect s • Seiz e market oppor tunities for new pr oduct s • Continue to dir ect product roadmap by tar get markets • Integrate Alfa S ystems with be st-of-breed solutions • Successful deliv er y of all Alfa implementation projects andongoingservice s • Maintain strong customer engagement and loyalty A B C D E F G H I J 2  Sell Focus on cloud-hosted, subscription  W e will retain our market-leading position and grow our shar e of the enterprise auto and equipment finance sector . Our target markets inform and direct our sales and marketing effort . • Gro w target mark et share • Gro w cloud-hosted, subscription s ales • Gro w incremental sales to existing customers • Impro ve pr ospect eng agement and sales process A B C D E F G H I J 3  Scale Increase our capacity for developing  W e will increase product engineering and delivery capacit y , enabling rev enuegrowth. • Impro ve pr oduct engineering sc alability • Increase de velopment capacity • Increase deliv ery c apacity A B C D E F G H I J 4  Simplify Simplifying our product, implementations and processes   W e will continue to invest in simplification to achieve our vision ofdelivering mor e concurrent Alfa implementations, more efficiently witha world-class product. • Simplify our suppor ted code sets and platforms • Simplify our product development • Simplify our implementation and upgrade delivery approach • Impro ve operational efficiency • Impro ve manag ement information and control A B C D E F 5  Synergise Develop our partner ecosystem,    W e will work with a select group of partners to create additional sale s channel oppor tunities and increase ourdelivery capabilitie s whilst maintaining quality . • Leverag e our par tner ecosystem for sales • Scale and lev erage our partner e cosystem for deliv er y • Add to our partner ecosys tem • Continuous impro vement of Alfa P artner programme A B C D E F 6  Start Improve our offering for smaller auto and equipment finance providers as   W e will b ecome a market leader inthevolume market o f the auto and equipment financeindustr y . • Continuous impro vement of Alfa S tar t delivery • Continuous impro vement of Alfa S tar t product • Win customers in the volume market, based on Alfa Start proposition • Continue inv estment mo del for v olume market A B C D E F Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 23 STRA TEGIC REPOR T Initiatives SERVICES SOFTWARE SUBSCRIPTION Strategic priorities People Partnering Strategic Investment Alfa iQ Cloud Hosting Alfa Start 1  Strengthen 2  Sell 3  Scale 4  Simplify 5  Synergise 6  Start Find out more on page25 Find out more on page26 Find out more on page28 Find out more on page 30 Find out more on page32 Find out more on page 34 STRA TEGYINACTION Initiatives underpinning our strategy 24 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 We are Alfa Our talent is our bes t asset – successful project delivery depends on passionate people who are engaged and care about what they do. W e take great pride in the strong culture at Alfa, and w e work hard t o look after our colleague s, retaining and attracting the bes t in the business. Inclusion & Diversity: A key strategic priority is to attract, develop and retain a truly div erse team. Our strong Inclusion & Diversity policy helps us recruit the bes t and smarte st pe ople. Diverse cultural perspectives really do inspire inno vation and creativity at Alfa. W e make thing s better and solve pr oblems together , so we ’ re alwa ys striving towards being as inclusive as we can. • Our new T ransitioning at W ork policy , launch of Cultural Days and the ev ents and initiatives run by our Communities are 2021 successe s we ar e really proud o f . Delivering the best  Our smart p eople deliver great implementations to our customers and develop class-leading software. W e suppor t teams with flexibility , in vest in wellbeing and make sure e veryone feels connected. There are always Learning & Development opportunitie s for gr owth and career progression available. • This year we ’ve been pr eparing for the launch of our new Learning Management System as well as sharing a suite o f tools, resources and workshops to support new ways of w orking and to help reach our full potential. W ellbeing has been a core focus, rolling out new r ewards and benefits, training up Mental Health F irst Aiders and enhancing paid carer leav e allowance. Culture: Recruiting and retaining the best pe ople is fundamental to our gro wth. We attract and hold on to talent by r einfor cing the Alfa Culture and ensuring a positiv e learning envir onment. Underpinned by our V alue s, the Alfa Culture is something o ften describ ed as ‘ special ’ . W e f oster a setting in which everyone feels listened to and value d. W e also enjoy each other’ s company and make effort s to hav e fun alongside working hard. • 2021 saw us maintain connections and team rappor t with a variety of vir tual andreal-w orld events. W e seek regular feedback from all areas o f the busines s and hav e kicked off projects which focus on our Employ er Brand, sharing more on life at Alfa and getting t o know each other better . Findoutmor eonpage62 Communities – inside & outside Alfa: Our internal Communities are employ ee-le d groups – safe spaces f or those involv ed to discuss and promote issues, suppor t each other and work towar ds impro ving policies. They focus on: Racial E quity , Inclusion & Diversity , LGBT Q+, Parents and W omen. Our Envir onmental Impact, Social Impact and Alfa Communities look af ter the wider communities in which we work (as well as internal operations) , raising money for charities, focusing on sustainability and giving back in the form of v olunteering, work experience schemes and sharing exper tise. • Our Communities continue to do fantastic work in all their r esp ective areas. W e have enjoy ed a huge variety of events and learned from each group this y ear . We ’ve raised great sums for charity partners and are pr oud to confirm we r eached c arbon positivity in 2021. Find out mor e on page 65 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 25 STRA TEGIC REPOR T SERVICES People Partnering SERVICES STRA TEGYINACTION  Partner relationships  Partner-assisted project go-lives in2021  Ongoing partner- assistedprojects Approach Partnerships are an important growth accelerator , bringing a number of benefit s toAlfa and our customers. These include: • Increased operational capacity through partner s taff augmentation of our teams, allowing us to deliv er more Alfa S ystems implementations concurrently; • Greater fle xibility to change resourcing rapidly by lev eraging our partners’ size and bench strength; • Increased sales oppor tunities through joint business development and access to a wider range of customers through our partner net work; • F aster /less risky implementation project s through smoother systems integration by skilled Systems Integrator (SI) partner resources with Alfa S ystems experience; • Extended local market exper tise, language skills and presence enabling more eff ective sales and implementation; • Client-side resourcing capability through our partner net work, allo wing us to provide an additional service to cus tomers; and • Extended product off ering and simplified implementations through integrating Alfa with complementary solutions from technology par tners. “ W e’ ve been collaborat i ng w it h A l fafor more th an 20 years now . The Accentu re and A lfa leade rship , consu lti ng a nd tec h nolog y tea ms have a n exce llent t rac k re cord of work ing we ll a nd del iver ing busi ness be nefit toge t her. ” Cameron Krueger Managing Director, Accenture “ Deloitte a nd A l fa have b een work i ng toget her to moder ni se s ystem s and pro cesse s and del iver compel li ng dig ita l e x per iences for ourcl ients. T oget her , our o rga n isat ions compl ement one anot her e x tr emely wel l tobri ng t he be st sol ution s a nd del iver g reat busine ss outcomes fo r our c lient s. ” Andrew Denton CEO, Alfa Financial Software 26 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Partnering Our partner programme is a key part of Alfa’s long-term growth strategy Highlights This year we ha ve successfully scaled our partner relationships, remotely onboarding three partner intakes and emb edding more partners in our project teams, s ales activities as well as in client-side/SI r oles. On the delivery side, par tner resources hav e been utilised across 7 customer project s in three differ ent geographies and we hav e seen two partner-assiste d projects go live. This year we hav e benefite d from incr eased s ales channel oppor tunities via our par tner relationships and the extended global r each and credibility they pro vide. W e hav e also continued to explore new partnerships invarious geographies that can help us in salesopp ortunitie s. W e have gro wn our par tner ecosystem, agreeing engagement terms with a notable global prof essional ser vices organis ation for the combined marketing and delivery of the Alfa Systems platform. W e have continued to invest in partner training, fur ther developing our training programme including course material impro vements and new Alfa Systems training envir onment s automatically synchronised with the latest versions of Alfa Start . Updates to our partner por tal and access to additional resources mean that our partners hav e better acces s to supporting information and tooling, bringing increased efficiencie s. W e work with a small, carefully selecte d partner e cosystem of like-minded organisations with geographical spread andcomplementary deliver y capabilities. W e utilise three t ypes of par tnering – the first is staff augmentation, where industr y exper t partner s taff augment our teams and assist with our standard implementation consultancy work with Alfa, priming the delivery . T ypical roles include configuration, training and testing suppor t . The second type is working with SI par tners to per form activities outside of Alfa’ s standard implementation scope and which are key to the successful delivery of the project . T ypic al roles include programme manag ement, integration development, test management , document production and report creation. The third type is working with technology partners for out-of-the-box integrations with bes t-of-breed solutions. Plans – for 2022 In 2022, we will continue to scale our existing partnerships and evaluate other potential par tners to strengthen further our par tner e cosystem and core market c overag e. This will include exp an din g ou r par tner-assisted delivery capability in Nor th Amer ic a to inc reas e operational capacity . As staff augmentation par tnerships mature and partner resources gain exper t Alfa Systems implementation knowledge and experience, w e plan toadvance themto wards a joint delivery model, s tarting with T eamwill. In preparation f or this, in 2022 we will continue to make significant inv es tment in our partner programme including: • Extending our partner suppor t team; • Impro ving partner onb oarding, including introducing certification / accreditation; • Impro ving par tner collaboration tooling; and • Opening up more r oles for partners W e will continue s ales collaboration activities with our par tners. This is an impor tant aspect of our par tnerships, with new sales acting as a growth accelerator , both for Alfa and for scaling our partner relationships fur ther . Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 27 STRA TEGIC REPOR T Continued investment in our leading-edge software to make  As customers drive their businesse s harder and expect more access to information, Alfa Systems’ performance has been improved, continuing our journey to an always- available system. Simple deployment models, such as cloud hosting and Do cker containers, enable us to deliver Alfa S ystems more efficiently and earlier , allowing our customers to focus on their business differ entiators rather than infrastructure. Inv es ting in our whole engineering process, including our people, ensures that our onboarding, tools and infrastructure enable us to scale teams efficiently , whils t benefiting more from external expertise and leading-edge technolog y . Continued system modularis ation effort has separated fur ther component s allowing us to use them more easily in mor e context s. W e are also es tablishing architectural guidelines and automated tooling to as sist Product Engineering teams adopt these principles as par t of business as usual development in their ar eas. Product Engineering now benefits from a completely new build process and system, deliver ed by the Software Dev elopment Lifecycle (SDLC) initiativ e, which keeps an always green mainline f or Alfa Systems, using scalable computing resources. This remo ves significant friction from the development experience, pr oviding better isolation between parallel enhancement s and impro ving the oppor tunity for collaboration. This now opens the oppor tunity to efficiently fur ther scale our STRA TEGYINACTION Mercury is a modern UI (User Inter face) which is accessible to all, which helps users of Alfa Systems complete their daily tasks with ease in a modern, clean and uncluttered environment.  Clients live with Mercury UI Strategic Investment SOFTWARE 28 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 engineering team and improv e release flexibility , which should bene fit our customers. W e are alr eady finding impro vements from the new approach as engineers experiment and leverage this to automate other processes. Business rules, now even better Po werful Busines s Rules functionality has long been a key differ entiator for the Alfa Systems product, allowing our clients to configure their o wn business de cision logic within the system. This can include, for example, data validation, company policy rules and automation of workflow progr essions and actions. Be cause this is configuration-based, it allows for rules to be added or update d without requiring Alfa Systems development eff ort and a new release of the softwar e. This year as part of our ongoing product inv es tment, we have used functional groups tomake significant impro vements to the business rule e ditor to guide authors when creating rules, and to prev ent creation of rules which would hav e no effect. These useabilit y changes will enable our customers to define more rules, more efficiently , shor tening the time to business bene fit realisation. Improved credit decisioning In 2021 we extended our cr edit and middle office functionality in Alfa Systems, f ocusing initially on the UK equipment market. This inv es tment included: consolidated supp ort for credit applications; integration with Experian for consumer and commer cial searches; more efficient decision making by gathering credit data only when required; and alignment between external and Alfa de cision engines. This ex citing impr ovement to the product willbenefit both existing and prospective customers and is very timely given the current economic outlook with Credit De cisioning being a primar y focus for the industry in 2022. Class-leading user interface Las t year we intr oduced a new user inter face to Alfa Systems, code-named Mercury , the first to be entirely driven b y direct end-user feedback. This year has seen Mercury rolled out to many of our v5 clients and feedback has been hugely positive. Mercury and our future UIs continue to ev olve via our engagement in regular end-user research sessions, watching people use Alfa Systems in their day jobs. This y ear our approach to user r esearch has also developed significantly . For example, w e no w hav e a demo application where we can make prototype screens available to clients allowing them to trial new lay out s and component s before actual dev elopment star t s. W e have also been working on a new framework f or user interface development at Alfa (code-named Render ) , building on the success of Mercury . Render will both rev olutionise and simplify UI development at Alfa, as well as pr oviding a host of other benefit s to areas such as testing and application per formance. W e genuinely believe this will be a game-changer for the Alfa product and for our users. Plans – for 2022 Our future in vestment s will continue to focus on shortening the cycle from requirements to delivery ensuring that our customers receive the best ser vice and are kept futur e-ready . We will progr ess our modularis ation initiative, further focusing on simplification and bottlenecks. In parallel, we will continue to revie w and update our structure and processes to improv e team autonomy and individual master y within our engineering teams as well as to balance the diff erent types of work we do. 2022 will also see an increased focuson inv estment in functional impro vements to Alfa Systems, delivering mor e strategic roadmap items to continue to strengthen our market-leading product. Alfa’s dedicated UI/UX Design team have accessibility aspart of their core remit. This team recently carried out an accessibility audit of our Alfa Systems software, part ofamajor internal investment initiative which fundamentallyimproves the overall UI and UX of Alfa Systems. A strand of this work (codenamed Mercury) wasinformed by the Web Content Accessibility Guidelines(WCAG)and has gone live at many of ourclients,with hugelypositive feedback from users. Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 29 STRA TEGIC REPOR T STRA TEGYINACTION Alfa iQ SOFTWARE 30 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Alfa iQ was established to deliver intelligence to the world’s auto and equipment finance providers. Artificial intelligence and machine learning 2020 saw the formation o f our joint venture with Bitfount. Alfa iQ was establishe d with a mission to employ artificial intelligence (AI) and machine learning (ML) techniques to deliver the highest quality insight s to the world’ s asset finance providers. AI and ML do howe ver require car eful implementation to yield valuable results. This is why we partnered with Bitfount, a team of carefully selected exper t s in AI and ML who are pushing the capabilities of such technolog y , not just in terms of the quality of the insight s gained from their algorithms, but also in the way these are designed with data privacy at the for efront. One challenge of these technologies is getting enough quality , well-structured data, to create r obust algorithms, and so this collaboration, pairing Alfa’ s expert s in asset finance and data structures, with Bitfount’ s deep understanding of this emerging technology , is uniquely well placed to pro vide consistent and unparalleled bene fits to our customers. The advantages for our customers are as varied as improv ed auto-decisioning with a reduced ne ed for manual intervention, improv ed delinquenc y prediction, exposure and concentration risk identification and ultimately more accurate lending, leading to a greater return on capital. Highlights W e have been steadily introducing Alfa iQ to selected, leading indus tr y play ers, including but not limited to existing Alfa customers. So far testing of our machine learning methods is continuing with two customers, and we hav e signed a paid contract with our first customer . In 2021 Alfa iQ achieved ISO 27001 andCyber essentials certific ations for information security , demonstrating our ability to leverage contacts and experience to setup strong infrastructure ar ound this new ventur e. Alfa iQ also welcomed its firs t full-time staff member this year to augment the existing members from Bitfount and Alfa and this expansion of the team will continue in 2022. Hiring is being managed meticulously to recruit only individuals with the expertise and high standards we r equire. Plans – for 2022 2022 will see iQ grow its customer base with both increases in w ork f or existing customers, and the onboarding of new ones. After finishing tes ting and development with the initial onboar ding customers, iQ int ends to e xpand their products with both ‘software as a service’ options and bespoke analysis. In order to achiev e these goals, we will carefully manag e the t eams expansion, utilising the existing wealth of experience fr om the two par ent companies, as well as new employ ee s. Whilst this is ongoing, we anticipate that demonstrating the advantag es of iQ’ s products will be increasingly easy as iQ’ s reputation and portfolio of work gr ows. iQ’ s core strateg y group consisting ofsenior leadership fr om Alfa and Bitfount w orked hard throughout thisyear to get the structur es and processes in place to begin work for their first customers and now the focus will mov e towar d expanding capacity , to facilitate new workloads whilst retaining the highest quality . Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 31 STRA TEGIC REPOR T STRA TEGYINACTION Delivery • W e are now liv e for eight customers across EMEA, Americ as and now Asia Pacific . • Managed infrastructure f or six customers currently in the pr oject implementation phase and as project accelerators f or future on-pr emises cus tomers. • Seamlessly deploy ed signific ant Alfa Systems upgrades to our live customers allowing our customers to benefit from the latest versions of Alfa Systems. • Pr ovided our customers with timely information after the recent Log4Shell vulnerability was reporte d. Our lay ered architecture and so ftware vulnerability monitoring process ensured that our customers were not impacted. W e then rolled out the latest patche s from A WS and our other vendors as soon as they wer e available. Comparing these numbers to the 2020 report , many of those customers are no w live, illustrating how Alfa Hosting can spee d up implementation projects e specially when used in tandem with Alfa Star t. Cloud Hosting SUBSCRIPTION Up to   faster for initial deployments 32 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Scalability • Increased the size and geographical distribution of the team by onboarding additional capacity based in the US A. This allowed us to co ver more out-o f-hours request s for our EMEA customers and to pro vide more in-working hours support for our US and Asia Pacific customers. • T owards the end o f the year we launched a closed-beta for our customer por tal. Customers will be able to self-ser ve impor tant audit document s and view up-to-date status information for their envir onment s. W e will inv est in additional por tal functionality in 2022 with the aim of allowing our customers to manage featur es of their deployment s whilst reducing the load on our team for simple and frequently executed tasks. In Q1 2022 we expect to open the por tal as generally available to all customers. • 2022 will see oppor tunities to automate more of our pr ocesse s and to continue to impro ve the customer experience wherev er we can. Technology • Deliver ed comprehensive support for running Alfa Systems in Docker containers from within the Alfa Hosting service to leverag e alignment between all Alfa Systems. This included suppor t for deploying upgrades of the Alfa Digital Gateway micro-service with zero downtime or service interruption. • Migrated, with zer o downtime, to the nextgeneration of our security par tner’ s machine-learning based threat monitoring. Alert Logic Managed Detection and Response provides best-of-breed AI-based intrusion detection, backed by a24x7 team of security exper t s. This has significantly cut the time to deliver new infrastructure for our customers whilst ensuring that every ser ver is monitor ed 24/7 for potential thr eat s. • Delivered a secure and scalable solution formo ving obfuscated data between customer environments as required for issue repr oduction or busines s verification testing. No more infrastructure delays with fully-managed environments from AlfaHosting. Open to users from thefirst day of a project. Plans – for 2022 W e will continue to onb oard new clients and to pro vide secure and per formant infrastructure to our e xisting client s allowing them to f ocus on delivering value to their business throughout every stage of a project. W e also plan to fur ther increase thesize of our team with additional members in both the EMEA and USA regions to pr ovide expert round-the- clock suppor t wherev er our customers are located. 2022 will see increased investment in our deployment, monitoring and por tal platforms to ensur e that we continue to off er market-leading tooling to both our internal teams andcustomers. Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 33 STRA TEGIC REPOR T Alfa Start SUBSCRIPTION STRA TEGYINACTION   Alfa Start implementations can reachlive production inaslittle as20weeks. 34 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Approach Alfa Start offers a pr econfigured, hoste d software solution for the quick and c ost- effective delivery of Alfa Systems. Using a predefined, be st-practice configuration and process catalogue, Alfa Star t allows operations of all sizes to take full advantage of the multi-featur ed, market-leading Alfa Systems platform. The Alfa Start approach is designed to accelerate systems change pr ogrammes, maximising value and minimising risk. Lean operations taking on Alfa Start ’ s best- practice parameters and processes can quickly leverag e the prov en functionality and per formance f or which Alfa Systems has become renowned. For those or ganisations requiring more customisation, Alfa Start canact as a project acc elerator , enabling fasterimplementations. Alfa S tart ’ s rapid implementation model benefit s both Alfa and our customers. Alfa Start is a key enabler of agile delivery , allowing clients to confidently and quickly establish a firs t phase go-live, r ecognising the benefit s of Alfa Systems earlier and pro viding production experience f or future phases. Implementations of this nature enable Alfa to scale effectively , delivering mor e concurrent projects, providing the same high-quality service, but without a corresponding increase in the number of implementation consultants. Through Alfa Start we ar e increasing the number of available customers in key targ et markets, presenting Alfa as a more competitive package, especially among st smaller auto and equipment finance providers. This not only protects our p osition as a market leader , but also allows us to support growth and disruption. Alfa Start is complemented by AlfaHosting, which allows clients to use Alfa without having to establish and maintain envir onment s. T ogether , both allow the client to go live quick er with an Alfa platform that meet s both the functional and technic al requirements, whilst increasing Alfa’ s subscription rev enue stream. Highlights 2021 has seen successful go-lives for both Alfa Start out-of-the-box and accelerator projects, plus the kick-off o f numerous other projects utilising Alfa Star t as an accelerator . Alfa Start has be en fully operationalised andembedde d in two key tar get markets. All implementations acr oss UK Equipment and US A utomotive markets now utilise Alfa Start either as an accelerator or through the out-of-the-box appr oach. As the number ofprojects has increased, we are r ealising compounding benefit s as we gather more feedback, build more exper tise and incr ease our Alfa Start user group. In parallel to project feedback, the ongoing internal inv es tment initiatives throughout 2021 hav e ensured the continuous development of Alfa Start . This includes incorporating new product featur es, expanding functional and integration capabilities, e stablishing more client-facing documentation and improving internal testing . This has ensured that Alfa Start remains the class-leading product and implementation approach. Plans – for 2022 In 2020 we launched Alfa Start products cov ering both the US Automotiv e and UK Equipment markets. Alfa Star t has pro ved very successful in both market s, and 2022 will also see a number of existing implementations progr ess and new projects b egin, ensuring the momentum created by Alfa Start continues to build. Alfa Start has also prov en to be successful in adjacent markets, with clients using parts of our existing offerings. As such, we ar e looking towar ds implementing new Alfa Start offerings f or other target markets, in particular US Equipment. Through br oadening the market cov erage of Alfa Start we will further compound the benefit s this model offers through mor e rapid implementations. A number of key initiatives during 2022 will ensure that Alfa Start remains leading edge. A programme to simplify migration will look to enable rapid migration of portfolios and facilitate low-friction por tfolio ac quisition, suppor ting our customers’ gro wth. In addition, we ar e building software partnerships to expedite the implementation of key integrations withcommon v endors, enabling our customers to rapidly incorporate Alfa into wider system landscape s. F inally , we ar e broadening the functional cov erage o f existing AlfaStart of ferings, incorporating key diff erentiators such as automated creditdecisioning. “ Alfa Start makes a world-leading product – AlfaSystems – available to more companies. Ourcustomers can use Alfa Start to simplify and expedite complex change programmes, reducing riskand enabling them to see benefits earlier. We can deliver more projects, in fewer days, but crucially without impacting any of the quality forwhich we’reknown.” Sarah Taylor Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 35 STRA TEGIC REPOR T KEYPERFORMAN CEINDI CA TORS Measuring our performance      Our strategic priorities 1    3      6  Financial Group revenue  2021 £83.2m £ 78.9m £ 64.5m 20 20 20 19 2021 performance Group re venue grew b y 5% from last yearwith strong gro wth in Service s and Subscription streams, and a decline in Software stream driv en primarily by a largeone-o licence f ee in 2020 which didnot recur . Why do we measurethis? Growing r evenue is a measure of customer and business success. It is central to our objective of gro wing by maintaining our leading competitive position through dierentiation of market-leading P eople, Product and Delivery . Linked to remuneration: Ye s Links to strategic priorities: 1  3   6 Operating profit  2021 £24.7m £ 23.9m £ 13.7m 20 20 20 19 2021 performance Operating prot increased from last yearas a result of gr owth in revenues, partially oset by increased salar y cost s, aswell as higher hosting and internal computer costs. Why do we measurethis? Operating prot is an indicator of the Group ’ s pr otability . It can be used to analyse the Gr oup ’ s core operational performance without the cost s of capital structure and tax expenses impacting pr ot. Linked to remuneration: Ye s Links to strategic priorities: 1  3   6 Operating profit margin  2021 30% 30% 21% 20 20 20 19 2021 performance Operating prot margin has remained in line with last year with rev enue growth partially oset by increased costs of our growing workfor ce (see comments under Gr oup revenue and operating pr ot abov e) . Why do we measurethis? Operating prot margin is a measure o f how eectively we sell Alfa S ystems and manage our cost base. It also allows comparison across dierent companies and sectors. Linked to remuneration: Ye s Links to strategic priorities: 1  3   6 Cash  2021 £23.1m £ 37.0m £ 58.8m 20 20 20 19 2021 performance During 2021 a second special dividend of £29.7m was paid, reducing the Group ’s cash balance. Excluding the impact of the dividend payment, cash has fur ther improv ed due to a favourable operating free cash ow performance. Why do we measurethis? Cash is critical to allow the Group to cov er its expense s, provide funds f or investment, growth and to meet its long-term ne eds. Cash generation is a good indicator of the underlying health of the business. Linked to remuneration: Ye s Links to strategic priorities: 1  3   6 Operating free cash flow conversion 114  2021 114% 114% 138% 20 20 20 19 2021 performance Operating free cash ow conversion performed in line with last year with continued focus on cash management. Why do we measurethis? A strong unencumbered balance sheet position is key to growing the business in the future. Our business has always been cash generative and this KPI allows us to monitor cash ows before inv estment in capital projects. Linked to remuneration: Ye s Links to strategic priorities: 1  3   6 Total contract value (TCV)  2021 £133.1m £ 112.9m £ 80.5m 20 20 20 19 2021 performance Y ear-on-year total T CV has seen signicant growth from 31 December 2020 with improv ements across all revenue streams particularly subscription and software. See p39 for further detail. Why do we measurethis? Helps to predict rev enue and the value ofacontract ov er it s lifetime, which will generally extend beyond the curr ent nancial year . See p37 for a detailed explanation of the calculation. Linked to remuneration: No Links to strategic priorities: 1  3   6 36 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Operational Headcount  2021 382 360 316 20 20 20 19 2021 performance Headcount has increased due to planned recruitment and investment continuing across the business together with an improv ed employee retention rate. Why do we measurethis? Our revenue gr owth and ability to win newbusiness is heavily dependent on the number and deep exper tise of our people and therefor e growing our team f or the future is key to this g oal. Linked to remuneration: No Links to strategic priorities: 1 3 Retention rate  2021 87% 93% 83% 20 20 20 19 2021 performance The retention rate has declined during theyear largely due to the impact that thepandemic has had on the recruitment market and people’ s evaluation of futureaspirations. Why do we measurethis? Our deep expertise in the industr y and our ability to service our cus tomer relationships is driven by the quality of our people. A higher retention rate demonstrates sustained engagement and maintenance ofkey skills and knowledge. Linked to remuneration: No Links to strategic priorities: 1 3 Employee engagement  2021 78% 74% 55% 20 20 20 19 2021 performance Employee engagement has impr oved during the year , due to the an increased focus on this area b y senior management, as well as the deliberate actions that wer e taken in response to the pandemic. Why do we measurethis? Measures levels of emplo yee satisfaction and connection to the business. There is a positive correlation between employ ee engagement and business per formance and the metric should be a lead indicator for retention r ate per formance. Linked to remuneration: No Links to strategic priorities: 1 3  Greenhouse gas emissions (tCO 2 e) 142 2021 142 212 821 20 20 2021 performance Our emissions have fallen signicantly due to much reduced travel driv en primarily as a result of the pandemic combined with a review of tra vel needs generally . Why do we measurethis? Responsible operations and a commitment to a positive Envir onmental, Social & Governance (ESG) ag enda. We ar e committed to a position of carbon positivity through assessing our carb on footprint and emissions. Linked to remuneration: No Links to strategic priorities: 1 3 Definition and KPI  In considering the nancial performance of the business, the Directors and management use key performance indicators (KPIs) , some of which are dened by IFRS and some of which are not specically dened by IFRS. W e believe that operating free cash ow conv ersion isa key measure r equired to asses s our nancial performance. It is used by management to measure liquidity . This measure is not dened by IFRS . The most directly comparable IFRS measure f or operating free cash ow conversion is cash o ws from operations. The measure is not necessarily comparable to similarly refer enced measures used by other companies. As a result, investors should not consider this performance measure in isolation from, or as a substitute analysis for , our results of operations as determined in accordance with IFRS . The calculation method for each metric is as follows:  Represents the number of Alfa employees under contracts of employment as at 31 December of eachyear .  Represents the retention of Alfa employ ees over the previous 12-month period, excluding an y managed sta attrition.  TCV is calculated by analysing futur e contract revenue based on the following components: (i) an assumption of thr ee years of subscription payments (including maintenance, cloud hosting and subscription licence) assuming these ser vices continued as planned (actual contract leng th varies by customer); (ii) the estimated remaining time to complete service s and software deliverables within contracted software implementations, and recognise deferr ed licence amount s (which may not all be under a signed statement of work); and (iii) Pre-implementation and ong oing ser vices and software work which is contracted under a statement of work. The denition of T CV has been aligne d with the new rev enue streams reported, however the underlying calculations are consistent with previous periods, and accordingly no r estatement is required. Given this KPI is forward looking, in calculating the TCV w e have used the budget 2022 ex change rates. These budget rates are; USD: 1.38, EUR: 1.17, A UD: 1.88, and NZD: 1.95.  The overall Emplo yee engagement score is deriv ed from bi-monthly employ ee Pulse survey ratings based on the questions “I am happy in my role ” and “I would recommend Alfa to a friend as an employ er” . The calculation of this score has been revised during the year to include only these two broad questions, which provides a clearer r esult than the previous method which included additional ques tions relating to specic aspe cts of working at Alfa which meant the impact of any specic issues could be duplicate d within the overall scor e. Comparative period scores have been restated accordingly .    Operating free cash ow is calculated as cash generated from operations, less capital expenditures, less the principal element of lease payments in respe ct of IFRS16. Operating free cash ow conv ersion represents operating free cash ow generated as a proportion of operating prot. STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 37 FINANCIALREVIEW “ 2021 saw us make further financial progress, paying our second special dividend, along with our first ordinary dividend, and the launch of a share buyback programme in early 2022.” Duncan Magrath Chief Financial Officer Financial results £m 2021 2020 Movement % Rev enue 83.2 78.9 5% Operating profit 24.7 23.9 3% Pro fit before tax 23.8 23.2 3% T axation (4.6) (2.9) 159% Pro fit for the period 19.2 20.3 (5)% Basic earnings per share 6.5p 6.9p (6)% Rev enues increased by 5% or £4.3m to £83.2m in the tw elve months ended 31 December 2021 (2020: £78.9m) . Gro wth at cons tant currency was 9%. Operating profit increased by £0.8m to £24.7m (2020: £23.9m) , due to the £4.3m increase in rev enues, par tially offset b y £3.5m increase in expenses, principally due to a £1.8m increase in salar y cost s fr om pay rises and increased headcount, as well as higher hosting cost s up by £0.8m and other computer costs up by £0.8m. Net finance costs which relate to lease expenses of £0.8m (2020: £0.7m) resulted in profit before tax of £23.8m (2020: £23.2m) . The Eff ective T ax Rate (ETR) f or 2021 is 19.3% ( 2020: 12.5%) , the increase r eflect s that the prior y ear benefited from R &D tax relief for the tw o years 2018 and 2019, whereas the curr ent year reflects the R&D tax relief f or 2020 only . The resulting pro fit for the period was £19.2m (2020: £20.3m) . Revenue Rev enue – by type £m 2021 2020 (restated) Movement % Subscription  23.5 18.1 30% Softwar e 13.6 20.0 (32%) Services 46.1 40.8 13% T otalrevenue 83.2 78.9 5% * T o b etter reflect the nature and type of rev enue, changes have been made to the classification and allocation of revenue line items. The comparative disclosur es for the 2020 reporting period have also been amended to reflect a fair base for comparability . These changes have had no impact on the total rev enue or the profit befor e tax that were disclosed for 2020. Software r evenues include rev enues from recognition of customised licence rev enue, one-off licence fees and any development r evenues. Subscription rev enues include recurring rev enues paid on a monthly orannual basis, including subscription licence rev enues, maintenance and cloud hosting . Services revenues are re venues from any w ork done for customers including pre-implementation work, implementation work, and o ng oi n g service s, but excludes any r evenue from development work. 38 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Subscription revenues Overall subscription re venues increased 30% to £23.5m (2020: £18.1m) . The incr ease was driven b y a 24% increase in maintenance rev enues with customers increasing to 29 at the end of the year , up from 27 at the start of the year . Hosting customers increased from 10 at the end of last year to 12 at the end of 2021. Rev enues from pure hosting alone grew str ongly , along side good growth from rev enues from bundled subscriptions, which included not just hos ting but also maintenance and licence payments. Software revenues Software rev enues of £13.6m wer e down £6.4m or 32% on last year (2020: £20.0m) . Of this reduction, £5.6m was due to a five-y ear contract extension agr ee d and recognised in 2020 with a customer who had previously terminated its licence. In 2021 we did recognise £2.1m of r evenue acr oss six existing customers for additional licence payments as a result of going through a contractual band or for new modules. As previously discussed more of our implementation work this year has been for v4 to v5 upgrades, which generally do not attract additional licence payments, except where customers take on additional modules and so the income from customised licence s was down on last year . This was partially offset by income from increased development w ork for existing customers, including those going through v4 to v5 upgrades. Services revenues T otal ser vices revenue incr eased by 13% to £46.1m (2020: £40.8m) at actual exchang e rates, driven by higher char geable days from our increased headcount. There was a reduction in pre-implementation r evenues, where last year w e had two large customers requiring detailed pre-implementation work. Re venues from new implementations wer e up, although stronger gr owth was seen with ongoing service s work, larg ely on the back of v4 to v5 upgrades. Total contract value (TCV) TCV – b y stream £m 2021 2020 Movement % Subscription 85.8 69.1 24% Softwar e 14.9 12.8 16% Services 32.4 31.0 5% T otalTCV 133.1 112.9 18% T otal contract value ( T CV) – as define d inthe definition section on page 37 – increased ov er last year by 18% to £133.1m. As expecte d the subscription T CV has increased 24% driven b y an increase in the number of customers and the significant gro wth in our hos ting business. There was also a 16% increase in software, fr om secured development work and licences from the contracts, and from the strong conv ersion of the last-stage pipeline in the year . Growth in service s T CV , at 5%, was somewhat low er with a number of v4 to v5 implementations coming to an end. TCV – b y stream for next 12 months £m 2021 2020 Movement % Subscription 26.9 22.4 20% Softwar e 6.7 6.1 10% Services 26.2 23.8 10% T otalTCV 59.8 52.3 14% Of the TCV at 31 December 2021, £59.8m (31 Dec 2020: £52.3m) is anticipate d to conv er t into rev enue within the next 12 months, assuming contract s continue as expected and are not cancelle d or delay ed. This includes £6.7m (2020: £6.1m) of software re venues, £26.9m (2020: £22.4m) of subscription rev enues and £26.2m (2020: £23.8m) of service s rev enues. Operating profit The Group ’ s operating pr ofit increased by£0.8m, or 3%, to £24.7m in 2021 (2020: £23.9m) . This reflecte d the £4.3m increase in r evenues, partially offset by an increase in the Group ’ s cost base as w e continued to invest in the business. Increased headcount dro ve higher costs although this was partially offset by reduced partner cos t s, which wer e high in 2020 due toone larg e pre-implementation pr oject. The Group ’ s operating pr ofit on a constant currency basis increased by 10% as sterling was stronger against the USD than last year . Headcount numbers were up 6% at 31 December 2021 at 382 (31 D ecember 2020: 360) , with average headcount increasing mor e significantly to 383 (2020: 341) up 12%. Our staff retention rate has been s trong at 87% o ver the 12 months up to that date, as expected down from the unusually high 93% experienced in 2020. Expenses – net £m 2021 2020 (restated) Movement % Costofsales 29.0 27.0 7% Sales,generaland administrative expenses 30.0 28.5 5% Other income (0.5) (0.5) – T otalexpenses  –net 58.5 55.0 6% * T o b etter reflect the nature and function of certain expense s, changes have been made to the classification and allocation of expense line items. The comparative disclosur es for the December 2020 repor ting period have also been amende d to reflect a fair base for comparability . Cos ts previously classified as implementation and suppor t expenses and research and pr oduct development expenses of £11.9m and £15.1m, respectively , have been presented as cost of sale s. In addition, £3.4m of implementation and support expense s and £3.8m of research and pr oduct development expenses have been reclassified to sale s, general and admin expenses. The main items affected are administrative salary cost s, computer costs and proper ty related expenses. These changes have had no impact on the total expenses or the profit before tax that w ere disclosed at the end of December 2020. STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 39 FINANCIALREVIEWCONTINUED Cos tofs al e s increased by £2.0m to £29.0m (2020: £27.0m) due to higher salar y cost s from the incr ease in customer-facing headcount along with increased hosting cost s, par tially offset b y a reduction in partner cos t s. Sal e s,g en era lan dad mi ni s tra ti ve(SG& A) expenses increased by £1.5m to £30.0m in the year (2020: £28.5m) . This included increased salar y cost s through higher headcount although this was somewhat offset by the r eduction in contractor cost s. In addition Pro fit Share Pa y increased to £3.1m (2020: £2.7m) . There has also been an unfav ourable increase in for eign currency differ ences of £0.7m, which moved fr om a gain of £0.5m in 2020 to a loss of £(0.2)m in 2021. The above factors w ere offset b y a further reduction in travel and conf erence cost s, as there was almost no trav el for the whole of the twelv e month period. Finance costs Net finance cost s which relate to leases of £0.8m (2020: £0.7m) remained relativ ely unchanged with a small reduction in finance income from r educed c ash balances and interest rates. Profit for the period Pro fit after taxation decreased by £1.1m, or5%, to £19.2m in 2021 (2020: £20.3m) . The Eff ective T ax Rate (ETR) f or 2021 is 19.3% (2020: 12.5%) with this increase reflecting, in par t, that the prior year benefited from R&D tax relief f or the tw o years 2018 and 2019, wher eas the current year will reflect the R&D tax relief f or 2020only . Earnings per share Basic earnings per share decreased by 6% to6.49 pence in 2021 (2020: 6.93 pence) . Diluted earnings p er share decreased by 6% to 6.39 pence (2020: 6.79 pence) . Cash flow Net cash (including the effect of exchang e rate changes) decreased by £13.9m to £23.1m at 31 December 2021, from £37.0m at 31 December 2020. This de crease has been driven by strong cash generated from operations, offset by the pa yment of special and regular dividends of £32.7m. Operating free cash flow conversion £m 2021 2020 Mov ement % Cashgenerated from operations 31.3 30.1 4% Adjustedfor: Capitalexpenditure (1.3) (1.0) 30% Principalelement of the lease payments in respectofIFRS16 (1.9) (1.7) 12% Operating free cash flow 28.1 27.4 3% Operating pro fit 24.7 23.9 3% Operating free cash flow con version 114% 114% – 40 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Cash generated from operations benefited from a continuing strong f ocus on cash per formance. The Gr oup ’ s op erating free cash flow conv ersion (FCF) of 114% (2020: 114%) was in line with last year due to continued focus on cash management. This is a very strong result and higher than our ongoing trend which will be closer to 100% conv ersion. In addition to the cash generated from operations of £31.3m, the Group incurred £1.3m on capital expenditure (2020: £1.0m) and made net tax payments of £3.8m (2020: £3.8m) . This included the r esearch and development tax cr edit claim r eceived during the period of £1.6m, which was claimed and recognised in 2020, resulting in the unusually low effective tax rate for FY 2020. The Group has no external bank borrowings. In the y ear , net cash outflows of £39.2m (2020: £45.9m) from financing activities wer e largely driv en by £32.7m (2020: £44.2m) of dividends paid, with ordinary dividends of £3.0m (2020: nil) along with Special Dividends of £29.7m (2020: £44.2m) . In addition there w ere principal element oflease payments of £1.9m (2020: £1.7m) and £4.6m (2020: nil) for funding the Employment Benefit T rust for the purchase of shares to satisfy current and future L TIPs thereb y avoiding potential dilution fr om the issue of shares to satisfy vesting s. Balance sheet The most significant movement in the balance sheet was the change in cash noted above. Other balance sheet movements wer e as follo ws: Non-current assets of £44.4m were lar gely unchanged from last year (2020: £44.8m) . Current assets, excluding cash, increased by£2.8m to £16.5m (2020: £13.7m) . T rade receivables remain well contr olled with debtor days at 26 days (2020: 27 da ys) with only £0.1m (2020: £0.1m) more than 90 days ov erdue. Pr ovision f or impairment remains £nil (2020: £nil) . Accrued income increased in the year b y £1.3m to £6.3m due to increased rev enue, partially offset by the unwinding of the accrued income r elated to the one-off licence f ee bo ok ed i n 2 02 0. Prepa yments increased by £1.1m to £3.2m (2020: £2.1m) due to the inclusion of deferr ed cost s ( offset b y a related incr ease in deferred licence contract liabilities) . Current liabilities of £24.0m (2020: £18.1m) wer e up £5.9m. Ther e was a £1.1m increase in trade payables and other payables to £9.3m (2020: £8.1m) principally due to higher bonus and profit shar e payments. Lease liabilities increased from £1.7m to £1.9m due to new leases for the Michigan and Sy dney offices. Contract liabilities increased by £4.0m to £11.0m (2020: £7.0m) with deferred licence liabilities increasing £3.4m to £5.3m (2020: £1.9m) due to an increase in the material right r elated to customised licence implementations, along with an increase in deferr ed maintenance liabilities up £0.6m to £5.7m (2020: £5.1m) due to gro wth in the busine ss. Non-current liabilities reduced slightly , do wn £0.6m to £16.6m (2020: £17.2m) due to a reduction in lease liabilities to £15.2m (2020: £15.8m) with pr ovisions r emaining unchanged at £1.4m (2020:£1.4m) . STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 41 FINANCIALREVIEWCONTINUED Key financial metrics The Group uses Operating cash flow conv ersion as a financial metric which isnot specifically define d by IFRS but which management uses as a key measure to assess financial per formance. Operating cash flow conv ersion is calculated as c ash generated from operations as a percentage of operatingprofit. This measure is not dir ectly comparable to similarly ref erenced measures used by other companies and, as a result, inv es tors should not consider this per formance measur e in isolation from, or as a substitute analysis for , our result s of operations as determined in accordance with IFR S. Constant currency W e provide percentag e increases or decreases in revenue and operating profit to eliminate the eff ect of changes in currency values as we believe it is helpful to the understanding of underlying trends in the business. When trend information is expressed herein ‘in constant currencies’ , the comparative r esult s are derived by re-calculating non-pound sterling- denominated rev enue and/ or expense s using the a verage monthly exchang e rates of this year and applying them tothe comparativ e year’ s r esult s, excluding gains or losses on derivative financial instrument s. The averag e ratesare as shown in note 1.4 to the financial statement s. Capital allocation and distributions The Group ’ s capital alloc ation policy takes into consideration the need to continue to inv es t in our people and te chnology whilst maintaining strong liquidity and is shown in more detail on the opposite page. Since Nov ember 2020 we have paid £74m of special dividends and paid the first regular dividend of 1.0 pence per share in July 2021, amounting to £3m. In January 2022 we announced a share buyback programme of up t o £18m over the next 18 months. The Board intends to pr ogressively incr ease the dividend as the Group gr ows, whilst ensuring that we r etain a strong balance sheet . F or 2021 we are pr oposing a dividend of 1.1pence per share, amounting to £3.3m. If appro ved by shareholders in the Annual General Meeting , this will be paid on 24 June 2022 to shareholders on the r egister as at 27 May 2022. The ex -dividend date willbe 24 May 2022. Related parties Details about related par ty transactions are disclosed in note 32. Going concern The financial statement s are pr epared onthe going concern basis. The Gr oup continues to be cash generative and the Directors believe that the Gr oup has a resilient business model. The Group meet s its day-to-day working capital requir ement s through its cash reser ves generated from operating activities. The Group ’ s forecast s and projections, taking account of reasonably possible changes in trading per formance, sho w that the Group has sufficient cash reserves to continue to operate for a period of not less than 12 months from the date of appr oval of these financial statement s. The going concern assessment also include s downside stress tes ting in line with FRC guidance which demonstrates that even in the most extreme downside conditions consider ed reasonably possible, given the existing lev el of cash held, the Group would continue t o be able to meet it s obligations as they fall due, without the need for substantive mitigating actions. On this basis, whilst it isacknowledged that there is continued uncertaint y ov er future economic conditions, the Directors consider it appropriate to continue to adopt the g oing concern basis of accounting in pr eparing the financial statement s. Viability statement The Viability statement containing a br oader assessment by the Board of the Company’ s ongoing viability is set out in the Strategic report on pages 52 to 53. Subsequent events On 18 January 2022 the Group announced the launch of a share buyback pr ogramme. Refer to the Compan y website f or more details. There ha ve been no other reportable subsequent events. Duncan Magrath Chief Financial Officer 8 March 2022 42 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Cash generated Use of Cash Reason Impacts Stakeholder 2021 Programme CAPIT ALALLOCA TIONFR AM EWORK Strategic Investment Expands functionality of product and increases oppor tunities for sales Pro fit Company Employ ee s Customers Partners F or fur ther details of Strategic Inv es tment made in the year , see pages 28-29 Product Maintenance Ensures product remains up to date with latest technology Pro fit Company Employ ee s Customers Significant inv es tment in 2021 in pro viding a faster and more reliable wa y of releasing new product updates CSR Days Each employ ee is allowed to spend three days on CSR activities Profit Company Employ ee s On av erage one CSR day taken per employee – we will encourage greater take-up in2022 Climate Positive Pa yment s to offset remaining emissions to ensure w e are climate positive Pro fit Envir onment W e signed up with Ecologi in 2021 to make monthly payments to be climate positive Profit Share 10% of profits generated paid out to employ ee s Pro fit Employ ee s T otal cost in 2021 of £3.1m. Regular Dividend Gives a steady cash return to shareholders; allows income funds to inv es t – Shareholders 1.1 pence per share pr oposed amounting to£3.3m (2020:£3.0m) Additional Capital Return Returns ex cess cash to shareholders if not neede d for company gr owth EPS Shareholders Pa yment of second spe cial dividend of £30m and launch of £18m buyback programme STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 43 RISKM ANAGEMENT How we monitor risk Introduction A theme of 2021, like 2020, has been the continuing COVID-19 pandemic, with it ’ s wide-reaching so cial and macroeconomic impact s across all Alfa r egions. W e hav e built upon our experience of 2020, and hav e continued to adapt well to the situation, shielding our delivery and per formance from the uncertaint y . Our risk management framework has play ed an imp ortant role in this, providing us with a solid basis for assessing, preparing for and r eacting to these type s of challenges. As the C OVID-19 situation developed in 2021, ourCOVID-19 Incident Response T eam workedclosely with the Company Leadership T eam ( CL T )to identify , c ontrol and mitigate risks astheydeveloped. This allo wed us to take proactiv e action throughout the year , doing our part to ensure the safety and wellbeing of our employ ee s and customers, and to minimise the riskto our operations. Risk management is integral  The events of 2021 have again demonstrated theinterconnectedness of many of the risks and oppor tunities that our busines s faces. In order todeliver our strateg y and achieve e xcellence through our business model, both operationally and financially , we must make sure that w e maintain theright balanc e between safeguarding against potential risks, and taking advantage of potential oppor tunities as they arise. Our aim is to foster a culture of eff ective risk management by encouraging appropriate and monitor ed risk-taking and inno vation, in order to achieve the Group ’ s strategic priorities. Ou r st ra te gi c pr io ri ti e s as s et o ut o n p ag es 22an d23,a ret o: • Strengthen – Grow our diff erentiation of market-leading P eople, Product and Delivery . • Sell – Focus on cloud-hosted, subscription sale s to our target mark et s. • Scale – Increase our capacity for developing and delivering Alfa S ystems. • Simplif y – Simplifying our product, implementations and processes to enable more concurrent Alfa S ystems implementations. • Synergise – Develop our partner ecosystem, to impro ve our sales oppor tunitie s and to enable more concurr ent Alfa Systems implementations. • Star t – Improv e our off ering for smaller auto and equipment finance providers as a platf orm for innovation and to incr ease our reach. Whilst overall r esponsibilit y for risk lies at the Board lev el, the Directors hav e delegated authorit y for risk identification to the CL T . A bottom-up approach has primarily been under taken to provide a detailed r eview of risks by r elevant business owners and this is led by the Risk Officer , twice a year . The output is then reassessed by the CL T to provide assurance over completeness of the risk r egister . Our systems and processes are designe d to manage our exposure to risk rather than eliminate the risk completely . Therefor e the Audit & Risk Committee, with the CL T , will reassess the Group ’s risk appetite each year with this in mind. The Audit and Risk Committee will consider the risks associated with the conduct of our busines s and the delivery of our strategy , assessing the risks we are exposed to and evaluating whether this exposure is acc eptable given the likelihood and severity of the risk. Risks are assessed to understand the likelihoo d and theimpact of the risk cr ystallising. W e assess risk acr oss our business areas, and we analyse their impact across these categories: • Financial • Operational • Reputational • Legal and regulator y • Climate Each risk is review ed, twice a year . At each r eview date, theexisting contr ols ar e r eviewed f or adequacy and effectiveness. Due to the ever -changing business landscape and the industr y we work in, it is quite possible for the contr ol requirements to change and for pr oces ses and policies to require updating. If this is the case, then a business owner is identified and they are responsible for implementing changes. Management monitors pr ogress against the principal risks. This is shared with our internal auditor , BD O , to assist withforming the internal audit plan f or 2022. The Board reviews the summary risk register and assesse s the adequacy of the principal risks identifie d, as well as the mitigating controls and procedures which are in plac e andare operational. 1 Identify risks 2 Define risk appetite 3 Assess and quantify 4 Respond, manage and mitigate 5 Monitor and review Our aim is to foster a culture of effective risk management by encouraging appropriate and  44 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Responsibilities • Define s the risk gov ernance framework, risk cultur e andprinciples • Sets the tone for risk management including riskappetite • Responsible for an effective system of internal controls • Approv es risk de cisions that are beyond delegated authorities  • Be aler t to risks associated with the activitie s that they perform • Repor t inefficient, unnece ssar y or unworkable contr ols  • Reviews the risk management framework and the effectiveness of internal controls, risk management systems and major risk initiatives • Reviews and challenges the principal risks in the risk register , and risk scores • Reviews the internal audit programme and report s    • Review the risk management framework and the effectiveness of internal controls, risk management systems and major risk initiatives across the Group • Review the risk profile against risk appetite and make recommendations to Board in r elation to risk profile, strategy and key controls • Review and challenge therisk register , and riskscores • Review the sustainability of risk methodologies, metrics and policie s • As sess major risk-r elated projects • As sess new commercial arrangements through participation in the De al Committee  CLT • Asse sses for new risks, updates on current risks assessment and implement s mitigation s trategies and actions     • Responsible for collating updates, managing the risk register and presenting principal risks and uncertaintie s to the Company Leadership Meeting and Audit and Risk Committee • The Risk Officer act s as an advocate for risk management across all levels of the business • The Risk Officer report s to the CFO in relation to risk management matters • The CFO has responsibility for gov ernance and risk management revie w Our risk management framework Our risk management framew ork is designed to be flexible and pr oactive, andlinks tightly into our operations and decision making, allowing us to react with spee d and agility to new and evolving risks as they arise across all of our business areas. This has helped us in 2021 to continue to progr ess our strategic objectives, and to identify and pursue oppor tunities as they arose. W e recognise that managing risk effectively is integral to ex ecuting our strategy . W e have theref ore implemented a five-step process for monitoring and managing risk throughout our business, allowing the Dir ectors to conduct a robust assessment of the principal risks facing the Group . Risk is not something that should be eliminated but , instead, identified, assesse d and managed in a timely manner . Creating the right corporate culture for effective risk management Our organisation has an open and accountable culture, led b y our exp erienced CL T , whose members ha ve many years of experience in their areas. The Boar d and the CL T set the tone for our risk management activities, embedding risk consideration and assessment into the culture within the organisation. Ownership and accountability for risks is an integral part of our risk management framew ork. The Board has o verall responsibility for thegov ernance of risks, ensuring we have adequate and effective systems in place and setting the tone for our risk cultur e. It does this in various ways: • Risks are considered by the Boar d as an intrinsic part of our s trategic planning, and in the consideration of new opportunitie s, risk is recognised as an inherent part of each oppor tunity , and is asse ssed together with the oppor tunity . • There is a twice-yearly r eview by the Audit & Risk Committee of principal risks, theirevolution, and consideration o f emerging risks. • The CL T members are the owners f or each risk in the Corporate risk register , and they , and their teams, are r esponsible for the identification, asses sment and treatment of the risks in their own ar eas. Risk management is thus embedde d into each area of the business, which is be st placed to progress the actions and mitigations. • The Risk Officer coordinates risk management activities and collates the risks into the Corporate Risk Register . The Risk Officer is an advocate for best practice across the organisation. • Risk assurance is achieved through our external and internal audits as well as through our attainment of IS O27001 and ISO27018 certifications, and through our SOC2 T ype 2 audit. STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 45 Risks Socio-economic and geo-political risk IT security and cyberrisks Pandemic outbr eak in Alfaand/ or customer geographies Business interruption orcontinuity Acceptable risk appetite Risk to people, skills, location and working envir onment High customer concentrationrisk A B C D E F Impact Probability B C F E D A PRINCIP ALRI SKSANDUN CER T AINTIES Our risk appetite Our risk appetite provides us with guidance on the levels of risk w e are pr epared to take inpursuit of our objectives, and is consider ed a fundamental part of the planning and execution of our strategy . In Mar ch 2021, theBoard, assisted by the Audit & Risk Committee and the CL T , asse ssed and updated our risk appetite in light of the developing in-y ear and emerging risks. W e take a cautious approach to risk, aiming to operate in a manner that would not put the business at risk of significant financial, operational or reputational damage. This risk appetite has shaped our resp onse to the COVID-19 pandemic as it has continued to evolve thr ough 2021, forming the basis of our approach to pr otecting our employ ee s, our customers and our deliverables to ourcustomers. Focus for 2022 Continuous impro vement of risk management procedures, including training and awar eness within the Company of our risk manag ement bes tpractices. Risk identification and asses sment – bi-annual risk reviews including assessing actions and control r eviews. Cyber security and data protection – maintain SOC2 T ype 2 and ISO programme compliance, and continue toassess and s trengthen our cyb er security defences. Business continuity and dis aster recovery – scenario testing exercises. Internal audits – reviews of the strength and effectiveness of our financial and ITcontrols. Continuing focus and dev elopment of understanding of climate-related risks. Principal risks and uncertainties  The Group faces a number of risks that may adversely aff ect our strategic and busine ss objectives, operations, liquidity , financial position, reputation or future performance, notall o f which are wholly within our contr ol or known to us. Some such risks ma y currently be regarded as immaterial and could turn out to be material. W e accept that risk is an inherent part of doing busine ss. The Board considers the f ollowing matters tobe the principal risks and uncer tainties (innospecific order ) affecting our busines s atthis time. Principal risk analysis (including mitigating activities) 46 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Our strategic priorities Risk A – Socio-economic and geo-political risk Links to strategic priorities: 1  3 6 Movement: Same level of risk Impact: Major Probability: Likely How does it impact us? W e continue to face uncer tainty in the global economic outlook, which may impact demand forour services, or our cus tomer’ s rev enues, and therefor e their budgets to pay for our services. Thecurrent major component s of this risk are: • A t the time of writing, Russian for ces are invading Ukraine. Alfa does not have customers nor staff in Ukraine or Russia, and so our business is not directly impacted. Howev er , there will be knock -on social and economic impact s of this concerning crisis throughout 2022, which ma y impact us. As the situation develops, we will assess risks to our busine ss, and determine appropriate mitigation. • The CO VID-19 pandemic may hav e short or long-term economic impact s on our customers, potentially leading to a reduction in our addressable market. The se economic impact s are included under this principal risk, whereas the health and wellbeing, and busines s continuity aspect s are included in Risk B – Pandemic outbreak in Alfa and/ or customer geographie s. • Inflation has increased in each of our r egions, leading to increased cost s to our business. These increases may outpace our rev enue increases, if we ar e unable to increase our feesinline with cost s. • Changes to the trading r elationships between the EU and the UK follo wing Brexit may impact our ability to ser vice customers in the EU, although we hav e not experienced significant impacts to date. The uncertaint y in global economic outlook introduced b y the Ukrainian war leads us to retain this risk at the same level as before. The f ollowing elements of this risk hav e receded, however: • The CO VID-19 pandemic’ s economic impact s onour industr y has not been damaging to Alfa to date, as we and our clients have adapted well as the situation has developed. • Uncertainty around US economic, immigration and trade policy has recede d in 2021.  This risk goes hand-in-hand with oppor tunity , asour customers may se ek to adapt to the changing economic environment, seeking operational efficiency , introducing new pr oduct s or reacting to r egulator y changes. Alfa is well placed to help with the system and process changes neede d for such adaptation, either where Alfa S ystems is the incumbent sys tem or where a new system is needed. W e hav e f ormed a Markets and Products team, to further focus our attention on alignment of our product roadmap with the needs of our target mark et s. This helps us to be in the be st position to take on oppor tunities as they arise. Despite the uncer tain outlook, we have attracted continued interest for new work from sales prospects and existing customers throughout 2021, fr om diverse geographies and sectors within the auto and equipment finance industr y . Our strategy include s continuing to build a diverse customer base, both geographically and by asset type (i.e. automotive, e quipment) but also b y type of customer (i. e. banking, OEM or independent) which theref ore hav e diff erent andoften contr asting risk characteristics. This mitigates some of this risk as there is often adegree of cyclicality in tr ends affecting the autoand equipment finance industr y . W e ensure that the Group is financially robust and resilient to economic downturns, or project pauses, by retaining cash reserves and collecting maintenance and licence rev enues in advance. Our fees for service s are g enerally increased annually , taking consideration of the increases experienced in our c ost base. W e have an establishe d presence and customer base in the EU , and ar e committed to this as a target mark et. Strengthen – Grow our dier entiation of market-leading People, Pr oduct and Delivery . 1 Simplify – Simplifying our product , implementations and processes toenablemore concurr ent Alfa Systemsimplementations.  Start – Impro ve our oering f or smaller auto and equipment nance nance pr oviders as a platform for inno vation and to increase our reach. 6 Sell – F ocus on cloud-hosted, subscription sales to our target markets. Synergise – Dev elop our partner ecosystem, to improve our sales opportunitie s and to enable more concurrent Alfa S ystems implementations.  Scale – Increase our capacity for dev eloping and delivering Alfa S ystems. 3  STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 47 PRINCIP ALRISKS ANDUNCE RT AINTIESC ONTINUED Risk B – Pandemic outbreak in Alfa and/or customer geographies Links to strategic priorities: 1  3 6 Movement: Decreased level of risk Impact: Moderate Probability: Possible How does it impact us? The CO VID-19 pandemic has continue d t o develop thr oughout 2021, with new variant s emerging, and Government r esponse s to control the spread varying from region to r egion. Whilst the pandemic appears to be ne aring its end, there is continuing uncertainty around how itwill de velop in 2022. The risks relating to the current pandemic ar e intert wined with other principal risks, notably Risk A – Socio economic and geo-political risk, and Risk C – Risk to pe ople, skills, location and working environment. W e have actively monitor ed and reacted to this situation throughout 2021 and early 2022, and we hav e concluded that the level of this risk to our business is reduced from it s 2020 position. Whilst this pandemic continues to develop, w e face a number of possible impact s: • The health and wellbeing of our employ ee s, their families and other stakeholders may be impacted. Mitigating this is of critical impor tance in shaping our response to this risk. • W e may experience significant infection levels, f or example as new variants emerge and become dominant . This could temporarily reduce the resource capacity of our business and our professional service s fee earning capacity , p otentially resulting in deferred or lost rev enue. • Similarly , customers and potential customers may become temporarily resource- constrained, limiting their c apacity to manage larg e-scale IT project s and run sale s processes, respe ctively . • T ravel r estrictions may be reintroduced, through our o wn polic y , customer polic y and gov ernment policy , and this may temporarily reduce, or be perceived to r educe, our ability to operate for some of our g eographically diverse customer sites. • Remote w orking relies on third party cloud-based ser vices such as vide o calling and chat software. Such services may experience problems during peak remote working times, impacting the efficiency of our employ ee s. • W e may experience a slowdo wn in supply for our IT equipment nee ds. • The pandemic may ha ve short or long- term economic impact s on our customers, potentially leading to a reduction in our addressable market. This is discusse d in moredetail in Risk A – S ocio-e conomic andgeo-political risk.  W e have continued to adapt our pandemic response throughout 2021, and our business hasbecome very accustomed to operating in thisenvir onment. Our Incident Response T eam (IR T ) manag es and coordinates our actions relating to the pandemic. This team is chaired by our Chief P eople Officer , and contains repr esentatives from across our business unit s and geographies. The IR T monitors exp ert and Government advice in each of our operating regions, and takes timely action on that advice. W e made an e arly mov e to remote w orking, during Mar ch 2020, as par t of the activation of our pandemic plan, and remote w orking has remained in place ever since. W e hav e re-opened offices when possible for those who are better able to work in an office en vironment, and hav e plans in place for transitioning to a Smart W orking policy once the pandemic die s down. All of our consultants and engine ers use laptops, remote connections and remote working tools. Our systems which suppor t remote working ha ve functioned well throughout the pandemic. The IR T and other internal teams communicate regular guidance and advice to our emplo yees, including on their working location, working envir onment and wellbeing. W e have an activ e programme of emplo yee wellbeing ev ent s, and we r ecognise the impor tance of suppor ting and engaging with our employees whilst they are working r emotely . W e regularly liaise with our customer organisations to ensure that we abide b y their policies – for example, with r espe ct to busine ss trav el, and to ensure that they ar e satisfied withthe service the y ar e r eceiving fr om our remote teams. Our essential cus tomer service s – Alfa suppor t, Alfa Hosting and T e chnical Operations – are run by globally-distributed teams, using cloud infrastructure, pro viding resilience against business continuity risks. The pro viders of our key remot e working tools hav e confirmed and demons trated that they have suitable business continuity and c apacity planning in place. W e ensure that our sourcing activities for essential IT equipment remain ahead of supply chain delays, for example by carefully managing the stock levels held with our IT supplier , and actively monitoring lead times. 48 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Risk C – Risk to people, skills, location and working environment Links to strategic priorities: 1 3  Movement: Same level of risk Impact: Moderate Probability: Likely How does it impact us? Our business is heavily dependent on our pe ople bec ause they are integr al to the development and delivery of Alfa Systems. A failure to attract, train and retain high quality individuals in our key operating regions ma y limit our ability to deliver implementations, maintain product quality and leading-edge functionality , manage customer relations and deliv er on our strategic plan. This element of the risk has increased in 2021 and early 2022 (although this has not changed the overall Principal Risk lev el) , as we ar e seeing higher competition in recruitment markets. As our global reach expands and opportunities arise in new regions, w e may find it difficult to pro vide employees across geographically diverse customer sites. This has the potential to have an impact on our ability to deliver implementation service s to our customers. The health, wellbeing and security of our employ ee s is of utmost impor tance to our organisation. W e work in geographically diverse locations, and our employees may be at risk fromexternal factors, such as the impact s o f the COVID-19 pandemic, and the safety and security in each region. This impact is intertwined with RiskB – Pandemic outbr eak in Alfa and/ or customer geographies.  W e have implemented a Smar t W orking approach in or der to adapt to the ‘new normal’ which will follow the CO VID-19 r emote w orking model. T eams de cide their most effective working model, and capture this in a team charter . Central to this approach is continuing tobuild our culture, whilst retaining our ex cellent delivery , and enabling employee fle xibility . Our HR team are v er y proactiv e in the area of employ ee wellbeing , with an active pr ogramme of wellbeing events to suppor t and engage with our employ ee s while they are r emote working. Employ ee eng agement surveys are carried outevery two months, and allow areas for impro vement to be identified and acted upon. Our employ ee sur veys indicate that our proactive response fr om leadership to the COVID-19 epidemic has been a signific ant contributing factor in employ ee s atisfaction. W e have continued to have high emplo yee retention figur es in 2021. W e b enchmark our remuneration lev els againstrelevant r oles in the industr y and aim tobe competitiv e. Recruitment of graduates and experienced hires is continuing, using a diverse number of sources, searching f or candidates from varied backgrounds and ethnicity and with varied core skills. Alfa Partnering provides a strong and gr owing network of pr ofessional ser vices par tner organisations, with extensive establishe d geographical presence. This pro vides us with resourcing flexibilit y , and wider geographical cov erage, and is key to our strategy to decouple our gro wth from our own headcount. Many of our teams are globally-distributed, allowing us to co ver more r egions and time zones effectively , and remote working is now common and efficient practice. This is an effective mitigation against the risk of not being able to pro vide employees in geographically diverse customer sites. W e have an establishe d presence in our key strategic markets in Europe and the USA. W e have actively r ecruited on b oth continents in2021, and this continues in 2022. STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 49 PRINCIP ALRISKS ANDUNCE RT AINTIESC ONTINUED Risk D – High customer concentration risk Links to strategic priorities:  3   6 Movement: Same level of risk Impact: Major Probability: Possible How does it impact us? • Alfa specialise s in pro viding software and service s to the auto and equipment finance sector . At the core o f our customer base are large corporate pla yers in this industr y . • W e have significant customer concentration risk due to the size and duration of the software implementation projects for these large corporates. If one, or more, of our k ey customers pauses, or terminate s their implementation activities, there is a risk of a material impact on rev enue targets. • Such a pause or termination is a possible impact of other principal risks, such as Risk A – Socio-economic and geo-political risk, or Risk B – Pandemic outbr eak in Alfa and/ or customer geographies.   Reliance on our biggest customers has considerably decreased in 2021, with our T op 5 customers representing 37% of our r evenues in2021, compared with 48% in 2020 and 61% in2019. W e had twenty five cus tomers contributing revenues of more than £1m in 2021,up fr om twenty one in 2020 and sixteen in2019. This reduce s this risk, but not suf ficiently to mov e it down a rating. W e have continued to progr ess our s trategy forbuilding a diverse customer base, both geographically and by asset type (i.e. automotive, equipment) but also by type of customer (i. e. banking, OEM or indep endent) . This has reduced our reliance on any one o f these areas, which ha ve contrasting risk characteristics. Initiatives such as Alfa Partnering, and Alfa Startfor smaller organis ations allow us to take onmoreconcurr ent implementations, thus reducing this risk. Nevertheless, we accept that a signific ant f ocus on large corporates in our industr y is inherent in our strategy , and so there is an element of this risk which is accepted. Risk E – IT security and cyber risks Links to strategic priorities: 1  3 Movement: Same level of risk Impact: Major Probability: Possible How does it impact us? • Our systems, networks and pr oduct s may be subject to cyb er attacks, specifically designed to disrupt our busine ss, obtain our intellectual propert y or data, or harm our reputation. S uch a securit y breach could impinge upon our ability to operate our business, including our ability to continue pro viding suppor t to our customers. • Our Alfa Hosting off ering stores our customers’ data on third party cloud hosting platforms. A security breach in our Alfa Hosting offering could result in compliance violations, identify theft , malware inf ections, diminishe d customer trust and loss of revenue. • The global trend w e saw in 2020 of high number of incident s of cyber attacks agains t IT companies has continued in 2021.   Our internal IT and cyber se curity team monitors key security and cyb er risks, assesse s and monitors the control framew ork of our key technology suppliers and under takes day-to-day monitoring of IT security incident s. W e implement continual improvements in our IT security environment and maintain an annual education and training programme for all staff . W e have maintained our SOC2 T ype 2, ISO27001 and ISO27018 compliance in 2021. W e have continuity plans for our Alfa Hosting service s, where we use thir d part y cloud hosting suppliers, including transferring our customers’ data to a similar suppor ted environment should the service s be unavailable. Our customers per form thorough assessments ofthe security of the Alfa Hos ting platform duringtheir system selection and implementation process, measuring our IT securit y and data protection processes and controls against theirown, t ypically stringent, internal policies. These compliance checks sit along side our ownpolicies and procedures, and provide independent assurance for our customers that appropriate security controls ar e in place. 50 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Risk F – Business interruption or continuity Links to strategic priorities: 1  3 Movement: Same level of risk Impact: Major Probability: Unlikely How does it impact us? W e are at risk of disruption to our day-to-da y operations if there is a disaster incident which causes our internal IT sys tems to fail or we do not hav e access to our office space. A failure to be able to use key IT s ystems or acce ss our infrastructure could lead to a failure to deliv er maintenance service s to our customers and therefor e hav e a negative reputational impact. Note that the risk that CO VID-19 poses to us, and our readiness for this, is given specific focus as Risk B – Pandemic outbr eak in Alfa and/ or customer geographies.  W e have an establishe d, detailed and tes ted incident management procedure and escalationproces s. W e have a disaster recovery and business continuity plan which is review ed and teste dannually . Our SOC2 T ype 2 reporting and complete failover testing has identifie d no significant required remedial actions. Where w e provide Alfa Hosting services, using third part y cloud hosting suppliers, we hav e a continuity plan in place to transfer our customers’ data to a similar suppor ted environment should the services not be available STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 51 VIAB ILIT YST A TEMENT Assessment of prospects Alfa is one of the leading pro viders of software to the auto and equipment finance industr y and it is the Group ’ s clear focus to increase its relatively small market shar e in this space by: • Gro w differ entiation of market leading People, Pr oduct, D elivery; • F ocus on cloud-hoste d subscription sales to our target mark et s; • Increase our capacity for de veloping and delivering Alfa S ystems; • Simplifying our product, implementations and processes to enable more concurrent Alfa implementations, more efficiently , with a higher margin; • Develop partner ecosystem, to improv e sales opp ortunitie s and enable more concurrent Alfa implementations; and • Impro ve our of fering for smaller auto and equipment finance providers as a platf orm for inno vation and to increase reach. During the year ended 31 December 2021, the Group gener ated profit before tax of £23.8 million and, excluding the pa yment of a £29.7m Special Dividend in the year , was cash-generative with net cash generated from operating activities amounting to £26.7 million. T aking into account the Group ’ s current position and it s principal risks and uncertaintie s as describe d on pages 46 to 51 of this Annual Report , the Directors hav e assesse d the Group ’ s prospect s and viability . Assessment period and process The strategy and busine ss model as set out on pages 22 to 35 and 18 to 19 are centr al toan understanding of it s prospect s. These input s pro vide a framework f or assessing the Group ’ s prospect s and viability . The three-year timeframe f or asses sing both prospect s and viability is considered to be appropriate because: • It reflects reasonable expectations in terms of the reliability and accuracy of operational for ec asting models; and • Projections looking out beyond thr ee years become significantly le ss meaningful in the context of the fast-moving nature of the auto and equipment finance industr y and the software and technology landscap e. The Group ’ s prospect s are assessed primarily through its annual planning process, led by the CEO with the CL T . All relevant functions ar e involv ed, including finance, sales, recruitment and resourcing, and commercial. The Board participates fully in the annual process and has the task of considering whether the plan appropriately takes into account the external envir onment, including technological, social and macroeconomic changes, as well as the risks and uncertaintie s of the business. The output of the annual revie w process includes the annual financial budget and an analysis of the risks which could prev ent the plan being delivered. Detailed financial forecast s which include profit, cash flow and key financial ratios ha ve been prepared for the thr ee-year period to December 2024. The first year of the financial for ecas ts forms the Group ’ s 2022 budget and is subject to a refor ecast proce ss each quar ter . The second and third y ears are prepar ed in detail based on the Group ’ s three year strategic planning process and are flexed based on the actual results in the firs t year . Assessment of viability The Board’ s asse ssment of the Group ’ s prospect s, as describe d on this page, has been made with reference to curr ent market conditions and known risk factors, as describe d in principal risks and uncertaintie s on page 46. The Board has consider ed the Group ’ s financial per formance in 2021, particularly inthe context of the COVID-19 pandemic, and the risk factors noted above and consider that the key risks which could ha ve a major impact the delivery of the Group ’s financial objectives are as follo ws: In accordance with the UK Corporate Governance Code, the Board has assessed the prospects and viability of Alfa. 52 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 • Socio-economic or geopolitical risks impacting conv ersion of the sales pip eline and/ or spending by existing customers; • Loss of significant customers. Conclusion It was determined that none of the individual risks would, in isolation, compromise the Gr oup ’ s viabilit y . The Directors theref ore r eviewed the outputs of the alternative for ec ast s which wer e produced to model the effect on the Group ’ s liquidity and solvency of sever e but plausible combinations of the principal risks and uncertaintie s affecting the business. Scenario 2 r eflect s the combination of all risk factors identified and is considered a ‘worst case scenario ’ . The Directors consider that this scenario addresses the key risk factors outlined above. Based on the current commercial outlook, Scenario 2 is consider ed extremely sever e and has been prepared for the purpose of creating outcomes that hav e the ability to threaten the viability of the Gr oup. In the case of such a scenario cr ystallising the Group w ould be required to take some mitigating actions largely r elated to the level of headcount in the business, the level of partner us age and discretionary spending. In addition there ar e many other diff erent levers that could be pulled to further minimise the financial impact and maintain liquidity to continue in operation. Scenario 1: This scenario assumes a 20% reduction inongoing ser vices spend by existing customers, no conversion of sales pipeline and no gro wth in par tner utilis ation during the for ecas t period, resulting in a 40% reduction from base case r evenues by 2024. Employ ee retention rates reduced by 10% resulting in a reduction in headcount of 26% from base case by the end of 2024. Direct cost s relating to partner usage and Cloud hosting ser vices are significantly reduced in line with customer activity , and the level of salary inflation, bonuse s and profit shar e are also r educed. No other mitig ating actions ar e r equired in this scenario with other cost s remaining in line with the base case and continued payment of dividends and shar e-buy backs as planned. Scenario 2: This scenario assumes a significant los s of customers in addition to no conversion o f the sales pip eline. Includes two major implementation projects pausing during 2022 and significant loss of customers resulting in termination of existing maintenance agreements and reduced ongoing spending by r emaining customers. This scenario results in a 55% reduction from base case re venues by 2024. Employ ee retention declines by 20% in this scenario but recruitment continues and no redundancies would be required; this results in a 46% reduction in headcount from base cae by the end of 2024. Direct cost s are r educed fur ther than in Scenario 1 and additional operating cost reductions in line with reduced headcount. Discretionary share buy-backs would be paused in this scenario, how ever no other mitigating actions are requir ed. Rev enue and profitability are clearly affected in this alternative scenario , howev er based on the Group ’s existing cash reserves, combined with incremental cost reduction measures, the business would retain sufficient cash reserves to continue in operation throughout the thr ee-year for ecas t period, with the lowest cash balance modelled in this perio d of £8.2m. Whilst it is acknowledged that there is continued uncer tainty over futur e economic conditions, based on the asse ssment of prospect s and viability , the Directors confirm that they hav e a reasonable expectation that the Group will be able to continue in operation and meet it s liabilities as they fall due ov er the three-year period ending 31 December 2024. STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 53 S 1 72ST A TEMENT Setting the right tonefrom the top The Board of Directors of Alfa hasalways taken decisions for thelong term, and collectively andindividually our aim is always to uphold the highest standards ofconduct. A broad rang e of stakeholders are important to the Group at local, regional and functional levels. Day-t o-day engagement with our key stakeholders, and other local s takeholder groups, is conducted at the business level and in a format best suited to the context . This may be locally , regionally or functionally , by the Boar d or senior management, depending on the stakeholder . Where the Board does not engage directly with our stakeholders, it is kept updated so Directors maintain an effective understanding of what matters to our stakeholders and can draw on these perspe ctives in Board decision- making and strategy development. A s the Board r eceives presentations and makes decisions, we ensure that the long-term impact on any of these groups is consider ed. W e p eriodically review which are our k ey stakeholder relationships and examine ho w we engage with them. W e also consider ways to ensure that w e maintain open lines of communication with those stakeholder groups and whether ther e are ways that the Board’ s engagement can be improved to help us operate more eff ectively . Example of s172 considerations in a Board decision During 2021 the Board was asked to consider and appr ove taking out a ne w lease for the Michigan Office for seven y ears with a total cost over that time of $2m. Through the pandemic we ha ve demonstrated how we can work remotely and so we needed to decidewhether we neede d an office at all, and if yes how man y people should it b e able to accommodate. S172 consideration Considerations for the Michigan Office Like lycon se qu en ceso flon g term impact Initially the office will be configured f or 35 desks, but this can be expanded to up to 50 de sks, allowing f or the future gr owth for the Company . Int ere s t s of t he Com pa ny ’s emp loye es Benefit s of an office included maintaining Alfa’ s culture, facilitating training with a dedicate d training space andthe potential beneficial impact on employee ’ s mental health. Foster business relationships wi th s upp li er s, cu s to mer and others Having a physical pr esence makes it p ossible to invite customers and suppliers to get a feel for Alfa ’ s culture and meet employees. Imp ac t o f the co mp any ’s operations on the community and environment W e de cided to stay within the Michigan area although we did mov e a short dis tance awa y from the existing office to a slightly less expensive area. B y having our own office, we can chose our energy supplier and we ha ve selected a supplier that provides 100% renewable energy and we hav e set aside space in the kitchen forr ec ycling. Desirabilit y of maintaining a rep ut a tio n for h ig h s ta nd ard s of business c onduct W e b elieve that a smart, well designe d office will project the standards that we as a compan y wish to abide by . When the office opens we will sour ce sustainable, ethical local suppliers wherever w e can. Ne ed to a c t fai rl y as b et we en me mb er s of th e com pany W e b elieve the cost of maintaining an offic e in Michigan is outweighed by the benefit s of impro ved retention and impro ved employee welfar e. 54 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Maintaining high standards of business conduct Likely consequences of long term decisions Interests of Alfa employees Board information & Stakeholder engagement Board decision Board strategic discussion & Review Review & Monitor The need to foster business relationships with suppliers, customers and others Impact of Alfa operations on the community and environment The need to act fairly as between members of Alfa Identify priorities Establishing goals and objectives Finding r esources Allocating funds to support the de cision to be made Updates and information on outcomes of decisions STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 55 S 1 72ST A TEMENTCONTI NUED The Board is responsible for leading stakeholder engagement, ensuring that we fulfil our obligations to those impacted bythe business. Engagement with our shareholders and wider stakeholder groups plays a vital role in Alfa’s business. Alfa’s key stakeholders are set out below: W e b elieve that considering our stakeholders in key business decisions is not only the right thing to do, but is fundamental to our ability to driv e value creation ov er the longer term. In this section we identify our five key stakeholder groups and ha ve pro vided an ov er view of their interests, their concerns and the ways in which the Board act ed with regard to these groups when taking its key strategic decisions throughout the year , and what the Board has learned from these interactions, having regar d (among other matters) to the factors set out in section 172(1)(a) to (f) oftheCompanies Act 2006. The Boar d willsometimes engage directly with certain stakeholders on particular is sues, but the size and distribution of our stakeholders and of Alfa means that stakeholder engagement often takes place at an operational level, within the context o f the Board’ s agr eed strategy . In this section we show how the Boar d engaged with each of our key stakeholder gr oups, summarise the specific actions we took for stakeholder groups in response to the COVID-19 pandemic and set out some case studie s which give mor e detail of how our stakeholders ar e considered when making specific de cisions. Customers Our customers are c entral to our bu si ne ssa n dwit ho utt he mwewo ul dno t exi s t .Weaimtod el ive rou rle ad in g- ed ge  technology making our customers future- ready . How the Board engaged The Board receives an update on existing and potential customers throughout the year . As par t of the two Boar d strateg y sessions that wer e held in the year , the Board looked at customer needs and the extension of Alfa Systems into adjacent markets that could pro vide a broader offering to our exis ting and future customers. Identifying our customers’ needs, alongside changing market dynamics and regulations, allows us to identify oppor tunities for Company gr owth and to focus our product research and dev elopment such that it willproduce innovative and functional solutions for the auto and equipment finance industr y . Outcome of engagement Our customers have dir ect channels to engage with all levels of the or ganisation, including pro viding feedback via user groups in both EMEA and the USA, chaired by a customer representative. During the pandemic, customers have r ealized the impor tance of a truly digital envir onment and the flexibility that this pr ovides f or remote w orking. This has driven increased enquiries for new Alfa S ystems and also for further development and hosting ser vices from existing customers. This has led to discussions in the Board as to how use o f partners can help pro vide a more flexible quicker response to customer needs. W e continue d to build on our long-term relationships with our customers. This is key to dev eloping our leading-edge technology and hos ting ser vices, increasing customer loyalty , which in turn enable s us to win new business. Engagement in 2022 Looking ahead, the Board is keen to get back to in-person engagement with customers as pandemic considerations allow , including attendance at trade shows. W e will continue to explor e new business methods and how we can innovate new technologies to improve the customer journey and develop our ong oing relationships with customers. Employees Li ste ni ngt oou rta le nt ede mp loyee s , being flexible,supportive andinclusiv e, ar e our r ou te s to gr owi ng a nd re t ain in g Al fa’st al en tpo ol ,en ab li ngu stode li ve r against our strategic priorities and dev elop our people. How the Board engaged Employ ee eng agement r emains a key priority f or the Board. V icky Edwards, the Chief People Officer , attended Board meetings twice in 2021 to provide an update on all HR initiatives. Matthew White, the COO, updates the Board with a HR dashboard, highlighting key statistics and reviewing emplo yee survey result s at each Board meeting. In 2021 we continued to hold online events for emplo yees to provide f ee dback, hear plans and make suggestions to the Company Leadership T eam (CL T) and theBoard, as well as an in-depth ‘In Conv ersation With… ’ with two members ofthe CL T . Some in-person events w ere possible in loc ations where r estrictions allowed. Outside the se forums, f eedback is always encouraged and communication is welcomed by all. Outcome of engagement W e have a strong culture at Alfa and w e are proud that our people are highly engaged, suppor tive of each other and of the organisation’ s aims. W e ha ve focused on keeping colleagues conne cted with events and communications, enhanced some of our family-friendly policies and rolled out various wellbeing and career development initiatives in response to need and the world ar ound us, balancing changing rules and periods of working from home with offices re-opening. W e continued to suppor t all employ ee s through 2021, again without furlough, and hav e be en able to successfully on-board new employ ee s remotely , supp orting them with funds for their home set-up. Engagement in 2022 W e will maintain our commitment to diversity and inclusion, keeping this front ofmind when making decisions. Internal communications will be enhanced to consistently align with Alfa’ s strategy and core themes, pro viding clarity and focus. W e will continue to lis ten, learn and respond as we mov e to Smart Working. 56 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Communities Wehaveares po n si bi li tyt ous eou r exp e r ti se a nd r es ou rce s to a dd va l ue to the communities in which we oper ate. Our intention is to reduce our impact ont hee nvi ron me n twhe reve rpo ss ib le .  Weals ohavea ct ivei nt er na lcom mu ni ti es  –em pl oyee -l e dgro up sth ata res afe  sp ac esfo rco ll eag ue stop ro mo tei ss ue s,  su pp or te ac hot he ran dco nt rib ut eto  organisational chang e. How the Board engaged The Board support s employees and endorses contributions to wider communities with time and exper tise. F undraising is matched by the company , paidvolunteering days are enc ouraged and internal communities are supporte d and given platf orms and resources. Ev ent s and initiatives run by our communities are promoted company-wide and attended b y senior individuals. Outcome of engagement Envir onmental, S ocial & Governance (ESG) is becoming a greater focus with the establishment of a Steering Group in 2021. Both the CFO and CPO sit on the Steering Group and brief the CEO and wider CL T onthe status and progr es s of pr oject s. The CEO has ultimate r esp onsibility to the Board f or all ESG matters. Support has been given to carbon-offsetting project s and inv es tment has been made into external consultancy for ESG measurement and guidance. W e continue to fundraise for charities and suppor t cause s close to our colleagues’ heart s. Engagement in 2022 Looking ahead, the Board is committed to driving ESG initiatives further forward. W e will review goals and a f ormal strateg y will be developed in 2022. Roles and responsibilities for the ESG Steering Group and ESG w ork will be define d andcommunicated. Action will be taken to accurately measure Alfa ’ s carbon footprint and strengthen reporting in this area. W e will continue to suppor t our internal and external communities and use our corporate voice r esponsibly wherev er we can. Partners Building trusted partnerships through on goi ngd ia lo gu ehe lp sust obe t ter  understand the needs of our partners an d to deve l op a nd i mp rove ou r of fe ri ng. How the Board engaged The Board r eceives repor ts on how we hav e worked with our partners throughout the year , with a focus on key commer cial events, which hav e be en mainly virtual event s dueto strict worldwide restrictions on largegatherings. The Board consider ed how we can build andimpro ve on our exis ting c ommercial partnerships when discus sing strategic oppor tunities during the Board Strategy sessions in June and Octob er 2021. Outcome of engagement Executive Directors ar e in volved directly with partner senior management and pro vide regular updates to the Board onkey par tner dev elopment s and issues. The Board support s the continuing development of our partner training and learning programme, which aims to deliv er a comprehensiv e training schedule including Alfa Systems training, our delivery methodolog y and simulation based implementation workshops. The Board support s continued sc aling ofour existing par tnerships as well as extending our par tner ecosystem to strengthen our coverage in cor e markets. Engagement in 2022 W e will continue our eng agement with ourcommercial partners, ensuring we areadapting to their needs in this changingenvir onment. Our partnership programme is an impor tant part of Alfa’ s long-term gro wth strategy . W e aim to develop our par tner ecosystem to increase Alfa’ s operational capacity and sales opp ortunitie s. Investors TheB oa rdp la ce sgr eati mp or ta nceo n  having positive relationships with all shareholders and seeks to ensure there is an appropria te and constructive dialo gue with in vestors. How the Board engaged W e conduct extensive engagement with ourinstitutional investors thr oughout theyear . Due to on-g oing CO VID-19 restrictions, the A GM was held as a hybrid meeting in 2021 with shareholders invited to attend remotely . An invitation was included in the Notice o f Meeting for shareholders to ask questions in advance of the meeting. On 14 October 2021, shareholders wer einvited to view an online inv es tor presentation on Alfa’ s technolog y , hoste d bythe CEO and members of the senior management team. The ev ent gave an in-depth view of the product, the technology that underpins it and how itisdeveloped to ensure it r emains theleading software for auto and equipment finance. The Board r eceives regular updates on inv es tor communication activity , change s tothe shareholder register , analysis of shareprice performance and par ticular inv es tment themes such as environmental, social and corporate gov ernance. In addition, the feedback from shareholder / analyst interactions is shared with the Board on a regular basis, via our corporate br okers. Outcome of engagement The Board considers inf ormation from across the Company to help it understand the impact of its de cisions, and to consider the interest s and views of our key in vestors. Our Inv es tors understand the strateg y that underpins our future gr owth plans and are keen to engage with regard t o financial and operating per formance of the business. Engagement in 2022 W e will continue to eng age with our shareholders thr oughout 2022. W e are pro visionally planning to hold another inv es tor day in 2022. Due to the ongoing uncertaint y ar ound CO VID-19 r es trictions, the Boar d will keep the 2022 A GM arrangements under review until there is more clarity around the futur e guidance to the ongoing pandemic STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 57 ENVIRONMENT AL ,SOCIALANDG O VERNANCE United Nations Sustainable Development Goals The United Nations Sustainable Development Goals are the blueprint to achieve a better and mor e sustainable future for all. They addr ess the global challenges we face, including those r elated to inequality , climate change, en vironmental degradation and poverty . W e continue to align with the UN Sustainable Development Goals and focus particularly on four which fit w ell with ongoing projects and plans for futur e initiatives. These also tie in nicely with the Alfa V alues. From CSR to ESG: CSR ( Corporate S ocial Responsibility) was the precursor to ESG (Envir onmental, Social and Gov ernance) , ensuring a company’s actions ha ve a positive impact on the envir onment, consumers, employ ee s, communities, and the public sphere. ESG builds on CSR, measuring per formance with metrics which can beused by inv estors, customers and employ ee s to hav e an understanding ofthe compan y ’ s ESG performance. A t Alfa we hav e adopted the current terminology of ESG, which is now in common use by organisations. This year we f ormed an ESG Steering Group. 4.Q ua li t yEdu ca ti on 5.G en de rEqu al it y 1 3.Cl im ateAc t io n 1 7 .Pa r tn er sh ip sfort heG o al s W e’ve been doing a lot of good things in this space for man y years – it’ s a key reason one of our formal Compan y values is ‘Create a Positiv e Impact’ . W e know there are man y business b enefit s to driving ESG initiatives, but we do this because it’ s important to us and always has been. ESG is a core part of the Alfa culture. We are Alfa           58 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 • Our Communities • F ocus on Learning & Development • Cultur e & Engagement • Inclusion & Diversity • Onboarding & Induction processes • L aunch Learning Management System • T alent Development programme • Mentoring, Coaching &Buddies programmes • Envir onmental Policy • Commitment toeducate stakeholders • Supplier appro val pro ce s s • Partner with more clients& suppliers • V olunte ering scheme • Dedicated volunteering month • Charity partners in each region • V olunteering uptake • Formal partnership with Code Y our Futur e • Envir onmental Policy • Reaching carbon positivity • W orking with The Climate Coalition • Partnership with K O Cy cle, recycling IT hardwar e • Measurement • Partnership with The Climate Coalition • Calculate detailed carbon footprint data • Formalise ESG S trategy …people …community …environment …customers and suppliers Link to SDG Strong Improve Next year IMA GE S  T O COME STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 59 ENVIRONMENT ALSOCIALANDGOVERNANCECONTINUED Our people Our focus on people throughout 2021 remained a high priority and will always be key to Alfa’s commitment to provide the best possible service to our clients.             Our Communities are: • Alfa for R acial Equity • Envir onmental Impact • Inclusion & Diversity • LGB T Q+ • Par ents’ • Social Impact • W omen’ s All of these employee-led groups ar e safe spaces for those inv olved to discuss and promote issues, suppor t each other and work towar ds impro ving policies. Their wonderful work includes cooker y classes, showcasing an array of cultural delicacies, running work experience programmes aimed at school leavers from disadvantaged backgrounds, promoting causes with blog post s and networks of Champions, inv olvement in external round tables and events, and a huge variety of other activities. 60 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Gender equality We were pro ud to h ave b een i n a po si ti on to wel com e 69 new joi ne rs a cros s ou r of f i ces i n 202 1 , of wh ich 25 (36 % ) were w ome n. In th e UK al on e, we we lco me d 5 1 new j oin er s in th e yea r , o f whi ch 1 9 (3 7% ) wer e wom en, whi ch re pre se nt s a s imi lar l eve l to fem al e hir es in t he U K in 2020. Looking at graduate r ecruitment, w e hir ed 20newhi re sint otheU Kgr adu at esch em e,  ofwh ich45%ofpo si ti on sweref ill edby  female candidates. Throughout the year , we sponsored recru itment eve nt s suc h as Br ight Network ’s Women i n T ech a nd Wom en in STEM eve nt s . Through our rec ruitment partners we proactively target diverse grou ps through email mark eting and campaigning. Of our gr adu at e app li ca tio ns i n th e UK , arou nd 30 % of th e ap pl ica ti on s we rece ive d wer e fro m fem al e can di da tes . Th is r ati o is a g en era l representation o f the g ender mak e-up in the ear ly c are er s STEM and t ech no lo g y se c to rs as a w hol e. We conti nue t o mai nt ai n a s tro ng l evel o f retention * ac ross the business. As of De cemb er 2021 , re te nti on a cros s t he bu sin es s w as 87%. Bre ak ing t hi s dow n by ge nd er , r ete nt io n of fem al es s to od a t 86% and re ten ti on of m al es s too d at 8 8% . O f leav er s acro ss t he b us in es s in 202 1 , 34% were wo me n. * Ret en ti on c al cul at io n is a s fo ll ows : Sta r t in g He ad cou nt (fro m 1 2 m on th s ag o) minu s Leav er s ove r th e 1 2-mo nt h pe ri od d iv i de d by Starting Headc ount ( from 1 2 months ago ). “ Alfa is hiring people that are really clever, deep thinkers and problem-solvers. They’re looking for what you’re going to bring to the organisation and how you’re going to help it grow and get to the next level. Every single person is an important part of the process. Alfa is big enough to have great software and clients, but not so big that you’re lost. People get heard.” Caroline Chopra “ What I love is the ability to work on different things with different people, and the diversity and variety of people is also very good. You get a lot of varied perspectives, from a lot of different people all around the world, and from diverse backgrounds. That never really gets dry.” Ricky Christian  “ At Alfa you get listened to. You get nurtured. People here care about you. Every company will say the same stuff but at Alfa the employees say it themselves – and it’s real, you can feel it. It is great to work here. The people, the culture, how receptive we are to change… Alfa is special.” Jack Matthewson STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 61 ENVIRONMENT ALSOCIALGOVERNANCEC ONTINUED OUR PE OPLE C O NTINUE D Inclusion & diversity Diverse cultural perspectives really do inspire innovation and creativity at Alfa. W e make things better and solve problems tog ether , so we ’ re always striving to wards being as inclusive as we can. In addition to our vibrant Communities, we adopt measures to impro ve things for people across the board. W e were pr oud to launch our Inclusion & Diversity charter and our T ransitioning at W ork polic y this year . W e developed and ran Inclusive Recruitment training for ev er yone in volved in our recruitment process and there was a div erse series of talks, events and activitie s run by our Communities to promote and increase awar eness on key issue s. In c elebration of diversity , we ’ re launching Cultural Days in 2022. Flexible Culture Days will allow our people to swap in and out of national public holidays that might not match their particular v alues, beliefs or heritage. Wellbeing W ellb eing remains a r eally impor tant focus forAlfa. W e hav en ’t made use of the furlough scheme throughout the pandemic, and this year we continued to in vest in wellbeing. Along with enhanced paid carer leave allowance, access to physical, mental and financial advice and assistance via our employ ee b enefit s platform, and w orking from home contributions, we ha ve gro wn an internal network of trained Mental Health F irs t Aiders. 17 individuals in differ ent regions ar e now available to colleagues for judgement-fr ee listening and suppor t. W e launche d Gympass and Pepp y health (inthe UK) which pr ovides support for menopause, fertility and new parents. 2022 will see us launching Pepp y ’ s new Pepp yMen service. W e will continue to actively suppor t our Communities internally and externally , challenge ourselves continually to be more inclusive and use our corporate v oice for good, wherev er we can.  “ 2021 has been another challenging year for everyone, in many ways, but we have managed to maintain our inimitable positivity and Alfa’s special culture remains strong. Wehave lots of ‘People Projects’ on the go, but I am particularly focused on Culture and Inclusion – making Alfa a place where people have a voice, where we are all safeto be ourselves – being an employer that attracts and retains great people.” Vicky Edwards Chief People Officer, Alfa Financial Software Culture The Culture at Alfa is something w e ’ re extremely pr oud of . It is one of our greatest strengths and remains highly valued by ourpeople. This year we ’ve continued to keep our culture aliv e, despite the ongoing challenges of working r emotely much of the time. Our Ev ent s team has maintained a programme of liv ely and well-attended events, ranging from virtual Company confer ences through to real-w orld social events such as ice skating and boat trips. Givea ways across the y ear helpe d to spread smiles and cement our culture, and included branded beanie s, hampers, and terrariums for home w orkspaces. Adapting to restrictions, one of the UK Company meetings included sending out bamboo picnic utensils to everyone and using the intranet to drop pins on maps so that colleagues could meet up af terwards in smaller , safer groups for the social element of the day . Our US colleague s held their confer ence in person in Miami in No vember , and Australia and Ne w Z ealand teams met in December , which wer e impor tant reminders of the benefit s of face-to-face meetings, alb eit follo wing rules and s afety prot ocols as required. W e take feedback seriously at Alfa. Our culture encourag es positive conv ersation and transparency . There’ s always an opportunit y to pro vide ideas and ask questions at all levels. W e also seek anonymous f ee dback with regular emplo yee surveys – and £5 for each completed sur vey also goes to charity . This year we launched a new platform to better measur e employee engagement, providing mor e in-depth insight to drive action. In addition to our Pulse surveys, we ensur e we pr ovide opportunitie s for two-wa y communication with regular townhall Q &As, and this year launched a series of ‘In Conv ersation With... ’ where we deep dive into a host of subject s. Alfa’ s frequent innovation days and annual Hackathon events are a highlight for colleagues to get creative, inspir e change and get to know each other better . T eamwork and pr oblem-solving are the focus, and the 2021 Hackathon winning team featur ed new joiners from the latest graduate scheme intake. Next year we look f or ward to mor e oppor tunities to get together r egularly and continue to develop eff ective two-way communication channels where ev er yone feels inv olved, informed and heard. 62 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Statutory gender pay gap (GPG) reporting Data from April 2021 Gender pay gap Salary (£k) 2021 2020 Overall mean 38.2 39.1 Overall median 35.9 37.0 Mean – female 33.9 34.5 Mean – male 40.0 40.7 Gender pay gap 15.1% 15.3% Median – female 32.5 32.7 Median – male 38.4 38.3 Gender pay gap 15.3% 14.7% W e have seen a slight improv ement in the year f or the mean gender pay gap, ho wev er a slight deterioration in the median gender pay gap. Lik e many in the industr y our balance towar ds men ov er women at all levels is r eflective of the ov erall industr y . Our female talent pipeline continues to impro ve with 36% of 2021 joiners being female, and 45% o f UK graduates, however as these are gener ally into more junior roles in the organisation, it will take some time f or this to be reflected in impro ved g ender pa y gap figures (see page 61 for further details) . Learning & development This year we in vested in a new Learning Management System which has b een built ov er many months and launches in 2022. This will suppor t individual learning and development in a way nev er seen be for e at Alfa. A whole new suite of tools and resourc es suppor ting all facets of life at Alfa has been created as part of our new learning and development of fering. New Company policies (such as Smart W orking) have been suppor ted with a programme of w orkshops and training, for managers of virtual teams, in a way that has really helped smooth transitions. Our key priorities for 2022 include: • Launch new Learning Management Sys t e m • F ocus on our Management Development resources and approaches • Mentoring, Coaching & Buddies – we ’ll define and train people to develop this valuable suppor t tool • F ollowing extensive e valuation in 2021, we ’ll be revamping our Onboarding & Induction processes, making us more agile and responsive • New T alent Development programme across the business will provide mor e oppor tunities for progr ession and personal ownership of careers Recruitment & retention The pandemic fast-tracked Flexible W orking at Alfa. W e to ok this one step fur ther in 2021 and introduced Smart Working acr oss the organisation. W e know emplo yees have commitments and lives out side work, which is why ev er yone can now choose, as part of their team, where they’r e based on work days. Be it in the office or at home, w e keep everyone connected and make sure we ’r e all pulling together . This suppor ts retention and also widens the pool of talent we can attract. Smar t W orking will come into full operation in 2022, as local C O VID-19 restrictions allow in all our locations. W e have continued to benchmark our total packages with strong pay and pr omotions activity and added new bene fits, par ticularly in the W ellb eing space. The launch of our new employ ee ShareSav e scheme enables employ ee s to inv es t in Alfa and share in oursuccess. This year we ha ve laid the f oundations for a variety of Employer Brand pr oject s which kick off in 2022. W e are using employ ee stories in various me diums to give insight into life at Alfa both internally and externally – we hav e fascinating, diverse and hugely talented pe ople at Alfa and we ’ll be shining a spotlight on them in order to attract and retain the best in the busines s. In 2022 we ar e looking at creating remote hubs to further widen our talent p ool, we will continue to enhance and promote our packages to remain competitive and will continue to inv es t in our social and wellbeing calendar to suppor t our culture. STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 63 ENVIRONMENT ALSOCIALGOVERNANCEC ONTINUED OUR CU ST OMERS & S UPPLIE RS Alfa’s Environmental Policy includes a commitment to engage and educate employees and other stakeholders on theimportance of sustainability. Our customers & suppliers User groups W e are committed to adopting and applying the latest te chnology , including server virtualis ation technolog y , to ensure that our customers’ energy consumption is kept to aminimum. Our product, Alfa Systems, pro vides functionality to enable our customers to charge their customers on a usage basis, therefor e making utilisation of asset s more efficient. In owned data centres, our pro vider has noted that 94% of our energy utilisation wasfrom r enewable energy sources. Alfa also uses data centres operated by a third party , A WS Cloud Computing. A WS iscommitted to powering operations with 100% renewable ener gy by 2025. Partnering in ESG Next year w e intend to par tner withmore clients and suppliers on E SG initiatives. W e will also review our supplier appro val process and see how we can embed more ESG factors into selection. 64 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Our community We have a passion for using our expertise and resources to add value to the communities in which we work. Volunteering Alfa offers thr ee days’ paid volunteering per year and we ha ve a framew ork in place to help employ ee s choose a suitable volunteering opportunit y . This isa really popular scheme at Alfa and one our people are rightly proud of . Ev er yone is encourag ed to take an activepart in the schemes offered and volunteers range in seniority from junior consultant all the way to CEO . It ’ s mutually beneficial and we have developed strong partnerships over theyears. In June 2021 we had our first dedicate d V olunteering Month. Fundraising W e have charity par tners in each of ourregions. In 2021 they w ere: The Climate Coalition in EMEA, Feeding America in the US A and Sh are t he Dignity andKidsCan in Asia Pacific. These charities are nominated and voted for b y employees. The company also matches any funds raised for these brilliant cause s. Werais edove r£26 ,0 0 0foro ur charity partners and others du rin g20 21 . Employ ee s as individuals also hold events and raise funds for many other local and national charitie s throughout the year . A number of Alfa employees hav e volunteered with Code Y our Futur e – which utilises our spe cific technical skills and abilities as an organisation. Code Y our Futur e is a charity which teache s code to refugees, asylum seekers and otherwise dis advantaged people. This helps increase div ersity in software development as well as impr oving confidence and employment pr ospect s. We ’r e exploring a formal partnership with Code Y our Future in2022. Something else we support each year is ‘The W onder ful Xmas Post’ , a campaign to send crafty and uplifting Chris tmas cards to isolated older pe ople in care homes across the world. Matched recipients are always delighted to receive cards fr om us and we lov e to send them! Our plans for next year include w orking toincrease the uptake o f volunteering allowances across Alfa. STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 65 ENVIRONMENT ALSOCIALGOVERNANCEC ONTINUED ENV I RO N MEN T Environmental impact Our Envir onmental Impact teams in all regions help us to drive change and r educe our impact on the planet in lots of ways. Our Cy cle to W ork scheme introduced in 2020 has seen good uptake and this will undoubtedly increase as trav el and office timeresumes. In our energy-efficient offices we ensure sustainable, ethical and environmentally conscious purchasing f or café products, event givea ways and other items. W e also rec ycle waste and coff ee grounds, compost food waste, have eliminated single-use plastics and use e co-friendly cleaning products. Alfa sour ces electricity in the UK fr om renewable ener gy provider , Opus. Alfa’ s Data and Equipment Disposal Policy cov ers off securely and sustainably disposing of IT equipment , including laptops. W e also rec ycle technical hardwar e and donate to schools. The Climate Coalition is the UK’ s larg es t group of people dedicate d to action against climate change; a gr oup of over 120 organisations – including the National T rus t, W omen’ s Institute, Oxfam, and RSPB – that is 22 million voices strong. The Climate Coalition ’ s aim is to bring people fr om all walks of life and or ganisations with different goals together to collectively call f or climate action and w e’v e partnered with them. W e have been raising money for The Climate Coalition and, in r eturn, they’ve joined us to deliver a variety of social talks on the theme of Climate Action. In No vember they deliver ed a talk on ‘ What Happens After COP26?’ . One of the main aims of our Environmental Policy is to carry out our business in a manner that minimises our impact on theenvironment. Our environment 66 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Carbon emissions and energy consumption reporting 2021 2020 Global (inc.UK) UK Global (inc. UK) UK T otal electricit y use (kWh) 112,333 93,954 114,639 102,748 T otal gas use (kWh) 97 – – – T otal transpor t fuel (kWh) 131,651 130,993 111,600 109,370 T otal energy from other sources (heating & cooling) (kWh) 53,079 53,079 41,166 41,166 T otalenergyuse(allsources)(kWh) 297,160 278,026 267,405 253,284 T otal carb on emissions (electricity) (tCO 2 e) 33 28 33 30 T otal carb on emissions (gas) (tCO 2 e) 0 0 0 0 T otal carb on emissions (transpor t fuel) (tCO 2 e) 49 49 39 38 T otal carbon emissions ( other sour ces – heating & cooling, flights and taxis) (tCO 2 e) 60 14 140 46 T otalcarbonemissions(tCO 2 e) 142 91 212 114 Scope 1 (tCO 2 e) – gas, heating and company cars 49  43 * Scope 2 (tCO 2 e) – electricity and ele ctric cars 44  38 * Scope 3 (tCO 2 e) – flights, taxis, water taxis 49  131 * T otalcarbonemissions(tCO 2 e) 142  212 * T otal revenue (£m) 83.2 – 78.9 – Carbonintensityratio(tCO 2 e per £million) 1.7  2.7 * T otalcarbonoffsetspurchasedfromEc ologi(tCO 2 e) 1,231 – – – * This information has been calculated at a global level only . ** W e compensate for unavoidable emissions b y purchasing certified carb on emissions from Ecolo gi. *** 2020 data has be en updated as par t of improv ements to c alculation methodology . Carbon emissions One of our Company objectives for 2021 was to be come a ‘ climate positive ’ workfor ce. This year we ha ve been looking at options for our interim carbon offsetting solution in order to reach this targ et and have w orked with Ecologi f or credible and impactful offsetting projects to supp ort . Carbon offsetting is only acredible tool when used alongside emissions reduction strategies, which we are beginning toimplement where possible. The ne xt goal is to work with a sustainability consultancy to help us calculate more detailed carbon footprint data and develop strategies to reduce it, before ultimately offsetting what cannot be avoided. Alfa’ s London office has achiev ed an ‘ excellent’ rating under the BREEAM In-Use certification for 2021/22. “ Our global Environmental Impact team is really looking forward to 2022; we have lots of ideas and motivation to improve Alfa’s carbon impact and help to develop a formal emissions reduction strategy. We’ve had so much internal support from colleagues andsenior management and feel we can break new ground for Alfa’s ESGgoals.” Hannah Coral STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 67 ENVIRONMENT ALSOCIALGOVERNANCEC ONTINUED ENV I RO N MEN T Carbon & energy efficiency actions W e are committed to responsible c arbon management and will practise energy efficiency throughout our organisation, wherev er it’s c ost effective. W e recognise that climate change is one of the most serious envir onmental challenges currently threatening the global community and we understand we hav e a role to play in reducing greenhouse gas emissions. W e hav e implemented the policie s below for the purpose of increasing the business’ s energy efficiency in the relevant financial year: • Mov ed to remote home working duetoCOVID-19. Will r eview when situation permit s. • Implemented and encouraged use of video conferencing. • T ravel r educed due to C O VID-19. In 2021, we became carb on positive as our offsets purchased from Ecologi e xceed our emissions (i.e. Scope 1 and S cope 2 emissions, as well as those Scope 3 emissions that have been disclosed) . Methodology used in the calculation of disclosures ESOS methodology (as specified in Complying with the Energy Savings Oppor tunity Scheme version 6, published bythe En vironment Agency , 21.01.21) usedin conjunction with Gov ernment GHG reporting conversion factors. The calculations hav e be en appro ved by a P AS51215 compliant body . F or carbon only related matters, the SECR methodology as sp ecified in ‘Environmental reporting guideline s: including Str eamlined Energy and Carbon Repor ting and greenhouse gas reporting ’ was used in conjunction with Government GHG reporting conversion factors. Estimates made with respe ct to the dateinclude: • Company car annual mileage pr ovided and appor tioned into months; • Emissions in line with a medium-sized engine assumed for one car; and • Assumed all taxi rides are 5 miles. Note: Emissions data includes W T T (w ell-to-tank) and T &D (transmission and distribution) . kWh data excludes flights, taxis and water taxis. 68 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Taskforce on Climate-Related Financial Disclosures: Are a Recommended disclosure Alfa Disclosure Governanc e Describe the Board’ s o versight o fclimate- related risks and opportunitie s Overall responsibility for all ESG matters sits with the Group CEO and progr ess is repor ted to the Board. Reporting and risk management issues are discussed and debated as par t of the Audit & Risk Committee. Describe management’ s r ole in assessing and managing climate-related risks and oppor tunities. As par t of the twice a year detailed risk management pr oces s the Company Leadership T eam reviews and discusses the late st view of all oppor tunities and risks including climate-related and in particular corporate level risks are discussed by the Executive Board members. Strategy Describe the climate-related risks and oppor tunities the organization has identified over the short, me dium, andlong term. In the short-term we see little impact of climate-related risks and oppor tunities on our busines s, howe ver we ar e acutely awar e of our responsibility to contribute towards the global eff ort s to mitigate agains t climate change, and ther efore w e are actively looking to r educe our carb on footprint, including reducing travel t o client sites, asse ssing renewable energy options for new offices, and considering tra vel distances for the location of conferences. In the medium to longer -term we see more positives for Alfa than negatives. A mov e towar ds lower carbon new technologies is likely to result in increasing requirements for asset backed finance solutions, which will drive gr owth in our underlying market s. In addition increasing r epor ting requirements through the supply chain will require agile systems that can respond to the new reporting requirements which will increasingly demonstrate the greater flexibility of Alfa Systems ov er competitor product s. Describe the impact of climate-related risks and oppor tunities on the organization ’ s businesse s, strategy , andfinancial planning. T o enable our systems to respond to increasing demands for mobile solutions and emissions reporting , it may r equire more inv estment in theproduct to mak e the mos t o f these oppor tunities. The increased functionality howev er is likely to lead to increased licence r evenues as customers want to access the new module s providing this. Describe the r esilience of the organization ’ s strategy , taking into consideration differ ent climate-related scenarios, including a 2°C orlower scenario. As we do not believe ther e are significant risks to our organisation, other than the overall risk to the world economy , w e believ e our exis ting strateg y has a high degree of resilience to diff erent climate-r elated scenarios. Risk management Describe the organization ’ s processes foridentifying and assessing climate- related risks. W e have a comprehensiv e process of risk management which includes a detailed asse ssment of risks twice a year . Included within this process is explicit consideration of climate-related risks. Describe the organisation ’ s pr ocesse s formanaging climate-related risks. In the short-term we do not see signific ant climate-related risks for the organisation and as a consequence we keep the risks under review , but are not actively managing an y at this point in time. Describe how processe s for identifying, assessing , and managing climate-related risks ar e integrated into the or ganization’ s ov erall risk management. It is an integral part of our overall risk management, and in particular it is discussed when considering the corporate level risks. Metrics andtargets Disclose the metrics used by the organization to assess climate-related risks and oppor tunities in line with it s strategy and risk management process. W e do not currently use any metrics for assessing climate-related risks other than being awar e of the growth projections in the underlying auto and equipment finance market. W e are how ever intending during 2022 to set targets for reduction in emissions to ensure that w e play our part in the ov erall journey to a net zero econom y . See page 67 for further details. Disclose Scope 1, Scope 2, and, if appropriate, S cope 3 greenhouse gas (GHG) emissions, and the r elated risks. See page 67. Describe the target s used by the organisation to manage climate-related risks and oppor tunities and per formance against targets. W e have no specific targets for the management of the risks and oppor tunities be cause as noted above we do not see any short-term risks or oppor tunities. If and when any risks and oppor tunities be come more apparent w e will seek to se e what targets we could set. The Strategic Report and the F inancial Review ar e approv ed by the Board of Dir ectors and signed on it s behalf by: Andrew Denton Chief Executive Officer STRA TEGIC REPOR T Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 69 Corporate governance Section 5: Remuneration See page P Linking remuneration with purpose and strateg y 101 to 102 Q Remuneration P olicyreview 104 R Performance outcomes in2021 S trategic tar gets 114  ReadmoreintheR emuneration CommitteeReportonpages 100to121 Section 4: Audit, risk and internal controls See page M  Financial repor ting,external auditor & internal audit 98to99 N Review o f 2021 AnnualReport 96 O Internal financial controls Risk management 98  ReadmoreintheA udit&Risk CommitteeReportonpages94to99 Section 1:   purpose See page A Effective Board 77 B Purpose, s trategy , valuesand culture 77 C Governance framew ork 77 D Stak eholder engagement 77 E W orkforce policies andpractices 79 Section 2: Division of responsibilities See page F Board r oles 83 G Independence 89 H External commitments andconflicts of interest 84 I Board efficiency: key activities of the Board 85 Section 3: Composition, succession and evaluation See page J Appointments totheBoard 86 K Board composition 86 L Board evaluation 86  ReadmoreintheNomination CommitteeReportonpages90to93 70 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Dear shareholders, On behalf of the Board, I am pleased to present the Gr oup ’s corp orate gov ernance r epor t for the financial year ended 31 December 2021. This report outline s how the Boar d continues to make sure that r obust and appropriate gov ernance procedures are in place to ensur e effective and prudent manag ement of the Company that will deliv er long-term sustainable success for the benefit of our shareholders and br oader stakeholders. In this report , we set out our appr oach to corporate gov ernance and pro vide detail on the role of the Boar d of Directors, f ollowed by more detailed sections on the work of each of the three key Boar d Committee s: Audit & Risk Committee, Nomination Committee and Remuneration Committee. T ogether , these give a clear insight into how w e manage corporate gov ernance principles and processe s within the Group . Board focus areas in 2021 • Special dividend of 10 pence per ordinary share. • P erformance of the business, financially and operationally . • 2022 budget and long-term strategicplan. • Sales pipeline and busines s development. The UK Corporate Governance Code 2018: Our compliance Effective corporate g overnance pr ovides an essential foundation for the long-term sustainable success of the Company . This report set s out the key elements of Alfa’ s corporate g overnance arrangements, including how we ha ve sought to apply the principles and pr ovisions of the 2018 UK Corporate Gov ernance Code (the ‘2018 Code’) during the year . A copy of the 2018 Code, issued by the F inancial Reporting Council c an be found at www .frc.org.uk. This g overnance statement, including the Nomination Committee, Audit & Risk Committee, and Remuneration Committee Report s, explains how w e have applied the principles and complied with the pro visions of the 2018 Code. Non-compliance with  The Group has complied with the Code pro visions during the financial year with the exception of Code pr ovision 9: TheChairman of the Board was not independent on appointment as he previously held the position of Chief Executive Officer and is the contr olling shareholder of the Compan y . On listing , the Board unanimously supported, and continues to suppor t, the app ointment of the Chairman to retain his skills and experience, and ensure continuity of service for Alfa’ s cus tomers and commercial partners. “ Following the Director appointments made in 2020, this has been the first full year with the new Board and I can say it has been a pleasure to be the Chairman of such a progressive and knowledgeable team that continues to make excellent progress in developing the business.” Andrew Page Executive Chairman CHAIR MAN ’ S  INTRODU CTIO N CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 71 Continued strong performance during 2021 The uphea val o f the global COVID-19 pandemic continued to provide an unprecedented challenge to all companies. The gov ernance envir onment that Alfa had in place when the COVID-19 crisis unfolded in early 2020, suppor ted high-quality de cision making which ensured that we maintained the strong business momentum we had prior to the pandemic, whilst at the same time, looking after the interest s of all our stakeholders, particularly our employees. Further detail of how the Company continues to r espond to these unprecedente d times is set out throughout this r epor t. During 2021, the Company kept in line with for ecas t, as highlighte d in the scheduled market announcements, throughout the year .As a result of Alfa’ s continued str ong per formance despite the pandemic, we w ere delighted to announce a special dividend in the amount of 10 pence per share, which was paid to shareholders on 5 November 2021. Additionally and as a result of the continued strong performance, CEO Andrew Denton andI ha ve elected to for ego any future remuneration, subject to minimum statutor y requirements. W e feel that as significant shareholders of the Compan y , we wanted to fully align our future r emuneration with those of other shareholders thr ough future dividend payments and the growth in the share price. Since IPO in 2017 Andrew Denton has elected each year to f orego participating in Company L TIP and bonus scheme s for which he would be ordinarily be included in, for the same reason. Environment, Social & Governance I’ m pleased to r eport that during the year we hav e focused on enhancing the ESG actions that we ar e taking to enable improv ement in our ESG reporting and ratings with a number ofagencies. Details of our ESG commitments and work during 2021 can be found on pages 58 to 69. Our approach to corporate governance Corporate gov ernance at Alfa takes a thoughtful and considered approach in volving the Board as w ell as other key personnel to identify and apply the principles of good corporate gov ernance. This means balancing the interest s of the Company’s many stakeholders, such as shareholders, emplo yees, cus tomers, suppliers, partners and the communitie s wework in. Str ong gov ernance helps to cultivate a company cultur e of integrity and stakeholder alignment, along side corporate structures that improv e leadership, accountability and effectiveness. This brings a sharper focus to strategic objectives and translates into better de cision making which, in turn, drives competitive advantage and gro wth and result s in stronger corporate per formance and a sustainable business model. The Board has maintained a strong focus during the year on the Compan y ’ s strategic goals whilst ensuring that the Company has the right people in place to deliver on its strateg y . During this perio d of continued growth, it is vital to ensure that the Company’s governance processes are robust in order to ensur e that the business is protected and that all stakeholders’ interest s ar e tak en into account. Culture, values and people Alfa has fostered a strong Compan y culture which is underpinned by a set of values whichensure that everyone stays f ocused ondelivering our strateg y whilst staying true towho we are. The Board r ecognises the impor tance of setting this culture and ensuring that the neces sar y resources are inplace to allo w our people to deliv er the Company’s strateg y . The Board is kept up to dat e on employee engagement through the inclusion and discussion of the Pulse survey results which are collected on a bi-monthly basis and presente d to the Board b y the Chief Operating Officer . A focus of the Compan y Leadership T eam during the year has been to continue to ensurethe ov erall w elfare of our emplo yees throughout the COVID-19 pandemic. The Board is satisfied that the approach towar ds engagement with colleagues describe d on pages 77 to 79 is robust. 72 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 CHAIR MAN ’ S INTRODU CTIO NCONTIN UED External Board evaluation F ollowing the Director appointments made in 2020, this has been the firs t full year with the new Board and I can say that it has been a pleasure to be the Chairman of such a progr essive and knowledgeable team that continues to make excellent progress in developing the business. An e xternal Boar d evaluation process was conducted by Board Eff ectiveness and Governance Ser vices (BE-GS) during the summer / autumn f ollowing the 2021 AGM. The evaluation acknowledged the great progr ess that has be en made since the appointment s in early 2020 with recommendations made by BE-GS made upon solid bes t practice. Details of the evaluation can be found on pages 86 to 88. F inally , I would like to take this opportunity tothank all of our stakeholders f or theircontinuing support in these unprecedented time s. Andrew Page Chairman of the Board and Founder CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 73 CHAIR MAN ’ S INTRODU CTIO NCONTIN UED Andrew Page Executive Chairman   Andrew is one of the f ounding Directors of Alfa. Andre w bec ame the Chief Executive Officer in 2010 and the Executive Chairman in September 2016. Andrew pr ovides commercial o versight and with the Board sets the strategic direction and goals of the Company . Key strengths Andrew has considerable senior management experience and a deep understanding of the auto and equipment finance industr y . Other appointments Director of CHP Softwar e and Consulting Ltd Andrew Denton Chief Executive Officer   Andrew joined Alfa in 1995 and became a memb er of the Board of Directors in 2003 as Sales and Marketing Director . He was made Chief Operating Officer in 2010 and became CEO in September 2016. Andrew is also Dir ector andjoint f ounder o f the Leasing Foundation, an or ganisation that suppor ts the leasing and auto and equipment finance industr y through charitable activities, research and dev elopment. Key strengths Computer scientist by training, considerable senior management experience and significant experience in the auto and equipment finance industr y . Other appointments Director of CHP Softwar e and Consulting Ltd Duncan Magrath Chief Financial Officer   Duncan star ted his career at Price W aterhouse, and qualified as a Chartered Accountant in 1989. He joined Ocean Group in 1992, and spent 13 y ears in the UK and USA in various finance roles as the group transformed into Ex el Logistics. He joine d Balfour Beatty , the infrastructure company , in 2006 and was Group CFO fr om 2008 to 2015. In 2016 he joined Rubix, an Industrial Part s Distributor , as Group CFO and was in that r ole through to 2019. Key strengths Extensive experience in senior financial positions both in the UK and internationally , including a de ep understanding of investor relations and financial strategy Other appointments n /a Matthew White Chief Operating Officer   Matthew joined Alfa as a graduate in 1999, star ting in a software development r ole. In his 20-year career delivering software f or the auto and equipment finance industr y , Matthew hasdirect experience of ev ery thing inv olved in systems implementation, from configuration and testing suppor t to project manag ement fora number of UK and European projects. From 2010 to 2016, Matthew’s r ole grew to include responsibility for most of the operations of the Company , before he led Alfa’ s IPO in 2017. As Chief Operating Officer , a role which he assumed in February 2019, Matthew is accountable forthe international operations ofthe business, including Alfa’ s technology platform and projectdelivery . Key strengths Considerable senior management experience in software development and all aspects ofsystems implementation anddelivery Other appointments n /a N 74 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 BO ARDOFDI RECT ORS Steve Breach Independent Non-Executive Director   Steve is a member of the Institute of Chartered Accountant s in England and W ales, having qualified with EY in 1993 where he f ocused on providing c orporate finance advice to technology busine sses inthe UK and internationally . Steve has 17 y ears’ experience as Chief Financial Officer of a number of businesses. Between 2010 and 2016, Steve was CF O of T ribal Group PLC, a leading international provider o f student management software to the education market. Steve has subsequently pursued a por tfolio career , acting as adviser to a number of privately owned companies. Key strengths Steve has held a number of CF O roles and has extensive experience in corporate finance. Other appointments Advisor to a number of private companies Adrian Chamberlain Independent Non-Executive Director   Adrian is a Non-Executive Director of Cambridge Univ ersity Health T rust, one of the country ’s largest NHS T rust s, where he chairs the Performance Committee. During 2021, Adrian was appointed as the Senior Independent Director of the T rus t. He is also Executive Chairman of eConsult L td, a leading cloud-based medic al triage company . He previously has held senior ex ecutive positions in a number of private and public hi-tech and telecommunications companies including Chief Executive Officer o f Messagelabs and Achilles Ltd, a member of the Board of Cable & Wireless and Bovis Lend Lease, and a member ofthe Operations Board at Symantec. He holds an MA in Histor y from T rinity College, Cambridge and an MBA from the London Business School. Key strengths Extensive experience internationally in both the private and public sectors, par ticularly in strategy formulation and ex ecution, technology and Software as aService. Other appointments Chairman of eConsult Health Ltd Senior Independent Director of Cambridge Univ ersity Health T rust and Chair of the Performance Committee Charlotte de Metz Independent Non-Executive Director   Currently Chief P eople Officer at Keyloop which f ocuse s on software for the automotiv e industr y where she joined in early 2021, after serving as Chie f People Officer atSynamedia where she led a large-scale global transf ormation. Prior to that, Charlotte was Global Head of Human Resources and more recently as Executiv e V ice President at F inastra, a global fintech where she was responsible for Executive T alent, corporate social responsibility , culture and values, and inclusion and diversity . Prior to joining F inastra in 2012 as Global Head of Human Resources, Charlotte spent over 11 y ears at V entyx, a global provider o f software solutions for the ener gy , utility and other asset-intensive businesse s. During her tenure at V entyx she held v arious HR r oles, latterly as Human Resource Manager for Rest of W orld. Key strengths Strong track r ecord in delivering innovative emplo yee development, engagement, and retention practices. Charlotte has e xtensive experience in managing high- impact, enterprise-wide transformations in challenging, fast-paced environments. Other appointments CPO, K eyloop Limited Chris Sullivan Senior Independent Non-Executive Director   Chris was Chie f Ex ecutive o f the Corporate & Investment Bank at Santander UK during the y ears 2015-2018, and prior to this held various CEO roles during a 40-year career at The Royal Bank of Scotland and NatW es t. His 11 years on the Group Executive Committee included leading Corporate Banking, Retail Banking, Direct Line and Retail Dir ect and culminated in appointment to the post of Deputy Group Chief Executive in Mar ch 2014. A recipient of the Leasing Life European Lif etime Achievement A ward, Chris brings expertise in the auto and equipment finance industr y , having spent nearly 30 years with the Lombard Gr oup inanumber of directorate roles including as CEO . Key strengths Extensive experience of corporate, investment and retail banking and asset financing together with general management and listed company experience. Other appointments Chairman of the W e stminster Abbey Investment Committee, Non-Executive Director of Guild Espor ts PLC, Senior Independent Director for D WF Group PLC, Non-Executive Director of Cannaray L td A N R A N R A N R A N R Committee membership A Audit Committee chair Nomination N Remuneration R CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 75 Richard Raistrick Chief International Officer   Relevant experience/ previous roles Richard is r esponsible for project delivery for some of Alfa ’ s largest customers. He has carried out consultancy and project management engagements around the globe, and has worked in the auto and equipment finance sector since 1995. James Paul Chief Delivery Officer   Relevant experience/ previous roles James is accountable f or all EMEA implementations and takes global responsibility for support , resourcing and partnering. James has over 20 years’ experience implementing in auto and equipment finance for organisations of all sizes. Vicky Edwards Chief People Officer   Relevant experience/ previous roles Vicky joined Alfa in Mar ch 2020, bringing 26 years of experience inconsultancy businesses. A commercially f ocused HR leader , Vicky has held leadership roles across HR, commercial and operations functions, as well as C-suite level positions in the prof essional ser vices, te chnology and energy sectors. Richard Dewire Chief Revenue Officer   Relevant experience/ previous roles Richard has ov er 20 years in the auto and equipment finance industr y and an in-depth knowledge of Alfa S ystems through many years of implementation, with extensive knowledge of Alfa ’ s sales and commercial pr oces s. He was previously Dir ector of Strategy and Investment. Andrew Flegg Chief Technology Officer   Relevant experience/ previous roles Andrew brings ov er 35 years of programming experience, o ver 25 years in commercial so ftware development and o ver 15 years in the auto and equipment finance industr y . He was previously Alfa ’ s Global Director of Platforms, covering int ernal IT systems, cloud, information security and solution architecture. Andrew Denton Chief Executive Officer   Duncan Magrath Chief Financial Officer   Matthew White Chief Operating Officer   76 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 COMP ANYLEAD ERSHIPTEA M BO ARDLEADERSH IPANDCOMP ANYPURP OSE Maintaining g ood gov ernance is essential tosuppor t the delivery of Alfa’ s strategic objectives, and to ensure that the business is run well f or the benefit of all s takeholders and for sustainable long-term value. The Board continues to monitor the framework so it remains appr opriate to the business. The gov ernance framework embeds our values into the policie s and processes of Alfaand therefor e helps to strengthen the corporate culture.  ReadmoreaboutourCompan y LeadershipT e amonpage76. During this year and as part of the annual review cycle, the Boar d revie wed, updated and appr oved the Schedule of Matters Reserved for the Board and the T erms ofRef erence for each Board Committee. The Audit & Risk Committee also review ed, updated and approv ed other relevant Company policies. There is an internal contr ols system in place which allows the Board to assess and manage risks to the busines s.  ReadmoreaboutourRiskManag ement onpages44to51andtheAudit&Risk CommitteeReportonpages94to99. The Board pr ovides suppor t in implementing strategic priorities as well as ov ersight and constructive challenge on the running of the business. Through reporting, including the use of both financial and non-financial metrics, the Board is able toevaluate and guide the progr ess and per formance of the Compan y . Report s from across the business are pro vided at Board meetings to up date the Board and enable effective discussion. Defining purpose  During the year , the Company has continued to embed across the business the purp ose and values as set out in the Strategic report on pages 1 to 69 of this report . The Board continues to monitor the strategic direction of the Company and the key inv estment s we nee d to make to r emain in a leading position in an ever-changing market, and ensures we hav e the resources and the right people, in the right place operationally , to ensure we r emain relevant to the markets in which we operate. The Board and Compan y Leadership T eam (CL T) embed the Company ’ s values across the business. In order to monitor whether our culture is and r emains aligned with our values, the Company seeks feedback from customers and potential customers on how the values have been received. Additionally , to understand what they experienced during the sales proces s and through the various stages of software implementations and pro vision of ser vices. Governance framework The Board is made up of a majority of independent Directors whose diverse experience enables appropriate debate andchallenge at Board and Committ ee discussions. The Board has an appr oved gov ernance framework o f systems and controls which enables the effective discharge of the Boar d’ s responsibilitie s. Directors hav e a duty to promote the success of the Company under section 172 of the Companies Act 2006. The Company ’ s section 172 statement c an be found on pages 54 to 55 and this framework support s our Directors’ compliance with their duties. Board engagement The Board r ecognises it s responsibilitie s to engage with and incorporate the views of key stakeholders in strategic planning and decision making, and the imp ortance of stakeholder trust in building resilience and long-term sustainability . Although the Board retains o verall responsibility for stakeholder engagement there is interaction at various levels of the business so that it is carried out by those most relevant to a particular stakeholder group or particular issue. Our section 172 statement and ‘How we engage with our stakeholders’ section on pages 54 to 57 set s out the main interest s ofkey stakeholders and the wa ys in which Alfa engages with them. The Board r ecognises the imp ortance of considering all stakeholders in it s decision- making, although the weight given to each stakeholder group ma y var y depending on the subject in ques tion. Through engagement and gr eater understanding of the interest s of stakeholders, the Board is able to assess thelong-term consequences of decisions on stakeholders and the business. We c ontinue to work on embedding practices across Alfaso that consideration of stakeholder interest s in decisions is second nature at alllevels of the business. Workforce engagement The Board monitors and assesses engagement with all stakeholders, withparticular attention on workf orce engagement. Employ ee Pulse sur veys pr ovide regular understanding of wider views and an ‘ opendo or’ approach to feedback and communication also allows for fr equent two-way con versation and insight. The challenges presented by the COVID-19 pandemic remained throughout 2021, but effort was made to maintain culture and connections with online events as well as in-person social element s to these event s wherev er restrictions allowed. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 77 All Board meetings feature updates on People matters and engagement lev els. The Chief People Officer presented at two Board meetings in 2021, demonstrating the increased impor tance placed on our people. A ttendance of Company meetings, social and online T own Hall events (including Q&A) with the Board as w ell as Company updates and frequent co-ordinated internal communications all suppor t engagement across the organisation. Given the Boar d’ s visibility of the engagement channels and effort s, as well as its acce ssibility to the workfor ce through the initiatives and events as mentioned, it is confident at this time that appropriate measures are in place as an alternativ e to Pro vision 5 of the 2018 UK Corporate Governance Code. The Company activ ely encourages the inv olvement of employ ees in the Company ’ s per formance and the principal decision in 2021 with regard t o employee interests was to launch UK/USA all-emplo yee share plans. The Sav e As Y ou Earn (SA YE) scheme known as the ‘Sharesave ’ plan in the UK and Employ ee Stock Purchase Plan (ESPP ) in the USA w ere launched in November 2021 allowing employ ees to be come greater stakeholders in the business. Engagement with shareholders Alfa is committed to engaging with shareholders and pr ospective investors to inform and aid understanding of its strateg y and progr ess. The focus of all communications is ensuring transparent, and detailed and meaningful information. The Chairman has ov erall responsibility for ensuring that the Company has appr opriate channels of communication with it s shareholders and is supported in this by theSenior Independent Director and the Executive Dir ectors. Shareholders ar e consulted on a variety of issues, as appropriate, such as the medium- to long-term strategy of the Company , current trading and market c onditions and Directors’ r emuneration. The Boar d regularly receives f ee dback fr om the Group ’ s br okers, advisors and the E xecutive Dir ectors on the views of major shareholders and the in vestor relations pr ogramme, and also receives report s on significant changes to the composition of the Gr oup ’s share r egister . Due to the ongoing pandemic the usual direct engagement mechanisms with shareholders ha ve been cur tailed but the Directors hav e continued communications virtually through one-to-one meeting s and responding to specific shareholder queries and pro vided digital presentations, including for the half-y ear result s announcement. Given the r es trictions on trav el and large gatherings, and the guidance available to us at the time, we took the decision to hold the 2021 A GM behind closed doors again. As we approach our 2022 A GM, we will c ontinue to monitor the situation, and will prioritise the health and safety of the Board, our colleagues and of course our shareholders. F ur ther details will be provided when our Notice of A G M is published on 11 April 2022. The Group ’ s investor relations micr osite www .investors.alfasys tems.com is updated throughout the y ear , providing the annual and interim report s, presentations given to analyst s and investors, trading updates and other regulatory announcement s, and up-to-date information on the Gr oup ’ s activities. Shareholders are able to contact the Company thr ough the Company Secretary , at the Company ’ s registered office, which is shown on the Dir ectors’ report on page 122. Shareholder agreement The relationship between the Board and the controlling shar eholder of the Company (the ‘Contr olling Shareholder’) , CHP Softwar e and Consulting Limited, is gov erned by the Relationship Agreement ( which was executed on 26 May 2017) . This agreement is a framework under which the Contr olling Shareholder , and the shareholders of the Controlling Shar eholder will operate to protect the rights of the non-controlling shareholders. Ther e have been no changes to the Relationship Agreement during 2021, or up to the date of this report. Under the Relationship Agreement, two Non- Executive Dir ectors can b e appointed to the Board f or as long as the Controlling Shareholder holds 20% or mor e of the voting rights over the Compan y ’ s shares: • One Non-Executiv e Director can be appointed to the Board for so long as the Controlling Shar eholder holds 10% or more but less than 20% of the voting rights in resp ect of the Company ’ s shares; and • If none of the Contr olling Shareholders are members of the Nomination Committee, the Controlling Shareholder can appoint an obser ver to the Nomination Committee. Andrew P age is designated as the first appointed Director of the Controlling Shareholder . Andrew Denton has not been appointed as a de signated Director by the Controlling Shar eholder . It has be en agreed that for as long as the Contr olling Shareholder has the right to appoint two Directors to the Board, and whilst Andr ew Denton is a Director of the Company , the Controlling Shar eholder will not exer cise it s right to appoint a second Director to the Board. Ther e have been no Board observers appointed either under the Relationship Agreement, or other wise. F or fur ther details of the Relationship Agreement, se e page 124 of the Directors’Report . 78 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 BO ARDLEADERSH IPANDCOMP ANYPURP OSECONTINUED Workforce policies  Our people bring a diverse range of experience, expertise and perspe ctives that contribute to the values and culture of Alfa and are essential for the deliv er y of our strategic objectives. A positive environment where our people feel valued, motivate d and able to thriv e is essential to Alfa ’ s continued success. The Board recognises the value of , and suppor ts, signific ant investment of time and resources in our colleagues to allow Alfa to attract and retain talent and dev elop the skills of our employ ee s. One central policy in creating this envir onment and culture is Alfa’ s Ethics and Code of Conduct (the ‘Code of Conduct’) which clearly set s out a zer o-tolerance policy for dishones t and corrupt behaviour among our employ ee s and seeks to educ ate team members on unlawful and unethical conduct. Compliance with the polic y maintains Alfa’ s reputation in the marketplace as well as our r elationship with our colleagues, investors, customers and other stakeholders. The Code of Conduct pro vides clear guidance to employ ee s in respect of legal and ethical issues which they may come across while conducting Alfa business, andwhat Alfa expect s in respect of our employ ee s’ behaviour , and provides impor tant information on w orking at Alfa tohelp embed the behaviours and values alongside more practical information to enable our employ ee s to work effectiv ely and efficiently . The Board is r esponsible for overseeing the Company’s arrangements for the w orkfor ce to be able to raise matters of concern and seeks to foster an environment wher e individuals can be confident about sp eaking up about concerns without fear of r etaliation. The Board monitors this ar ea through r epor t s on the number and type s of concerns raised through the whistleblowing pr ocess and the outcomes of the concerns raised. Employee engagement The Board monitors and assesses engagement with all stakeholders, with par ticular attention on employ ee engagement . Employ ee Pulse sur veys pr ovide regular understanding of wider views and an ‘ open do or’ approach to feedback and communication also allows for fr equent two-way conv ersation and insight. The challenge s presented by the COVID-19 pandemic r emained throughout 2021, but effort was made to maintain culture and connections with online events as well as in-person social element s to these events wherever r es trictions allowed. All Board meetings feature updates on P eople matters and engagement levels. The Chief People Officer pr esente d at two Board meetings in 2021, demonstrating the increased impor tance placed on our people. Online T own Hall events with senior team members as well as Company updates and frequent co-or dinated internal communications all supp ort engagement across the organisation. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 79 BO ARDLEADERSH IPANDCOMP ANYPURP OSECONTINUED Throughout the y ear , regular town halls andelectronic updates to all employees from CEO Andr ew Denton hav e pro ven tobe a very succes sful engagement mechanism. Andrew Denton and the CL T update the workfor ce on all aspect s of the business and take direct ques tions in real time from emplo yees. Alfa is focused on the impor tance of the wellbeing of our workf orce and this remained heightened during the pandemic with additional challenges for our r emote working employ ees. We c ontinue to invest in wellbeing. In addition to enhanced paid carer leav e allowance, access to physical, mental and financial advice/ assis tance and working fr om home contributions, we hav e gro wn an internal network of trained Mental Health F irst Aiders, available to employees for judgement-fr ee listening and suppor t . In 2021, we hav e deliver ed diversity training across a number of key gr oups – Inclusive Leadership, Inclusive R ecruitment and Unconscious Bias training. W e continue tosuppor t our communities to raise awar eness across the company on issues around div ersity and expanded our network of external bodies and par tners that we work with and support . As a result of this work, 47% of new grads w ere f emale and 47% from a div erse background. Alfa is fully committed to maintaining highstandards of ethical and prof essional conduct for the Compan y and it s employ ee s. W e have a number of policies ineffect which are designed to create an envir onment and culture where: • Employ ees’ health, s afety , right s and wellbeing are placed at the heart of theway the Gr oup does busine ss; • Employ ee diversity and inclusion iscelebrated; • Employ ees mus t act ethically , hone stly and stand up for what is right; and • Communication across the business should be open, hones t and responsible. T o suppor t the Code of Conduct and our values, Alfa has a number of other workfor ce policies and practice s cov ering: • Business expenses; • Confidentiality; • Health and safety; • Diversity and inclusion; • Harassment; • Share dealing; and • Whistleblowing. W e se ek to embed our Co de of Conduct through continuing communications, training and appropriate contr ols. The Code of Conduct and all other workf orce policies and procedures can be found and easily accessed by our employ ee s through our intranet site. An Equality , Diversity and Inclusion P olicy was published in February 2022 which aims for our colleagues to be truly repr esentative of all sections of society and our customers, and for ev er yone to f eel respe cted and able to give their best . Whistleblowing W e recognise that our pe ople are our strongest asset s for detecting and av oiding legal and ethical failure within our business. Our whistleblowing policy and team pro vides a s afe en vironment to r epor t concerns regar ding illegal, unethical or improper behaviour . The Group ’ s Whistleblowing Policy clearly explains to employ ee s how they can raise concerns directly to the Group ’ s Whistleblowing Officer . All whistleblowing cases are formally inv es tigated by the Whistleblowing Officer and reported regularly to the Audit & Risk Committee and the Board, and the Board is responsible for r eviewing the effectiveness of actions taken in response to concerns raised. Where neces sar y , external specialist third partie s, or other members of staff , with appropriate experience, ma y be appointed to help inv es tigate issues that have been raised. Share dealing code Alfa has revised and reissued a share dealing code during the year . This applies to all employ ee s and Directors. It restrict s dealings by all employ ee s during closed periods, dealings by a par ticular sub-set of employ ee s out side of closed periods, and pro vides additional restrictions on the Company’s Dir ectors, it s other PDMRs and certain p ersons deemed insiders. In accordance with the Mark et Abuse Regulation, the Dir ectors and PDMRs have confirmed to the Company they are responsible for pr ocuring the compliance of their respective connected p ersons with the Alfa share dealing code. The share dealing code has been publishe d on the Alfa intranet and guidance and communication is pro vided to all new star ters and the Alfa team on an ad hoc basis. Suppliers and modern slavery W e do not supp ort any form of slav ery , human trafficking or child labour and we only work with suppliers that hav e been asse ssed through our internal pr ocesse s to be ethical pro viders. W e hav e an ethical procurement policy and our key procurement personnel hav e be en trained in relation to the r elevant requirements and regulations. 80 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 BO ARDLEADERSH IPANDCOMP ANYPURP OSECONTINUED Division of responsibilities Alfa is led and controlled by the Board which is collectively responsible for the long-term and sustainable success of the Group. The structure of the Board, and manag ement, roles and Committees ensures controls and oversight with a balanced approach to risk aligned with Alfa’ s cultur e. The structure assist s the Board with carr ying out it s responsibilities and is designed to ensure that the Board focuses on strategy , monitoring the per formance of the Group and go vernance, risk and contr ol issues. Responsibility of the Board The Board is collectively r esponsible for the long-term success of the Group and for ensuring leadership within a framework of eff ective controls. The ke y roles of the Board ar e: • Setting the strategic dir ection of the Group; • Overseeing implementation of the s trategy by ensuring that the Gr oup is suitably resourced to achiev e it s strategic aspirations; • Providing entr epreneurial leadership within aframework of prudent and eff ective controls which enables risk to be assesse d and managed; • Ensuring that the necess ary financial andhuman resources are in place f or the Group to meet its obje ctives; and • Re viewing the Group ’ s culture supporte d by its value s. Board and Committee  Board Audit&Risk Committee Nomination Committee Remuneration Committee Andrew P age 6/6 2/2 Andrew Denton 6/6 Duncan Magrath 6/6 Matthew White 6/6 Stev e Breach 6/6 4/4 2/2 4/4 Adrian Chamberlain 6/6 4/4 2/2 4/4 Charlotte de Metz 6/6 4/4 2/2 4/4 Chris Sullivan 6/6 4/4 2/2 4/4 How the Board operates During the year , the Board considers a comprehensiv e programme of r egular matters cov ering operational and financial per formance reporting , strategic reviews and updates, and various gov ernance report s and approvals. Board meetings The Boar d held six sche duled meetings in 2021 and two ad hoc meetings, for specific approvals and discussions. If Directors are unable to attend a meeting, they have the opportunit y beforehand to discuss an y agenda items with the Chairman. During the year , the Board and its Committee s conducted most me etings in person but also remotely thr ough video calls when ne cess ary , enabling the Board to continue to function and maintain the integrity of our gov ernance structure despite the ongoing pandemic. Although not neces sar y in 2021, if in the event that a Director is unable to attend a meeting they would r eceive all the papers for the meeting andbe updated on matters discussed at thene xt meeting. Non-Executiv es meet without the Chairman at least annually to appraise the Chairman ’s p erformance and Chairman also holds meetings with the Non-Executive Directors without the ExecutiveDir ectors being present. The table below recor ds the number of meetings held by the Board and each Committee during 2021 and the number ofmeetings attended b y each memb er . There was 100% attendance at each meeting. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 81 DIVISIO NOFRESPON SIBILITIES The follo wing diagram shows the role of the Boar d and its Committe es and Company Leadership T e am: Board of Directors The Board is collectively r esponsible for the long-term success of the Company . The busines s of the Company is manag ed by the Board who ma y exer cise all of the powers of the Compan y . The Board has a f ormal S chedule of Matters Reserved for the Board which is available on the Company website. Although the Boar d retains ov erall responsibility , it delegate s cer tain matters to the Board Committees, and the detailed implementation of matters appro ved by the Boar d and the day-to-day operational aspects of the busine ss to the Company Leadership T eam. Audit & Risk Committee Nomination Committee Remuneration Committee Reviews and r epor ts to the Board on the Group ’ s financial repor ting, internal control and risk management systems. Monitors the independence and effectiveness of the external auditor and the effectiveness of the internal audit function. Pro vides succession planning for the Board and leads the process for all Board appointments. Keeps under revie w the membership and composition of the Board, including the combination of skills, exp erience and div ersity , and ensures it remains appr opriate. Determines the remuneration, bonuses, long-term incentive arrang ement s, contract terms and other benefit s in respect of the Executive Directors, the Chairman, the Company Secr etar y and senior management. Oversees the remuneration and workf orce policies and takes the se into account when setting the p olicy f or Dir ectors’ r emuneration. Company Leadership Team The Company Leadership T eam is responsible for the day-to-da y running of the business, carr ying out and overseeing operational management, and implementing the strategies the Board has set. Executive Committees These go vernance committ ee s ar e chair ed by an Executive Director and report to the Executiv e Group , and the Boar d or Board Committee s asappropriate. Investment Committee Disclosure Committee Deal Committee The Inv es tment Committee determines the Strategic Inv estment initiatives that should be under taken. The Committee pro vides a structure through which eff ective decisions can be made on the priority and sche duling of Strategic In vestment initiatives. The Committee ensures that Strategic Inv es tment initiatives align with Alfa’ s business s trategy . The Disclosure Committee determines whether information that is submitted to it requires disclosure and determines any other issue relating to the application of the Disclosure Pr ocedures that are requir ed. The Deal Committee determine s standard guidelines for an acceptable deal in terms of financial position and key contractual terms. The Board responsibilities W e have clear and documented roles and separation of duties bet ween the Chairman and the CEO . The Alfa CEO, Andr ew Denton, is responsible for determining the Alfa strategy and day-to-day operations, and leading the CL T , which assist s in the day-to-day deliv er y of this strategy and general operations. Andrew P age, as Chairman, pro vides oversight and guidance to Andr ew Denton on the strategic direction, key commercial and contracting decisions in addition to his responsibilities for running an effective Board. All Dir ectors have access to the advice of the Compan y Secretary . 82 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 The division of responsibilities between our b oard members is set out below: Role Principal responsibilities Ex ecutiveChairman Andrew P age Manages and provides leadership totheBoard. Act s as a direct liaison betw een the Boardand management, w orking with theCEO to assist the flowof information. Ensures that the Directors hav e sufficient information to enable them to f orm appropriate judg ement s. Develops and sets the agendas for Boar d meeting s, working with the CEO and Compan y Secretary . Recommends an annual schedule of Board and Committee meetings. Ensures effective communications with shar eholders and other stakeholders. ChiefEx ecutive Officer Andrew Denton Responsible for the day-t o-day management of Alfa. Responsible f or defining the strateg y and guiding theCL T on its strategy execution, once this has beenagreed by theBoard. Creates a framew ork that optimise s r esource allocation to deliver strategic objectives over var yingtimeframe s. Ensures the successful delivery agains t the strategic plan and other key business obje ctives, allocating decision making and responsibilities accordingly . Identifies and executes new busine ss opportunities and asse sses potential acquisitions and disp osals. Manages the Group with reference to it s risk pr ofile in the context of the Board’ s risk appetite. Responsible f or En vironmental, Social and Go vernance (ESG) . ChiefFinancial Officer Duncan Magrath Overall management of the financial risks o f the Group. Responsible for financial planning and r ecord-keeping, as well as financial reporting to the Board and shareholders. Ensures effective financial compliance and contr ol, while responding to regulatory developments, including financial reporting , effective allocation of capital, management of liquid r esources, investor relations and corporate responsibility . Responsible for the r epor ting of ESG. ChiefOperating Officer Matthew White Responsible f or da y-to-day op erationalactivities. Responsible for software dev elopment. Responsible f or s ystems implementationdelivery . Responsible for delivery of HR resour cingand planning. Develops key business operational models, monitoring per formance against KPIs and ensuring adequate staffing recruitment to deliver dev elopment and systems implementation. SeniorIndependent Director Chris Sullivan An Independent Non-Executive Director . Pro vides a sounding board for the Chairman and CEO . Serves as an intermediar y f or the otherDirectors and shar eholders whennece ssar y . Is a vailable to shareholders if they hav econcerns. Non-Ex ecutive Directors Stev e Breach Adrian Chamberlain Charlotte de Metz Pro vide constructive challeng e to the Executive Directors. Help develop proposals on strategy . Scrutinise management’ s per formance in meeting agreed g oals and obje ctives. Monitor per formance report s. Satisfy themselves regarding the integrity of financial inf ormation, and that controls and risk management s ystems are robust and defensible. Determine appr opriate levels of remuneration for Executive Directors. Appoint and remo ve Executive Directors as required and r eview succession planning. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 83 Matters Reserved for the Board The Boar d has a formal S chedule of Matters specific ally reserved for its de cision making and appro val. The matters that the Board considers suitable for delegation ar e contained in the T erms of Reference o f eachBoard Committee. There ar e certain key responsibilitie s that the Board does not delegate and which are reserved for it s consideration. The full Schedule o f Matters Reser ved f or the Board is available under the Corporate Governanc e section on our website.  of interest The Company is mindful of the time commitment required fr om Non-Executive Directors in order to eff ectively fulfil their responsibilities on the Board, particularly pro viding constructive challenge and holding management to account and utilising their diverse skills and experience to benefit the Company and pr ovide strategic guidance. Board Risk management and internal controls Major capital commitments Approval o f Annual Report and Accounts Company’s purpose, values, vision and culture Corporate gov ernance including Board and Committee evaluation Material acquisitions and disposals Engagement with key stakeholders Business strategy and approval o f long-term aims and objectives Group financial reporting and results announcements Prior to their appointment, prospective Directors are ask ed to provide details of an y other roles or significant obligations that may affect the time available f or them to commit to the Company . The Chairman and the Board are then kept inf ormed by each Director of any proposed external appointments or other significant commitment s as they arise. These are monitored to ensur e that each Director has sufficient time to fulfil their obligations and Chairman approval is r equired prior to a Director taking on any additional external appointment. Each Director ’ s biographical details and significant time commitment s out side of the Company ar e set out in the Board biographies on pages 74 to 75. Whenever a Dir ector takes on additional external r esponsibilitie s, the Director will discuss the potential position with the Chairman and confirm that, as far as they area ware, there are no conflicts of interest. Each Director is required to disclose conflicts and potential conflict s to the Chairman and the Company Secretar y asand when the y arise. As par t of the induction process, a newly appointed Director is asked to disclose any conflicts ofinter es t to the Company . Thereafter , each Director has an oppor tunity to disclose conflicts at the b eginning of each Board and Committee meeting and as par t of an annual review . None of the Directors declared to the Company any actual or potential conflicts of interest between an yof their duties to the Company and their private inter es ts and/ or other duties. The Companies Act 2006 provides that Directors must avoid a situation wher e they hav e, or can have, a dir ect or indirect interest that conflicts, or p ossibly may conflict, with the Company’s interes ts. Boards of public companies may authorise conflicts and p otential conflicts, where appropriate, if their compan y ’ s ar ticles of association permit . 84 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 DIVISIO NOFRESPON SIBILITIESCONTINUED Key activities of the Board in 2021 Focus area Key stakeholders Activities Link to strategic priorities Strategy and operations see pages 1to69 Customers Employ ee s Partners Inv es tors • Applying the Board’ s strategic understanding of principal risks to key challenges and opportunitie s. • Monitoring the per formance of theCompany againstagreed strategic objectives, including k ey financialtargets. 1      3       6 Leadership,people andculture see pages 12to15 and 25 Employ ee s Inv es tors • Receiving update s on employ ee views and engagement levels. • Maintaining and enhancing Alfa ’ s culture and values. • Continuing to monitor senior ex ecutive talent management anddevelopment plans to pr ovide succession for all key positions. 1      3 6 Financ e see pages 36 to 43 Customers Employ ee s Community and Envir onment Partners Inv es tors • Reviewing and appr oving thebudget. • Reviewing financial k ey performance indicators (KPIs) . • Approving full-y ear result s, half-year r esult s, trading updates and the Annual Repor t. • Approving a special dividend. • Reviewing the key risks to Alfa and the contr ols in place for mitigation. • Considering and monitoring the Group ’ s risk appetite and principal risks and uncertaintie s. • Approving the viability and going concern statements. • Developing and monitoring ESG reporting framework. 1      3       6 Governanc e see pages 70to127 Employ ee s Customers Inv es tors • Monitoring and reviewing theCompany ’ s appr oach t o corporate g overnanc e, its keypr actices and it s ongoing compliance with the 2018 Code. • Reviewing the r esult s fr omtheexternal Boar d effectivenessevaluation and setting actions. • Approving updated Committees’ T erms of R eference. • Receiving and considering feedback from shareholderengagement. • Reviewing and appro ving the modern slav er ystatement . 1      6 Our strategic priorities Strengthen – Grow our dier entiation of market leading People, Pr oduct and Delivery . 1 Simplify – Simplifying our product , implementations and processes toenablemore concurr ent Alfa Systemsimplementations.  Start – Impro ve our oering f or smaller autoand equipment nance pr oviders as aplatform f or innovation and t o increase ourreach. 6 Sell – F ocus on cloud-hosted, subscription sales to our target markets.  Synergise – Dev elop our partner ecosystem, to improve our sales opportunitie s and to enable more concurrent Alfa S ystems implementations.  Scale – Increase our capacity for dev eloping and delivering Alfa S ystems. 3 CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 85 Appointments to the Board The Nomination Committee leads the processfor Boar d appointments and mak es recommendations to the Board and also ensures that succession plans are in place forthe Board and senior management. The formal pr ocedure for Boar d appointment s and succession planning is detailed in the Nomination Committee Report on pages 90 to 93. Director re-election Each Director is required under the Articles of Association to retire at ev er y Annual General Meeting and submit themselves f or r e-election by shar eholders. A t the 2021 Annual General Meeting (A G M) o f the Company , all of the current Dir ectors stoo d for r eappointment , and wer e duly electe d with majorities ranging from 99.15% to 100% of the votes cast . All the Directors will retir e and seek re-election at the 2022 A GM of the Company . This r epor t and in particular the Board biographies on pages 74 to 75 set s forth the contribution of each Director on the Board to the Compan y and on this basis the Board, and specifically the Chairman, believes each Director proposed for re-election at the A GM should be r eappointed. The Board has based its recommendations for re-election, in part , on it s review o f the result s from the Boar d evaluation process outlined from this page, and the Chairman ’ s revie w of individual evaluations, and whether a Director has demonstrated subs tantial commitment to the r ole (including time for Boar d and Committee meetings noted in this repor t) and other responsibilities, taking into account a number of considerations including outside commitments and any changes thereof during the period. Board composition The composition of the Board and Boar d Committees is continually asse ssed to ensure an appr opriate balance o f skills and experience is maintained. The Board takes into account various considerations in assessing the composition of the Board including length of Director tenure, Boar d diversity , independence and the combination of skills and experience of the Directors. Board evaluation The Board r ecognises the b enefit of a thorough evaluation process to reflect on it s strengths and the challenges it faces, and to identify oppor tunities to continuously improv e it s effectiveness. Our Board evaluation pr oces s was conducted during the summer of 2021: 1. The Boar d agreed that an externally facilitated Board effectiveness revie w should be conducted in 2021. 2. Discussions wer e initiated with three reputed external agencies shortlis ted for conducting the Board eff ectiveness evaluation, and Derek W oo dward and Mark Peters o f Board Eff ectiveness and Governance S er vices (BE-GS) were selected on the basis of their proposed approach and Boar d experience. BE-GS does not have any other connections with the Company or with individual Dir ectors. 3. The CFO and Compan y Secretary , having liaised with the Chairman, discusse d and agreed the scope of the evaluation with BE-GS. 4. BE-GS conducted individual private interviews with each of the Directors, some members of the Company Leadership T eam (CL T ) and the Company’s Br okers to gain insights as tohow the Boar d see s itself and how it isperceived b y others. The inter views with the Directors cov ered composition and the diversity of the Boar d; the breadth and depth of w ork programmes for the Boar d and Committee s; and Boardr oom culture. BE-GS also conducted a thorough desk - top review of Board and Committee agendas, papers, and minutes. 5. BE-GS also conducted a separate evaluation of the Chairman against the measures identified by the F inancial Reporting Council (FRC) . This include d interviews with each of the Directors and a detailed review with the SID . 6. BE-GS prepar ed a repor t of its finding s from the r eview and identified constructive forward-looking recommendations to enhance the effectiveness of the Board and itsCommitte es. 7. The BE-GS report was first shared with the Chairman and the SID and was then presented to, and discussed by , the Board which agr ee d an action plan for theyear ahead. 8. Pr ogress against the Board’ s action plan will be monitored by the Chairman with the suppor t of the Company S ecretar y and periodic repor ts will b e shared with the Board. 9. The Boar d evaluation to be conducted in 2022 will be conducted internally but will reflect on the actions from the 2021 external review . Recognising the positive  The Board has made huge pr ogress since itwas refr eshe d and str eng thened in 2019/20, despite the challenges of the pandemic restrictions. The Board and Committees have established a good rhy thm of work, with the new Dir ectors bringing a diverse blend of solid experience and skills. The regular inf ormation flows to the Board from the CEO , the CFO and the CO O are high quality , comprehensive and consistent and are supplemented with quality communication between the Chairman and the NEDs. Meetings are well pr epared and the cycle of CL T update s and separate strategy se ssions are valued b y the NEDs and pr ovide an ongoing oppor tunity f or e xperienced-base d debate. There is mutual r espe ct and trust amongs t the Board members, with the Executive Directors welcoming the rigour and contributions made by each o f the NEDs. Each Director continued to contribute positively and eff ectively both within and outside of Board meeting s. 86 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 COMPOSITION,SUCCESSIONANDEV ALU A TION There is a positive cultur e amongst all the Directors and the Board is visible to the wider organisation and leads by example. Ther e is clarity in the communication casc ade, which suppor ts unders tanding by staff of the strategy and performance, and set s expectations. Despite being a ver y new Board, it w orked well throughout the r es trictions of the pandemic. There is a high degr ee of confidence in the Chairman and the Committee Chairs. The review did not identify any conc erns and allrecommendations made in the BE-GS report build upon a solid base of be st practice. Based on BE-GS extensive “in the Boardr oom” experience, all indicators suggest that the Board and it s Committees are operating effectiv ely . On the Chairman’ s evaluation against the FRC measures, the conclusion reached was that he was effective. The Dir ectors and investors agree that the Chairman is seen by all (including himself ) as being in a stewardship role, not exer cising an y undue control, and allowing the Board as a whole and the E xecutive to run thebusiness. A summary of the key asse ssment highlight s contained in the BE-GS 2021 Board effectiveness review is set out below . Key assessment highlights Commentary Board composition and attributes Unanimous vie w that this is a high-qualit y Board; the siz e, composition and Executive/NED mix o f the Board is optimum and comprises a solid and diverse range of skills, e xperience and knowledge. The NEDs bring a tremendous range of experience. Good Chair skills on the Board and Committees – high standard of technical ability . Culture-Board and organisation The Boar droom culture is exemplary – the Directors lead by example. There is a very open and equal approach, with everyone sufficiently kno wledgeable, experienced and confident to challenge; and having the maturity to be challenged and learn. The positive culture o f the organisation shine s through ev ery thing. There is clarity in the communication cascade, which supp ort s unders tanding by staff of the strategy and per formance, and sets expectations. The employ ee communication is two-way and encourages open engagement on per formance and major decisions. The regular P ulse sur vey is one of many wa ys the Board keeps in touch with the culture as per ceived by employ ees. Stakeholder perceptions CL T members se e the Board as value-adding and welcome the challeng e and suppor t pro vided by the external dimensions that the NEDs bring. Investors appr eciate the solid Executive team under the s tewardship of the Executive Chairman. Board meetings The Directors felt ther e to be a good rhy thm and cycle of Board meetings with well- structured agendas and papers. There was a general f eeling that the meeting s wer e run efficiently due to comprehensiv e papers, Chair briefing s and good pre-meeting preparations. Board information Information flo ws to the Board, including a good range of metrics, are o f high quality and consistent. Stakeholder KPIs are good, but feedback and oversight o f feedback mechanisms could be improv ed. People strategy Pro gress has been made in the Board’ s oversight of the Group ’ s people strategy and succession. These ar e recognised as essential elements of the Board’ s responsibility and should be kept under regular r eview , along with diversity and the pipeline of talent below Board and CL T level. Individual Directors Each Director spoke highly of their colleagues, confirming that they brought diff erent attributes to the Board’ s deliberations. Committees The Committees p erform well and, follo wing a detailed review of their activities compared with their duties within their terms of refer ence, cov er most of what are required of them. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 87 Summary of outputs and Board agreed actions The follo wing table present s a high-level summary of the output s from the 2021 Boar d effectiveness review and the actions agr eed by the Board. A summary of the key asse ssment highlight s contained in the BE-GS 2021 Board effectiveness review is set out below . Outputs from the 2021 Board Effectiveness review Board agreed actions Increase the f ocus on below Board level people strategy , talent pipeline, diversity , succession, and r emuneration to k eep pace with the execution of the strateg y and organis ational evolution. Deeper dives into our p eople strateg y will featur e on the 2022 Board agendas. Continue with and increase the NEDs e xposure to the CL T and the wider or ganisation to exchang e ideas and reinfor ce the Boar d’ s presence, explain the matters reserved for de cision bythe Board and the value that it brings; such int eraction will support the Board’ s role in talent management and succession planning. Increased engagement as opportunitie s tomeet up physically open up will beschedule d. The pairing b etween NEDs and senior managers to be further developed. More informal interaction b etween NEDs and senior management to be arranged. Oversight and reporting mechanisms for stakeholder feedback to the Board to be formalised. This will be addressed as par t of a more structured ESG reporting framework. The Board and the Committees should develop a f or ward pr ogramme of work to ensur e broad cov erage, support planning and to make effective use of precious Board/ Committe e time. A forward pro gramme of work to be developed and agreed. An annual review of the Committe es’ activities gaug ed against their terms of r efer ence to b e conducted to ensure they hav e fully discharged their r esp onsibilities. Board’ s f orward pr ogramme t o r eflect this recommendation. The cycle of CL T presentations at Board meetings and the separate programme of strategy development meetings to be maintained. Board’ s f orward pr ogramme t o r eflect this recommendation. Board papers ( where appropriate) to build on the organis ation ’ s culture by more clearly refer encing the stakeholder factors which had been taken into consideration. Where a decision is being taken the papers will reflect s172 factors. The Group ’ s per formance manag ement system applie s to management at all lev els. The individual per formance of the Ex ecutive Directors is review ed separately by the Remuneration Committee. F urther details of the Executive Directors’ performance measures and objectives and their achievement against them are disclosed in the Remuneration R epor t on pages 100 to 121. As a result of the Board Eff ectiveness review , we do not believe ther e is a need to change the composition of the Board at this time. BE-GS reviewed the accuracy of the content of this disclosur e in relation to their work. 88 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 COMPOSITION,SUCCESSIONANDEV ALU A TIONCONTINUED Board composition  As required by the Code, at least 50% of theBoard, ex cluding the Chairman, are Independent Non-Executive Dir ectors. As at 31 Decemb er 2021, the Board comprised the Executive Chairman, three Executive Dir ectors and four Independent Non-Executive Dir ectors. The Board considers that all the Non-Executive Directors, on appointment, areindependent. It is the Board’ s polic y that appointment s tothe Board will alwa ys be base d solely onmerit without any discrimination r elating to age, gender or an y other matter that has no bearing on an individual’s ability to fulfil the role of Dir ector . The Board is mindful of the aims of theHampton-Alexander Revie w , an independent review body which aims to impro ve women ’ s representation at Board level and in leadership r oles. This principle ofBoard div ersity is strongly suppor ted by the Board, r ecognising that diversity of thought, approach and experience is an impor tant consideration as part of the selection criteria used to asse ss candidate s to achieve a balanced Board. The Board is also mindful of the aims of the Parker R eview , an independent review body dedicate d to impro ving the ethnic and cultural diversity of UK boards to better reflect their employee base and the communities they ser ve. The business currently has no Dir ector from an ethnic minority background either on the Boar d orthe Executive Committee. The Board considers that each Dir ector is able to allocate sufficient time to the Company to discharge their r esponsibilitie s effectively . Diversity overview Gender diversity Board Board composition Gender diversity Companywide Board tenure Gender diversity Senior manager Average age of the Board Male 70% Female 30% 0-1 year 0% 1-2 years 38% 2-3 years 38% 3-4 years 0% 4-5 years 24% Male 87% Female 13% 40-49 38% 50-59 38% 60-69 24% Executive Chair 13% Executive 37% Independent 50% Male 83% Female 17% CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 89 COMPOSITION,SUCCESSIONANDEV ALU A TIONCONTINUED “ During 2021, the Committee continued to focus on the depth and breadth of the Board, the Company Leadership Team and senior management succession as a key priority.” Chris Sullivan Chair of the Nomination Committee Attendance at meetings Name Meetings attended 2021 ChrisSullivan( Chair) 2/2 Stev e Breach 2/2 AdrianChamberlain 2/2 CharlottedeMetz 2/2 Andre wPage 2/2 Principal activities in 2021 • Considered the r esult s of the 2020 Nomination Committee evaluation. • Re viewed the structure, size and composition of the Board and itsCommitte es. • Considered wider elements of succession planning for the Board and the levels below , including how to increase div ersity . • E valuation of Directors (all of whom are proposed for r e-election at the AGM) . Areas of focus for 2022 • Monitor Boar d composition for alignment of relevant skills, experience and diversity to Company strategy . • Oversight of the CL T’ s development and succession planning . Dear shareholders, I am pleased to intr oduce the Nomination Committee (the ‘Committee ’) Report for 2021 which summarises our key activities during the year . During 2021, the Committee continued to focus on the depth and breadth o f the Board, the Company Leadership T eam and senior management succession as a key priority . The Committee maintains a well-defined specific ation for each appointment, with a clear understanding of the values required to help the effective functioning of the whole Board. When considering the composition of the Board, w e keep under review the skills and experience r equired to fulfil the Board’ s strategy , to make suitable recommendations based on those key attributes. The Nomination Committe e monitored the membership of all of the Boar d’ s Committees follo wing the appointment s in 2020 of Adrian Chamberlain and Charlotte de Metz and remain satisfied with their composition. Succession planning Succession planning for the Executive Directors and Company Leadership T eam (CL T) r emains a particular f ocus of the Committee. In addition, the Committee has continued to monitor the CL T and senior management talent pool to ensure that succession planning for business-critical rolesis pr oactively review ed. The Board consider ed the implications of the requirements relating to the dev elopment of a diverse pipeline for succ es sion for the Boar d and the CL T contained within the 2018 Co de. Discussions were held about initiativ es taken to increase the div ersity in the hiring process, including dr awing on NEDs experience in other organisations of attracting diverse talent . Chris Sullivan Chair of the Nomination Committee 90 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 NOM INA TION COMMIT TEEREP ORT Role of the Committee The Nomination Committe e is r esponsible for ensuring that the Board and its Committee s hav e the appropriate balance of skills, knowledge and e xperience to effectively le ad the Company both now and in the futur e. This is achieved through eff ective succession planning, the identification and development of internal talent and a clear understanding of the competencies and capabilitie s required to suppor t the deliver y o f Alfa ’ s strateg y . The Committee under takes comprehensive reviews of the leadership needs of the Company , fr om both E xecutives and Non- Executives, to ensure the continued ability of the organisation to compete effectively in the marketplace, and keeps informed of the strategic issues and commercial challenges affecting the Company and the mark et in which it operates. The Committee regularly undertakes a review of its T erms of Refer ence to ensure that it reflect s the actual role carried out by the Committee and that it is operating effectively . The Board r eviewed and appro ved minor revisions to the T erms of R eference in December 2021. Appointment of Directors There is a f ormal, rigorous and transpar ent procedure f or the appointment of new Directors under which the Committee is responsible for leading this process and making recommendations to the Board. The sear ch process f or ne w Non-Ex ecutive Dir ectors is to appoint an external search firm to se cure a strong and diverse list of candidates. A shor tlist of candidates is shared with the Committee, meetings are schedule d and then, once the candidates have been identified, confirmation is pro vided of the time commitment required and disclosure of an y other business interest s. If discussions relate to the appointment of a Chairman then Chris Sullivan, as Senior Independent Director , will lead the recruitment process. When the Committee has found a suitable candidate, the Chair of the Committee makes a proposal to the whole Board, which retains r esponsibilit y for all such appointments. The Committee, on behalf of the Board, regularly assesse s the balance of Executive and Non-Executive Directors, and the composition of the Boar d in terms of skills, e xperience, diversity and capacity . Diversity Alfa seeks to have a w orkforc e which reflect s the world we and our customers liv e in, whilst facilitating the delivery of our strategic goals. The Board and the Committee believe that diversity is a wider topic than simply gender and, in order to achieve the Group ’ s future gro wth aspirations, Alfa should remain committed to building a pipeline of diverse talent and regularly r eviewing HR processes, including recruitment and performance management framew orks. The Committee will take into account a variety of factors before r ecommending any new appointment s to the Board, including r elevant skills t o perform the r ole, experience, knowledge and diversity . Alfa ende av ours to achieve appr opriate diversity , including gender diversity , throughout the Company . The Committee embraces the impor tance ofinclusion and div ersity and support s the recommendations of the Hampton-Alexander Review on g ender and the Parker R eview on ethnic diversity . Howev er , we acknowledge that currently our Boar d does not comply with the recommendations and recognise that ther e is always more w e can do, and will continue to work to build a mor e inclusive workplace at alllevels of the Compan y . It is par t of the Committee’ s r emit when making new Board appointment s to consider the impor tance of diversity on the Board, including g ender and ethnicity . This is considered in conjunction with experience and qualific ations in r elation to the balance of the Board and its Committees. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 91 Board succession The Committee keeps under review the leadership needs of the organis ation, both the Executive and Non-Executive Directors, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace. In addition, the Committee reviews the succession plans for the Compan y Leadership T eam and the senior management structure, and employ ee s identified by management as having the potential to dev elop in the longer term into futur e leaders of the business, taking into account future challenges and oppor tunities. Independence During 2021, the Committee reviewed the balance of skills, exp erience and independence of the Boar d. F or Non-Executive Directors independence in thought and judgement is vital to facilitating constructive and challenging debate in the boardr oom and is e ssential to the operational effectiveness of the Alfa Board and its Committe es. The Committ ee is satisfied that the external commitments of the Boar d’ s Chairman and members do not conflict with their duties as Directors of the Company . After the year end, the Committee also considered the Directors proposed for r e-election by shareholders at the A GM. F ollowing discussion of the skills and contribution of each Director , and in conjunction with the Board performance evaluation, the Committee suppor t s the proposed re-election of all Directors standing for re-election at the AGM in 2022. Induction and ongoing professional development T o ensure that each Director receiv es appropriate support on joining the Board, there is a compr ehensive and tailor ed induction programme, including the pr ovision of background material on the Compan y and briefings with relevant CL T members. The induction programme will continue to be review ed and update d on a regular basis. F or prof essional ongoing development, the Board r eceives presentations relevant to the Company’s busine ss and updates on any changes to markets, or regulations, which may affect the Compan y ’ s operations. The Company Secr etar y supplies all Directors with information on r elevant corporate gov ernance and best practice. A s part of their annual per formance evaluation, Dir ectors are given the opportunity to discuss training and development needs. The Committee is confident that Board members hav e the knowledge, ability and experience to perform the functions required of a Dir ector of a listedcompany . External directorships The Board believ es, in principle, in the b enefit of Executive Directors accepting non-e xecutive directorships of other companies in order to widen their skills and knowledge for the benefit of the Company . All such app ointments require the prior appro val of the Board and the number of public company appointments is limited to one. Ther e were no external appointments in relation to the Ex ecutive Directors during 2021. Conflicts of interest The Board operates a policy to identif y and, where appr opriate, manage any potential conflicts of interest that Directors may have. It is the role of the Committee to monitor and determine actions to address any potential, or actual, conflicts that may arise. The Committee reviews all potential conflicts of interest on an annual basis and when new Directors ar e formally appointed. No conflicts of interest wer e noted in the year and to the date of this Annual Report . Reappointment of Directors The reappointment of Dir ectors is subje ct to their continuing commitment to Board activities and satisfactor y per formance. All Directors will stand for r e-election annually in accordance with the pr ovision of the 2018 Code. The Committee has confirme d to the Board that the contributions made b y the Directors off ering themselves for r e-election atthe 2022 AGM c ontinue to benefit the Board and the members are in vited to suppor t their re-election. Non-Executive Directors are appointed initially for three years and Non-Ex ecutive Directors may , subject to Board appro val, remain in office for a period of up t o six years, or two terms in office, with discr etion for the Boar d to extend the term for one further three-year term, to a maximum o f nine years. 92 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 NOM INA TION COMMIT TEEREP ORTCONTINU ED Annual evaluation The per formance of the Committ ee has beenasse ssed as par t o f the ex ternal Board evaluation conducted during summer / autumn 2021 by Boar d Effectiveness and Governance Services (BE-GS) . The r esult s o f the evaluation of the Board and its Committee s wer e subsequently discusse d in entirety and ar eas identified to develop the effectiveness of the Committee fur ther . Information on the process can be found on pages 86 to 88. Focus for 2022 Board membership and succession will continue to be high on the agenda moving into 2022. The Committee will continue to take an active inter es t in the succession planning and future leader identification processes for those immediately below Board lev el sitting on the CL T , as well as monitoring pro gress on diversity to ensure that an y succession plans incorporate an appropriate balance of div ersity , skills andexperience. Chris Sullivan Chair, Nomination Committee 8 Mar ch 2022 CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 93 “ Alfa’s financial control environment and governance framework has seen progressive enhancements during the year, in particular around the timeliness and accuracy of reporting and forecasts.” Steve Breach Chair of the Audit and RiskCommittee Attendance at meetings Name Meetings attended 2021 Stev eBreach( Chair) 4/4 AdrianChamberlain 4/4 CharlottedeMetz 4/4 ChrisSullivan 4/4 The Committee’ s members are all Independent Non-Executive Dir ectors. Principal activities in 2021 • Re viewed the 2020 year-end financial statement s and Annual Report . • Re viewed the half-year financial results and trading updates. • Appro ved the Company’s risk management framew ork, risk appetite and risk register . • Re viewed key findings from 2021 internal audits and approval of the 2022 internal audit plan. • Re view of Information and C yber Security gov ernance and organisation. • T ax compliance status review . • Re viewed Internal & External Auditeffectiv eness. • Considered key ac counting matters. Areas of focus for 2022 • Continued to monitor legislative and regulatory changes that may impact the work of the Committee. • Considered the impact of pr oposed audit industr y changes. • Continued with oversight o f internal audit activities and findings. • Monitor ed the continue d progr essive enhancements to Alfa’ s systems and internal controls. Dear shareholders, I am pleased to present our Audit and Risk Committee Report for the year ended 31 December 2021. The Report explains the work of the Committee during the year , as well as setting out expected key areas of focus for2022. The Committee has an annual work plan linked to the Compan y ’ s financial repor ting cycle, which ensures that it considers all matters delegated to it by the Board. W e have continued to review and challeng e the assumptions and judgements made by management in the prepar ation of published financial information and to o versee the internal control en vironment, including ov ersight of the external and internal audit processes. Throughout the year , the Committee’ s primary f ocus has been to maintain the integrity and transparency of the Company’s internal and external financial reporting . W e have continued to spend time assessing the applic ation of IFRS 15 ‘R evenue from Contracts with Customers’ , alongside careful c onsideration of the Company’s risk management framew ork, internal controls and management information s ystems. It has been pleasing to se e that the Company has continued to make progr ess during the year impro ving the timeliness and accurac y of reporting and forecast s. Impor tantly , the se impro vements have continued during an extended period o f r emote w orking which has existed since the date of the last r epor t. Committee members’ skills and experience areset out on pages 74 to 75 . The Boar d is satisfied that the Committe e meet s the requirement to ha ve r ecent and relevant financial e xperience and that, as a whole, it s members ha ve experience o f the auto and equipment finance and enterprise software sector and corporate governanc e. This y ear the Board undertook an ex ternal evaluation of the effectiveness of the Board and Board Committees, including this Committee, in accordance with the requirements under the 2018 Code and you can read more about this on pages 86 to 88. As a result of its work during the year , the Committee has concluded that it has acted i n accordance with its T erms of Refer ence. Steve Breach Chair of the Audit and RiskCommittee 94 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 A UDITANDRI SKCOMMITTEEREPORT Key responsibilities  The Board has delegated to the Committee responsibility for ov erseeing financial repor ting, the review and assessment of the effectiveness of the internal control and risk manag ement systems and maintaining an appropriate relationship with the external auditor . The Committee has adopted T erms of Refer ence, which are a vailable to view at inv es tors.alfasystems.com. The T erms of Refer ence pro vided the framework for the Committee’ s w ork in the year and key responsibilities of the Committee are summarised as follows: • Overseeing the relationship with the Company’s external auditor , monitoring its e ffectiveness and independence and making recommendations to the Board in respect of it s remuneration, appointment and remo val. The Committee also reviews the findings from the external auditor , including discussion of significant accounting and audit judgements, levelsof err ors identified and overall effectiveness of the audit process. • Re viewing the financial statement s of theCompany , including its annual and half-yearly r epor t s and, if applicable, any other formal announcements relating to its financial p erformance. The Committee will also consider significant financial reporting issue s, accounting policies and key ar eas of judgement or estimation. This review also includes consideration ofthe clarity and completeness of disclosures on the information pr esented in the financial statement s. • Overseeing the accounting principles, policies and practice s adopted by theCompany . • Monitoring and r eviewing internal audit activities, repor ts and finding s. • Re viewing the effectiveness of the Company’s system of internal financial controls and internal contr ol systems. • Advising the Board on the Compan y ’ s risk strategy , risk policies and current and emerging risk exposures, including the ov ersight of the overall risk manag ement framework and systems. • Assessing the ade quacy and securit y ofthe Company’s arr angements for it s employ ee s and contractors to raise concerns, in confidence, about possible wrongdoing in financial r eporting or other matters and to ensure pr opor tionate and independent investigation of such matters. • Making recommendations to the Boar d asit deems appropriate on any ar ea within its remit where action or impro vement isrequired. Meetings During the year , the Committee met four times and met privately with the external auditor once. The Committee operates to a for ward agenda linked to the financial calendar which ensures that the responsibilities and duties of the Committee are discharged in accor dance with the T erms of Refer ence and the requirements of the UK Corporate Governance Code. In addition to the Committee members, by invitation, the meetings of the Committee may be attended by the CFO . The Chairman of the Board, CEO and COO may also attend meetings. The Company ’ s external auditor and the internal audit service s provider ar e also present at all Committee meeting s, to ensure full communication of matters as they relate to their respective responsibilities. At the end of each Committee meeting , Committee members have the opportunity to meet with the e xternal auditor (and, where appropriate, the int ernal auditor ) for a private discussion regarding the audit pr ocess and relationship with management. The Chair of the Committee holds regular meetings with the external auditor , which has an oppor tunity to discuss matters with the Committee without management being present and also with the CFO (who has responsibility and custody of the internal auditfunction) . Meetings of the Committee are scheduled close to the end of the half and full year , as well as before the publication of the associated half-year and full-y ear financial report s, so as to ensure the Committee is informed fully , on a timely basis, on areas of significant risks and judgement. The Board has confirmed that it is satisfied that Committe e members posse ss an appropriate lev el of independence and depth of financial and commercial expertise. F or the year ended 31 December 2021, Steve Breach, the Chair of the Committee, was determined by the Boar d as having recent and r elevant financial e xperience. The Committee is satisfie d that it receives sufficient information and has access to relevant and timely management personnel to allow the Committee members to engage in an informed debate during Committee meetings and to fulfil its resp onsibilities. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 95 Significant financial  As par t of its monitoring of the integrity of the financial statement s, the Committee reviews whether suitable accounting policies have been adopted and whether management has made appropriate estimates and judgements and se eks suppor t from the external auditor to assess them. The Committe e considered the follo wing significant judgements and other areas of audit f ocus in respect of the financial statement s f or the six months ended 30 June 2021 and year ended 31 De cember 2021. These areas hav e been identified as being signific ant by virtue of their materiality or being accounting items which are new f or the current financial year or the lev el of judgement and/ or e stimation inv olved. In order to ensur e the approaches taken wer e appropriate, the Committee considered report s from both management and the external auditor . The Committee challenged judgements and sought clarification where neces sar y . The Committee received a report from the external auditor on the work it had per formed to arrive at its conclusions and discussed in detail all material findings contained within the report . Area of focus Assessment Review of the Committee Conclusion/Action taken Re venuer ecognition The Gr oup ’s op erations include complex sof tware implementation programmes and service activitie s. The deliv ery of these contracts typically extends ov er mor e than one reporting perio d, and often the original project plans are amended as the implementation programme pr ogresses. In addition, from time to time, the Compan y isentitled to one-off licence income uplif ts or chang es to maintenance income entitlements. Contract modific ations also occur from time to time. In recognising re venue, management must apply a number of judgements to alloc ate the ov erall transaction price across the multiple per formance obligations that ha ve been identified within the se project s. Estimates are applie d in this assessment for example when assessing the stand alone selling price. In advance of the half year and full y ear the Committee received report s from management that outlined the key judg ement s that wer e likely to be required to be included in the result s. These repor t s wer e review ed and the key points within them, including key sources of estimation uncertaint y , w ere discussed, with the external auditor commenting where r elevant. As par t of the process of appro ving the issuing of the half-year and full-year r esult s the se report s were updated and issued by management to the Committee with manag ement’s final positions documented. These were consider ed carefully by the Committee in conjunction with input fr om the external auditor . The Committee agreed with the revenue judgements adopted by management in preparing the r esult s. Dev elopmentcosts The Group continues to invest in the development of the Alfa S y stems product. The majority o f dev elopment eff ort isundertaken in partnership with customers and therefor e isspe cific to that implementation or cus tomer’ s pr ocess. Judgement is requir ed to asse ss whether any development is substantially new in either design or functionality , and whether it would be commer cially viable in the open market.Theref ore, management assesse s the likelihoo d ofcapitalisation of such costs prior to initiation of the inv es tment project and also performs bi-annual asse ssment s of the development w ork that has been under taken to determine if it meet s the criteria set out inIAS 38 f or capitalisation. The Committee reviewed r epor t s from management detailing the c ost s that had been identifie d as appropriate f or capitalisation. The Committee noted that the amount s being c apitalised remained relativ ely modest compar ed with the total expenditure on the product during the p eriod. The Committe e concurr ed with management ’ s approach on the amounts to be capitalise d. Goodwill and carr ying value ofin vestments The Group has goodwill on its balance sheet and the Company holds inv es tment in subsidiaries. These ne ed to be reviewed annually to ensure that the recov erable amount exceeds the book value , and in the case of investment in subsidiaries also to see if a previous impairment should be rev ersed. The Committ ee revie wed and challenged management’ s impairmentassessment . The Committee agreed that no impairment was required in the current year f or both goodwill and the c arrying value of the investment in subsidiaries. In light of the investment ’ s good performance in the year , the Committee agreed that the impairment recognised in 2018 should be rev ersed in the company only financial statement s of Alfa Financial Software Holdings PLC. Going concern and viabilitystatement The Directors must satisfy themselves r egarding the Group ’s long- term viability and confirm that they ha ve ar easonable expectation that the Gr oup will continue tooperate and meet it s liabilities as they fall due for the f oreseeable future. The Committ ee revie wed manag ement’s budget and for ecas t s, including an ov er view of the assumptions made in the preparation of the base case suppor ting the going concern and viability statement. This include d the Group ’ s 2022 budget and also plans for 2023 and 2024. The Committee discusse d and challenged the budget and f orecast s before agr eeing with the reasonableness of the three-year period. The Committee asse ssed this in light of the principal risks and uncertaintie s, including the impact of CO VID-19, as disclosed on pag es 46 to 51 in the Strategic r epor t. The Committee discusse d and challenged the downside scenarios modelled as par t ofthe V iability statement as disclosed on pages 52 to 53 in the Strategic r epor t, the funding he adroom a vailable, the feasibility of mitigating actions, the dividend policy and share-buy back programme, and the speed of implementation of any cost-saving measures follo wing future management decision-making. The Committee noted the 2018 Co de requirement f or the Directors to state whether they consider it appropriate to adopt the going c oncern basis of accounting f or aperiod of at least 12 months fr om the date of appro val of the 2021 financial statement s. F ollowing this evaluation and analysis, the Committee was satisfie d withthe judg ement s made and that the continued use o f the going concern basis was appropriate, and the viability statement was prepar ed appropriately . 96 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 A UDITANDRI SKCOMMITTEEREPORTC ONTINUED Area of focus Assessment Review of the Committee Conclusion/Action taken Re venuer ecognition The Gr oup ’s op erations include complex sof tware implementation programmes and service activitie s. The deliv ery of these contracts typically extends ov er mor e than one reporting perio d, and often the original project plans are amended as the implementation programme pr ogresses. In addition, from time to time, the Compan y isentitled to one-off licence income uplif ts or chang es to maintenance income entitlements. Contract modific ations also occur from time to time. In recognising re venue, management must apply a number of judgements to alloc ate the ov erall transaction price across the multiple per formance obligations that ha ve been identified within the se project s. Estimates are applie d in this assessment for example when assessing the stand alone selling price. In advance of the half year and full y ear the Committee received report s from management that outlined the key judg ement s that wer e likely to be required to be included in the result s. These repor t s wer e review ed and the key points within them, including key sources of estimation uncertaint y , w ere discussed, with the external auditor commenting where r elevant. As par t of the process of appro ving the issuing of the half-year and full-year r esult s the se report s were updated and issued by management to the Committee with manag ement’s final positions documented. These were consider ed carefully by the Committee in conjunction with input fr om the external auditor . The Committee agreed with the revenue judgements adopted by management in preparing the r esult s. Dev elopmentcosts The Group continues to invest in the development of the Alfa S y stems product. The majority o f dev elopment eff ort isundertaken in partnership with customers and therefor e isspe cific to that implementation or cus tomer’ s pr ocess. Judgement is requir ed to asse ss whether any development is substantially new in either design or functionality , and whether it would be commer cially viable in the open market.Theref ore, management assesse s the likelihoo d ofcapitalisation of such costs prior to initiation of the inv es tment project and also performs bi-annual asse ssment s of the development w ork that has been under taken to determine if it meet s the criteria set out inIAS 38 f or capitalisation. The Committee reviewed r epor t s from management detailing the c ost s that had been identifie d as appropriate f or capitalisation. The Committee noted that the amount s being c apitalised remained relativ ely modest compar ed with the total expenditure on the product during the p eriod. The Committe e concurr ed with management ’ s approach on the amounts to be capitalise d. Goodwill and carr ying value ofin vestments The Group has goodwill on its balance sheet and the Company holds inv es tment in subsidiaries. These ne ed to be reviewed annually to ensure that the recov erable amount exceeds the book value , and in the case of investment in subsidiaries also to see if a previous impairment should be rev ersed. The Committ ee revie wed and challenged management’ s impairmentassessment . The Committee agreed that no impairment was required in the current year f or both goodwill and the c arrying value of the investment in subsidiaries. In light of the investment ’ s good performance in the year , the Committee agreed that the impairment recognised in 2018 should be rev ersed in the company only financial statement s of Alfa Financial Software Holdings PLC. Going concern and viabilitystatement The Directors must satisfy themselves r egarding the Group ’s long- term viability and confirm that they ha ve ar easonable expectation that the Gr oup will continue tooperate and meet it s liabilities as they fall due for the f oreseeable future. The Committ ee revie wed manag ement’s budget and for ecas t s, including an ov er view of the assumptions made in the preparation of the base case suppor ting the going concern and viability statement. This include d the Group ’ s 2022 budget and also plans for 2023 and 2024. The Committee discusse d and challenged the budget and f orecast s before agr eeing with the reasonableness of the three-year period. The Committee asse ssed this in light of the principal risks and uncertaintie s, including the impact of CO VID-19, as disclosed on pag es 46 to 51 in the Strategic r epor t. The Committee discusse d and challenged the downside scenarios modelled as par t ofthe V iability statement as disclosed on pages 52 to 53 in the Strategic r epor t, the funding he adroom a vailable, the feasibility of mitigating actions, the dividend policy and share-buy back programme, and the speed of implementation of any cost-saving measures follo wing future management decision-making. The Committee noted the 2018 Co de requirement f or the Directors to state whether they consider it appropriate to adopt the going c oncern basis of accounting f or aperiod of at least 12 months fr om the date of appro val of the 2021 financial statement s. F ollowing this evaluation and analysis, the Committee was satisfie d withthe judg ement s made and that the continued use o f the going concern basis was appropriate, and the viability statement was prepar ed appropriately . CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 97 Fair, balanced and understandable The Committee has under taken a careful review to ensur e that the Annual Report is ‘fair , balance d and understandable’ and pro vides the ne cessar y information for shareholders to assess the Company ’ s consolidated position, per formance, business model and s trategy , in line with therequirements of the 2018 Code. The Committee members were consulted atvarious stages during the drafting proces s and pro vided input at the planning s tage, as well as having the opportunity to review the Annual Report as a whole and discuss, prior to the March 2022 Committee meeting, any areas r equiring additional clarity or b etter balance in the messaging . In forming its opinion and recommendation to the Board in respect of the above matters, the Committee asse ssed the following: • A qualitative r eview of disclosur es and areview of internal consistency throughout the Annual Report and Account s; • A re view by the Committee of all material matters, as reported elsewhere in this Annual Report and Account s; • A risk -comparison review , which asse sses the consistency of the presentation ofrisks, and significant judgements throughout the main ar eas of risk disclosure in this Annual R epor t andAccounts; • A re view of the balance of good and bad news; and • Ensuring it corr ectly reflect s: • the Company’ s position and per formance as described on pages 137 to 172; • the Company’ s business mo del, as describe d on pages 18 to 19; and • the Company’ s strateg y , as describ ed on pages 22 to 35. On the basis of this work, tog ether with the views expressed by the external auditor , the Committee recommended, and in turn the Board confirmed, that it could make the required statement that the Annual Report is ‘fair , balance d and understandable’ . Risk management The Board has o verall responsibility for determining the natur e and ex tent of its principal and emerging risks and the extent ofAlfa’ s risk appetite, and f or monitoring andreviewing the effectiveness of the Company’s sys tems o f risk management and internal control. F ur ther details of the risk management objectives and process are onpages 44 to 45. The principal risks and uncertaintie s facing the Company are addressed in the Strategic report in the table on pages 46 to 51. The Board has delegated tothe Committee the responsibility for monitoring the effectiveness of the systems ofrisk management. Internal control The Board determines the objectives and broad policies of the Company and meets regularly , when a set sche dule of matters which are r equired to be brought to it for decision is discussed. Overall management ofthe Company’s risk appetite, its tolerance to risk and discussion of key aspect s of execution of the Compan y ’ s strateg y r emain the responsibility of the Board. The Boar d has delegated to the Audit and Risk Committee the responsibility for ov erseeing the system ofinternal controls to ensure these ar e appropriate to the business envir onment s inwhich the Company operates. Key elements of this system include thefollo wing: • A clearly define d organisation structure for monitoring the conduct and operations of the business. • Clear delegation of authorit y throughout the Company , star ting with the matters reserved for the Boar d. • A formal process for ensuring that key risks affecting operations across the Compan y are identified and asse ssed on aregular basis, together with the contr ols in place to mitigate those risks. Risk consideration is embedde d in decision-making processe s at all levels and the most significant risks are periodically reviewed by the Boar d. The risk process is reviewed by the Audit and Risk Committee. • The prepar ation and review of the annualbudget. • The monthly reporting of actual results and their review against the budget, for ecas t s and the previous y ear , with explanations obtained for all significantvariances. • Controls in r espect of financial repor ting and the production of the consolidated financial statement s are well established. Group accounting policies are consistently applied and review and r econciliation controls operate eff ectively . • The F inance Manual which outline s ke y control pr ocedures and policie s to apply throughout the Compan y . This include s clearly defined p olicies and esc alating authorisation levels for all pr ocurement activity including capital e xpenditure andinv es tment. During 2021 the Board, thr ough the Committee, has continued to monitor the company’s risk management and internal control and it has also r eviewed their effectiveness. Thr oughout 2021 Alfa ’ s financial, operational and compliance controls continued to operate as intended. Internal audit The Audit and Risk Committee suppor ts the Board in fulfilling its responsibilities to review the activities, resources, organisational structure and operational effectiveness of the internal audit activities. Follo wing discussion with the Committee Chair and the CFO , BDO LLP presents it s internal audit plan for appro val to the Committee before the start of each new financial year and will pr ovide an update and further plans at the mid-year stage. The Committee monitored and review ed the scope, extent and effectiveness of the internal audit plan in line with the Company ’s key risks and strategy . Internal audit is a standing agenda item at each Committee meeting and BD O LLP presents an up date on audit activities, the progr ess of the audit plans and the outcomes of all audits with action plans to address any issues. Activitie s of internal audit during 2021 included the following ar eas of focus: • Post implementation review for US financials system change • IT Procurement r eview • Payr oll review • ESG review • Follow up on prior r ecommendations. 98 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 A UDITANDRI SKCOMMITTEEREPORTC ONTINUED The Committee per formed an effectiveness review o f internal audit during the year . As partof this r eview refer enced abov e, and considering management’ s opinion, the Committee was satisfie d that the internal audit function remains eff ective and fit for purpose. External Audit The Committee ov ersees the Company ’ s relationship with, and the performance of ,the external auditor . This includes responsibility for monitoring its independence, objectivity and compliance with ethical and regulatory requirements. The Committee is the primar y contact with the external auditor . The Committee also has responsibility for appro ving the nature of non-audit service s which the external auditor may or ma y not be allowed to pro vide to the Company and the f ee s paid for these service s (subject to de minimis le vels) . Independence and performance of the external auditor The Committee is responsible for revie wing theindependence of the Compan y ’ s external auditor , RSM, agr eeing the terms of engagement and the scope of its audit . RSM has a policy of partner rotation, whichcomplies with regulatory standards, and RSM operates a peer review pr ocess forits engagements, to ensure that it s independence is maintained. The Committe e review ed a report from the external auditor describing it s arrangements to identif y , report and manage any conflicts of interest . Maintaining an independent r elationship with the Company’ s external auditor is acritical part of asse ssing the effectiveness of the audit process. The Board has appro ved a policy which is intende d to maintain the independence and objectivity of the e xternal auditor . The polic y , which was update d in the year , gov erns the pro vision of audit, audit- related service s and non-audit service s pro vided by the auditor . Committe e appro val is requir ed for any ser vice with an expecte d cost in exc es s of £10,000. During 2021, the external auditor confirmed to the Committee that it did not pro vide any non-audit or additional service s other than for the half-year r eview that could lead to its objectivity and independence b eing compromised on behalf of the Company . Details of audit, audit-related fees and non-audit fees are included in note 9 to theconsolidated financial statements. The Committee notes that audit par tner rotation ev er y five y ears facilitates independence and objectivity within the external audit team. The current External Audit Engagement P ar tner is Graham Ricketts, who was appointe d to lead the audit in July 2020. The Committee is satisfie d with the per formance and eff ectiveness of RSM as external auditor , taking into account the Committee ’ s own asses sment and feedback. The Committee has conclude d that RSM displays the necessar y attributes ofindependence andobjectivity . Assessment of the audit process The sc ope of the external audit is formally documented by the auditor . It discusse s the draft plan with management before it is referr ed to the Committee, which reviews its suitability and holds fur ther discussions with management and the auditor befor e final appro val. The Committee has reviewed the quality of the audit plan and related report s for the 2021 audit and is satisfied with the quality of these document s. The Committee discusse d the quality of the half-year revie w and audit work since R SM’ s appointment and considered the per formance of the external auditor , taking into account feedback from various stakeholders across the business and the Committee’ s o wn assessment. The evaluation focused on: robustness of the audit process; quality of delivery; repor ting; and people and ser vices. The Committe e review ed the independence o f the external auditor and concluded that it complie s with UK regulatory and prof essional requirement s and that its obje ctivity is not compromised. The Committee doe s not intend to put theexternal audit out to tender in the coming financial year as the appointment ofRSMoccurr ed in 2020 and therefore theCompany has complied with the Competitions and Markets Authority requirement in r elation to audit tenders every 10 years. The Committee will continue to keep this under review as part of it sreview of effectiveness o f the externalauditor . Going concern and  The Committee reviewed the updated wor ding of the Company ’ s longer-term viability statement , set out on pages 52 to53. T o do this, the Committee ensured that the financial model used was consis tent with the appro ved three-year plan and that scenario and sensitivity testing aligne d clearly with the principal risks of the Company . Committee members challenged the underlying assumptions used and review ed the result s of the detailed work per formed. The Committee was satisfied that the analysis suppor ting the viability statement had be en prepar ed on an appropriate basis. The Committee also review ed the going concern statement, setout on page 126 and confirmed its satisfaction with the testing metho dology . Assessment of the effectiveness of the Committee The Committee’ s effectiveness in respect of2021 was evaluated as par t of the external review described on pages 86 to 88. The key issues that were identified in the Committee evaluation were discussed by the Committee to ensure these were adequately addressed and the Chair pro vided an update where appropriate. Focus for 2022 In 2022, as well as the r egular cycle of matters that the Committee schedule s for consideration each year , the Committee willcontinue to monitor legislation and regulatory changes, including those that affect the audit market that ma y impact the work of the Committee. The Committee will also continue with ov ersight of internal audit activities and findings as well as monitoring the continued progressive enhancements to Alfa’ s systems and internal controls. Steve Breach Chair, Audit and Risk Committee 8 March 2022 CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 99 “We want to ensure the overall remuneration structure remains fit for purpose in light of evolving circumstances, but also aligned with theinterests of other stakeholder groups, notably ouremployees.” Adrian Chamberlain Chair of the Remuneration Committee Attendance at meetings Name Meetings attended 2021 AdrianChamberlain( Chair) 4/4 ChrisSullivan 4/4 Stev e Breach 4/4 CharlottedeMetz 4/4 The Committee’ s members are all Independent Non-Executive Dir ectors. Principal activities in 2021 • Working with COO and CPO on developing a new structure for Executive Director and Leadership personal obje ctives. • Setting the annual bonus targets for the Executive Directors for the financial y ear 2021 and measuring per formance against them (f ollowing the year end) . • Approving L TIP awar ds to employees, and the targets attached to the se. • Re viewing and recommending for appro val the revised T erms of Refer ence of the Committee. • Launch of all-employee shar e plans in the UK (SA YE) and USA (ESPP ) . Areas of focus for 2022 • Approval of bonus performance measures and targets for 2022. • Approval of performance conditions and awar ds under the Company ’ s L TIP for 2022. • Review of any issues raised by shar eholders in relation to r emuneration and the Remuneration P olicy . • Asse ssment of the ongoing appropriateness of the remuneration arrangements in light of remuneration trends and market best practice. Dear shareholders, I am pleased to present our Directors’ Remuneration R epor t for the year ended 31 December 2021. I would like to thank Chris Sullivan, Stev e Breach and Charlotte de Metz for their contribution to the Committee’ s work during 2021. During 2021 COVID-19 continued to hav e an impact on the operating environment. The Remuneration Committee took a decision to ignore its p otential effects in 2020 when setting short and long-term targets; reflecting our belief in the busine ss’ s robustness and prospect s. In 2021 we continued to believe this appr oach was appropriate. The 2021 bonus and 2021 L TIP targets were set against this background. During the course of 2021 the Committee decided not to sc ale back rewar ds or adjust targets as a result of the pandemic. Like many R emuneration Committees we relied on internal and external guidance in light of the effects the pandemic had in ever y area of our liv es. As is our dut y to all Alfa stakeholders, we want to ensur e that the ov erall remuneration structure r emains fit for purpose in light of evolving cir cumstances, but also aligned with the interest s of other key stakeholder groups, notably our employ ee s. This included the launch of new all-employ ee share plans in the UK (S A YE) and USA (ESPP) , designed to encourage and widen employ ee share ownership. The Committee has spent time ensuring that our approach to r emuneration continues to remain in line with market changes and corporate gov ernance developments. The Committee continue d to carr y out it s usual role in ensuring remuneration outcomes and decisions are appropriate in the wider business context. 100 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 DIRECTORS’REMUNER A TIONREPO RT Company performance in 2021 The Company saw a strong financial and operational per formance in 2021. Rev enues were up 5% on the prior year at £83.2m (2020: £78.9m) and operating profitincr eased by £0.8m to £24.7m (2020: £23.9m) . At constant currency rev enue grew 9% with operating pr ofit up 10%. F or a comprehensive o verview , I would direct readers to the S trategic report on pages 1 to69. During 2021 the Company did not furlough any employ ee s or access any Government support . W e also redirected time and resources to develop a pr ogramme of wellbeing r esources, activities and events to suppor t our employees through a difficult period. In Nov ember 2021, following Boar d appro val, we wer e once again delighted toannounce the declaration of a special dividend. This returned £29.7m to shareholders and was positively r eceived. Performance outturns for 2021 The Committee approv ed the 2021 bonus outcomes for the Executive Dir ectors, reflecting the compan y ’ s strong operational and financial per formance. Operating pr ofit and rev enue per formance both significantly exceeded the ranges set, and the fr ee cash flow modifier was achieved, warranting 100% pay-out o f the bonus’ s financial element s. The Committee also asse ssed the per formance of each o f the Executive Directors against their personal obje ctives, It concluded that pay-outs of between target and maximum w ere warranted for theCFO and COO. The CFO was awar ded 70% of maximum, the COO 73% of maximum. More information on ho w the annual bonus for2021 was determined is pro vided onpage 113. The Executive Chairman and the CE O have separately advised the Committee that , due to their significant shareholding in the Company , they wish to waive their eligibility for a bonus in respect of the per formance year 2021 and f or any Long T erm Incentive Plan (L TIP) awar d for the performance period beginning Januar y 2022. Shareholders will be a ware that the Executive Chairman and CE O also waived any entitlement f or all per formance y ears since the IPO in 2017. The Committee places on record its thanks to the Executive Chairman and the CEO for waiving their bonus and L TIP entitlement s, which helps the Committee broaden share o wnership toselected Company employees. More br oadly , the Committee is s atisfied with Alfa’ s response to the COVID-19 pandemic and the impact this had on the experience of all key Alfa stakeholders during the year – including shar eholders, employ ee s and customers. The Committee has therefor e not exer cised any discretion in relation to the outcome of the variable pa y schemes, or to overall r emuneration levels. The second L TIP awards for E xecutive Directors and members of the Company Leadership T eam were awar ded in April 2021 and the per formance against the targets for both relativ e total shareholder return (TSR) and earnings per share (EPS) gro wth over the three years to December 2023 will be review ed regularly . 2021 Policy and implementation As required by the r epor ting regulations, theRemuneration P olicy was submitted to abinding vote at the 2021 A G M, this being the third anniv ersar y of it s adoption. During 2021, the Committee debated theexisting remuneration arrangements. On balance we decided that the current approach r emained well suited to Alfa’ s strategic intentions. The Policy that was put to shareholders at the 2021 A G M remained largely unchang ed. F ur ther details on our Remuneration P olicy are described on pages 103 to 111. A t the end of 2021, the Chairman and CEO requeste d that the Committee approv e their proposal to reduce their salaries, bonus and shares to the legal minimum level. Both the Chairman and CEO are significant shareholders in the Compan y and expressed a desire to align their future r emuneration with those of the other shareholders. The Committee members were supportive of the proposal and appro ved it effective 1December 2021. Therefor e, for the upcoming y ear , s alaries for the Chairman and CEO will r eflect the National Living W age. Salaries for the CFO and COO will remain unchanged. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 101 The oppor tunities available under the annual bonus will be 0% of salar y for the CEO and remain at 125% o f salar y for the CFO and 100% of salary for the CO O . The Committee has taken the oppor tunity to review the performance measur es for the 2022 annual bonus and is of the view that our existing measures of rev enue, operating profit and personal objectives, with cash as a modifier , continue to be appropriate for 2022. F ur ther information is pr ovided on pages 120 and 121. W e unders tand from our engagement with shareholders that quantifiable non-financial objectives are of r eal impor tance and, as such, the Committee will continue to strive to meet these expe ctations. As in previous years, pr ecise financial and non-financial targets are commer cially sensitive and will be disclosed at the end of the per formance year , per our current practice. The oppor tunities available under the L TIP hav e be en set at 150% for the CFO and 100% of salar y for the COO . Over the year the Committee gave careful thought to the measures in the L TIP . W e believe that, for now , EPS and TSR continue to provide the most appropriate means of testing long- term per formance and ther efor e no changes hav e be en made for the 2022 a wards, though we will continue to r eview the suitability of the measures prior to making new awar ds, as we do curr ently . UK Corporate  T o ensure the Committee continues to bemindful of wider workfor ce conditions, we hav e worked to impr ove the flo w of feedback and workfor ce information which is pro vided to the Committe e and the Board on a regular basis. Committee evaluation The Committee’ s per formance was evaluated externally by Board Eff ectiveness and Governance S er vices (BE-GS) . F ur ther information on the pr oces s issummarised on pages 86 to 88. The evaluation concluded that the Committee was operating effectively . All Committee members were f ound to robustly challenge data, pr oposals, and remuneration and variable incentiv es. It was agreed that, given the evolving regulatory framework, ther e would be additional focus on training for the Committee in 2022. Adrian Chamberlain Chair of the Remuneration Committee 102 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 DIR ECTORS’REMU NER A TI ONREP ORTCONTIN UED Post employment Y1 Post employment Y2 Y1 Y2 Y3 Y4 Y5 Policy change     CEO sa la r y wa ive d fr om 1 December 20 21 ( Minimum sta tutory salar y only )  Unchanged   Unchanged LTIP  Unchanged   Unchanged     Unchanged    Unchanged Directors’ Remuneration Policy and implementation for 2021 CEO CFO COO £310 £288 £230 CEO CFO COO W aived 6% 6% CEO CFO COO W aived 125% 100% CEO CFO COO 2021grant150% 2021grant100% CEO CFO COO CEO CFO COO 2-year holding period 50% deferred in shar es forthreey ears CEO CFO COO 100% 100% 100% 200% 200% 200% 200% 200% 200% W aived CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 103 EXECUTIVEREMUNERA TI ONPOLI CYOVER VIEW Fixed elements of remuneration for Executive Directors Element of remuneration Purpose and link to strategy Operation Maximum opportunity Performance Salary T o attract , retain and motivate Ex ecutive Directors of the calibre required to deliver the Compan y ’ s strategy and drive business performance. Base salaries will be reviewed at least annually , and asse ssed, taking into account the scope and requirements of the role, experience of the incumbent and the total remuneration package. An y increases will typically be effective from 1 January . Account will also be taken of the performance of the business, the s alary increases awar ded to the wider employee population, and remuneration arrangements in other listed companie s of comparable scale and sector . There is no overall maximum for , or increase to , salar y levels. In awar ding any increase, the Committee will be mindful of the general incr ease for the broader employ ee population. In appropriate cir cumstances the Committee may awar d increases outside this range. These may include: • A change in role and/ or responsibilities; • Performance and/ or development in the role of the Ex ecutive Director; and • A signific ant change in the Company’s size, composition and/ or comple xity . In addition, where an Executive Director has been appointed to the Board at a starting salar y which is lower than typical market rate, larger incr eases may be awarded as their experience develops, if the Committee considers such increases to be appropriate. Personal performance will be taken into consideration when determining any salar yincreases. Benefits T o provide mark et- competitive benefit s which driv e Ex ecutive Directors to deliver the Compan y ’ s strategy . The Committee ’ s policy is to pro vide Executive Directors with competitive levels of benefit s, taking into consideration the benefit s pr ovided to Alfa’ s employ ees and those offer ed by its p eers. Benefit s are in linewith those for the broader workfor ce andcurrently include (but are not limited to) a car or cash allowance; private medical insurance (individual and family , if applicable); and death-in-service life assurance. The Company may a ward additional benefit s where the Committee considers it appropriate ( e.g. trav el, accommodation and subsistence allowances) . These may include national andinternational r elocation benefits such as(but not limite d to ) accommodation, family relocation support and travel in line with our policy for other employees in similarsituations. Given that the cost of benefits depends on the Executive Director’ s individual circumstances, there isnoprescribed maximum monetary value. The cost of the benefit s provision will be reviewed b y the Committee on a periodic basis to ensure it remains appr opriate. Other payments such as leg al fees or outplacement cost s may be paid if it is considered appropriate. There ar e no performance conditions. Pension T o encourage andassist with responsible, secure retir ement provisions, thereby facilitating the recruitment of high-calibre E xecutive Directors to deliver the Company’ s strategy . May be pr ovided b y way of contribution into a Company pension scheme or receive a cash supplement in lieu of pension contributions into this scheme (or such other arrangement the Committee determines has the s ame economic effect) . The maximum Company contribution f or Executive Directors will not ex cee d the contribution (as a percentag e of salar y) available to the broader employee population. The current contribution lev el for Executive Directors is 6% of salary , which is aligned to the contribution for the broader employ ee population. There ar e no performance conditions. Shareholders appr oved the new Remuneration P olicy at the A G M on 10 May 2021 and it will apply for a period of up to three years. The Committee revie wed the remuneration framew ork during the year to ensure that it r emains fit for purpose and isdesigned to suppor t and drive the businesss trategy . The Policy is designed to attract , retain and motivate our leadership within a framework designed to promote the long-term success ofAlfa and align with our shar eholders‘ interest s. The Policy r emained largely unchanged from the R emuneration Policy appro ved by shareholders in 2018. 104 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 ALF AFINANCIALSOF T W AREHO LDING SPLC 2021DIRE CTORS’REMUNER A TIO NPOLIC Y  Variable elements of remuneration for Executive Directors Element of remuneration Purpose and link to strategy Operation Maximum opportunity Performance An nu alb o nu san d  Deferred Bonus Sh ar ePl an(DB SP) Incentivises and rewar ds the achievement of annual financial and non-financial objectives integral tothe Compan y ’ s strategy . The part-de ferral of earned bonus into shares pro vides alignment with shareholders’ long-term interests. The Committee will set the per formance measures and their weighting, and targets annually to reflect the key financial, strategic and personal priorities for the business in the relevant y ear . Annual bonus outcomes will be determine d by the Committee, and the Committee may use its discretion at the end of the per formance period to adjust the final bonus outcome if it considers that the outcome does not reflect the underlying performance of the business during the year , or if it considers the payment is not appropriate in the context of unforeseen, unexpected or exceptional circumstances. Where exercised, the rationale for this discretion will be fully disclosed to shareholders in the relevant Annual R epor t. Not less than 50% o f any bonus will normally be deferred into an awar d of shares under the DBSP . Deferred shares will be subject to a three-year holding period from the date of the awar d, but no fur ther performance conditions will apply . Directors may sell sufficient shares to satisfy the respective tax liability but must retain the net number of shar es until the end of this three-year period. Malus and clawback provisions will apply (se e explanatory notes) . The maximum b onus opportunity may be up to 150% of salary for the Executive Directors for each financial year . Annual awar ds made each year toExecutive Directors will be set out in the Annual Report on Remuneration in r espe ct of the relevant y ear . Performance measur es will comprise a combination of financial and non-financial objectives and the measures may vary from y ear to year . At least half of the annual bonus will be based on financial measures. The non-financial performance measures may include a combination of strategic and/ or personal objectives. Further details on, and the rationale for , the measures used in the annual bonus will be disclosed in the relevant Annual Report (and the targets set will normally be disclosed retr ospectively , subject to these being considered not to be commercially sensitive) . Lo ngT er m Incentive Plan ( LT I P ) Incentivises and rewar ds the achievement of the Company’s long-term strategic objectives for the business, through the use of share-based awar ds. T o encourage long-term shareholding to r etain Executive Directors and provide gr eater alignment with shareholders’ interest s. A wards granted under the L TIP ves t subject to the achievement of applicable performance conditions measured ov er at least a three-year period. L TIPs may be made as conditional shar e awar ds or in other forms (e.g. nil cost options) if it is considered appropriate. The Committee may use its discretion at the end of the performance period to adjust the final vesting outcomes if it considers that the outcome does not reflect the underlying performance of the business or par ticipant s during the performance period, or if it considers the payment is not appr opriate in thecontext of unfor eseen, unexpected or exceptional circumstances. Wher e exercised, the rationale for this discr etion will be fully disclosed to shareholders in the relevant Annual Report . A wards that vest are subject to a further two-year holding period after the vesting date. Directors may sell sufficient shar es to satisf y the respective tax liability but must r etain the net number of shares until the end of this two-year period. The Committee retains the discretion to allo w dividends to accrue ov er the vesting perio d in respect o f the awards that v est (see explanatory notes) . The maximum value of shar es (at grant) which can be made under an awar d to an individual in respect of a financial year is 150% of salary . Any a wards made in the same year under the Company Share Option Plan will be taken into account when applying these limit s. In ex ceptional circumstances awar ds totalling 200% of salar y may be made in a year . Performance measur es will be determined by the Committee at the time of making each awar d to ensure alignment with the long-term success ofthe business. The performance conditions may include, but are not limited to, market measures, financial measures, and strategic long-term objectives. For performance between threshold and maximum, a wards vest on a straight-line basis. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 105 Element of remuneration Purpose and link to strategy Operation Maximum opportunity Performance Company S hare Op ti o nPla n  (C S O P) Incentivises and rewar ds the achievement of long-term targets aligned to encourage long-term shareholding to r etain Directors, and pro vide greater alignment with shar eholders’ interest s. The CSOP also pr ovides flexibility in the retention and recruitment of Executive Directors. A wards granted under the CSOP become exer cisable subject to such timings and performance conditions as may be set by theCommittee. Options are granted at market value or the nominal share price if higher . The Committee may use its discretion at theend o f the per formance period to adjust the final vesting outcomes if it considers that the outcome does not reflect the underlying performance of the business or par ticipant s during the relevant period, or if it considers the payment is not appropriat e in the context of unforeseen, unexpected or exceptional circumstances. Wher e ex ercised, the rationale for this discr etion will be fully disclosed to shareholders in the subsequent Annual Report . Maximum value of £30,000 at the time o f grant, including any existing awar ds under the CSOP . A wards vest subject topredetermined performance conditions assesse d over a minimum period of three years. All-employ ee share plans All-employee plans are designed to encourage share ownership within the wider workfor ce. Executive Directors are eligible to participate in any all-employ ee share plan in place, on identical terms to other participant s. In the case of UK tax qualifying plans, the se will be operated in line with HMRC guidance. Participation in any appro ved all-employee shar e plans will be subject to the same limit s as for other eligible employees and, in the case of any UK tax qualif ying plan, will be subject to the maximum limits p ermitted by the relevant taxlegislation. The Committee may apply conditions to participation in all-employee shar e schemes, which will apply to all employees. Shareholding requirement T o drive long-term, sustainable decision making for the benefit of the Company and our shareholders. The Ex ecutive Dir ectors ar e r equired to build up a shareholding equivalent to align with the long-term inter est s of shareholders. Until the requirement is met, 50% of any shar e awards vesting (after any sale s to cover tax liabilitie s) should be retained. Executive Directors are required to hold shares equivalent to 200% of their salar y in value. Directors are required to continue to hold their shareholding r equirement, or , if their level of shar eholding is below the requirement, their actual holdings, for a period of two years after leaving the Company . There ar e no performance conditions. Non-Executive Director Remuneration Element of remuneration Purpose and link to strategy Operation Maximum opportunity Performance Fee s pa i d to th e Non-Executive Directors Fees are set at a lev el to reflect the amount of time and level of involv ement required in order to carry out their duties as members of the Board and its committees, and to attract and retain Non-Executive Directors of the highest c alibre with relevant commer cial and other exp erience. Fees f or Non-Ex ecutive Dir ectors will be determined by the Chairman and the Executive Directors. Additional fees are payable f or acting as Senior Independent Director , Committee Chairs, or for undertaking other duties. Fee levels will be revie wed (though not necess arily incr eased) annually and set with refer ence to the time commitment and responsibility of the position as well as taking into consideration market data for roles in other companies of a similar size andcomplexity . Details of the current f ee levels for the Non-Ex ecutive Dir ectors ar e set out in the Annual Report on Remuneration. There is no prescrib ed maximum annual increase. T otal fees will not exceed the maximum amount provided in the Company ’s Ar ticles of Association. Benefit s appropriate to the role ma y be provided. The Non-Executive Directors will hav e the benefit of a qualifying third party indemnity from the Company and appropriate Directors’ and Officers’ liability insurance. T rav el and reasonable expenses incurred (including any tax gr oss-up) in the course of performing their duties may be paid by the Company or reimbursed. 106 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 ALF AFINANCIALSOF T W AREHO LDING SPLC 2021DIRE CTORS’REMUNER A TIO NPOLIC YCONTINUED Prior arrangements The Committee reser ves the right to makeany r emuneration payments and/ or payments for loss of office (including exer cising any discretions a vailable to itinconnection with such payments) notwithstanding that they are not in line with the Policy set out abov e where the terms of the payment w ere agr ee d: i. Before the P olic y set out above came into effect (pr ovided, in the case of any payment agr ee d on or after 24 April 2018, it is in line with the Policy appr oved by shareholders on that date); or ii. A t a time when the relevant individual (or other person to whom this Policy applies) was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration f or the individual becoming a Director of the Company . F or these purp oses ‘payments’ includes the Committee s atisfying awards of variable remuneration and, in r elation to an awar d ov er shares, the terms of the payment ar e ‘agreed’ at the time the awar d is granted. Selection of performance conditions F or the annual bonus, the Committee b elieves that a mix of financial and non-financial targets is most appropriate for the Compan y . Strategic and personal objectives may be included where appropriate to ensur e delivery of key business milestone s. The Committee will determine the measures and weightings each year , based on the key financial and strategic priorities for the Company . Performance under the L TIP will typically bebased on a combination of market and non-market measures. This is so that the Committee can assess the Compan y ’ s per formance with r eference to a mix of underlying financial and stock market per formance and encourag es a focus on long-term financial gro wth as well as returns toshareholders. The Committee will keep the measures and weightings under revie w prior tothe start of each cycle to ensure that these remain effective in driving the Executive Directors to deliver long-term succ es s. Explanatory notes A wards under an y of the Company’s shar e plans referr ed to in this report may: a. Be granted as conditional share a wards or nil cost options or in such other form that the Committee determines has the s ame economic effect; b. Hav e any performance conditions applicable to them amended or substituted by the Committee if an event occurs which causes the Committe e to determine an amended or substitute d per formance condition w ould be more appropriate and not materially less difficult to satisfy; c. Incorporate the right to r eceive an amount (in cash or additional shar es) equal to the value of dividends which would ha ve been paid on the shares under an awar d that vest s up to the time of v es ting ( or where the awar d is subject to a holding period, time of r elease) . This amount may be calculated assuming that the dividends hav e been reinv este d in the Compan y ’ s shares on a cumulative basis; d. Be settle d in cash at the Committee’ s discretion – although the Committee has no intention to cash settle any Executive Directors’ awar ds and would do so only in exceptional cir cumstances (such as where there was a r egulator y restriction on the delivery of shares) or to settle tax liabilities arising in connection with the acquisition of shares; and e. Be adjus ted in the event of an y variation of the Company’s shar e capital or any demerger , delisting, spe cial dividend or other e vent that ma y af fect the Company ’ s share price. Discretion, malus and clawback V ariable pa y a wards ma y be made subject to adjustment events. At the discretion o f the Committee, an award ma y be adjusted b efore delivery (malus) or reclaimed after deliv ery (cla wback) if an adjustment ev ent occurs. Our long-term incentive plans pr ovide the Committee with discretion in respect of vesting outcomes that affect the actual level of rewar d payable to individuals. Such discr etion would only be used in exceptional cir cumstances and, if exercised, the rationale for this discr etion will be fully disclosed to shareholders in the relevant Annual Report . Malus will apply to awar ds under the DBSP and L TIP . Clawback will apply to all vested awar ds under the DBSP and L TIP and the part of the annual bonus which is paid in cash. These provisions may be in voked at the Committee’ s discretion at any time within three years of the pa yment of cash bonuses and six years of the grant of DBSP and L TIP awards. The Committee has the discretion to inv oke these provisions in the f ollowing circumstances: • Where ther e is a material misstatement ofany Compan y financial result s; • Where an err or in assessing per formance conditions is discov ered; • Where ther e is misconduct on the part ofthe individual; and • Where a mat erial failure of risk management by the Compan y is identified, or in the event of serious reputational damage t o the Company . Shareholding requirement The Executive Dir ectors are required to build up a shareholding equal to at least 200% of salar y , to align with the long-term interest s of shareholders. Until the requirement is met, 50% of any shar e awar ds vesting (after any sales to cover tax liabilities) should be retained. In order to generate alignment with shar eholders beyond departure and to drive risk - conscious stewardship , a post-ce ssation shareholding r equirement will be placed on Executive Dir ectors. The pos t-cessation requirement r elates to those awards awar ded through incentive schemes by the Company . Executive Dir ectors will typic ally be required to maintain a shareholding equal to the lower o f their in-post guideline and their actual holding, for one year , and 50% ofthat level f or the second year . CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 107 NOTEST OTH EPOLIC YT ABLE  Illustrations of potential remuneration outcomes The follo wing char t s illustrate the remuneration that could be receiv ed by each of the Executive Dir ectors for varying levels of per formance in 2022. The chart s are based on the follo wing assumptions: Approach to recruitment remuneration The Committee will seek to align a new Executive Dir ector’s r emuneration package with the Policy as set out in the P olicy T able. When determining a remuneration packag e for a new appointment, the Committee will take into consideration the size and scope of the role, the skills and expertise of the candidate, the external market rate for a candidate of that e xperience, as well as the impor tance of securing the preferr ed candidate. Benefit s will be limited to those outlined in the Policy , with relocation assistance provided where appr opriate. A wards under the L TIP and/ or CSOP that may be a warded to a new Ex ecutive Director will not ex ceed 200% of salar y and the bonus oppor tunity will not ex ceed 150% of salar y . Special consideration may be given in the event that incentiv es accrued at a previous employ er are due to be forfeited on the candidate’ s leaving that company , in which case the Committee retains the discretion to grant awar ds with vesting on a comparable basis to the likely vesting of the previous employ er’s awar d; any such awar d is excluded from the maximum value of incentiv es referr ed to above. F or internal candidates, long-term incentive a wards granted in respect of the prior role would be allow ed to vest according to their original terms. F or the appointment of a new Chairman or Non-Executive Dir ector , the fee would be set in accordance with the appr ov ed Policy in for ce at that time. The leng th of service and notice periods would be set at the discretion of the Boar d, taking into account market practice, corporate go vernance considerations and the skills and experience of the particular c andidate at that time. Service contracts and appointment letters The service contract s of the Chairman and the Executive Dir ectors do not have a specific duration but can b e terminated by not less than six months’ notice in the case of the Chairman and the COO and by not less than 12 months’ notice for the CEO and CFO by either party . Pay scenario Purpose and link to strategy Ma xi mu m+ 50 %  share price grow t h Assumes 100% payout under the annual bonus Assumes 100% payout under the L TIP plus 50% share price growth Maximum Assumes 100% payout under the annual bonus Assumes 100% payout under the L TIP On-target Assumes 50% payout under the annual bonus Assumes 25% pa yout under the L TIP (aligned with threshold performance) Minimum Fixed elements o f r emuneration only – base s alary, b enefits and pension Andrew Denton, CEO (£000) Maximum + 50% share price growth 100% 100% 100% 100% Maximum On-target Minimum £23 £23 £23 £23 Duncan Magrath, CFO ( £ 0 0 0 ) 100% 32% 27% 49% 39% 52% 29% 24% 30% 18% £1,267 £1,061 £580 £305 Maximum + 50% share price growth Maximum On-target Minimum Matthew White, COO (£000) 100% 31% 28% 41% 32% 36% 32% 60% 27% 13% £797 £687 £412 £247 Maximum + 50% share price growth Maximum On-target Minimum Fi xe d Bonus L TIP 108 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 NOTEST OTH EPOLIC YT ABLECONTINUED Category A Voluntary resignation and termination forcause Category B Agreed terms Category C Death or cessation by reason of ill-health,disability, injury, redundancy orchange of control Fi xed p ay Paid only until employment ceases. Paid for the notic e period. Paid only until employment ceases or for notice period depending on the reason for cessation. Annual bonus There is no contractual entitlement to payments under the annual bonus. Bonuses delivered in shares repr esent the bonus the Executive Director has already earned and carr y no fur ther performance conditions. A wards will normally be released in accordance to the usual schedule, unless the Committe e determines that awards should be released at the time the individual ceases employment. A wards will normally be released in full unless the Committee determines other wise. T reatment will normally fall between A and C, subject to thediscretion o f the Committee, the terms of any termination agreement and the reasons f or the Executive Director’ s departure. Cessation during the financial year or after the financial year end, but before pa yment date, may result in bonus being payable (pro-rated f or the propor tion of the financial y ear worked unless the Committee determines otherwise) . Such bonuses may be settled wholly in cash. Bonuses deliver ed in shares r epresent the bonus the Ex ecutive Director has already earned and carry no fur ther per formance conditions. A wards will normally be released in accor dance to the usual schedule, unless the Committe e determines that awar ds should be released at the time the individual ceases employment. A wards will normally be released in full unless the Committee determines other wise. If the par ticipant dies, awar ds will normally be released at the time of their death on the same basis as for other good leavers. L TI Pawa rd s Unv este d a wards will lapse on cessation of employment. V es ted a wards subject to a holding period will also lapse if the Executive Director’ s emplo yment is terminated for cause. T reatment will normally fall between A and C, subject to the discretion of the Committee, theterms o f any termination agreement and the reasons f or the Ex ecutive Dir ector’s departure. A wards will normally vest and be released at the usual time. Howev er , the Committe e may determine that awar ds should vest at the time the individual ceases employment and be released at that time or should be released at some other time after cess ation and before the or dinar y release date – such as following the end o f the per formance period in the case of an awar d to which a holding period would otherwise apply. The extent of vesting will take into account the e xtent to which the relevant performance conditions hav e been met . A wards ar e usually scale d back pro-rata to tak e account of the proportion of the original per formance period that has elapsed when the individual leav es (but with the Committee having discretion not to scale back or to r educe the scaleback) . If the participant die s, awar ds will normally vest at the time of their death on the same basis as for other good leavers. V es ted a wards subject to a holding period will be r eleased from that holding period at the usual time, unless the Committee determines the holding perio d should end when the individual leaves employment. Under the service contract s the Executive Directors are entitled to a salary (reviewed annually) , pension contribution and benefits, in addition to reimbursement of r easonable expenses incurred by them in the per formance of their duties. The service contract s for Executive Dir ectors make no pro vision for termination pa yment s, other than for pa yment in lieu of salar y . The Non-Executive Dir ectors’ appointment s are f or a fixed term of three years and aresubject to annual re-election by shareholders. Under their letters of appointment, their app ointment is terminable by either party on three months’ written notice except wher e the Non- Executive Dir ector is not reappointed by shareholders, in which case termination is with immediate effect. The Non-Executive Directors are entitled to the r eimbursement of reasonable business expenses. Termination of office If the employment of an Executive Director isterminated, an y compensation payable willbe determined by refer ence to the terms ofthe ser vice c ontract in for ce at the time. As variable pay awar ds are not contractual, treatment of these awar ds are determined bythe relevant rules. The Committe e ma y structure any compensation payments beyond the c ontractual notice provisions inthe contract in such a way as it deems appropriate. The Company may at its discretion make termination payments in lieu of notice and contractual benefit s. The ser vice agreements for the CEO , CFO and CO O allow f or garden leave during their notic e period. The appointment letters for the Non- Executive Dir ectors provide that no compensation is payable on termination. The Committee has a polic y framework f or payments for loss of office b y an Executive Director , both in relation to the service contract and incentive pa y , which is summarised below . CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 109 Change of control policy In the event of a chang e of control of the Company , L TIP and CSOP awards will v est to the e xtent determined b y the Committee taking int o account the extent that the Committee determines that the p erformance conditions hav e been s atisfied, and, unles s the Committee determines other wise, the proportion of the per formance period that has elapsed. DBSP awards will normally be r eleased in full, unless the Committe e determines otherwise. Alternatively , the Committe e may permit an Executive Director to exchang e their awar ds for equivalent awar ds over shar es in a differ ent Company . If the change of contr ol is an internal reorganisation of the Company , Executive Directors will ordinarily be r equired to exchange their awar ds (rather than awar ds vesting) , and the Committe e ma y also require the e xchange of awar ds in other circumstances, as it considers appropriate. If other corporate events occur such as a winding-up of the Company , demerger , delisting, spe cial dividend or other event which, in the opinion of the Committee, may materially affect the curr ent or futur e value of the Company’s shares, the Committee may determine that awar ds will vest on the same basis as set out above for a change of contr ol. Consideration of  The Committee consulted and met with the Company’s larges t shareholders prior to finalising this proposed Policy . The Committee will continue to monitor shareholder views when setting future ex ecutive remuneration strategy and will consult with shareholders prior to any significant changes to the P olicy . The Committee takes full account of theguidelines of investor bodie s and shareholder views in determining the remuneration arrang ement s in operation within the Company . Consideration of employment conditions elsewhere in  The Committee takes into account the pay and employment conditions of the wider emplo yee population across the Company when setting Executive Director remuneration, and considered this as contex t when r eviewing the Policy . While the Committee has not consulted employ ee s directly on the Remuneration P olicy for Executive Directors, the Committee is made awar e of information such as w orkforc e demographics, diversity initiatives, training programmes, engagement lev els and cultural initiatives, as well as the r emuneration principles and policie s that apply to the wider workf orce. It is expe cted that future salar y increases f or Executive Directors will be in line with the general emplo yee population, except in e xceptional circumstances. Members of the Company Leadership T eam are in vited to par ticipate in the L TIP , in order for there to be alignment between the objectives of the Ex ecutive Dir ectors and senior management. W e also continue to encourage employ ee s to become investors in the Company by r etaining legacy share awar ds and through its all-employee share schemes. External appointments Executive Directors may hold external directorships if the Board determines that such appointment s do not cause any conflict of interest. Where such appointment s are appro ved and held, it is a matter for the Boar d to agree whether fees paid in respect of the appointment are retained b y the individual or paid to the Company . Category A Voluntary resignation and termination forcause Category B Agreed terms Category C Death or cessation by reason of ill-health, disability, injury, redundancy or change ofcontrol Sh ar es ave(SA Y E) Scheme Unvested options will lapse and savings will be returned on cessation of employment. V es ted options not e xercised will also lapse if the Ex ecutive Director’ s emplo yment is terminated for cause. T reatment will normally fall between A and C, subject to the discretion of the Committee, theterms o f any termination agreement and the reasons f or the Ex ecutive Dir ector’s departure. Options can be ex ercised immediately , or up to six months ofsavings can be made before exer cising options. The Committee may determine that the options should be exer cised at the time the individual ceases emplo yment and be released at that time or should be released at some other time after cess ation and before the original r elease date. If the participant die s, options will normally vest at the time of their death on the same basis as for other good leavers. V es ted options may be ex ercised at any time in the six months after the date of cessation, af ter which they will lapse. Other pa yment None. Possible disbursements suchaslegal costs and outplacement service s. Possible disbursements such as legal cost s and outplacementservice s. 110 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 NOTEST OTH EPOLIC YT ABLECONTINUED Alignment of Remuneration Policy with the 2018 UK Corporate Governance Code Governance in practice The R emuneration Committee is committed to g ood corporate governance and as such takes into account a br oad rang e of factors when determining it s Directors’ Remuneration P olicy . The Committee considered both legal and regulatory requirements, as sociated guidance and the views of shareholders and their repr esentative bodies. Below is an outline of how the Committee works to ensure the principles of Pr ovision 40 of the 2018 UK Corporate Gov ernance Code are met. Clarity Remuneration arrangements should be transparent and pr omote effective engagement with shareholders and the workf orce. Alfa is committed to clear and transparent reporting and communication with it s stakeholders. The Committee actively engages with our shareholders on ke y decisions and Policy matters, when required. The Alfa Remuneration P olicy is aligned with longer-term shareholder inter est s and s tructured to promote the Group ’s financial and strategic priorities. Simplicity Remuneration structures should avoid complexity and their rationale and operation should be easy to understand. Alfa’ s approach to its r emuneration framework focuses on simplicity . The framew ork comprises three cor e elements to remuneration: Fi xed p ay . This element c omprises base pa y , taxable benefits and pension. Short-ter m incentives . This element relates to an annual performance-related bonus which incentivises delivery against b oth financial and non-financial measures. In total, 50% of any bonus earned is paid in cash with 50% deferred into shar es. Long- term incentives . This element r elates to longer-term value creation thr ough the L TIP . Risk Remuneration arrangements should ensure thatreputational and other risks from excessive rewar ds, and behavioural risks that can arise fromtarg et-based incentives plans ar e identified and mitigated. The remuneration arrangements are split between short-term and long-term rewards coupled with holding periods, deferred elements and malus and clawback provisions to driv e the right behaviours to incentivise the Executive Directors to deliv er long-term sustainability of the business and shar eholder r eturns. As a wider control, malus and cla wback provisions apply to all participants of our long-term incentive plans. The Remuneration Committee retains discr etion to override f ormulaic outcomes where these are not considered reflective of underlying performance. Predictability The range of possible values of rewar ds to individual Directors and any other limits or discretions should be identified and explained atthe time of approving the Policy . The Remuneration P olicy set s out scenario chart s illustrating base pay , short-term incentives and longer-term incentive outcomes under threshold, tar get and maximum performance scenarios. Proportionality The link between individual awards, the deliv ery ofstrategy and the long-term performance of the Company should be clear . Outcome s should not rewar d poor per formance. The Committee asses ses per formance against a range of financial and non-financial measures linked to our business strateg y . The Committee has the ability to override formulaic calculations and apply discr etion. The Committee regularly revie ws pay policies for the wider workfor ce and is mindful of this when setting remuneration for Executive Directors. Alignment to culture Incentive schemes should drive behaviours consistent with Company purpose, values andstrategy . These should include consideration of per formance metrics, go vernance requirements and engagement withstakeholders. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 111 This section o f the Dir ectors’ Remuner ation Report sets out the remuneration paid in 2021 and the proposed r emuneration f or 2022. During they ear , the Remuner ation P olicy operated as intended. The follo wing sections on pages 112 to 115 have been audited by RSM: Singlefigure remuneration, Long- T erm Incentive Plan – awards vesting in the year , P ension entitlement s, External Appointment s, Pa yment s forlossof Office, Pa yments to past Dir ectors. Context to remuneration decisions The Committ ee’ s decision making this year has taken int o account a range of internal and ex ternal factors including Alfa’ s ong oing r esponse to COVID-19 and the e xternal market performance. The busine ss acted in line with the s172 governance guideline s while continuing to deliv er exceptional results for shareholders. In par ticular , the Committee was mindful that: • Alfa requested no G ov ernment suppor t from the Job R etention Scheme and no emplo yee received a pay cut and bonus payments wer emaintained • Shareholder guidanc e was maintained throughout the period and a spe cial dividend in the amount of £29.7m was paid to shareholders Single total figure of remuneration The f ollowing tables set out the total remuneration r eceived b y Ex ecutive Directors and Non-Executive Dir ectors who served during 2021 and 2020. £’000s Salary andfees Bene fits 1 Pension 2 T otal fixed remuneration Annual bonus 3 Long-term incentives 4 T otal v ariable pay T otal figure remuneration Ex ecutiveDirectors Andrew P age 2021 345 12 – 357 – – – 357 2020 374 13 – 387 – – – 387 Andrew Denton 2021 297 13 – 310 – – – 310 2020 322 15 – 337 – – – 337 Duncan Magrath 5 2021 275 13 16 304 316 – 316 620 (appointed 24 April 2020) 2020 214 7 12 233 217 – 217 450 Matthew White 2021 220 14 13 247 205 – 205 452 2020 220 10 13 243 176 – 176 419 Non-Ex ecutiveDirectors Chris Sullivan 2021 65 – – 65 – – – 65 2020 65 – – 65 – – – 65 Stev e Breach 6 2021 65 – – 65 – – – 65 2020 70 – – 70 – – – 70 Adrian Chamberlain 2021 65 – – 65 – – – 65 (appointed 24 April 2020) 2020 45 – – 45 – – – 45 Charlotte de Metz 2021 55 – – 55 – – – 55 (appointed 24 April 2020) 2020 38 – – 38 – – – 38 1. Benefit s – corresponds to the taxable value of benefit s receivable during the relevant financial y ear and principally include company car (or cash equivalent) , life assurance, trav el insurance and private medical insurance. 2. Pension – Andr ew Pag e and Andrew Denton hav e opted out of the pension scheme. Duncan Magrath and Matthew White receive a cash payment in lieu of a pension contribution. 3. Annual bonus – corresponds to the amount earned in respe ct of the relevant financial y ear . Details of 2021 targets are set out on page 113. The Ex ecutive Chairman and the CEO waived any eligibility f or a bonus in 2020 and 2021. 4. Long-term incentives – corresponds to the amount vesting to the Executive Directors in r espe ct of a performance period ending at the conclusion of the relevant financial y ear . The first awards under the L TIP were granted in 2020, and vest subject to per formance to 31 December 2022 (and will accordingly be captured, to the extent these vest , in the 2022 Annual Report). 5. 2020 remuneration f or Duncan Magrath was pro-rated from the commencement of his emplo yment. 6. A payment of £5,085 was paid in January 2020 to cover w ork completed on the finance remediation plan in 2019. 112 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 ANNUALREPOR TONREMUNER A TIO N2021 Base salary Executive Directors’ salaries wer e r eviewed in 2021. Andrew P age and Andr ew Denton pr oposed to the Boar d an adjustment to their base salar y to minimum legal requirements, effective 1 December 2021. The Board appro ved this proposal. The Boar d also determined that ther e would be no increase awar ded to Duncan Magrath and Matthew White f or the period from 1 January 2022 to 31 December 2022. 2021 annual bonus The 2021 annual bonus performance measures were sele cted to reflect the Company ’ s annual and long-term objectives and it s financial and strategic priorities, as appropriate. Performance tar gets are set to be stretching, taking into account a r ange o f r eferenc e points, including the Compan y ’ s budget and thir d par ty analyst for ec ast s, as well as the Group ’s s trategic priorities. In respect of the annual bonus, the following measures wer e appro ved by the Committee for 2021: • Re venue for the y ear; • Operating profit; • Operating free cash flow con version being cash flow generated from operations after deducting the settlement of derivative financial instrument s and margin calls and capital expenditures as a percentage of EBIT , as de fined above; and • P ersonal per formance based on the qualitative assessment of the individual’ s per formance. F ur ther details on per formance outcomes for the non-financial measures are sho wn in the second table. The E xecutive Chairman and CEO hav e waived their entitlement to a b onus for the 2021 p erformance y ear . The table below shows the bonus outturn relating to each measur e: Measure W eighting T arget Threshold Maximum Actual 2021 bonus pay-out Rev enue 37.5% £74.6m 95% 110% £83.2m 100% Operating profit 37.5% £13.6m 75% 146% £24.7m 100% Cash flow conv ersion Modifier Above 100% 114% 0% Personal performance 25% 0% 25% CFO:17.50% COO:18.25% CFO:70% COO:73% T otal (as a percentage of opportunity) CFO:92.50% COO:93.25% Straight-line vesting occurs between thr eshold and maximum. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 113 Further commentary on non-financial measures The personal measures describe d above ar e asses sed with refer ence to the follo wing objectives Objective Commentary on p erformance achieved Achievement Duncan Magrath Finance Structur e Created a high performing finance team, delivering timely , accurate key data to driv e business p erformance. 70% ESG Reporting Impro ved reporting of ESG to key stakeholders. Inv es tor Relations Emphasised streng th of IP in Alfa to inv estors, including focused technology day . Management Information Impr oved f orecasting accurac y and medium to long term strategic modelling, including implementation of a new tool. Matthew White People Built, developed and retained a smar t, diverse team. Measured by headcount, engagement scores and retention. 73% T echnolog y Delivered high quality software to our customers and secure technical infras tructure f or Alfa. Measured through various quality and delivery metric s. Implementation Deliv ered successful Alfa Systems implementation projects. Measured by pr oject deliver y and profitability . Maintenance & Hosting Delivered high quality and highly pro fitable maintenance and hosting ser vices. Measured through issue count, availability and profitability . Strategic Change Delivery of initiatives to: • Increase s ystems implementation c apacity . • Increase so ftware development capacity . • Simplify the implementation of our software. • Impro ve our strategic pr oce ss. Based on the achievements listed abov e, the Committe e agr eed that the final ves ting under the 2021 bonus would b e 92.50% of the maximum for Duncan Magrath and 93.25% o f maximum for Matthew White. In confirming this outcome, the Committee took into consideration the broader financial and op erational per formance of Alfa during the year , and the strong and eff ective leadership demonstrated b y the Ex ecutive Dir ectors it wasdetermined that no adjustment s wer e required to the formulaic outcome. In ac cordance with the Remuneration P olic y , 50% of these bonus amounts will b e paid in cash, with the remaining 50%, after deduction of tax, to be deferred into an a ward of Alfa shar es with a minimum holding perio d of three years. Executive Base salar y Maximum oppor tunity (% salar y) Performance outcome (% of maximum Bonus outcome £ of which cash £ of which shares £ Duncan Magrath £275,000 125% 92.50% 317,969 158,984 158,984 Matthew White £220,000 100% 93.25% 205,150 102,575 102,575 114 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 REMUNER A TIO NCOMM ITTEE REPO RTCONTINUED Long Term Incentive Plan – awards granted in the year Share a wards wer e made to the Executive Dir ectors under the L TIP on 30 April 2021 equiv alent to 150% of salary for the CFO and 100% of salar y for the COO . The Executive Chairman and CEO ha ve waived their entitlement to participate in the 2021 L TIP . Executive Date of a ward Face value (% of salar y) Number of shares granted A verag e share price at grant (£) A ward value (£) Threshold vesting (% of face value) Performance period Duncan Magrath 30 April 2021 150% 300,218 1.374 £412,500 25% 1 Januar y 2021 to 31 December 2023 Matthew White 30 April 2021 100% 160,116 1.374 £220,000 25% 1 Januar y 2021 to 31 December 2023 1. The share price used to calculate the number of performance shares was £1.374, the averag e 5-day share price pr eceding the date of the award (30 April2021) . This represent s the face value of the share a wards. The L TIP awards ar e subject to two equally weighted per formance metrics: relative t otal shareholder return and earnings per share: Measure Description W eighting Threshold/ target Maximum target 2021 T otal shareholder return (TSR) Measur ed with reference to the FTSE Small Cap index excluding in vestment trust s and the Company 50% Median Upper quartile Earnings per share (EPS) Measured with ref erence to EPS performance in the year ending 31 December 2023 50% 5.4p 7.6p 2020 T otal shareholder return (TSR) Measur ed with reference to the FTSE Small Cap index excluding in vestment trust s and the Company 50% Median Upper quartile Earnings per share (EPS) Measured with ref erence to EPS performance in the year ending 31 December 2022 50% 2.3p 2.8p Straight-line vesting occurs between thr eshold and maximum f or both TSR and EPS elements of the a ward. The three-year period ov er which per formance will be measured begin on 1 January of the year the awar ds are granted and will end on 31 December of the third y ear . Any awar ds vesting for per formance will be subject to an additional two-y ear holding period, during which malus and clawback pro visions will continue to apply . Long-Term Incentive Plan – awards vesting in the year No L TIP awar ds v este d in 2021. Pension entitlements The only element of remuneration that is pensionable is basic annual salary . A cash payment in lieu of pension contributions are pa yable to the CFO and COO, at a rate of 6% o f salar y as aligned with the broader workfor ce, and defined in the 2021 Remuneration Policy . External appointments Executive Directors are allow ed to accept one appointment out side the Compan y , with the prior approval of the Board. An y f ees may be r etained b y the Dir ector , although this is at the discr etion of the Board. During 2021 and up to the date o f this report, none o f the Executive Directors who held office during the year under re view held ex ternal appointment s f or which they received a fee. Payments for loss of office There w ere no payments for loss of office during the y ear or prior year . Payments to past Directors There w ere no payments to past Directors for loss of office during the y ear or prior year . CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 115 Statement of Directors’ shareholdings and scheme interests Executive Directors are expected to build and hold Alfa shares of at least 200% of their annual salary to align with the long-term interest s of shareholders, with a r equirement to r etain 50% of any share a wards vesting until the 200% requirement is met. Under the Policy , a post-employment shareholding r equirement will apply whereb y 100% of the shareholding r equirement must be held for the first year follo wing depar ture fr om Alfa and 50% for the second year . Shareholding r equirements and the numb er of shares held by Dir ectors during the year and as at 31 December 2021 are set out in the table below: Measure Shares owned outright at 31 December 2021 SA YE without conditions Interest s in share incentive schemes without performance conditions Interest s in share incentive schemes with performance conditions Shares owned outright at 31 December 2020 Shareholding requirement (% of requirement achieved) 1 Andrew P age 182,334,041 – – – 181,764,821 achieved Andrew Denton 15,322,107 – – – 15,891,327 achieved Matthew White 2 861,866 11,718 – 456,213 552,368 achieved Duncan Magrath 2 182,165 11,718 – 1,040,460 100,000 63% Chris Sullivan – – – – – n /a Stev e Breach 43,983 – – – 43,983 n/ a Adrian Chamberlain 14,380 – – – – n /a Charlotte de Metz – – – – – n /a 1. Calculated using the share price of £1.895 (as at 31 December 2021) . 2. Duncan Magrath and Matthew White elected to join the Company SA YE share scheme for which an option to acquir e 11,718 ordinary shares at an option exer cise price of £1.536 per ordinary share was granted on 30 November 2021. Subject to certain conditions being satisfie d, the entitlement to exer cise the SA YE option arises during the p eriod 1 January 2025 to 30 June 2025. No L TIPs were exer cised during the y ear and there w ere no une xercised vested shares held at 31 December 2021. The Ex ecutive Chairman and Chief Executive Officer have signific ant dir ect or indirect shareholdings in the Company . Dilution A wards under Alfa incentiv e plans may be satisfied by treasury shares or the issue of new shares or the purchase of shar es in the market. Under Inv estment Asso ciation guidelines, the issue of new shares or r eissue of tr easur y shar es under a plan, when aggr egated with awards under all of a company ’ s other schemes, must not exceed 10% of the issued ordinary share capital (adjusted for shar e issuance and cancellation) in any rolling 10-y ear period. As at 31 D ecember 2021 no new shares or reissue of treasury shares had been use d to satisfy awards, and so this limit had not been exceeded. Fees for the Non-Executive Directors The fees were agr eed on app ointment and hav e remained unchanged since that time. A summar y of current f ees is shown below: £’000s Basic fees Audit and Risk Chair Remuneration Chair Senior Independent Director Chris Sullivan – – – 65 Stev e Breach 55 10 – – Adrian Chamberlain 55 – 10 – Charlotte de Metz 55 – – – There is no additional fee payable to the Chair of the Nomination Committee. All the Non-Executive Dir ectors ha ve letters o f appointment, with the Company , for an initial three-year term, subje ct to annual reappointment at the A GM. The appointment letters for the Non-Executive Directors pro vide that no compensation is payable upon termination. L etters of appointment are available for insp ection at the Company ’ s registered office. Details of the appointment terms of the Non-Executive Directors are as follows: Start of current term Expir y of initial term Chris Sullivan 18 July 2019 17 July 2022 Stev e Breach 9 August 2019 8 August 2022 Adrian Chamberlain 24 March 2020 23 March 2023 Charlotte de Metz 24 March 2020 23 March 2023 116 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 REMUNER A TIO NCOMM ITTEE REPO RTCONTINUED Total shareholder return performance The gr aph below shows Alfa’ s TSR p erformance fr om Admission in May 2017 to 31 December 2021 against the TSR performance of the FTSE smallcap index (excluding investment trust s) . The graph shows the total shar eholder r eturn generated b y both the movement in share v alue and the rein vestment ov er the s ame period of dividend income. A s Alfa is a constituent member of the FTSE Small Cap index, the Committee considers that itis the appropriate inde x f or comparativ e purpose s. This graph has been calculated in accordance with the Dir ectors’ R emuneration R epor ting Regulations and shows total shar eholder return fr om the date of listing to 31 December 2021. Total shareholder return (for the period from 25 May 2017 to 31 December 2021) Value (£) (rebased) May-17 Alfa Financial Software Holdings PLC Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 FTSE Small Capitalisation Index Ex Investment Trusts £0 £35 £70 £105 £140 £175 CEO single figure of remuneration and variable pay outcome £’000s CEO single figure of remuneration Annual bonus pay-out (as a % of maximum oppor tunity 1 L TIP ves ting (as a % of maximum oppor tunity) 2 2021 £310,236 n /a n /a 2020 £337,174 n /a n /a 2019 £338,129 n /a n /a 2018 £337,944 n /a n /a 2017 £349,478 n /a n /a 1. The CEO waived any eligibility f or a bonus in 2021, 2020, 2019, 2018 and 2017. 2. The CEO waived any eligibility to participate in the long-term incentive a wards in respect of the 2021, 2020, 2019, 2018 and 2017 performance years. 3. The CEO agreed to a reduction in salary e ffective 1 Dec 2021. Percentage change in CEO remuneration compared with employees The table below shows the a verage incr ease in each component between the CEO and average emplo yee in the Company fr om Admission to 2021: % change in base salary % change in bonus earned % change in benefits CEO 2021:(8)% 2021:0% 2021:(13)% 2020: 0% 2020: 0% 2020: (6%) 2019: 0% 2019: 0% 2019: 0% 2018: 0% 2018: 0% 2018: (42%) 2017: 0% 2017: 0% 2017: 87% Alfa UK employ ee s 2021:5% 2021:39% 2021:7% 2020: 9% 2020: (1%) 2020: 13% 2019: (3%) 2019: (13%) 2019: (42%) 2018: 1% 2018: (37%) 2018: 22% 2017: 2% 2017: (33%) 2017: (11%) CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 117 Percentage change in Executive and Non-Executive Director remuneration The table b elow shows the percentage increase/ de crease in each Dir ector’s s alar y /fees, taxable benefit s and annual incentiv e plan between 2019 & 2020 and 2020 & 2021 compar ed with the averag e per centage increase in each of those component s of pay f or the UK -base d emplo yees of the Group as a whole. Disclosure for all Directors in addition to the CEO has been added in 2020 in line with the requirement s under the EU Shareholder Right s Directive II and o ver time a fiv e-year comparison will be built up . Alfa F inancial Software Holding s PLC emplo ys only the Non-Executive Directors and therefor e a subset o f the Group ’ s employees has b een used. % change for the end o f the comparative period to the end of the reporting period 2021 % change in salar y /fees 2021 % change in benefit s 2021 % change in annual bonus 2020 % change in salar y /fees 2020 % change in benefit s 2020 % change in annual bonus Andrew P age ( Chairman) (8)% (8)% n /a 0% 7% n /a Andrew Denton ( CEO ) (8)% (12)% n /a 0% (6)% n /a Duncan Magrath (CFO ) 0% 46% 100% n /a n /a n /a Matthew White ( COO) 0% 29% 100% 0% n /a n /a Stev e Breach (NED ) 0% n /a n /a 0% n /a n /a Adrian Chamberlain (NED) 0% n /a n /a n /a n /a n /a Charlotte de Metz (NED) 0% n /a n /a n /a n /a n /a Chris Sullivan (NED ) 0% n /a n /a 0% n /a n /a Employ ee s 5% 7% n /a 9% 13% (1)% 1. D Magrath did not receive a bonus in 2020. The first year he r eceived a bonus was in April 2021, in relation to the 2020 financial year . 2. M White joined the Board in October 2019 and did not receive an y bonus as a Director in 2020. The first year he received a bonus was in April 2021, in relation to the 2020 financial year . 3. D Magrath, A Chamberlain and C de Metz joined Alfa par t way through 2020. In calculating the increase in salaries, the figures for 2020 hav e been adjuste d as though they star ted on the 1 Januar y of that year . CEO pay ratio The table below sets out the pay ratios for the CEO in r elation to the equivalent pay for the lo wer quartile, me dian and upper quar tile employ ee s (calculated on a full-time equivalent basis) . The ratios ha ve been calculated in accor dance with the Companies (Miscellaneous R epor ting) Requirements 2018. The CEO pay ratio data will be built upon annually until a rolling 10-y ear dataset is produced. Bonuses and the value of any L TIPs that ha ve been granted, which ar e both zer o in the case of the CEO , hav e been e xcluded fr om the remuneration figur es used. The methodology adopted for c alculating the ratio was ‘Option A ’ which entailed calculating the total full-time equivalent (FTE) pay and benefits for allUK emplo yees on the 2021 pa yroll. Employ ee s were then ranked based on their F TE r emuneration from low to high in order to identify those whose remuneration placed them at the 25th, 50th (median) and 75th percentile point s. The CEO’s single total figure of r emuneration (STFR) was then measured against the se percentiles, to produce the thr ee pay ratios. Option A was chosen bec ause it was deemed to be the mos t statistic ally accurate method for this r epor ting purpose. Having review ed the analysis, theCompany believes the me dian pa y ratio to b e consistent with the Compan y ’ s g eneral emplo yee pay , r eward and progr ession policies. The Company carries out annual s alary reviews and annual reviews of benefits packages. Salar y awards ar e made with refer ence to the outputs of annual industr y benchmarking ex ercises. As per guidance, data relating to employees who left part way through the year and/ or employ ee s on se condment w ere excluded from the data set and analysis. Inf ormation calculated as at 31 Decemb er 2021. Ye a r Method 25th percentile (lower quartile) Pay ratio 50th percentile (median) 75th percentile (upper quartile) 2021 A 6.1:1 4.0:1 3.2:1 2020 A 5.7:1 4.3:1 3.2:1 2019 A 5.7:1 4.4:1 3.2:1 118 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 REMUNER A TIO NCOMM ITTEE REPO RTCONTINUED Ye a r £’000s 25th percentile 50th percentile 75th percentile 2021 T otal remuneration 50.9 77.1 96.7 Salary only 46.8 72.2 86.2 2020 T otal remuneration 59.5 78.5 106.7 Salary only 55.1 73.2 98.1 2019 T otal remuneration 59.0 76.2 106.3 Salary 57.1 71.2 95.7 This is the third financial y ear in which the Company reported information on ratios between CEO and averag e staff pay under the amendments to the Companies (Miscellaneous Reporting) Regulations in 2018. There has been a slight increase to the ratio at the 25th percentile (lower quar tile) . Mean while, the ratio at the 50th p ercentile (median) has de creased slightly and at the 75th per centile ( upper quartile)has r emained the same. There have been decreases to the median r emuneration figur es at all quartile s, most notably at the 25th percentile. The movement observed in the ratios and total remuneration figur es in 2021 compared to the previous year(s) can be explained b y a numb er o f factors, including: 1. A number of new joiners to the compan y in 2021 fell into the lo wer quartile bracket, thus lowering the lower quartile median figure; 2. A number of senior members of staff (who w ould typically fall into the upper quar tile bracket) left par t way through the y ear and were therefor e excluded from the data set and analysis. This is r eflected in the de crease to the upper quartile (me dian) remuneration figur e; and 3. The CEO advised the Committee that due to his holding in CHP Softwar e and Consulting Ltd, the main significant shareholder in the Company , he elected to reduce his salar y to the minimum statutor y level of remuneration with eff ect from 1 December 2021. Thisresulted in the CEO’ s SFTR being lower than in previous y ears. Rewarding our people and wider workforce engagement Alfa’ s appr oach to all-employee r eward is focused on pro viding a competitive package to attract, r etain and incentivise our employees to deliver f or ourcustomers, business and shareholders. The Committe e r egularly reviews details o f the arrangement s f or the broader w orkforc e and this informs decisions on remuneration for the Executive Directors and senior manag ement. Alfa continues to review s alaries gr oup-wide to ensure that we remain a c ompetitive emplo yer within the local market. Salaries f or E xecutive Directors, senior manag ers and the rest of the workfor ce are all determined with refer ence to the s ame factors such as technical expertise, experience and p erformance, and increases across these populations are revie wed to ensure they are br oadly aligned. The Committee also to ok an active r ole in determining rewar ds for the Compan y Leadership T eam. F ur ther information on key initiatives f or our people and what make s Alfa unique can be found on page 25. In addition to a competitive salary , all employees receive the oppor tunity to earn a per formance-r elated bonus, priv ate medical care, matched contribution pension and death-in-ser vice life assurance. The Company Leadership T eam and cer tain employees are eligible to participate in long-term incentive schemes. During the review of the Directors’ Remuneration Policy , the Committee sought input fr om the Ex ecutive Dir ectors, ensuring that any conflict of interest was suitably mitigated. It was concluded that the existing model of base salar y; annual b onus; and a three-year L TIP with a two-year holding period was well understood by the business, suppor ted Alfa ’ s culture and continued to be appr opriate to drive business performance going forward. Relative importance of spend on pay The f ollowing table illustrates Alfa’ s r evenue and operating profit in relation to sp end on pay f or all employees for the period and last financial year . 2021 2020 Change T otal personnel cos ts (£m) (note 7 to the consolidate d financial statement s) 42.4 39.6 7% A verage number of employ ee s (note 7 to the consolidated financial statement s) 383 341 12% Rev enue (£m) (consolidated income statement) 83.2 78.9 5% Operating profit (£m) (see note 4.2 to the consolidated financial statement s) 24.7 23.9 3% During FY2021, the Company paid dividends to shar eholders amounting to £32.7m (FY20: £44.2m) . F or more inf ormation on dividends and expenditure on remuneration of all emplo yees, see pag es 171 and 158 respe ctively . CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 119 Implementation of the Remuneration Policy in 2022 2022 Executive Directors’ base salaries A t the end of 2021, the Chairman and CEO requested the Committe e appro ve their proposal to reduce their salaries, bonus and shares to the legal minimum le vel. Both the Chairman and CEO ar e significant shareholders in the Company and expr essed a desire to align their futur e remuneration with those of the other shareholders. The Committee members wer e suppor tive of the pr oposal and approved it effectiv e 1 Decemb er 2021. The Committ ee carried out a r eview of the CFO‘ s and COO ’ s remuneration packages in late 2021 and determined that ther e would be no salar y increase and that the bonus and L TIP oppor tunities remained appropriate. The table b elow shows the salarie s f or the Ex ecutive Dir ectors as at 1 Januar y 2022 in comparison to base salar y at 1 January 2021: £’000s 1 January 2022 1 January 2021 % change Andrew P age 23 374 (94)% Andrew Denton 23 322 (93)% Duncan Magrath 275 275 0% Matthew White 220 220 0% Pension and benefits F or 2022 the CFO and COO, in lieu of a pension contribution, will receiv e a cash allowance of 6% of salar y in line with the pension contribution available to the wider workf orce. No changes ar e pr oposed to the benefits pro vided. 2022 annual bonus The Chairman and CEO hav e waiv ed their bonus opportunity going forward. The COO will be entitled to a maximum annual bonus equal to 100% of salar y f or 2022 with the CFO entitled to a maximum annual bonus of 125% of salar y . The following me asures have b een selected f or the 2022 annual bonus per formance y ear: Measure W eighting Operating profit 37.5% Rev enue 37.5% Operating free cash flow conv ersion Modifier Personal performance 25% The Committee is of the view that our existing measures of rev enue, operating profit and personal objectives continue to be appr opriate for the business. Each bonus measure has a target, failure t o meet a minimum p ercentag e of the rev enue and operating profit targ et will result in no bonus being awar ded f or that element. Achieving a maximum per centage of operating pro fit and rev enue target will r esult in the maximum bonus being a warded under the formula (subject to the minimum operating pr ofit target b eing achie ved) . The operating pro fit and rev enue bonus elements can be increased or decreased by the operating free cash flow conv ersion modifier depending on cash p erformance, although the modifier cannot increase them beyond their maximum opp ortunity . As described earlier , the final determination is made by the Committee taking all available factors into account. The detailed bonus targets for the coming year are consider ed to be commercially sensitive. Ho wever , the Committee will pro vide an appropriate explanation of the b onus outcomes in the 2022 Directors’ Remuneration Repor t. In accordance with the P olic y , 50% of any bonus earned will b e deferr ed into shares for a three-year holding period. 120 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 REMUNER A TIO NCOMM ITTEE REPO RTCONTINUED 2022 Long-Term Incentive Plan The normal maximum L TIP opportunity under the P olicy is 150% of salar y . For 2022, the CEO has waiv ed their L TIP opportunit y . The awar d oppor tunity will remain at 100% of salary for the COO, and 150% of salary for the CFO . Follo wing vesting, awards will be subject to a subsequent holding period of two years, with the entir ety of any awar d vesting released after two years. The Committee has agreed TSR and EP S measures for the L TIP , with an equal weighting applied to each measure. The c omparator gr oup f or the TSR is the constituents of the FTSE Small Cap index, excluding investment trust s. Median performance o ver the three-year performance period will result in 25% vesting, with 100% ves ting if upper quar tile per formance is achiev ed. The EPS per formance conditions are being finalised and details will be included in the RNS announcing the awar ds. 2022 Non-Executive Director remuneration Non-Executive Directors do not participate in any of the Company ’ s share incentive arrangement s, nor do they receive any benefit s. F e es for Non- Executive Directors are revie wed annually , and are set b y the Chairman and the Ex ecutive Dir ectors. F ollowing the annual review of Non-Executive Director fees, no changes are pr opose d for the 2022 f ees. It was determine d that the fees will remain at the follo wing level: Base fee £55,000 Additional fee for chairing A udit & Risk Committee or Remuneration Committee (subject to maximum fee s of £65,000) £10,000 F ee for the Senior Independent Director (including chairing Committees) £65,000 Appointment of external advisors During the y ear , the Remuneration Committee and the Company retained independent external advisors to assist on various aspe cts of the Company ’ s remuneration and share schemes. The Company hav e continued to retain the services of Ellason LLP as external advisers to the Committee f or the Executive remuneration incentives and pro vided updates on market trends and also T ape str y Global Compliance LLP (T ap estr y) who continue to act as e xternal advisors to the Committee, to pr ovide suppor t and inf ormation on our all-employ ee share scheme s, both selected on their e xper tise and quality of their previous advice and originally appointed by the Committee. None o f the advisers has an y other conne ction with the Company or it s Executive Dir ectors. Ellason LLP ’ s fees for 2021 amounted to £14,688; T apes tr y fees were £37,906. The Committee is satisfied that Ellason LLP (whois a member of the Remuneration Consultants Group and abides by it s Code o f Conduct) and T apes try continued to maintain independence andobjectivity . Statement of shareholding voting The Dir ectors’ R emuneration P olic y and FY2020 Director’ s Remuneration Report wer e appr ov ed by shareholders at the 2021 A G M which was held on 10 Ma y 2021. The votes cast wer e as follows: £’000s For Against V otes withheld Directors’ Remuneration R epor t (FY2020) 99.97% 0.03% 0 Directors’ Remuneration P olic y 98.50% 1.50% 0 Director service contracts Director ser vice contract s ar e avaialble for inspection at the Compan y ’ s r egistered o ffice. Signed on 8 March 2022 on b ehalf o f the Board Adrian Chamberlain Chair, Remuneration Committee 8 Mar ch 2022 CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 121 Statutory information The Dir ectors of Alfa present their r epor t and the audited financial s tatement s for theyear ended 31 December 2021. This Report includes information required by theCompanies Act 2006 and the Listing Rules 9.8.4R of the UK F inancial Conduct Authority ’ s Listing Rules and forms part of the management report as required by theDisclosur e and T ransparency (DTR) R ule 4. Additional inf ormation which is incorporated b y r eferenc e into this Directors’ Report canbeloc ated b y r eference the tables below . As permitted by the Companies Act 2006, the Directors’ Report includes the disclosures inthe Strategic Report on: Location in annual report (page) Performance and futur e development in the business 1 to 69 Impor tant events affecting the Group since the financial y ear 171 Climate change emission reporting 66 to 69 Key F inancial Performance indicators 36 to 37 Principal risks and uncertainties 46 to 51 Long-term Viability statement 52 to 53 Employ ee involvement 25 The Group is r equired to disclose cer tain information under Listing Rule 9.8.4R in the Dir ectors’ Report or advise where such relevant inf ormation is contained. This information can be found in the follo wing sections of the Annual Repor t and Accounts: Listing rule requirement Location in annual repor t (page) Details of any long-term incentiv e schemes 169 to 170 Details of waiver of Dir ector emolument s and future emoluments 100 to 121 Shareholder waiv er of dividends and future dividends 125 Details of any contract of significance in which aDirector is or was materially inter este d See section below headed ‘Relationship Agreement with Controlling Shar eholder’ Board statement in respect of Relationship Agreement with the controlling shar eholder See section below headed ‘Relationship Agreement with Controlling Shar eholder’ Principal activities The principal activity of the Alfa Group is the pro vision of software and software-r elated service s to the auto and equipment finance industr y . Alfa is a public company limited by shares and is incorporated and domiciled in England. Its shares are liste d on the London Stock Exchange. The registered office is Moor Place, 1 F ore Str eet A venue, London, EC2Y 9D T , United Kingdom. Alfa’ s r egistration no . is 10713517. The principal activity of the Company is that of a holding compan y . The Compan y ’ s registrar is Equiniti Limited situated at Aspe ct House, Spencer Road, Lancing , W est Sussex, BN99 6DA. Financial risk management The financial risk management objectives and policies of the c ompany and the exposure of the company to price risk, cr edit risk, liquidity risk and cash flow risk are disclosed in note 3 to the financial statement s. Subsidiaries and branches  The Gr oup has subsidiaries in the United States of America, Germany , Australia and New Z e aland and a subsidiary of the Company is r egistered as a branch of anov erseas company in S outh Africa. F ur ther details of these can be found in note32.2 to the accounts on page 171. Contracts of significance W e have no contracts de emed significant other than the Relationship Agreement between the Company and the Contr olling Shareholder , as detailed on page 124. In addition, amounts are capitalise d as Other intangible asset s which are sho wn in note 15 to the consolidated financial statement s. 122 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 DIRECTORS ’REPO RT Research and development The Group continued to inv est in product research and dev elopment throughout the year . The product is enhanced by both specific customer driven requirements, some of which are paid f or by customers, but also by internal development using the skills and kno wledge from the dev elopment teams but also using feedback from the implementation teams. The amount expense d in the profit and loss account for r esearch and development is shown in note 6 to the consolidated financialstatement s. In addition, amounts are capitalise d as Other intangible asset s which are sho wn in note 15 to the consolidated financial statement s. Employee involvement W e place considerable value on the involvement of our employ ee s, viewing and treating them as valued team members and an integral par t of our business and our succe ss. W e continue to keep them informed on matters affecting them through both formal and inf ormal meetings and the Group intranet, including CEO updates. T eams are consulted regularly on a wide range of matters affecting their curr ent and future interest s. W e have establishe d share o wnership schemes for use throughout the Compan y and intend to use them to broaden shar e ownership across the Company . Information on employee engagement is available on pages 79 and 80. F ur ther information on team engagement, as monitored by our internal emplo yee surveys, is included in the ESG report on pages 58 to 69. Employee diversity  Our policy for the Alfa team and all applicant s for employment is t o match the capabilities and talent s of each individual to the appropriate job . W e are committed to ensuring equality of oppor tunity in all employ ee relations. W e aim to ensure that no employ ee, p otential employ ee, customer , visitor or supplier will receive less fav ourable treatment on the grounds of sex, pr egnancy , disability , religious beliefs, marital status, race, ethnic origin, nationality , age, sexual orientation or colour . Disability With r egard to existing team members and those who may become disable d, Alfa ’ s policy is t o examine ways and means to provide continuing employment under the existing terms and conditions and to pro vide training and career development, including promotion, where appr opriate. W e ende av our to meet our responsibilitie s to train and employ disabled people. Employment applications by people with any disability are given full and fair consideration f or all vacancies and are asses sed in accordance with their skills and abilities. Directors The names of the persons who, at any time during the financial year and up to the date of this report , wer e Directors of the Company ar e: Date of appointment Stev e Breach 9 August 2019 Adrian Chamberlain 24 April 2020 Charlotte de Metz 24 April 2020 Andrew Denton 6 April 2017 Duncan Magrath 24 April 2020 Andrew P age 4 May 2017 Chris Sullivan 18 July 2019 Matthew White 9 October 2019 Appointment and removal  The rules governing the appointment and remo val of a Director are set out in the Articles of Association of the Company . The Ar ticles of Association may be amended by a spe cial resolution of the shareholders. Specific details relating to the Principal Shar eholder , CHP Software and Consulting Limited, and its right to appoint Directors are set out in this r epor t on page 124. All Directors will stand for r e-election at the A GM on an annual basis, in line with the recommendations of the 2018 Code. The Article s of Association are available onthecorporate go vernance pag e of our inv es tor relations w ebsite www .investors.alfasys tems.com. Powers of the Directors Specific powers relating to the allotment and issuance of ordinary shares and the ability of the Company to pur chase it s own securities arealso included within the Ar ticles and such authorities are submitted for appro val by the shareholders at the A G M each year . Since listing and as at 31 Decemb er 2021, theDirectors have not exer cised any of their powers to issue, or pur chase, ordinary shares inthe shar e capital of the Company . Howe ver post year end, a share r epurchase program commenced on 18 January 2022. F ur ther details can be found on p124. Directors’ interests The Directors’ interest s in and options over ordinary shares in the Company are sho wn in the Directors’ Remuneration Repor t on page 116. Since the end of the financial year and to the date of this report, there have been no changes to such interest s. In line with the requirements of the Companies Act, each Director has notifie d the Company of any situation in which they ha ve, or could hav e, a direct or indirect interest that conflicts, or possibly may conflict, with the interest s of the Company (a situational conflict) . These were consider ed and approv ed by the Board in accor dance with the Article s and each Director informed of the authorisation and any terms on which it was given. All Dir ectors are awar e of the need to consult with the Company Secretary should any possible situational conflict arise, so that prior consideration can be given b y the Board as to whether or not such conflict will be approv ed. Directors’ indemnities Each Director of the Company has the benefit of a qualifying indemnity , as defined by section 236 of the Companies Act, and as p ermitted by the Ar ticles, as well as Directors’ and Officers’ liability insurance. No amount was paid under an y o f these indemnities or insurances during the year other than the applicable insurance premiums. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 123 Share capital The Compan y ’ s ordinary shares are listed on the London Stock Exchange. The authorised share capital of the Company as at 31 December 2021 and 8 March 2022, being the latest practic able date prior to the date of this Annual Report , comprises 300,000,000 ordinary shares of 0.1 pence each. Further information regar ding the Company ’s issue d share capital can be found in note 26 of the Company financial statements. There ha ve been no movements in the Company’s is sued shar e capital since 31 December 2021 through to the date of this Report . Howev er , on 18 Januar y 2022, the Company announced it had entered into a share repur chase pr ogramme. More detail can be found on this page under ‘ Authority to purchase own shares’ . Shareholders’ voting rights All members who hold ordinary shares are entitled to attend and v ote at the A GM. On asho w o f hands at a g eneral meeting , ev ery member present in person shall have one v ote and on a poll, every member present in person or b y proxy shall hav e one vote for ev ery ordinary shar e held. No shareholder holds ordinary shares carr ying spe cial rights relating to the control of the Compan y and the Directors are not a ware of an y agreements between holders of the Compan y ’ s shares that may r esult in restrictions on voting right s. Restrictions on transfer  The Article s do not contain any restrictions on the transfer o f ordinary shares in the Company other than the usual restrictions applicable where an y amount is unpaid on a share. All issued share capital of the Company at the date of this Annual Report is fully paid. Certain res trictions are also imposed by la ws and r egulations (such as insider trading and market abuse requir ement s relating to close periods) and requirements of the Listing R ules whereb y Directors and certain employees of the Company r equire Board appr oval to deal in the Compan y ’ s securitie s. Each o f the Executive Dir ectors, and the senior executives (each, a ‘R estricte d Shar eholder’) at the time of listing agreed, for a period of one year f ollowing Admission on the terms and subject to the conditions of the Underwriting Agreement, were not to dispose of any of the ordinary shar es they held in the Company (the ‘Initial Lock -Up P eriod’) . This Initial Lock-Up Period expired on 1 June 2018 and, f or most of the Restricted Shareholders, was follow ed by three further lock-up periods of 365 days, 720 and 1,095 days. Each of these further lo ck -up periods commenced on the termination of the Initial Lock -Up P eriod and cov ered on e ach occasion a fur ther 25% of the relevant Restricted Shareholder’ s holding of ordinary shares. The final lock -up period expired on 1 June 2021. Authority to purchase  Subject to authorisation by shareholder resolution, the Company ma y purchase its own shares in accordance with the Companies Act 2006. Any shar es b ought back may be held as treasury shares or cancelle d immediately on completion of the purchase. A t the 2021 AGM, the Company was g enerally and unconditionally authorised by its shareholders to pur chase in the market up to 10% of the ordinary shares of the Company (30,000,000 or dinary shares) . As at 31 December 2021 the full extent of this authority remained in for ce and unused. This authority is renewable annually , and a special resolution will be proposed at the 2022 A GM to request shareholders to renew it . The Dir ectors will only purchase the Company ’ s shares in the market if they believe it is in the bes t interest s of shareholders in g eneral. On 18 January 2022, the Company announced that it had entered into an arrangement with Barcla ys Bank PLC, acting through its inv es tment bank to purchase or dinar y shares inthe Compan y up to an aggregate pur chase price of £18m over an 18-month period. The purchase of the or dinary shares is made independently and uninfluenced by the Company and held as tr easur y shares. The purpose of the share pur chases is to reduce the Compan y ’ s shar e capital and to enable the Company to meet obligations arising from shar e option programmes and notto issue any new shares to satisf y future option e xercises. As at 7 March 2022, being the last practicable date prior to the production of this Annual Report , the number of ordinary shares held in treasury was 388,605. Accordingly , total voting rights amounte d to 299,611,395 ordinary shares as at the same date. During 2021, the Employee Benefit T rust (EBT) purchased 3,415,650 ordinary shares with the nominal value of £3,415.65 for a total consideration of £4,607,677.18 and to be held in the EBT f or the purpose of providing shar es to cov er future shar e option awards. Transactions with  The only subsisting material transactions which the Company has enter ed into with related partie s are: Relationship agreement and the controlling shareholder The Relationship Agreement was enter ed into on 26 May 2017 and regulates the r elationship between CHP Software and Consulting Limited (the ‘Contr olling Shar eholder’) and the Company f ollowing listing. Subject to a cer tain minimum shareholding, the Relationship Agreement details the right s the Controlling Shareholder has to r epresentation on the Board and Nomination Committee and to appoint observers to the Nomination Committee (if not represented on the Committee) . The Contr olling Shar eholder also undertake s not to operate, establish, own or acquire a competing business during the terms of the agreement. Any transactions between Alfa and the Controlling Shar eholder will be at arm ’ s leng th and on normal commercial terms. The Relationship Agreement complies with the requirements of the LRs, including Listing Rule 9.2.2AR(2)(a) , and Lis ting Rules 6.1.4DR. 124 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 DIR ECTORS’REP ORTCONTINU ED In accordance with the r equirements of Listing Rules 9.8.4(14) , the Board confirms that the Company has complied with its oblig ations under the Relationship Agreement, including in respect of the independence provisions and, so far as the Company is a ware, the Controlling Shareholder has complied with the pro visions of the R elationship Agr eement (including the independence and non-compete provisions set out ther ein) , at all times since the Agreement was entered into. Other related par ty transactions are detailedinnote 32 to the consolidated financialstatement s. Profits and dividends The c onsolidated pro fit after tax f or the y ear ended 31 December 2021 was £19.2m (FY20: £20.3m) . The r esult s ar e discussed in greater detail in the F inancial review on pages 38 to 42. Information on dividends is sho wn in note 31 of the F inancial Statements and is incorporated into this report by refer ence. During the year , the trustee of the employee benefit trust which op erates in connection with the Compan y ’ s share plans waiv ed its rights to receive dividends on an y shares held by it. Details of the trust can be found in note 12 ofthis report . Subject to appro val at the Annual General Meeting on 12 May 2022, a 2021 final dividend of 1.1 pence per share will be paid on 24 June 2022 t o holders on the r egister on 27 May 2022. The ordinary shares will be quoted ex -dividend on 26 May 2022. Significant Shareholdings at 31 December 2021 and 25 February 2022 (being the latest practicable date of this report) A t the relevant dates, the Company had been notified, in accordance with chapter 5 of the Disclosure Guidance and T ransparency Rules, of the follo wing voting rights as a shareholder of the Company: Name of shareholder No. of or dinary shares at 31 December 2021 % of total voting rights at 31 December 2021 No. of or dinary shares at 25 February 2022 % of total voting rights at 25 February 2022 Nature of holding CHP Software and Consulting Limited 197,645,649 65.88 197,645,649 65.96 Direct Aberdeen Investments (Standard Life) 11,642,054 3.88 11,377,726 3.80 Indirect Blackrock Inv estment Mg t 9,110,936 3.04 11,423,020 3.81 Indirect During the p eriod between 25 February 2022 and 8 Mar ch 2022 the Company did not r eceive any notifications under chapter 5 of the Disclosure Guidance and T ransparency Rules. The trustees of the Company’s employee shar e scheme (EB T) ha ve a r olling dividend waiv er in place in respect of shares held in trust . Amendment of the Articles The Article s may only be amended by a special resolution of the Company ’ s shar eholders in a general meeting, in accordance with the Companies Act . Compensation for loss of office and change of control There ar e no agreements b etween the Company and its Directors or Alfa team members providing f or additional compensation for loss o f of fice or employment ( whether through resignation, r edundanc y or otherwise) that occurs bec ause of a takeov er bid. The only significant agreement, to which the Company is a party to that takes e ffect, alters or terminates upon a change of control of the Company f ollowing a takeov er bid, and the effect thereof , is the Relationship Agreement. The Relationship Agreement with the Controlling Shar eholder contains a pro vision under which it will terminate upon the earlier of: (i) the Controlling Shar eholder and it s associates ceasing to have the entitlement to exer cise or control the exercise of 10% or more of the v oting rights in the Company; or (ii) the Company’s ordinar y shar es ceasing to be admitted to the listing on the Official Lis t of theFCA. Political donations The Group made no political donations and incurred no political expenditure during the year (FY20: £nil) . It r emains the Company ’ s policy not to make political donations or to incur political expenditure. A t the 2021 AGM, the Directors w ere generally and unconditionally authorised by the Company’s shareholders to make limited political donations of up to £50,000, in or der to protect against any inadvertent breaches of the relevant pr ovisions of the Companies Act 2006 which are v er y broad in natur e. The Board has no intention of using this authority . Interest capitalised in  No int erest has been capitalised by Alfa in theyear ended 31 December 2021 or at 31 December 2020. Stakeholder engagement Details of how the Gr oup has engaged with it s employ ee s, suppliers, customers and other principal stakeholders together with details of the key decisions taken by the Gr oup during the year ar e disclosed on pages 54 to 57. CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 125 Going concern The financial statement s are pr epared on the going concern basis. The Gr oup continues to be cash-generative and the Dir ectors believe that the Group has a r esilient busine ss model. The Group meets it s day-to-day working capital requirements through its c ash reserves generated from operating activities. The Gr oup ’ s forecast s and projections, taking account of reasonably possible changes in trading per formance, sho w that the Group has sufficient cash reserves to continue to operate for a period of not less than 12 months from the date of appr oval of these financial statement s. The going concern assessment also includes downside stress testing in line with FRC guidance which demonstrates that even in the most extreme downside conditions considered reasonably possible, giv en the exis ting le vel of cash held, the Group would continue to be able to meet it s obligations as they fall due, without the need for substantive mitigating actions. On this basis, whilst it is acknowledged that there is continued uncertainty over future economic conditions, the Directors consider it appropriate to continue to adopt the g oing concern basis of accounting in pr eparing the financial statement s. Viability statement The V iability statement containing a br oader assessment by the Board of the Compan y ’ s ongoing viability is set out in the Strategic report on pages 52 to 53. Corporate governance statement The Compan y ’ s statement on corporate gov ernance can be found on page 71 of the Corporate gov ernance report . The report forms part of this Dir ectors’ R epor t and is incorporated by cross r eference. Climate risk reporting F or the first time this year the Company hasmade disclosur es consistent with the recommendations from the T ask For ce on Climate-related F inancial Disclosur es (TCFD ). These disclosures are shown on pag e 69. Annual General Meeting The Compan y ’ s Annual General Meeting willbeheld at 3pm on Thursda y , 12 May 2022 at Alfa ’ s head o ffice at Moor Place, 1 Fore Street, London, EC2Y 9D T . The Notice of Meeting setting out the r esolutions to be proposed atthe 2022 A GM, tog ether with explanatory notes, will be sent to shareholders as a separatedocument and made a vailable ont heCompan y ’ s w ebsite www .investors.alfasys tems.com. Disclosure of information to the auditor Each of the Directors of the Compan y at the date the Dir ectors’ Report is approved confirms that: • So far as the Dir ector is aware, ther e is no relevant audit inf ormation of which the Company’s auditor is una ware; and • He or she has taken all the steps that he or she ought to hav e taken as a Director in order to make himself or herself a ware o f any r elevant audit information and to establish that the Group and Company ’ s auditors are a ware of that inf ormation. This confirmation is given and should be interpreted in accor dance with the provisions of s.418 of the Companies Act 2006. RSM UK Audit LLP , the Group ’ s auditor , has indicated it s willingnes s to continue in office and, on the recommendation of the Audit & Risk Committee and in accordance with section 489 of the Companies Act of 2006, a resolution to reappoint it will be put to the 2022 A G M. Board approval of the Directors’ Report The Dir ectors’ R epor t was approved by the Board on 8 Mar ch 2022 and signed on its behalf by: Andrew Denton Chief Executive Officer 8 Mar ch 2022 126 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 DIR ECTORS’REP ORTCONTINU ED The Directors are r esponsible for preparing the Strategic Report and the Dir ectors’ R epor t, the Directors’ Remuneration Report , the separate Corporate Governance Stat ement and the financial statement s in accordance with applicable law and regulations. Company la w requires the Directors to prepar e Group and Company financial statement s for each financial year . The Directors hav e elected under company law to pr epare gr oup financial statement s in accordance with UK -adopte d International Accounting Standards. The Dir ectors have elected under company law to pr epare the company financial statements in accordance with United King dom Generally Accept ed Accounting P ractice (United King dom Accounting S tandards and applicable la w) . The group financial statements are required by law and UK -adopted International Accounting Standards to pr esent fairly the financial position and per formance of the gr oup; the Companies Act 2006 provides in relation to such financial statement s that refer ences in the relevant part of that Act to financial statement s giving a true and fair view are refer ences to their achieving a fair presentation. Under c ompany law the Dir ectors must not appro ve the financial statement s unless they are satisfied that they give a true and fair view of the state of affairs of the Gr oup and the Company and of the pr ofit or loss of the Group for that period. In preparing each of the Gr oup and Company financial statement s, the Directors are requiredto: a. select suitable accounting policie s and then apply them consistently; b. make judg ement s and accounting estimate s that are r easonable and prudent; c. for the Gr oup financial statement s, state whether they hav e been prepared in accordance with UK -adopted International Accounting Standards; d. f or the Company financial statements, s tate whether applicable UK accounting standards hav e been followed, subject to any material departures disclosed and explained in the Company financial statement s; and e. prepar e the financial statement s on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. The Directors are r esponsible for keeping adequate accounting records that ar e sufficient to show and explain the Group ’ s and the Company’s trans actions and disclose with reasonable accuracy at any time the financial position of the Group and the Compan y and enable them to ensure that thefinancial statement s and the Directors’ Remuneration Report comply with the Companie s Act 2006. They are also r esponsible for safeguarding the asset s o f theGr oup and the Company and hence for taking r easonable steps for the prev ention and detection of fraud and otherirregularities. Directors’ statement pursuant to the Disclosure and Transparency Rules Each of the Directors, whose names and functions are listed on pages 74 to 75 confirm that, to the best of each person ’ s knowledge: a. the financial statement s, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilitie s, financial position and profit of the Compan y and the undertaking s included in the consolidation taken as a whole; and b. the Str ategic Report containe d in the Annual Report include s a fair revie w of the development and performance of the business and the position of the Company and the undertaking s included in the consolidation taken as a whole, together with a description of the principal risks and uncertaintie s that they face. The Directors are r esponsible for the maintenance and integrity of the corporate and financial information included on the Alfa F inancial Software Holdings PLC w ebsite. Legislation in the United Kingdom governing the preparation and dissemination of financial statement s may diff er from legislation in otherjurisdictions. This responsibility statement was approved b y the Boar d of Dir ectors on 8 March 2022 and is signed on it s behalf by: Andrew Denton Chief Executive Officer 8 Mar ch 2022 CORPORA TE GOVERNANCE Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 127 ST A TEMENT OFD IRECTORS’ RESPO NSIB ILITI ES 128 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Financial statements Financial stat ements 129 Independent auditor’ s report 137  Consolidateds tatementofpr otorlossand comprehensiv eincome 138  Consolidateds tatementofnancialposition 139   Consolidatedstatementofchangesinequity 140  Consolidateds tatementofcasho ws 141   Notestotheconsolidatednancialstatement s 173   Companystatementofnancialposition 174  Companystatementofchangesinequity 175 Companynotestothenancialstatements  Other information 179 Glossary of terms 180 Shareholder inf ormation  FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 129 Opinion W e have audited the financial statement s of Alfa F inancial S oftware Holdings PL C (the ‘parent company’) and its subsidiaries (the ‘ group ’) for the year ended 31 December 2021, which comprise the Consolidated statement of profit or loss and compr ehensive income, Consolidated statement of financial position, Consolidated s tatement of changes in equity , Consolidated statement of cash flows, Company statement of financial position, Company statement of changes in equity and note s to the financial statement s, including significant accounting policies. The financial reporting framework that has been applie d in the preparation of the gr oup financial statement s is applicable law and UK -adopted International Accounting Standards. The financial r eporting framework that has been applie d in the preparation of the parent compan y financial statement s is applicable law and United Kingdom Accounting Standards including F inancial Reporting Standard 102 “The F inancial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting P ractice) . In our opinion: • the financial statement s give a true and fair view of the state of the group ’ s and of the parent compan y ’ s affairs as at 31 December 2021 and of the group ’ s profit f or the year then ended; • the group financial statements have been properly prepar ed in accordance with UK -adopted International Accounting Standards; • the parent compan y financial statement s hav e be en properly pr epared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statement s have been prepar ed in accordance with the requirements of the Companies Act 2006. Basis for opinion W e conducte d our audit in accordance withInternational Standar ds on Auditing (UK) (IS As (UK)) and applicable law . Our responsibilities under those standards arefurther described in the Auditor’ s responsibilities for the audit of the financial statement s section of our report . W e are independent of the group and par ent company in accor dance with the ethical requirements that are rele vant to our audit ofthe financial statement s in the UK, including the FR C’ s Ethical Standar d as applied to liste d public interest entities andwe ha ve fulfilled our other ethical responsibilities in accordance with these requirements. W e believe that the audit evidence we ha ve obtained is sufficient and appropriate to pr ovide a basis f or our opinion. INDEPENDENTAUDIT OR ’SREPO RTT OTHEMEMBERS OFALF AFINANCIALSO FT W AREHOLDIN GSPLC Summary of our  Commentary Key audit matters Group • Rev enue recognition – software and services revenue from implementation pr oject s Par entCompany • None Materiality Group • Overall materiality: £1,140,000 (2020: £893,000) • Performance materiality: £859,000 (2020: £670,000) Par entCompany • Overall materiality: £1,120,000 (2020: £882,000) • Performance materiality: £846,000 (2020: £662,000) Scope Our audit procedures ( excluding analy tical pr ocedures at group level) cov ered 100% of rev enue, 98% of total asset s and 99% of profit b efor e tax. 130 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Key audit matters Key audit matters ar e those matters that, in our professional judgment, were of most significance in our audit of the gr oup and parent company financial statements of the current period and include the most signific ant assesse d risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on the ov erall audit strateg y , the alloc ation of resour ces in the audit and directing the effort s of the engagement team. These matters were addr essed in the contex t of our audit of the gr oup and parent company financial statements as a whole, and in forming our opinion thereon, and we do not pr ovide a separate opinion on these matters. Revenue recognition – software and services revenue from implementation projects Key audit matter description The 2021 group financial statements disclose the following types of revenue: • Software £13.6m (2020: £20.0m) • Services £46.1m (2020: £40.8m) • Subscription £23.5m (2020: £18.1m) The Gr oup ’s op erations include complex sof tware implementation programmes and service activities. The deliv er y of these contracts typically extends over more than one reporting period, and often the original pr oject plans are amended, as the implementation progr esse s. As such, in recognising rev enue, management has to apply a number of judgements to allocate the ov erall transaction price across the multiple per formance obligations that hav e been identifie d within these project s. In addition, due to the structur e of the Group ’ s licenc e and maintenance contractual arr angements, the Gr oup also r eceives one-off licence uplifts or maintenance and right to use termination payment s which need to be accounte d for in accor dance with IFRS 15 “Rev enue from contracts with customers” . W e consider revenue r ecognition for software and service s rev enue for implementation pr oject s to be a key audit matter due to: • The level of judg ement involv ed in the identification of distinct p erformance obligations and subsequent measurement of r evenue and timing of r ecognition. • The degree of estimation involv ed in determining some input s for inclusion in software/ ser vices implementation rev enue calculations. • The potential risk of fraud in rev enue recognition. • The allocation of audit resources and effort . F ur ther details on rev enue recognition are included in note 1.5 “ Accounting policie s – Rev enue recognition ” , note 2 “Critical accounting judgements, es timates and assumptions” and note 5 “Revenue fr om contract s with customers” . INDEPENDENTAUDIT OR ’SREPO RTT OTHEMEMBERS  OFALF AFINANCIALSOF T W AREHOLDIN GSPLCC ONTINUED FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 131 How the matter was addressed inthe audit In response to this key audit matter , the audit procedures we performed included: • Obtaining an understanding of the processes and controls around re venue recognition. • Reviewing the gr oup ’ s revenue r ecognition polic y , including suppor ting accounting papers, to asse ss whether per formance obligations ha ve been appropriately identified and rev enue recognised in line with IFRS 15. • F or software implementation rev enue (software and service s) we: • Asses sed management’ s analysis of the per formance obligations within individual contracts and of how the 5 steps in IFRS 15 should be applied. • Audited the rev enue recognition calculations for a sample of the most significant contract s to assess whether the methodology applie d was consistent with the group ’s r evenue r ecognition polic y and across pr oject s. This included tes ting input s in the calculations to suppor ting evidence. • V erified the explanations and data provided by manag ement by holding discussions with project managers regarding the k ey assumptions and judgements made, in par ticular around the estimate s of the projected cost s to complete and the completeness of any contract arrangements, including any unusual terms and contract modifications. • T es ted the completenes s and accuracy of timeshe et data as some performance obligations are recognised based on days worked. • Challenged management on the appropriat enes s of estimates made in the IFRS 15 calculations. This include d assessing the result s of management’ s analysis of the sensitivity of the calculations to the se estimate s. • Asses sed key judgements made on spe cific contracts including management ’ s treatment of any contract modifications and whether the se wer e recognised appropriately in line with IFRS 15. • Auditing the disclosur es in the financial s tatements and evaluate d whether the policy for revenue r ecognition is appropriately explained and critical judgements and key sources of estimation uncertainty are appropriately disclosed. Key observations Disclosure of the impact of the k ey judgements and e stimates applie d in respect of revenue r ecognition are disclosed innote2 to the financial statement s. Based on the result s of the audit pr ocedures outlined abo ve, we have no observ ationsto report . No key audit matters wer e identified in respect of the Parent Company . 132 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Our application of materiality When establishing our overall audit strategy , we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures. When evaluating whether the effects of miss tatements, b oth individually and on the financial statement s as a whole, could reasonably influence the economic decisions of the users we take into account the qualitativ e nature and the siz e of the misstatement s. Based on our professional judgement, we determined materiality as follows: Group Parent c ompany Overall materiality £1,140,000 (2020: £893,000) £1,120,000 (2020: £882,000) Basis for determining overallmateriality 5% of profit bef ore tax (2020: 5% of pr ofit before tax adjusted to exclude one of f licencerev enue associated with a five-year contract extension) 1% of net assets, c apped at 99% of group ov erall materiality (2020: 1% of net asset s, cappe d at 99% of group o verall materiality ) Rationale for benchmark applied As a lis ted entity , pr ofit before taxation is considered the most appropriate benchmark forusers of the financial s tatements. Net assets is consider ed to be the most appropriate benchmark f or the parent companyas it is primarily a holding company . Performance materiality £859,000 (2020: £670,000) £846,000 (2020: £662,000) Basis for determining performancemateriality 75% of ov erall materiality 75% of o verall materiality Reporting of misstatements totheAudit Committee Misstatement s in excess of £57,000 and misstatement s below that threshold that, in our view , warranted repor ting on qualitative gr ounds. Misstatement s in excess of £56,000 and misstatement s below that threshold that, in our view , warranted repor ting on qualitative gr ounds. An overview of the scope of our audit The group consists of 8 component s, loc ated in the following countries; • United Kingdom • United States of America • Germany • Australia • New Z ealand F ull scope audit s were performed for 4 components, targeted audit procedures for 2 components and analy tical procedures at group lev el for the r emaining 2 component s. The cover age achieved by our audit pr ocedures was: Number of component s Rev enue T otal asset s Profit befor e tax F ull scope audit 4 74% 90% 93% T argeted audit pr ocedures 2 26% 8% 6% Analy tical procedures at group level 2 0% 2% 1% T otal 8 100% 100% 100% T argeted audit pr ocedures were performed on component s which are not financially significant by size but include a significant risk. The targeted audit procedures included testing of revenue and the associated balance sheet amount s as describ ed in the key audit matter section above. All audit work was completed by the gr oup audit team and no component auditors were used in our audit. INDEPENDENTAUDIT OR ’SREPO RTT OTHEMEMBERS  OFALF AFINANCIALSOF T W AREHOLDIN GSPLCC ONTINUED FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 133 Conclusions relating to going concern In auditing the financial statements, we ha ve concluded that the dir ectors’ use of the going conc ern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation o f the dir ectors’ assessment of the gr oup ’ s and parent company ’ s ability to continue to adopt the going concern basis of accounting included: • Checking the arithmetic accuracy of the forecast s that form the basis of the dir ectors’ going concern asses sment and Viability statement • Corroborating the cash balance that is used as the star ting point for the for ecas t s by confirming to bank confirmations • Challenging management’ s for ecas t s and comparing the 2022 budget to YTD results and order book • Asses sing the assumptions made in management’ s stress-tes ting • Completing further sensitivit y analysis and stress-tes ting • Auditing the disclosur es in the financial s tatements in resp ect of going concern and viability Based on the work we hav e performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively , may cast significant doubt on the group ’ s or the parent company ’ s abilit y to continue as a going concern f or a period of at least twelve months fr om when the financial statement s are authorised for issue. In relation to the entity r epor ting on how they hav e applied the UK Corporate Governance Code, we hav e nothing material to add or draw attention to in relation to the dir ectors’ statement in the financial s tatements ab out whether the directors consider ed it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilitie s of the directors with r esp ect to going concern are described in the relevant sections of this report . Other information The other information comprises the information included in the annual report other than the financial statement s and our auditor’s r eport thereon. The directors are r esponsible for the other information contained within the annual report. Our opinion on the financial s tatements does not cover the other information and, e xcept to the extent otherwise explicitly state d in our report , we do not expr ess any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so , consider whether the other information is materially inconsistent with the financial statement s or our knowledge obtained in the course of the audit or otherwise app ears to be materially misstate d. If we identify such material inconsistencies or apparent material misstatement s, we are r equired to determine whether this gives rise to a material misstatement in the financial statement s themselves. If , base d on the work w e have performed, we conclude that there is a material misstatement of this other information, w e are requir ed to repor t that fact. W e have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the directors’ remuneration report to be audited has b een properly prepar ed in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • the information giv en in the Strategic Report and the Directors’ Report for the financial year for which the financial statements arepr epared is consistent with the financial statement s and those report s have been prepared in accor dance with applicable legalrequirements; • the information about internal contr ol and risk management systems in relation to financial r epor ting processes and ab out share capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure R ules and T ransparency Rules sourcebook made by the F inancial Conduct Authority (the FCA Rules) , is consistent with the financial s tatements and has b een prepared in accor dance with applicable legal requirements; and • information about the company’ s corporate gov ernance code and practices and about it s adminis trative, manag ement and super visor y bodies and their committe es complie s with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules. 134 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 Matters on which we are required to report by exception In the light of the knowledge and understanding of the gr oup and the parent company and their en vironment obtained in the course of the audit, we have not identified material misstatement s in: • the Strategic Report or the Directors’ Report; or • the information about internal contr ol and risk management systems in relation to financial r epor ting processes and ab out share capital structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules. W e have nothing to report in respect of the following matters in r elation to which the Companies Act 2006 requires us to repor t to you if , in our opinion: • adequate accounting records ha ve not been kept by the parent c ompany , or returns adequate for our audit ha ve not been received from branches not visited by us; or • the parent compan y financial statement s and the par t of the directors’ remuner ation report to b e audited are not in agreement with the accounting records and r eturns; or • certain disclosures of directors’ remuneration specified by law ar e not made; or • we hav e not received all the inf ormation and explanations we requir e for our audit; or • a corporate gov ernance statement has not been prepared by the parent c ompany . Corporate governance statement W e have review ed the directors’ statement in relation to going concern, longer -term viability and that part of the Corporate Governance Statement r elating to the parent company’s compliance with the pro visions of the UK Corporate Go vernance Code spe cified for our re view by the Listing Rules. Based on the work undertaken as par t of our audit, we have concluded that each of the f ollowing elements of the Corporate G ov ernance Statement is materially consistent with the financial statement s and our knowledge obtained during the audit: • Directors’ statement with regards the appr opriateness of adopting the going concern basis of accounting and an y material uncer tainties identified set out on pages 52 to 53; • Directors’ explanation as to their assessment of the group ’s pr ospect s, the period this asse ssment covers and wh y the period is appropriate set out on pages 52 to 53; • Director’ s statement on whether it has a reasonable expectation that the group will be able to continue in operation and meet s it s liabilities set out on page 53; • Directors’ statement on fair , balance d and understandable set out on page 98; • Board’ s confirmation that it has carrie d out a robust assessment of the emerging and principal risks set out on pages 46 to 51; • Section of the annual report that describ es the review of eff ectiveness of risk management and internal control systems set out on page 98; and, • Section describing the work of the audit committee set out on pages 94 to 99. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 127, the directors are r esponsible for the preparation of the financial statement s and for being satisfied that they give a true and fair view , and for such internal contr ol as the directors determine is neces sar y to enable the preparation of financial statements that are free from mat erial misstatement , whether due to fraud or error . In preparing the financial statements, the directors are responsible for assessing the group ’s and the par ent company’ s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going c oncern basis of accounting unless the directors either intend to liquidate the group or the par ent company or to cease operations, or hav e no realistic alternative but to do so . INDEPENDENTAUDIT OR ’SREPO RTT OTHEMEMBERS  OFALF AFINANCIALSOF T W AREHOLDIN GSPLCC ONTINUED FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 135 Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error , and to issue an auditor’ s report that include s our opinion. Reasonable assurance is a high lev el of assurance, butis not a guarantee that an audit conducted in accordance with ISAs (UK) will alwa ys detect a material miss tatement when it exist s. Misstatement s can arise from fraud or error and ar e considered material if , individually or in the aggregate, they could reasonably be expected to influence the e conomic decisions of users taken on the basis of these financial statement s. The extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities are instances of non-compliance with laws and r egulations. The objectives of our audit are to obtain sufficient appr opriate audit evidence regar ding compliance with laws and r egulations that have a dir ect effect on the determination of material amount s and disclosures in the financial statement s, to per form audit pr ocedures to help identif y instances of non-compliance with other laws and regulations that may ha ve a material effect on the financial statements, and to resp ond appropriately to identified or suspected non-compliance with laws and regulations identified during the audit. In relation to fraud, the objectives of our audit ar e to identify and asse ss the risk of material misstatement of the financial statement s due to fraud, to obtain sufficient appropriat e audit evidence regarding the assessed risks of material misstatement due to fraud through designing and implementing appropriate r esponse s and to respond appropriately to fraud or suspected fraud identified during the audit . Howe ver , it is the primar y responsibility of management, with the oversight of those char ged with gov ernance, to ensure that the entity ’ s operations are conducted in accordance with the pr ovisions of la ws and regulations and f or the prev ention and detection of fraud. In identifying and asse ssing risks of material misstatement in respe ct of irregularities, including fraud, the gr oup audit engagement team: • obtained an understanding of the nature of the industr y and sector , including the leg al and regulatory frameworks that the group and parent compan y operate in and how the group and par ent company ar e complying with the legal and regulatory frameworks; • inquired of management, and those charged with go vernance, about their own identification and assessment of the risks of irregularities, including any known actual, suspected or alleged instance s of fraud; • discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment of how and wher e the financial statement s may be susceptible to fraud. The most significant laws and regulations wer e determined as follows: Legislation/Regulation Additional audit procedures performed by the audit engagement team included: UK -adoptedIAS,FRS102and CompaniesAct2006 • Review o f the financial statement disclosures and tes ting to suppor ting documentation; • Completion of disclosure checklist s to identify areas of non-compliance. T axcomplianceregulations • Inspection of advice received from internal / external tax advisors; • Inv olvement of a tax specialist in the audit of tax; • Consideration of whether any matter identified during the audit requir ed repor ting to an appropriate authority out side the entity . 136 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 The areas that we identified as being susceptible to material misstatement due to fraud wer e: Risk Audit procedures performed by the audit engagement team: Re venuer ecognition The audit procedures performed in relation to rev enue recognition are documented in the key audit matter section of our audit report . Capitalisationof dev elopmentcosts • Reviewing the In vestment Committee me eting minutes for any pr oject s which may indicate the understatement of amount s capitalised during the perio d; • Interviewing relevant personnel to understand the project s capitalise d in the period and the nature of projects not c apitalised; • V erifying the amount s capitalise d during the year b y refer ence to underlying payr oll records and timesheet data. Managemento verride ofcontr ols • T es ting the appropriateness of journal entries and other adjustment s; • Asses sing whether the judgements made in making accounting es timates are indicative of a potential bias; • Evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. A further de scription of our responsibilities for the audit of the financial statement s is located on the Financial Reporting Council’s w ebsite at: http:// www .frc. org.uk/ auditorsresponsibilitie s. This description forms par t of our auditor’ s report. Other matters which we are required to address F ollowing the recommendation of the audit committee, we w ere appointed by management in July 2020 to audit the financial statements for the year ending 31 December 2020 and subsequent financial p eriods. The period of total uninterrupted consecutive appointment s is 2 years, cov ering the years ending 31 December 2020 and 31 De cember 2021. The non-audit service s prohibited by the FR C ’ s Ethical Standard wer e not provided to the gr oup or the parent company and w e remain independent of the group and the par ent company in conducting our audit. Our audit opinion is consistent with the additional report to the audit committe e in accordance with IS As (UK) . Use of our report This report is made solely to the company ’ s members, as a body , in accordanc e with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been under taken so that we might state to the compan y ’ s members those matters we are r equired to state to them in an auditor’ s report and for no other purpose. T o the fulle st extent permitte d by la w , we do not accept or assume responsibility to anyone other than the company and the compan y ’ s members as a body , for our audit work, f or this report, or for the opinions we hav e formed. Graham Ricketts (Senior Statutory Auditor) F or and on behalf of RSM UK Audit LLP , S tatutor y Auditor Chartered Accountant s 25 Farring don Street London, United Kingdom, EC4A 4AB 8 March 2022 INDEPENDENTAUDIT OR ’SREPO RTT OTHEMEMBERSOFALF A  FINANCIALSOF TW AREHOLD INGSPLCCONTINUED FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 137 CONSOLID A TEDST A TEMENTOFPROF ITORLOSS  ANDCOMPREHENSIVEINCOME £m Note 2021 2020 (restated) Continuingoperations Rev enue 5 83.2 78.9 Cost of sale s (29.0) (27.0) Gross pr ofit 54.2 51.9 Sales, general and administrative expenses (30.0) (28.5) Other income 0.5 0.5 Operating pro fit 6 24.7 23.9 Share of net loss of joint v enture 19 (0.1) – Pro fitbeforenetfinanc ecostsandtax 24.6 23.9 F inance income 10 – 0.1 F inance expense 10 (0.8) (0.8) Pro fitbeforetaxation 23.8 23.2 T axation 11 (4.6) (2.9) Pro fitforthefinancialy ear 19.2 20.3 Other comprehensive income: Exchange dif ferenc es on translation of foreign operations 27 (0.1) 0.1 Other comprehensive (los s)/income net of tax (0.1) 0.1 T otalcomprehensiv eincomeforthey ear 19.1 20.4 Earningspershare(inpence)forpr ofitattributable totheordinaryequityholdersoftheCompany Basic 12 6.49 6.93 Diluted 12 6.39 6.79 W eighte d aver age no. of shar es (m) – basic 12 296.7 293.8 W eighte d aver age no. of shar es (m) – diluted 12 301.5 300.1 * T o better reflect the nature and function of certain expenses, changes have been made to the classifica tion and allocation of expense line it ems. The comparative disclosures for the December 2020 reporting period have also been amended to re flect a fair base for comparability . Costs previously classified as implementation and support expenses and research and product de velopment expenses of £11.9m and £15.1m, respectively , have been presented as cost o f sales. In addition, £3.4m of implementation and support expenses and £3.8m of research and product developmen t expenses have been reclassified to sales, general and administrative expenses. The main items affected are administrative salary costs, computer costs and property related expenses. These changes hav e had no impact on the total expenses or the profit befor e tax that were disclosed at the end of December 2020. The abov e consolidated statement of profit or loss and comprehensive income should be read in conjunction with the accompanyingnotes. 138 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 CONSOLID A TEDST A TEMENTOFFINANCIALPOSITIO N £m Note 2021 2020 Asset s Non-currentassets Goodwill 14 24.7 24.7 Other intangible asset s 15 2.4 2.2 Property , plant and e quipment 16 0.8 0.9 Right-of-use assets 17 14.4 14.8 Deferred tax assets 18 1.8 1.8 Interest s in joint ventur e 19 0.3 0.4 T otalnon-currentassets 44.4 44.8 Currentassets T rade receivable s 20 6.0 5.8 Accrued income 21 6.3 5.0 Prepa yments 21 3.2 2.1 Other receivables 21 1.0 0.8 Cash and cash e quivalent s 22 23.1 37.0 T otalcurrentassets 39.6 50.7 T otalasset s 84.0 95.5 Liabilitiesandequity Currentliabilities T rade and other payables 23 9.3 8.1 Corporation tax 23 1.8 1.3 Lease liabilities 24 1.9 1.7 Contract liabilities 23 11.0 7.0 T otalcurrentliabilities 24.0 18.1 Non-currentliabilities Lease liabilities 24 15.2 15.8 Pro visions for other liabilities 25 1.4 1.4 T otalnon-currentliabilities 16.6 17.2 T otalliabilities 40.6 35.3 Capitalandreserves Share capital 26 0.3 0.3 T ranslation reser ve 27 – 0.1 Own shares 28 (3.4) – Retained earnings 46.5 59.8 T otalequity 43.4 60.2 T otalliabilitiesande quity 84.0 95.5 The above consolidated statement of financial position should be read in conjunction with the accompan ying notes. The consolidated financial statements on pages 137 to 172 were approv ed and authorised for issue by the Board of Directors on 8 Mar ch 2022 and signed on it s behalf . Andrew Denton Chief Executive Officer Duncan Magrath Chief Financial Officer Alfa F inancial Software Holdings PLC – R egistered number 10713517 FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 139 CONSOLID A TEDST A TEMENTOFCHANGESI NEQUITY £m Note Share capital Own shares T ranslation reserve Retained earnings Equity attributable to owners of the parent Balance as at 1 January 2020 0.3 – – 82.0 82.3 Pro fit for the financial year – – – 20.3 20.3 Other comprehensive income – – 0.1 – 0.1 T otal comprehensive income f or the year – – 0.1 20.3 20.4 T rans actions with owners in their capacity as owners: Equity-settled share-based payment schemes 29 – – – 1.3 1.3 Equity-settled share-based payment schemes – deferred tax impact 18 – – – 0.4 0.4 Dividends 31 – – – (44.2) (44.2) Balance as at 31 December 2020 0.3 – 0.1 59.8 60.2 Pro fit for the financial year – – 19.2 19.2 Other comprehensive loss – – (0.1) – (0.1) T otal comprehensive income f or the year – – (0.1) 19.2 19.1 T rans actions with owners in their capacity as owners: Equity-settled share-based payment schemes 29 – – – 1.1 1.1 Equity-settled share-based payment schemes – deferredtaximpact 18 – – – 0.3 0.3 Dividends 31 – – – (32.7) (32.7) Own shares issued 28 – 1.2 – (1.2) – Own shares acquired 28 – (4.6) – – (4.6) Balanceasat31December2021 0.3 (3.4) – 46.5 43.4 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 140 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 CONSOLID A TEDST A TEMENTOFCA SHFL O WS £m Note 2021 2020 Cashflowsfr omoperatingactivities Pro fit before tax 23.8 23.2 Net finance cost s 0.8 0.7 Share of net loss fr om joint venture 0.1 – Operating pro fit 24.7 23.9 Adjustment s: Depreciation 6/16/17 2.3 2.2 Amortis ation 6/15 0.8 0.8 Share-based payment char ge 29 1.5 1.5 Loss on dispos al of assets – 0.1 Mov ement in provisions 25 – 0.5 Mov ement in working capital: Mov ement in contract liabilities 23 4.1 (1.9) Mov ement in trade and other receivables 20/21 (2.8) 0.6 Mov ement in trade and other payables (excluding contr act liabilities) 23 0.7 2.4 Cashgeneratedfromoperations 31.3 30.1 Interest element on lease payments 10/24 (0.8) (0.8) Income taxes paid 11 (3.8) (3.8) Netcashgenerat edfromoperatingactivities 26.7 25.5 Cashflowsfr ominv estingactivitie s Pur chases of proper ty , plant and e quipment 16 (0.3) (0.2) Pur chases of computer software 15 (0.1) (0.1) Pa yment s for internally dev eloped sof tware 15 (0.9) (0.7) Inv es tment in joint ventur e 19 – (0.3) Loan to joint venture 19 – (0.1) Interest received 10 – 0.1 Netcashusedininvestingactivities (1.3) (1.3) Cashflowsfr omfinancingactivities Dividends paid to Company shar eholders (32.7) (44.2) Principal element on lease payments 24 (1.9) (1.7) Pur chase of own shares (4.6) – Cashusedinfinancingactivitie s (39.2) (45.9) Netdecreaseincash (13.8) (21.7) Cash and cash e quivalent s at the beginning of the year 22 37.0 58.8 Effect of f oreign ex change rate changes on cash and cash e quivalents (0.1) (0.1) Cashandcashequivalent sattheendofthey ear 22 23.1 37.0 The above consolidated statement of cash flows should be read in conjunction with the accompan ying notes. FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 141 NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED 3 1 DECEMBER 202 1   This note pro vides a lis t of the significant accounting policies adopted in the preparation of these consolidated financial s tatement s. These policie s hav e be en consistently applied to all the years presented, unless other wise s tated. The financial statement s are for theGr oup, consisting of Alfa F inancial Software Holdings PLC (Alfa or the Company ) , it s subsidiaries and joint venture, and are pr esented to the nearest million unless other wise state d. The change in pr esentation from thousands to millions has be en done to make the financial statements clearer f or the users. The principal activity of the Group is to pr ovide software solutions and consultancy service s to the auto and equipment finance industr y in the UnitedKingdom, United States of America, Europe and Australasia.   Compliance with IFRS The consolidated financial statement s of the Group hav e been prepared in accordance with UK -adopted international accounting standards and Company Law . The change in the basis of pr eparation from 2020 is r equired by UK Company Law as a result of the UK’ s exit from the EU on 31 January 2020 and the ce ssation of the transition perio d on 31 December 2020. This change doe s not constitute a change in accounting policy , rather a change in the framew ork which is required to group the use o f IFRS in company la w . There is no impact on the recognition, measurement or disclosur e between the two frameworks in the period reporte d. Historical cost convention The consolidated financial statement s have been prepar ed under the his torical cost convention, other than the r evaluation of financial asset s and financial liabilities recorded at fair value through pr ofit or loss. Going concern The financial statement s are pr epared on the going concern basis. The Gr oup continues to be c ash-generative and the Dir ectors believe that the Group has a r esilient busine ss model. The Group meet s it s day-to-da y working capital requirements through its cash reser ves generated from operating activities. The Group ’ s for ec ast s and projections, taking account of reasonably possible changes in trading performance, showthat the Gr oup has sufficient cash reser ves to continue to operate for a period of not less than 12 months from the date of these financial statement s. The going concern assessment also includes downside stress te sting in line with FRC guidance which demonstrates that even in the most extreme downside conditions consider ed reasonably possible, given the existing level o f cash held, the Group would continue to be able to meet it s obligations as they fall due, without the nee d for substantive mitigating actions. On this basis, whilst it is acknowledged that there is continued uncer tainty over futur e economic conditions, the Directors consider it appropriate to continue to adopt the g oing concern basis of accounting in preparing the financial statements. New and amended standards adopted by the Group The Group applies for the first time the follo wing new standard: • Amendments to IFRS 16 Lease s: COVID 19-R elated Rent Concessions (issue d on 28 May 2020) . By adopting the abov e, there has been no material impact on the financial statement s. New standards, amendments and interpretations not yet adopted A t the date of authorisation of these financial s tatements, the Group has not applied the following new and r evised IFRS Standards that ha ve been issue d but are not yet eff ective: • Amendments to IFRS 3 Busine ss Combinations; IAS 16 Property , Plant and Equipment; IAS 37 Pro visions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (All issued 14 May 2020, effective from 1 January 2022) . The directors do not expect that the adoption of the Standards listed above will ha ve a material impact on the financial statements oftheGroup . 142 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021     Basis of consolidation Subsidiaries are all entities ov er which the Group has contr ol. The Group controls an entity when the Gr oup is exposed to, or has rights to,variable r eturns from its involvement with the entity and has the ability to aff ect those returns through its power ov er the entity . Subsidiaries are fully consolidated from the date on which c ontrol is transf erred to the Group . Unless other wise stated, subsidiaries have share capital consisting solely o f ordinary shares, and the proportion of ownership inter est s held equals the voting right s held b y the Group . The country of incorporation or registration is also each subsidiar y ’ s principal place ofbusiness. All intra-Gr oup transactions, balances, income and expenses are eliminat ed on consolidation. All subsidiaries ha ve a 31 December y ear end. In the current period it was conclude d that the Group exercises contr ol over the employee benefit trust be cause it is exposed to , and has a right to,variable returns from this trust and is able t o use its power over the trust to af fect those returns. Ther efore the trust has b een consolidated by theGroup in the curr ent period. The impact of consolidation of the trust in the prior period was immaterial. Joint arrangements A joint arrangement is a contractual arrang ement whereby the Gr oup and other partie s under take an economic activity that is subject to joint control; that is, when the relevant activities that significantly aff ect the inv es tee’ s r eturns require the unanimous consent of the parties sharing control. Joint c ontrol is the contractually agreed sharing of contr ol of an arrang ement, and exists only when decisions about the activities thatsignificantly affect the arrangement’ s returns r equire the unanimous consent of the partie s sharing control. Judgement isr equiredindetermining this classification through an evaluation of the facts and circumstances arising from each individual arrangement. Joint arrangements are classified as either joint operations or joint ventur es based on the rights and obligations o fthepar ties to the arrangement. In joint operations, the partie s ha ve rights to the assets and obligations for the liabilities r elatingtothe arrang ement, whereas injoint ventur es, the parties hav e rights to the net assets of the arrangement. Alfa only has one joint ventur e, namely Alfa iQ , which was f ormed in May 2020. The inv es tment in the joint ventur e is accounted for using the equity method. The Gr oup ’s share of the joint v enture ’ s net pr ofit/ (loss) is based on its most recent financial statement dra wn up to the Group’ s balance sheet date. The total carr ying value of investment in joint venture r epresents the cost of the investment , including loans which form part of the net inves tm ent in the joi nt vent ure, pl us the shar e of post-acquisition retained earnings and any other mov ements inreser ves less an y impairment in the value of the inv es tment. The carr ying values of joint ventures are r eviewed on a regular basis and if ther e is objective evidence that an impairment in value has occurred as a result of one or more e vents during the p eriod, the investment is impaired. The Group ’ s share of the joint v enture ’s losses in excess of its interest in that joint venture is not r ecognised to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint ventur e. Unrealised gains arising from transactions with joint venturesar e eliminated agains t the investment to the extent of the Group ’ s interest in the investee. Unrealised losse s are eliminated inthe same way , but only to the extent that there is no evidence of impairment. Loans to the joint venture ar e measured at fair value on initial recognition, and subsequently carried at amor tised cos t. Any surplus between the nominal and fair value of the loan is recognised as an investment in the joint ventur e.   Operating and reporting segment s are reported in a manner consis tent with the internal reporting provided to the Chief Operating Decision Maker ( CODM) . The Group ’ s Chief Executive Officer ( CEO ) , who is responsible for allocating resources and asse ssing per formance, has been identified as the CODM. The CODM regularly re views the Group ’ s operating result s in order to assess per formance and to allocate resources. The CODM considers the business from a product perspective and, therefor e, recognises one operating and reporting segment , being the sale ofsoftware and related service s. The Group splits revenue b y type of project but report s operating result s on a consolidated basis, as presented to the CODM, along with the required entity wide disclosure. The Group discloses rev enue split by type of project being Subscription, S oftware and Services. a. Subscription r evenues include recurring r evenues paid on a monthly or annual basis, including subscription licence rev enues, maintenance and cloud hosting. b. S oftware rev enues include revenues from r ecognition of customised licence revenue, one-of f licence fees and any development r evenues. c. Service s rev enues are rev enues from any work done f or customers including pre-implementation, implementation work, and ong oing service s, but excludes any r evenue from de velopment work which is disclosed in Softwar e. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 143 T o better reflect the nature and type of revenue, chang es have been made in 2021 to the classification and alloc ation of rev enue line items. The comparative disclosur es for the December 2020 repor ting period have also been amended to reflect a fair base for comparability . These changes have had no impact on the total r evenue or the pr ofit before tax that w ere disclosed at the end of December 2020. See note 1.5 for details of our r evenue r ecognition accounting policy and note 2 for the critical accounting judgement s and estimate s inrelation to r evenue r ecognition.   Functional currency Items included in the consolidated financial s tatements of each of the Group ’ s subsidiarie s are measur ed using their functional currency . The functional currency of the parent and each subsidiary is the currency of the primary e conomic envir onment in which the entity operate s. See applicable exchange rates used in 2021 and 2020 below: 2021 2020 Closing A verag e Closing Av erage USD 1.35 1.38 1.37 1.28 EUR 1.19 1.16 1.11 1.13 NZD 1.98 1.95 1.89 1.98 AU D 1.86 1.83 1.77 1.86 Presentation currency The consolidated financial statement s are presented in pounds sterling . Alfa’ s functional and presentation currency is pounds sterling . Group companies The results and financial p osition of for eign operations (none of which has the currency of a hyperinflationary economy) that hav e afunctional currency differ ent from the pr esentation currency are translated into the presentation currency as follo ws: • Asset s and liabilities for each consolidated statement of financial position presente d are translated at the closing rate at the date ofthat consolidated statement of financial position; • Income and expenses f or each statement of pr ofit or loss and statement of compr ehensive income ar e translated at a verage exchange rates (unless this is not a reasonable appr oximation of the cumulative effect of the r ates prevailing on the transaction dates, in which case income and expenses are tr anslated at the dates of the tr ansactions); and • All resulting exchang e differ ences are recognised in other comprehensiv e income. On consolidation, exchang e differ ences arising from the translation of any net in vestment in foreign entities are r ecognised in other comprehensiv e income. When a for eign operation is sold the associate d exchange dif ferenc es are reclassified to profit or loss, as part ofthe gain or loss on sale. Foreign currency transactions T rans actions in for eign currencies are translated into the respective functional currencies using the ex change rates prevailing at the dates of the transactions. For eign exchange dif ferenc es arising from the settlement of such transactions and from the translation at thereporting date of monetary asset s and liabilitie s denominated in foreign curr encies are recognised in profit or loss. S ee applic able exchang e rates use d by the Group abov e.   The Group deriv es revenue b y type of project being Subscription, Software and S er vices (as disclose d in note 1.3) . i Subscription rev enue which includes the periodic right s to use Alfa S ystems, periodic maintenance, subscription (including cloud hosting) and one-off re venue relating to catch-up periodic maintenance; ii Softwar e rev enue which includes de velopment r evenue (par t of the customised licence r evenue) , options o ver the right to use Alfa S ystems, and one-off licence f ee s; and iii Service s rev enue which includes software implementation ser vices. The Group pr ovides the right to use, software development services, core implementation service s and ongoing support of it s product, AlfaSystems. The Group ’ s contractual arrangements contain multiple deliverables or ser vices, such as the development orcustomisation ofthe software to the customer’ s requirements, implementation ser vices such as migration of data and testing andcer tain project management service s. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 144 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   Alfa assesse s whether there ar e distinct per formance obligations at the star t of each contract and throughout the performance of theimplementation, development and services project s and maintenance period. The se per formance obligations ar e laid out below . Any one contract ma y include a single per formance obligation or a combination of those listed below: a. Software implementation services Where implementation services are considered to be distinct , i.e. when r elatively straightforward, do not r equire additional development service s and could be performed by an external third par ty , the implementation service s ar e accounted for as a separate performance obligation from an y development service s. When a customer is in the process of implementing the software, the transaction price is allocate d to this based on the stand-alone selling price s (deriv ed from s tandard day rate s) and is recognised o ver time based on the eff ort incurred, limited to the amount to which Alfa has a right t o pa yment. F or customers under the Group ’ s subscription based contracts that ar e undergoing implementation, revenue for so ftware implementation ser vice s is deemed to b e distinct from any other performance obligation and is recognised based on a percentage of completion basis. When the type of ser vices provided are ong oing ser vices, the transaction price is de emed to be the actual day rate, and rev enue is recognised at a point in time as the ser vice is pro vided. b. Development services and licence services (the customised licence) The second per formance obligation is the granting of a right to use Alfa S ystems, which include s the delivery of the related software licence and any dev elopment effort s which change the underlying code. During the initial phase of implementing the software, the total r evenue attributable to this performance obligation is estimate d at the outsetof the relevant software implementation project and recognised as the effort is expended, on a percentage-of-completion basis, limited to the amount of rev enue to which Alfa has the right to payment. A percentage-of-completion basis has been used be cause customers obtain the ability to bene fit from the pr oduct from the start of the implementation project , the development or customisation ofthe asset is tailored to the customer’ s specific requirement s; and the customer is entitled to the bene fit s of the efforts as at the date the effort s are deliver ed, so recognition ov er time is appropriate. Rev enue attributable to development services is value d using the residual value method as there are no stand-alone selling prices which are observ able as each pr oject is customise d. F or customers under the Group ’ s subscription based contracts that are undergoing implementation, rev enue for dev elopment ser vices is deeme d to be distinct from any other performance obligation and is recognised based on a p ercentag e of completion basis. Once the customer is already using the software and the services provided are ongoing de velopment, the transaction price is de emed to be the actual day rate and r evenue is r ecognised at a p oint in time as the development service is provided. c. Option over the right to use Alfa Systems In the event that customers hav e to pay periodic maintenance fees in order to keep using Alfa S ystems, a component of the se future maintenance fees is attributable to the right to use the software. In these circumstances the licence granted by Alfa is considered to rene w in future periods. There ma y be a material right in respect of discount s in future periods. In order to ascribe a value to this option, management annualise the value of the customised licence per formance obligation and compare it to the annual right to use softwar e per formance obligation post go live. The value of this option is built up from the start of the implementation project in line with the percentage-of-completion o f development rev enue describe d in 1.5(b) abov e. Follo wing the completion of the implementation project, the value of this option isrecognised evenly ov er the expected remaining customer life. d. Periodic right to use Alfa Systems When a customer pays its maintenance fee annually , this performance obligation represents the propor tion of this fee which relates to the periodic option to renew the right to use Alfa S y stems. If there is the right of cla wback of the annual right to use, such amounts are recognised throughout the annual period. If there is no right of clawback, then the annual right t o use amount is recognised in full when there is a right of collection. When a customer pays for its maintenance fee as part of a subscription contract (se e section 1.5f below) , it will not be treated as a separate per formance obligation (and will instead be par t of the subscription amount) . e. Periodic maintenance amounts This repr esent s the stand-alone selling price of the ongoing suppor t or maintenance of Alfa Systems which is r ecognise d throughout theperiod over which the services are delivered. FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 145 f. Subscription amounts Certain of the Group ’ s implementation and ser vice contract s include a subscription payment mechanism. This repr esent s a monthly feecharged to the customer cov ering one or more of the f ollowing performance obligations; the provision o f monthly hosting ser vices; the monthly periodic right to use Alfa Systems and the pro vision of monthly maintenance ser vices (when this becomes applic able to the customer) . The monthly payments are recognised as rev enue in the period to which they relate. This reflects the underlying p erformance obligations of the Group and termination rights of the customer . g. One-off revenue amounts F rom time to time, the Gr oup is entitled to r eceive one-off licence re venue fr om its cus tomers as the y increase the number of contracts ontheir version o f Alfa S ystems. Additionally , there are times when catch-up periodic maintenance amounts are entitled to be r eceived bythe Group, also as a result of the increased number of contracts. Generally this revenue is r ecognise d at the point in time it is invoic ed, or b ecomes contractually payable, r eflecting the fact that the Group has no remaining performance obligations to satisf y . Capitalised sales incentive costs The Group incentivises its s ales force f or securing sale s. In line with IFRS 15, these cost s are capitalised and are amortise d in line with the percentage of c ompletion of the software implementation project. Costs to fulfil contracts The Group has r ecognised an as set of £1.1m in relation to emplo yee cost s to fulfil its long-term development contracts. The se cost s relate directly to the contracts, generate or enhance resources to be used to satisf y performance obligations in the future and are expected to be recov ered. This asset is presented within prepayments in the Statement of F inancial P osition. These cos ts are amor tised within cost of s ales in line with the percentage of c ompletion of the development pr oject .   Operating expenses include items such as personnel cos t s (including training and recruitment) , cost of software not capitalised, research and development costs and other infrastructure expenses. The se items have been grouped into the follo wing categories fordisclosure purposes: • Cost of sale s – This includes salarie s and other direct cost s associated with s atisfying customer contract s and for developing so ftware. • Sales, general and administrative expenses – This includes all the residual operating cost s.   T axation expense for the y ear comprises current and deferred tax recognised in the reporting period. T ax is recognised in profit and loss, except to the extent that it r elates to items recognised in other comprehensive income or dir ectly in equit y . Current or deferr ed taxation asset s and liabilities are not discounted. Current tax The current income tax char ge is calculated on the basis of the tax laws enacted or substantively enacted at the repor ting date in the countries where the Group and its subsidiaries operate and generate taxable income. Management periodically evaluate s positions taken intax returns with r espe ct to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expecte d to be paid to the tax authorities. Deferred tax Deferred income tax is recognised, using the liability method, on temporar y differ ences arising between the tax base s of asset s andliabilities and their carr ying amount s in the Group ’ s consolidated financial statement s. Howev er , the de ferr ed income tax is not accounted for if it arises from initial r ecognition of an asset or liability in a trans action other than a business combination that at the timeof the transaction affect s neither accounting nor taxable profit or loss. Deferr ed income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferr ed income tax liability is settled. Deferred income tax asset s are recognised to the extent that it is pr obable that future taxable pro fit s will be a vailable against which the temporar y diff erences can be utilised. Deferr ed income tax assets and liabilities are offset when there is a legally enfor ceable right to offset current tax asset s against current tax liabilities and when the deferr ed income taxes, assets and liabilities relate to income taxes levied b y the same taxation authority on either the taxable entity or diff erent taxable entities where ther e is an intention to settle the balances on a net basis. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 146 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021     Alfa enters into lease contracts in respe ct of various propertie s and motor vehicles. These rental contracts are typically made for fixed periods of two to ten years, and sometimes hav e extension options. Lease terms are negotiated on an individual basis and contain a wide range of diff erent terms and conditions. In accor dance with IFRS 16, leases are r ecognised as a right-of-use asset with a corresponding liability , at the date at which the lease d asset is available for use b y Alfa. These asset s and liabilities are initially measured on a present value basis (as set out in more detail below ) , with each subse quent lease payment allocated between the liabilit y and finance cost. The finance cos t is charged to pro fit or loss over the lease period to produce a constant periodic rate of interest on the remaining ba lanc e of the liab ility f or each period. The right-of-use asset is depreciated ov er the shorter of the asset’ s useful lif e andthe lease term ona straight-line basis. Alfa assesse s whether a contract is, or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and acorresponding lease liability , withrespe ct to all lease arrangements in which it is the le ssee, except for short-term leases (defined aslease s with a lease term of 12 months, or few er) and leases of lo w-value asset s. For these leases, the Group recognises the lease payments as an expense on a straight-line basis over the term of the lease, unless another systematic basis is more r epresentative ofthetime pattern in which economic benefit s from the leased asset s are consumed. Lease liabilities The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses it s incremental borro wing rate. Lease payments include d in the measurement of the lease liability comprise: • F ixed lease payments (including in subs tance fixed payments) , less any lease incentives; • V ariable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; • The amount expected to b e payable by the lessee under residual value guarantees; • The exer cise price of purchase options, if the lessee is reasonably certain to exercise the options; and • Penalties f or terminating the lease, if the lease term reflect s the exercise o f an option to terminate the lease. The lease liability is presented in separate lines, split b etween current and non-curr ent liabilities, in the consolidate d statement of financial position. It is subsequently measured by increasing the carrying amount to reflect interes t on the lease liability (using the effective inter est method) and by reducing the carrying amount to reflect the le ase payments made. The Group r e-measures the lease liability (and makes a corresponding adjus tment to the related right-of-use asset) whenev er: • The lease term has changed, or there is a change in the assessment of exer cise of a purchase option, in which case the lease liability is re-measur ed by discounting the revised lease payments using a revised discount rate; • The lease payments change due to changes in an index, or rate, or a change in expected payment under a guaranteed residual value. In these case s, the lease liability is re-measured by discounting the r evised lease payments, using the initial discount rate (unles s the lease payments change is due to a change in a floating inter es t rate, in which case a revised discount rate is used); and • A lease contract is modified and the lease mo dification is not accounted for as a separate lease, in which case the lease liability is re- measured by discounting the r evised lease payment s using a revised discount rate. Right-of-use assets The right-of-use assets comprise: • The initial measurement of the corr esponding lease liabilit y; • Lease payments made at , or before, the commencement da y; • Any initial dir ect cos ts; and • Restoration cost . FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 147 The right-of-use assets are presented as a separate line in the consolidated s tatement of financial position. The right-of-use assets are subsequently measured at cos t less accumulated depreciation and impairment losse s (if applicable) . They are depreciated from the commencement date of the lease and o ver the shorter period of the lease term and use ful life of the underlying asset. If a lease transfers o wnership of the underlying asset, or the cos t of the right-of-use asset reflects an expe ctation thatthe Group will ex ercise a purchase option, the r elated right-of-use asset is depreciated over the useful life of the underlying asset. Currently , the Group does not have any leases that include a purchase option, or transf er ownership of the underlying asset. Whenever the Gr oup incurs an obligation for cost s to dismantle and remo ve a leased asset, res tore the site on which it is located, orrestore the underlying asset to the condition required by the terms and conditions o f the lease, a provision is r ecognised and measured under IAS 37. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extende d (or not terminated) . The asse ssment is review ed if a significant event or a significant change in circumstances occurs which affect s this assessment and that is within the control of the lesse e. During the current financial period, there ha ve been no changes insuch asse ssment s. V ariable rents that do not depend on an index, or rate, are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included as an expense in the consolidated s tatement of profit or loss and compr ehensive income.   Goodwill is te sted annually for impairment. The c arrying amount is allo cated to the c ash-generating unit ( CGU) that is expecte d to benefit from in vestment and which represents the lowest level at which the goodwill is monitored for internal manag ement purpose s. The carr ying value of the CGU is then compared to the higher of its fair value le ss cost s of disposal and it s value in use. Any impairment attributed to the goodwill is recognised immediately as an expense and is not subse quently rev ersed. Other asset s are teste d for impairment whenev er events or changes in circumstances indicate that the c arrying amount might notberecov erable. An impairment loss is recognised for the amount by which the asset’ s carr ying amount exceeds it s recov erable amount.The recoverable amount is the higher of an asset’ s fair v alue less cost s of dispos al and value in use. For the purposes of assessing impairment, asset s are grouped at the lowest levels f or which there ar e separately identifiable cash inflows which are larg elyindependent of the cash inflows from other assets or groups of assets (cash-generating unit s) . Non-financial asset s other thangoodwillthat suffered an impairment are r eviewed for possible re versal of the impairment at the end of each reporting period.   Cash and cash equivalent s include cash at bank and in hand as well as short-term deposits with original maturities of three months orless.   Recognition and de-recognition F inancial asset s are recognised in the statement of financial position when the Group becomes par ty to the contractual provision of theinstrument . F inancial asset s are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewar ds are transf erred. Classification and initial measurement of financial assets Except f or those trade receivables that do not contain a significant financing component and are measured at the transaction price inaccordance with IFR S 15, all financial asset s are initially measured at fair value adjusted for transaction cost s (where applicable) . F inancial asset s, other than those designate d and effective as hedging instrument s, are classified into the follo wing categories: • Amortise d cost; • Fair value thr ough profit or loss (FV TPL); and • Fair value thr ough other comprehensiv e income (FVOCI) . In the periods pr esente d, the Gr oup does not hav e any financial asset s categorised as FV TPL or FV OCI. The classification is determined by both: • The entity ’ s business mo del for managing the financial asset; and • The contractual cash flow characteristics of the financial asset . All income and expenses relating to financial assets that ar e recognised in pr ofit or loss ar e presented within finance cost s, finance income or other financial items, except f or impairment of trade receivables which is pr esented within sale s, general and administrative expenses. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 148 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   Subsequent measurement of financial assets Financial assets at amortised cost F inancial asset s are measured at amortised cos t if the asset s meet the following conditions (and ar e not designated as F V TPL): • They are held within a business model whose objective is to hold the financial asset s and collect their contractual cash flows; and • The contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principalamount outs tanding. After initial recognition, these are measur ed at amor tised cos t using the effective inter est metho d. Discounting is omitted where the effect of discounting is immaterial. The Group ’ s trade and most other receivables (note s 20 and 21) and cash and cash e quivalents (note22) fall into this category of financial ins truments. Impairment of financial assets Under IFRS 9 the requirements ar e to use forward-looking information to recognise expecte d cr edit losses – the ‘ expe cted cr edit loss (ECL) model’ . The Gr oup considers a br oad range of inf ormation when assessing credit risk and measuring expecte d cr edit losses, including past ev ents, current conditions, r easonable and suppor table f orecast s that aff ect the expected collectability of the futur e cash flo ws of the instrument. In applying this forward-looking approach, a distinction is made between: • F inancial instrument s that ha ve not det eriorated significantly in credit quality since initial recognition or that hav e low cr edit risk (‘Stag e 1’); and • F inancial instruments that hav e deteriorated significantly in cr edit quality since initial recognition and whose credit risk is not low (‘S tage 2’) . • ‘Stage 3’ w ould cover financial assets that have objective e vidence of impairment at the reporting date. ‘12-month expected credit losse s’ are recognised for the first category while ‘lifetime expecte d credit losses’ are recognised for the second and third categories.   T rade receivable s are amounts due from customers for licences sold or service s per formed in the ordinary course of business. They are generally due for settlement within 30 da ys of the invoice date and ar e theref ore all classified as current. T rade receivables are recognised init iall y at fa ir value and subsequently measured at amor tised cost using the e ffective inter est method, le ss provision f or impairment. An impairment loss is recognised when there is objective evidence that the Gr oup will not be able to collect all amount s due according to the original terms of the receivable. The Group considers inf ormation developed internally or obtained from external sources that indicates that a debtor is unlikely to pay its creditors, including the Group, in full ( without taking into account any c ollateral held by the Group ) as an indication that a financial asset is not recov erable. The Group has applied the simplified approach to measuring expected credit losse s, which uses a lifetime expected los s allowance. T o measure the expected credit losse s, trade receivables have been grouped based on days over due. The expecte d impairment loss is recognised in the consolidated statement of profit or loss and comprehensiv e income within sales, general and administrative expenses, and subsequent recoveries are cr edited to the same account previously used to recognise the impairment charge. During the curr ent and prior period the result of the above was immaterial and no impairment loss has been recognised. The maximum exposure to cr edit risk at the repor ting date is the carr ying value of each class of receivable mentioned above. The credit qualities of these receivable s are periodically asses sed by ref erence to external credit ratings (if available) or to historical information about their default rates. The Group does not hold any collateral as security . As the total carr ying amount of the current portion of the trade and other receivables is due within the next 12 months af ter the reporting date, the impact of applying the effective inter est method is not signific ant and, therefor e, the carr ying amount equals thecontractual amount or the fair value initially recognised.   Property , plant and e quipment is stated at his torical cost le ss accumulated depreciation. Historical cos t includes expenditure that is directly attributable to the acquisition of the item. Depreciation on assets is c alculated using the straight-line method to allo cate their cost over their estimate d useful lives, as follows: F ixtures and fittings: 3-10 years IT equipment: 2-5 years Motor vehicles: 10 years FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 149 The asset s’ residual values and useful lives are review ed and adjuste d if neces sar y at each reporting date. An asset ’ s carr ying amount iswritten down immediately to its recoverable amount if the asset’ s carr ying amount is greater than its e stimated recoverable amount. Repairs and maintenance are char ged to the consolidated statement of profit or loss and comprehensiv e income as incurred. Any gains or losses on disposals are recognised within sale s, general and administrative expenses in the consolidated statement of profit or loss and compr ehensive income unless other wise specifie d. Property , plant and e quipment are r eviewed for impairment whenev er events or changes in circumstances indic ate that the carr ying amount may not be recov erable. An impairment loss is recognised for the amount b y which the asset ’ s c arr ying amount exceeds it s recov erable amount, which is the higher of an asset ’ s fair value less cost s to sell and value in use. For the purpose of assessing impairment , asset s are grouped at the lowest levels f or which there ar e separately identifiable cash flows.   Goodwill Goodwill arose on the acquisition of subsidiaries in 2012 as part of a group reorganisation and repr esent s the ex cess of the consideration transferr ed and the amount of any non-controlling int erest in the investment over the fair value of the identifiable assets acquired andliabilities and contingent liabilities assume d. The Group assesses whether goodwill has suffered any impairment on an annual basis in accor dance with the accounting policy s tatedinnote 1.9 above. Ther e is one CGU, being the Gr oup, as its geographical operations do not have separate or distinct cash inflows. The recov erable amount of goodwill has been determine d based on value-in-use calculations using c ash flow pr ojections fromfinancial budgets and forecast s. Budgeted cash flow projections are based on the expectation of signing ne w customers in the Gr oup ’ s sale s pipeline as well as ongoing projec t s with existing customers. Budgeted gross margin is based on historical evidence and the expe ctations of market dev elopment and efficiency leverag e. Management believes that any r easonable change in any of the k ey assumptions on which the rec ov era ble amoun t is bas ed w ould not cause the reported carr ying amount to ex ceed the recover able amountof the CGU . Th e di scou nt ra te us ed refle ct s the G roup’ s p re-tax weighted av erage cost of capital (W ACC) , as adjus ted forregion-specific risks andother factors as required b y IFRS. Intangible assets Internally generated product dev elopment cost s only qualify for capitalisation if the Group can demons trate all of thef ollowing: • The technical feasibility of completing the intangible asset so that it will be available for use or sale, it s intention to complete the intangible asset and use or sell it; • Its abilit y to use or sell the intangible asset; including how the intangible asset will generate pr obable future economic benefit s; • The existence of a market or , if it is to be used internally , the usefulness of the intangible asset; • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • Its abilit y to measure r eliably the expenditure attributable to the intangible asset during development. Generally , commercial viability of new pr oduct s, modules or capabilities is not pr oven until all high-risk dev elopment issues ha ve beenresolved through testing of the specific development. Development expenditure incurred on minor or major upgrades, or other chang es in software functionality , doe s not satisfy the criteria, where it is considered that the product is not substantially new in its de sign or functional characteristics. Such expenditure is theref ore r ecognised as an expense. See note 15 for disclosur e of development cost s which hav e met the criteria o f IAS 38 for recognition. The Group continues to assess the eligibility of development costs for capitalis ation on a project-by-pr oject basis. Externally acquired intangible asset s are initially r ecorded at historical cos t. His torical cost include s expenditure that is dir ectly attributable to the acquisition of the item. The Group amortises intangible asset s with a limite d useful life, using the straight-line method over the f ollowing periods: Computer software: licence period or 10 years as applicable Internally generated software: 3-5 y ears Amortis ation is presented within sale s, general and administrative expenses. Research and dev elopment which does not me et the criteria set out above is r ecognised as an expense as incurred. Development cost s previously r ecognised as an expense are not recognised as an asset in subse quent periods. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 150 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021     T rade payables are obligations to pay for g oods or ser vice s which hav e been acquired in the ordinar y course of business from suppliers. T rade payables are recognised initially at fair value and subsequently me asured at amortise d cost s using the effective inter est rate metho d. As the total carrying amount is due within the next 12 months fr om the r epor ting date, the impact of applying the effective inter est method is not significant and, ther efore, the carr ying amount equals the contractual amount orthe fair value initially recognised. The Gr oup ’ s financial liabilities include trade and other payables and lease liabilities. F inancial liabilities are initially measur ed at fair value, and,wher e appl icabl e, adjusted for transaction cost s unless the Group designate d a financial liability at fair value through pro fit or loss. Subsequently , financial liabilities are measured at amortised cost using the effective int erest method. All interest-related charg es and, ifapplicable, changes in aninstrument ’ s fair value that are reporte d in pr ofit or loss ar e included within finance cost s or finance income. The Group der ecognises financial liabilities when, and only when, the Group ’ s obligations are discharged, cancelled or expir ed. T rade and other payables and le as e li ab il iti es are classified as current liabilities if payment is due within one y ear or less. If not , they are presented as non-current liabilities.   Pro visions are r ecognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of r esources will be required to settle the obligation and a reliable estimate of the amount can b e made. When the effect of the discounting is material, pro visions are measured at the pr esent value of the expenditur es expected to be r equired to settle the obligation.   The Group pr ovides a range of benefits to employees, including paid holiday arrangements and de fined contribution pension plans. Short-term benefits Short-term b enefit s, including health cov er and other similar non-monetar y benefit s, are recognised as an expense in the period in which the service is received. Post-employment benefits The Gr oup operates various define d contribution plans f or its employ ees. A defined contribution plan is a pension plan where the Group pays fixed contributions into a separate independent entity . The Group has no legal or constructive obligation to pay further contributions if the fund doe s not hold sufficient asset s to pay all employ ees the benefit s r elating to the emplo yee’ s service in the current and prior periods. Employee share scheme expense The Gr oup makes equity-settled shar e-based payments to certain employ ees, which are measured at fair value at the date of gr ant and expensed on astraight-line basis ov er the ves ting period, based on the Group ’s e stimate of shares that will ev entually v est . F or those share schemes with market- related vesting conditions, the fair value is determined using the Monte C arlo model at the grant date. F or shar e options issue d with EP S (non-mark et) per formance ves ting conditions, the fair value of the underlying vehicle is equal to the grant date shareprice discounted b y the exp ected dividend yield to reflect the lack of dividend accrual ov er the vesting period. For all other share a wards, those with pur e employment conditions attached, the fair value is determine d b y r efer ence to the market value o f the shares atthegrant date or (wher e they ha ve an e xercise price) by using the Black Scholes model. For all shar e schemes with non-market vesting conditions, the likelihood of vesting has b een taken into account when determining the relevant charge. V e sting assumptions are review ed during each r epor ting period to ensure they reflect curr ent expectations.   Ordinary shares Ordinary shares are classified as equity . There ar e no restrictions on the distribution of c apital and the repa yment of capital. Cumulative translation reserve Exchange differ ences arising on translation o f the for eign-controlled entities ar e recognised in Other Compr ehensive Income and accumulated ina separate r eser ve within equity . The cumulative amount would be reclassified to profit or loss if the entity was disposed of . Own shares Own shares repr esent the shares of the parent company Alfa F inancial Software Holdings PLC that are held b y the employee benefit trust . Own shares are r ecorded at cost and de ducted from equity .   Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of Alfa by the w eighted average number of or dinar y shares outs tanding during the year ( excluding own shar es held) . FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 151 Diluted earnings per share Diluted earnings per share is calculated in line with the basic earnin gs p er s hare calculation above ex cept that the w eighted av erage number ofshares includes all potentially dilutiv e options granted b y the r epor ting date as if those options had been exer cised on the first da y of the accounting period or the date of the grant, if later . The shar es hav e no right to voting or to dividends while held intrust.   The preparation of financial statements requires the use of accounting estimate s which, by definition, will seldom equal the actual results. Management also needs to exercise judg ement in applying the Group ’ s accounting policies. This note pro vides an overview of the areas that inv olved a higher degree of judgement or complexity , and of items which are more likelyto be materially adjusted in future periods due to e stimates and assumptions turning out to b e wrong. Detailed information abouteach of these estimate s and judgements is include d in other notes, together with information about the basis of calculation f oreach affected line item in the financial statement s.   Revenue recognition – Assessing performance obligations The Group is r equired to make an assessment as to whether the implementation proces s, which includes customise d licence, implementation rev enue streams as well as any maint enance fees during this phase, forms one or a number of per formance obligations. Since the r esidual value method is used for the customised licence revenue (as explained in note 1.5) , the e stimation of fair value of implementation rev enue willimpact the contract consideration assigned to the customise d licence. In addition, the Group is also r equired to make an assessment as to whether each contract contains an expe ctation to deliver multiple separate instances of the customise d licence which may f orm separate groups of distinct performance obligations. In doing the above, theGroup assesses each soft ware implementation contract as to whether the underlying so ftware requires significant modification orcustomisation by the Group in or der to meet the cus tomer’ s requirements before Alfa S ystems can b e utilised by the customer . Therefor e judgement is r equired in determining which effort s relate to the implementation process and which effort s could be determined tobe development services which change or enhance the underlying code. In making this judgement, the Group asses ses the contractual terms and the original project plan for the implementation but also uses historical evidence of what constitutes core implementation work. Internally generated software development – Assessing whether a project meets criteria of IAS 38 The Gr oup is required to make an assessment of each ongoing project in order t o determine at what stage a pr oject meet s the criteriaoutlined in the Gr oup ’ s accounting policies. Such assessment may , in certain circumstances, require significant judgement. In making this judgement, the Group evaluates, amongst other factors, the stage at which technical feasibility has been achieved, manag ement’s intention to complete and use or sell the product, the lik elihood of success, the availability o f technical and financial resour ces to complete the dev elopment phase and management’ s ability to measur e r eliably the e xpenditure attributable to the project. Research and pr oduct development expenditure incurred on minor or major upgrades, or other changes in software functionality , do es not satisf y the criteria where it is consider ed that the product is not substantially new inits design or functional characteristic s. S uch expenditure is ther efor e recognised as an expense.   Revenue recognition – Estimates feeding through to the customised licence The customised licence and it s associate d material right are both impacted by the f ollowing estimate s: • Assigning a stand-alone selling price for implementation ser vices day rates: the Group assesses the v alue of the implementation service s deliver ed by asses sing the effective da y rate for an implementation contract, taking into account all re venue streams fr om implementation contracts ag ainst day rates of similar projects in the s ame geographies; • Estimating the appropriate life o f customer relationship: the Group calculates the material right deferral of the customised licence based on the total customer relationship life. This is also the time o ver which the material right will be spr ead; and • Determining the split of maintenance amount between suppor t effort s and right to use: the Group must estimate what p ercentag e of the total maintenance fee relat es to the cus tomised licence. Management reassesse s estimates and applies them to new projects prospectively . A variation of 5% to 10%, or an incr ease in expected customer life b y a year , in the above, r esult s in an impact on revenue f or the year ranging between an increase / decrease of £0.4m.   Revenue recognition –Number of forecast implementation and development days The Gr oup es timates the number o f da ys r equired to complete the r elevant software customis ation effort at the outset of each projectand on an ongoing basis including at each consolidated statement o f financial position dat e. Estimates of total project daysr equired for a relevant project are based on historical evidence of past implementations, knowledge of the customer’ s systemsbeing r eplaced and scope of cus tomisation being requeste d. The Gr oup applies the per centage-of-completion method whencalculating implementation and dev elopment services r evenue and updates e stimates at each quar ter end accordingly . Therefor e, a significant movement in total planned days w ould result in volatility in implementation and customised licence revenue. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 152 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   In common with all other businesse s, the Group is exposed to risks that arise from its use of financial instrument s. This note describe s the Group ’ s objectives, policie s and processes for managing those risks and the methods used to measure them. Further quantitative inf ormation in respect of these risks is presente d throughout these financial statement s. Are a Exposure arising from Measurement Management Market risk – for eign exchang e Contracted revenue and costs denominated in a currency otherthan the entity ’ s functionalcurrency; and Monetary as sets and liabilitiesdenominated in acurrency other than the entity ’ s functional currency . Cash flow for ecas ting and for eign exchange sensitivity Natural hedging from localise dcost base and promptcon version of for eigncurrency cash balancesinto pound sterling Credit risk – cash balances Cash and cash equivalent s Credit ratings Diversification of bankdeposit s Credit risk – customer receivables T rade receivable s and accruedincome Ageing analysis Credit ratings Credit checks and contractualpayment terms Liquidity Cash and cash e quivalent s Cash flow forecasting Collection of upfront licence fees, ageing analysis of customer receivables The Group ’ s overall risk manag ement policy focuses on the unpredictabilit y of financial markets and seeks to minimise potential adverse effects on the Group ’ s financial performance. The Group has used financial instrument s to hedge cer tain risk exposures in the past. Risk management is carried out by the finance function under policies approv ed by the Chief Financial Officer . The finance function identifies, evaluates and mitigate s financial risks when deemed ne cess ary . The Group ’ s objectives when managing capital are to safeguard the Gr oup ’ s abilit y to continue as a going concern, so that it can pr ovide returns f or shareholders and benefit s for other stakeholders and maintain an optimal capital structure.   The Group operates internationally and is exposed to foreign ex change risks arising fr om various currencies, primarily with respect tothose describe d below . Revenue is pr edominantly denominated in pounds s terling and US dollars. Operating cost s are influenced bythe curr encies of the countries where the Group ’ s subsidiaries are based and pounds sterling and the US dollars are the currencies inwhich most operating cost s are denominated. The split by curr ency in relation to trade receivables is set out in note 20. The Group ’ s exposure to f oreign currency risk in relation t o revenue is set out in note 5.4. The Group has not enter ed into or utilised any form of hedging against foreign curr ency exposure during the current or prior period, nordoes the Group ha ve any outstanding commercial for eign exchange contr act s at 31 December 2021 or 31 D ecember 2020. A 10% increase in the USD:GBP ex change rate in the year ended 31 December 2021 would have incr eased revenue and pr ofit by 4% and 8%respectively . FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 153   a. Credit risk related to transactions with financial institutions Credit risk with financial institutions is managed by the Group ’ s finance function in accordance with a Boar d appro ved policy . Management is not awar e of any significant risks associated with financial institutions as a result of cash and c ash equivalent s deposit s(including shor t-term inv es tment s) and financial derivative transactions. b. Credit risks related to customer trade receivables Significant financial difficulties of the debtor , probability that the debtor will enter bankruptcy or financial reorganisation, change ofstrateg y and default or delinquency in payment s are consider ed indicators that a trade receivable could be impaired. Given the complexity , the size and the length of cer tain software implementation of related projects, a delay in the settlement of an open tradereceivable does not neces sarily constitute objective evidence that the trade receivable is impaired. The Group ’ s customer base predominantly consist s of large financial institutions that are financially sound. The r esponsibilit y for customer credit risk management r es ts with management of the Group. P ayment terms ar e set in accordance with practices in the diff erent geographies and end-market s served, t ypically being 30 days from the date of the in voice. T rade receivables are actively monitor ed and managed. Collection risk is mitigate d through the use of up front payments of licences and maintenance. Historically , there has been a de minimis level of customer default as a result of the long history of dealing with the Group ’ s cus tomer base and anactive cr edit monitoring function. Where applicable, credit limits may be es tablished based on internal or external rating criteria, whichtake into account such factors as the financial condition of the customers, their credit histor y and the risk associated with their indus tr y segment. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which use s a lifetime expected loss allowance forall trade receivables and accrued income. T o measure the expected credit losses, trade receivable s and accrued income have been grouped based on shared credit risk characteristics and the days past due. The accrue d income relates to unbilled work in progr ess and has substantially the same risk characteris tics as the trade receivables for the same type s of contracts, other than where the Group has collected upfront pa yment s in the form of licenc e fees at the s tart of a software implementation contract. The Group has concluded that the expe cted loss rates for trade receivables are less than the loss rates for the accrued income. The expected los s rates of trade receivables are based on the payment pro files of cus tomer inv oices over a period of 36 months before 31 December 2021 or 31 D ecember 2020 respe ctively and the corr esponding his torical credit losses experience d within this period. The historical loss rate s would then be adjusted to reflect current or forward-looking information in r elation to any macr oeconomic factors affecting the ability of the customers to settle the receivables. The Group has not identified any curr ent factors or forward-looking information which w ould be relevant to the historical loss rate s asalltrade receivables have been collected in the pas t 24 months. Theref ore on this basis, the loss allowance as at 31 December 2021 and31 December 2020 was immaterial for both trade receivables and accrue d income. See note 20 – T rade receivable s for the ag eing of trade receivables and significant cus tomer credit risk exposure. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 154 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021     The Group ’ s principal objective when managing capital is to safeguard the Gr oup ’ s abilit y to continue as a going concern, so that it can continue to pro vide returns f or shareholders and benefit s for other stakeholders. The capital structure o f the Group consist s of cash and cash equivalents (note 22) and equity attributable to equity holders o f theparent. Liquidity risk is the risk that the Group will not be able to meet it s financial obligations as they fall due. The Group manages its exposure to liquidity risk through short and long-term forecast s and by seeking to align the maturity profiles ofits financial asset s with its financial liabilitie s. The Group ’s policy is to maintain an adequate level of liquidity to meet its liabilitie s expecte d to be settled in the shor t or near term, under both normal and stresse d conditions. The follo wing table details the remaining contractual maturity of the Group ’ s financial liabilities. The amount s disclosed in the table are the contractual undiscounted cash flows. 31December2021 £m Carryingvalue Lessthan6 months Between 6 to 12months Between1to2 years Between2to5 years Morethan5 years T rade and other payables 6.9 6.9 – – – – Lease liabilities – future lease payments 20.3 1.3 1.4 2.7 7.4 7.5 31 December 2020 £m Carrying value Less than 6 months Between 6 to 12 months Between 1 to 2 years Between 2 to 5 years More than 5 years T rade and other payables 5.6 5.6 – – – – Lease liabilities – future lease payments 21.1 1.2 1.2 2.4 6.9 9.4     The Group assesses revenue b y type of activity , being Subscription, Software and S ervice s, as summarised below: £m 2021 2020 (restated) Software 13.6 20.0 Subscription 23.5 18.1 Services 46.1 40.8 T otalrev enue 83.2 78.9 * T o better reflect the nature and type of revenue, changes hav e been made to the classific ation and allocation of revenue line items. The comparativ e disclosures for the December 2020 repor ting period have also been amended to reflect a fair base for comparability . The se changes have had no impact on the total r evenue or the pro fit before tax that wer e disclosed at the end of December 2020.   The follo wing tables reconcile s profit f or the period attributable to equity holders to Op erating Pr ofit for the periods presented: £m 2021 2020 Pro fit for the year 19.2 20.3 Adjusted for: Net income from joint v enture 0.1 – T axation 4.6 2.9 F inance income – (0.1) F inance expense 0.8 0.8 Operating pro fit 24.7 23.9 FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 155   Non-current assets attributable to each geographical market: £m 2021 2020 UK 42.6 44.0 USA 1.2 0.7 Rest of W orld 0.6 0.1 T otalnon-currentassets 44.4 44.8 Rev enue by geographical market is contained within note 5.3.     Customers with rev enue accounting for mor e than 10% of total rev enue in the current y ear are as f ollows: £m 2021 2020 Customer A 10% 12% See note 20 for outstanding trade receivable s from those customers with r evenue accounting f or more than 10% of total r evenue.   The Group deriv es revenue fr om the transfer of g oods and ser vices as follows ov er time and at a point in time in the following r evenue segments: 2021 £m Services Softwar e Subscription T otal rev enue A t a point in time – time and materials 25.2 5.6 – 30.8 A t a point in time – fixed price – 2.1 – 2.1 Over time – time and materials 19.8 4.1 – 23.9 Over time – fixed price 1.1 1.8 23.5 26.4 T otalrev enue 46.1 13.6 23.5 83.2 2020 £m (restated) Services Software Subscription T otal rev enue A t a point in time – time and materials 19.4 5.1 – 24.5 A t a point in time – fixed price 0.2 5.7 0.8 6.7 Over time – time and materials 18.8 8.0 – 26.8 Over time – fixed price 2.4 1.2 17.3 20.9 T otal revenue 40.8 20.0 18.1 78.9 All goods and ser vices are sold directly to customers. * T o better reflect the nature and type of revenue, changes hav e been made to the classific ation and allocation of revenue line items. The comparativ e disclosures for the December 2020 repor ting period have also been amended to reflect a fair base for comparability . The se changes have had no impact on the total r evenue or the pro fit before tax that wer e disclosed at the end of December 2020. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 156 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021     Rev enue attributable to each geographical market based on where the customer mainly utilises it s instance of Alfa, or where the ser vice is render ed, is as follows: £m 2021 2020 UK 30.0 25.8 USA 28.9 29.2 Rest of EMEA (ex cl UK) 18.7 21.3 Rest of W orld 5.6 2.6 T otalrev enue 83.2 78.9   Rev enue by contractual curr ency is as follows: £m 2021 2020 GBP 35.9 33.3 USD 30.0 30.4 Euro 11.6 12.6 Other 5.7 2.6 T otalrev enue 83.2 78.9   £m 2021 2020 Contract liabilities – deferred licence 5.3 1.9 Contract liabilities – deferred maintenance 5.7 5.1 T otalcontractliabilities 11.0 7.0 Contract liabilities – deferred licence Where a customer purchases a perpetual software licence this is generally in voiced upfront at the commenc ement of the implementation proje ct . Customers g enerally r equire additional development effort s ov er the life of the implementation projec t ino rder to cust omis e the underlying code within Alfa Systems. T ogether these two element s form the Group ’ s customised licence performance obligation. The fair valueof this performance obligation is det ermined using the residual method as set out in note1.5b andthis fair value is r ecognised as the development eff ort is expended, on a percentag e of completion basis. As such the deferred licence contract liability balance as at 31 December 2021 represents any amount s received in advance for the customised licence per formance obligation being satisfie d (including any unr ecognised soft ware licence amounts that were r eceived upfront) . Additionally , where an option ov er the right to use Alfa Systems in the future exists, the value of this is also included within the de ferr ed licence contract liability . The contract liability relating to the material right value is increased ov er the life of the implementation pr oject inlinewith the percentage of c ompletion of the development eff or ts and then released on a s traight-line basis ov er the expecte d remaining customer life post completion of the implementation project. The deferred licence contract liability balance will incr ease during the year as a result of: • any new up front software licence pa yment s; • any write back in pr eviously recognised rev enue as a result of project extensions or re-plans; and • any additional material right balances that are added during the y ear . The deferred licence contract liability balance will decrease during the y ear as a result of: • increasing per centage of completion of dev elopment effort s; and • any r elease of material right balances following the completion of the implementation pr oject. FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 157 Contract liabilities – deferred maintenance The majority of the Group ’ s customers are inv oiced annually in advance for the maintenance and suppor t service provided by the Group . As such, the deferred maintenance contract liability balance will incr ease during the year as a result of billing and inv oices be coming due, andwill decrease as the Group satisfies its as sociated per formance obligations. The deferred maintenance contract liability balance as at 31 December 2021 therefore r epresents the Group ’ s unsatisfied period maintenance p erformance obligation forwhich the re venue has beeninvoiced in advance.   During 2020, the Group enter ed into a new one-off five-y ear contract with a customer to renew its software licence and maintenance agreements. The total amount of the contract price from this non-cancellable contract that relates to the performance obligations that are unsatisfied at 31 De cember 2021 is £8.4m (2020: £10.6m) . W e expe ct to recognise £2.2m in each of the next three financial years and then the remaining £1.8m in the final financial y ear of the contract, being 2025. In addition, the Group has unsatisfied or partially s atisfied per formance obligations at 31 December 2021 that relate to the licence customisation for those customers that have ong oing implementation project s, or implementation projects that commence d in early2022 and for which contracts were agr eed prior to 31 De cember 2021. This per formance obligation includes the delivery of therelated software licence and any dev elopment effort s which will change the underlying code. Linked to certain of the se ongoing andfuture pr oject s, and also to certain implementation project s completed during 2021, the Group also has unsatisfied or par tially satisfie d per formance obligations at 31 December 2021 that relate to the option over the right t o use Alfa Systems, and in particular any material right in respect of discount s to be received by customer in future periods. The above includes certain amount s recognised as contract liabilities. The trans action price allocated to the se unsatisfied or par tially satisfie d per formance obligations as at 31 December 2021 is £11.1m (2020: £9.0m) . This amount is e xpecte d to be recognised o ver the remaining life of the implementation pr oject s, in r espe ct of the licence and de velopment eff ort s, and o ver the expected customer life (follo wing the c ompletion of the implementation pr oject) in r espe ct of the option over the right to use Alfa S ystems. These unsatisfie d or partially s atisfied per formance obligations are based on management’ s b est judgement and may be impacted inthefuture b y a number of factors including: • any possible contract modifications, • currency fluctuations; • external market factors; and • changes to the ov erall forecast project plan including the over all life of the implementation pr oject and any required development eff or ts. The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about the unsatisfie d performance obligations that have original expected durations of one year or less. This includes those per formance obligations linked toongoing service s for all pr oject typ es (i.e. subscription, software and services) . The Group also applies the practical expedient in paragraph B16 of IFRS 15 and does not disclose the amount of the transaction priceallocated to the uns atisfied contract per formance obligations where c onsideration will be received directly corresponding to thevalue of the performance obligation in the future and this consideration aligns to the value received to date f or the corresponding per formance obligation. This includes those per formance obligations linked to our software implementation service s. The Group has variable consideration in the f orm of contract banding for its licence and maintenance volumes. It is included it in the transaction price only to the extent that it is highly probable that a significant rev ersal of revenue will not occur when the uncertainty associated with the variable consideration is subse quently resolved.   The follo wing items have been included in arriving at operating profit in the table below: £m 2021 2020 (restated) Research and dev elopment cost s* 1.6 1.5 Depreciation of property , plant and equipment 0.4 0.5 Depreciation of right-of-use lease assets 1.9 1.7 Amortis ation of intangible asset s 0.8 0.8 Share-based payments (inc. social securit y contributions) 1.5 1.5 * T o better reflect the nature of r esearch and development expenditur e and align with capitalised development costs, changes ha ve been made to the classification of expense line items. R esearch and development costs are no w primarily made up of costs incurr ed as par t of the Group ’s int ernal research and development activities, where as pre viously this line item included broader costs. The comparative disclosur es for the December 2020 repor ting period hav e also been amended to reflect a fair base for comparability . NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 158 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   £m 2021 2020 W ages and salarie s 31.8 30.0 Social security contributions (on wages and salaries) 3.9 3.4 Pension costs 2.1 2.0 Pro fit share pay * 3.1 2.7 Share-based payments ** 1.5 1.5 T otalemploymentcosts 42.4 39.6 * Profit share pa y refers to a pool of mone y (that equates to appr oximately 10% o f the Group ’ s pre-tax profits) which is shared amongst the employ ees, excluding Directors and some other senior managers, as a percentage o f basic salary. The amoun t disclosed includes the related social security contributions. ** This includes the related social security contributions. Average monthly number of people employed based on location of home office (including Executive Directors) 2021 2020 UK 282 255 USA 71 66 Rest of W orld 30 20 T otalaver agemonthlynumberofpeopleemploy ed 383 341   Key manag ement compensation (including Executive Directors): £m 2021 2020 W ages, salarie s and short-term bene fit s 3.1 2.6 Social security contributions 0.4 0.3 Post-emplo yment benefit s 0.1 0.1 Share-based payments * 0.9 0.2 T otalkeymanag ementcompensation 4.5 3.2 * This includes the related social security contributions. Key manag ement personnel consist s of the Company Leadership T eam and the Executive Directors. Directors’ remuneration is detailed in the Remuneration R epor t. FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 159   The Group obtained the follo wing ser vices from the Group ’ s auditor as detailed below: £m 2021 2020 Auditfees DeloitteLLP Audit f ee s relating to prior y ear – 0.1 RSMUKAuditLLP Audit of the consolidated financial statements 0.2 0.2 Audit of subsidiaries 0.2 0.2 T otalauditfees 0.4 0.5 Audit-relat edassurancefees RSM UK A udit LLP 0.1 0.1 T otalaudit-relatedassurancef ee s 0.1 0.1 Non-auditservices – – T otalauditandnon-audit-relatedservice s 0.5 0.6   £m 2021 2020 Financ e income Interestincomeoncashorshort-termbankdeposits – 0.1 £m Note 2021 2020 Financ e expense Interest on lease liability 24 (0.8) (0.8) T otalfinanceexpense (0.8) (0.8) NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 160 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   Analysis of charge for the year £m 2021 2020 Current tax Current tax on pr ofit f or the year 4.5 4.5 Adjustment in respe ct of prior years (0.5) (1.4) F oreign tax on pro fit of subsidiaries for the current y ear 0.3 0.6 Currenttax 4.3 3.7 Deferred tax Origination and rev ersal of temporar y differ ences (0.1) (0.3) Adjustment in respe ct of prior years 0.6 (0.5) Effect of changes in tax rates (0.2) – Deferr edtax 0.3 (0.8) T otaltaxchargeinthey ear 4.6 2.9 The effective tax rate f or the year is higher (2020: low er) than the standar d rate of corporation tax in the UK. The effective tax rate f or the year ended 31 December 2021 was 19.3% (2020: 12.5%) . The effective tax rate f or the year is impacted by adjustment s in respect to prior years totalling £0.1m (2020: fa vourable adjustment of £1.9m) , due to increased tax cost s for the prior year of £0.2m, an adjustment in respect to deferred tax on share a wards of £0.5m, less the benefit of the UK R&D tax claim for 2020 o f £0.6m (2020: predominately due to the benefit of UK R&D tax claims for 2018 and 2019) . Excluding the impact of adjustments in respe ct to prior years, the eff ective tax rate for the year was 18.9% (2020: 20.7%) . The overall tax char ge for the y ear is reconciled as follows: Analysis of charge for the year £m 2021 2020 Pro fit on ordinary activitie s before taxation 23.8 23.2 Pro fit on ordinary activitie s at the standard rate of corporation tax – 19% 4.5 4.4 T ax effects of: Effect of diff erent tax rates of subsidiaries operating in other jurisdictions 0.1 0.2 Expenses not de ductible for tax purposes – 0.1 Adjustment in respe ct of prior years 0.1 (1.9) Impact of tax rate changes (0.2) – Other 0.1 0.1 T otaltaxchargef ortheyear 4.6 2.9 FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 161   2021 2020 Pro fit attributable to equity holders of Alfa (£m) 19.2 20.3 W eighte d aver age number of shares outs tanding during the year 296,709,610 293,824,145 Basic earnings per share (pence per share) 6.49 6.93 W eighte d aver age number of shares outs tanding including potentially dilutive shares 301,505,177 300,069,048 Diluted earnings p er share (pence per share) 6.39 6.79 The weighted av erage number of ordinary shares in issue excludes 3,290,390 (2020: 6,175,855) shares held by emplo yee benefit trus t. The diluted number of ordinary shares out standing , including share a wards, is calculated on the assumption of conversion of all 5,470,741 (2020: 6,139,161) potentially dilutive ordinary shares.   £m Note 2021 2020 Financ e assets F inancial asset s at amor tised cost: T rade receivable s 20 6.0 5.8 Other financial asset s at amor tised cost 21 7.3 5.8 Cash and cash e quivalent s 22 23.1 37.0 T otalfinancialasset s 36.4 48.6 Financ eliabilities F inancial liabilities at amor tised cos t: T rade and other payables 23 6.9 5.6 Lease liabilities 24 17.1 17.5 T otalfinanceliabilities 24.0 23.1   £m 2021 2020 Cost A t 1 Januar y 24.7 24.7 A t31December 24.7 24.7 The recov erable amount of goodwill has been determine d based on value-in-use calculations using c ash flow pr ojections from financial budgets and forecast s for a five-y ear period using a pre-tax discount rate of 11% (2020: 11%) . Cash flows beyond these periods have been extrapolated using a s teady 2% (2020: 2%) av erage gro wth rate. This growth rate does not excee d the long-term av erage gro wth rate for the markets in which the Group operates. Management believes that any reasonable chang e in any of the key assumptions on wh ich the recov erable amount is based w ould not cause the r epor ted carr ying amount to e xceed the recov erable amount of the CGU . NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 162 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   £m Computer software Internally generated software T otal Cost A t 1 Januar y 2020 1.4 1.5 2.9 Additions 0.1 0.7 0.8 A t 31 Decemb er 2020 1.5 2.2 3.7 Amortisation A t 1 Januar y 2020 0.5 0.2 0.7 Charge f or the year 0.3 0.5 0.8 A t 31 Decemb er 2020 0.8 0.7 1.5 Netbookvalue A t 31 Decemb er 2020 0.7 1.5 2.2 Cost A t 1 Januar y 2021 1.5 2.2 3.7 Additions 0.1 0.9 1.0 A t31December2021 1.6 3.1 4.7 Amortisation A t 1 Januar y 2021 0.8 0.7 1.5 Charge f or the period 0.1 0.7 0.8 A t31December2021 0.9 1.4 2.3 Netbookvalue A t31December2021 0.7 1.7 2.4 Significant movement in other intangible assets During 2021, Alfa de veloped new internally g enerated software at a cost of £0.9m (2020: £0.7m) . This softwar e will be amortised over thr ee to five y ears. The total research and pr oduct development expense for the period was £1.6m (2020: £1.5m restated – see note 6) . FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 163   £m F ixtures and fittings IT e quipment T otal Cost A t 1 Januar y 2020 1.2 3.2 4.4 Additions 0.1 0.2 0.3 Disposals (0.1) (0.1) (0.2) A t 31 Decemb er 2020 1.2 3.3 4.5 Depreciation A t 1 Januar y 2020 0.7 2.6 3.3 Charge f or the year 0.1 0.4 0.5 Disposals (0.1) (0.1) (0.2) A t 31 Decemb er 2020 0.7 2.9 3.6 Netbookvalue A t 31 Decemb er 2020 0.5 0.4 0.9 Cost A t 1 Januar y 2021 1.2 3.3 4.5 Additions – 0.3 0.3 Disposals – (0.1) (0.1) A t31December2021 1.2 3.5 4.7 Depreciation A t 1 Januar y 2021 0.7 2.9 3.6 Charge f or the year 0.1 0.3 0.4 Disposals – (0.1) (0.1) A t31December2021 0.8 3.1 3.9 Netbookvalue A t31December2021 0.4 0.4 0.8 NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 164 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   £m Motor vehicles Property T otal Cost A t 1 Januar y 2020 0.2 17.9 18.1 Additions 0.1 0.1 0.2 Disposals (0.1) (0.1) (0.2) A t 31 Decemb er 2020 0.2 17.9 18.1 Depreciation A t 1 Januar y 2020 0.1 1.6 1.7 Charge f or the year 0.1 1.6 1.7 Disposals (0.1) – (0.1) A t 31 Decemb er 2020 0.1 3.2 3.3 Netbookvalue A t 31 Decemb er 2020 0.1 14.7 14.8 Cost A t 1 Januar y 2021 0.2 17.9 18.1 Additions 0.2 1.3 1.5 A t31December2021 0.4 19.2 19.6 Depreciation A t 1 Januar y 2021 0.1 3.2 3.3 Charge f or the year 0.1 1.8 1.9 A t31December2021 0.2 5.0 5.2 Netbookvalue A t31December2021 0.2 14.2 14.4 The Group r ecognised the following amounts in the consolidate d statement of profit or loss and compr ehensive income in r elation to leases under IFRS 16: £m 2021 2020 Depreciation (1.9) (1.7) Interest expense (0.8) (0.8) Short-term lease exp ense (0.2) (0.2) Sub-lease rentals One of the leased propertie s is sub-leased to tenant s under operating lease s, with rentals pa yable quar terly . Minimum lease payment s receivable on these sub-leases of proper ty are as follo ws: £m 2021 2020 Within one year – 0.4 Later than one year but not later than 5 years – – Later than 5 years – – T otalsub-leasepaymentsreceivable – 0.4 Income from sub-lease in the y ear 0.5 0.5 FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 165   The pro vision for deferr ed tax consist s of the following deferr ed tax asset s/(liabilitie s) relating to accelerated capital allowances and short- term timing differ ences in relation to accruals and shar e-based payment s. £m 2021 2020 Balance as at 1 January 1.8 0.6 Effect of changes in tax rates 0.2 – Adjustment s in respect of prior perio d (0.6) 0.5 Deferred inc ome taxes r ecognised in the consolidated statement of profit or loss and compr ehensive inc ome 0.1 0.3 Deferred tax on share-based payments recognised in reserves 0.3 0.4 F oreign exchang e movements – – Balanceasat31December 1.8 1.8 Consisting of: Depreciation in excess of capital allowances – (0.1) Other timing differences 1.8 1.9 Balanceasat31December 1.8 1.8 Deferred income tax liabilities have not been recognised for the withholding tax and other tax es that would be payable on the unremitted earnings of cer tain subsidiaries as the Group is able to control the timing o f these temporar y differences and it is probable that the y will not rev erse in the for ese eable future. Unr emitted earning s totalled £3.4m at 31 Decemb er 2021 (2020: £3.1m) .   A t the beginning of May 2020, the Group f ormed Alfa iQ, a joint v enture established to greatly enhance Alfa’ s ability to develop artificial intelligence solutions f or the auto and equipment finance industr y . The joint ventur e was set up 51:49 between Alfa and Bitfount, acompany fou nd e d by Blaise Thomson. The financial and operating activities of the Gr oup ’ s joint v enture ar e jointly contr olled by the par ticipating shareholders. The participating shareholders have rights to the net asset s of the joint ventur e through their equity shareholdings. The interest in the joint venture c onsist s of par t investment and part loan to joint venture accounted for as set out in note 1.2. Investment £m 2021 2020 Carr ying amount as at 1 Januar y 0.3 – Carr ying amount as at 6 May 2020 (i. e. on es tablishment of the joint ventur e) – 0.3 Share of net loss fr om the joint venture (0.1) – Carryingamountasat31De cember 0.2 0.3 Loan to joint venture £m 2021 2020 Carr ying amount as at 1 Januar y 0.1 – Carr ying amount as at 6 May 2020 (i. e. on es tablishment of the joint ventur e) – 0.1 Interest – – Carryingamountasat31De cember 0.1 0.1 The total loss from inter es t in joint ventur e is £0.1m (2020: £0.0m) and the total interest in the joint venture is £0.3m (2020: £ 0.4m) . NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 166 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   £m 2021 2020 T rade receivable s 6.0 5.8 Pro vision for impairment – – T radereceivables–net 6.0 5.8 Ageing of trade receivables Ageing of net trade receivables £m 2021 2020 Within agreed terms 4.1 5.6 Past due 1-30 days 1.2 0.1 Past due 31-90 days 0.6 – Past due 91+ days 0.1 0.1 T radereceivables–net 6.0 5.8 The Group believ es that the unimpaired amount s that are past due are fully reco verable as there ar e no indicators of future delinquency or potential litigation. Currency of trade receivables £m 2021 2020 GBP 4.9 1.8 USD 0.9 3.1 Other 0.2 0.9 T radereceivables–net 6.0 5.8 T radereceivablesduefromsignificantcustomers Customers with rev enue accounting for mor e than 10% of total rev enue in the current y ear have outstanding trade receivables as follows: £m 2021 2020 Customer A 0.8 0.6 As at issuance of these financial statement s, all amount s relating to customers accounting for mor e than 10% of total rev enue had beencolle cted. Impairmentandriskexposure Information about the impairment of trade r eceivable s and the Group ’ s exposure to market risk (specifically foreign curr ency risk) andcredit risk can be found in note 3.   £m 2021 2020 Accrued income 6.3 5.0 Prepa yments 3.2 2.1 Other receivables 1.0 0.8 T otalotherreceivablesheldatamor tisedcost 10.5 7.9 Accrued income represents fees e arned but not yet inv oiced at the repor ting date which has no right of offset with contract liabilities – deferred licence amounts. Accrued income increased by £1.3m. The current y ear balance repr esent s unbilled professional fees work in progr ess, as well as £0.5m in relation to subscription and £0.5m of one-o ff licence rev enue items where ther e is contractual agreement to inv oice in subsequent perio ds. Prepa yments include £1.1m of deferred cost s in relation to costs to fulfil contract s – se e note 1.5. FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 167   £m 2021 2020 Cash at bank and in hand 23.1 37.0 Cashandcashequivalent s 23.1 37.0 Currency of cash and cash equivalents £m 2021 2020 GBP 14.9 28.5 USD 4.4 4.8 AU D 1.3 1.1 Euro 2.0 2.1 Other 0.5 0.5 Cashandcashequivalent s 23.1 37.0   £m 2021 2020 T rade payables 0.8 0.9 Other payables 8.5 7.2 Corporation tax 1.8 1.3 Contract liabilities – deferred licence 5.3 1.9 Contract liabilities – deferred maintenance 5.7 5.1 Lease liabilities (note 24) 17.1 17.5 Pro visions for other liabilities 1.4 1.4 T otalcurrentandnon-currentliabilities 40.6 35.3 Less non-current por tion (16.6) (17.2) T otalcurrentliabilities 24.0 18.1 Other payables include s amounts relating to other tax and social securit y of £2.4m (2020: £2.5m) .   The follo wing table set s out the reconciliation of the lease liabilities from 1 January to the amount disclose d at 31 December: £m 2021 2020 Lease liabilities recognised at 1 Januar y 17.5 19.0 Additions 1.5 0.2 Interest charge 0.8 0.8 Pa yment s made on lease liabilities (2.7) (2.5) A t31December 17.1 17.5 Additions to lease liabilities include extensions to existing lease agreement s. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 168 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   Below is the maturity analysis of the lease liabilities: £m 2021 2020 Non-current 15.2 15.8 Current 1.9 1.7 T otalleaseliabilitie s 17.1 17.5 No later than one year 2.7 2.4 Between one year and 5 years 10.1 9.3 Later than 5 years 7.5 9.4 T otal future lease payments 20.3 21.1 T otal future interest payments (3.2) (3.6) T otalleaseliabilitie s 17.1 17.5 The group ’ s net debt is made up of cash and cash e quivalents and le ase liabilities. The movement during the y ear in lease liabilities is set out above. Mo vements in cash and c ash equivalent s are set out in the Cash flow statement. The se are the only chang es in liabilitie s arising from financing activities in the year .   £m A t 1 Januar y 2020 0.7 Pro vided in the period 0.7 A t 31 Decemb er 2020 1.4 Pro vided in the period 0.7 Utilised in the period (0.1) Released in the period (0.6) A t31December2021 1.4 Pro visions for other liabilities comprise amounts for office dilapidations, employ er taxes on share-based payments and legal matters. It is expected that the se will be utilised by as follows: £0.5m in 2022, £0.2m in 2030 and £0.7m o ver various years.   2021 2020 Issued and fully paid Shares £m Shar es £m Ordinary shares – 0.1 pence 300,000,000 0.3 300,000,000 0.3 Balance as at 31 December 300,000,000 0.3 300,000,000 0.3 No additional shares hav e been is sued or cancelle d in the year ended 31 December 2021.   £m 2021 2020 A t 1 Januar y 0.1 – Currency translation of subsidiaries (0.1) 0.1 A t31December – 0.1   £m 2021 2020 Balance at 1 January – – Acquired in the year 4.6 – Issued on exercise of options (1.2) – Balanceat31December 3.4 – FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 169 The own shar es reser ve repr esent s the cost of shares in Alfa Financial S oftware Holdings PLC purchased in the market and held b y the Group ’ s employ ee b enefit trust to satisf y options under the Group ’ s share options plans (see Note 1.2) . The number of ordinar y shares held by the employ ee bene fit trust at 31 Decemb er 2021 was 2,590,260 (2020: 552,783) . As at 31 De cember 2021, the Group held 0.86% (2020: 0.18%) of its own calle d up share capital.   The Group r ecognised total expense s relating to shar e-based payment of £1.5m (2020: £1.5m) in the current y ear . O f this, £1.5m (2020: £1.5m) relates to equity-settled L TIP schemes and £0.0m (2020: £nil) relates to Employee Share Sa ve schemes. See further detail below . The outs tanding share schemes are made up of the f ollowing: Grant date Plan Expiry date Exer cise price Share options 31December 2021 Share options 31 December 2020 June 2014/2015 L TIP 4 annual tranches from 1 June 2018 0p – 1,197,503 June 2018 L TIP June 2021 0p – 1,378,178 Nov ember 2019 L TIP November 2022 0p 1,113,909 1,205,036 June 2020 L TIP June 2023 0p 2,322,473 2,358,444 April 2021 L TIP April 2024 0p 1,121,104 – Nov ember 2021 L TIP October 2024 0p 60,872 – Nov ember 2021 UK Employee Shar eSave January 2025 1.536p 774,659 – Nov ember 2021 US Employee Shar eSave Januar y 2024 1.670p 77,724 – The weighted av erage share price at the date o f exercise f or share options ex ercised during the period was 130.4p (2020: 74.3p) . The options outs tanding at 31 Decemb er 2021 had a weighted av erage exer cise price of 24.1p (at 31 December 2020: nil) , and a weighted av erage remaining contractual lif e of 1.7 years (2020: 2.3 y ears) . The opening weighted av erage exer cise price at 1 January 2021 was nil (1 Januar y 2020: nil) . The weighted average ex ercise price of options f orfeited and exercised during the year was nil (31 December 2020: nil) .  The 2019 L TIP awards granted ar e conditional on employment only; the fair value of these awar ds has been c alculated using the grant date share price as a pr oxy f or fair value of the option adjuste d for an y dividends over the period. Ther e are no market or non-market performance conditions attached to the option scheme and, as such, no per formance conditions ar e included in the fair value c alculation. The 2020 L TIP awards granted ar e conditional on per formance conditions, 50% based on EPS per formance (non-market condition) and 50% on TSR (market condition) as well as a thr ee-year employment fulfilment. The fair value of these awards has been determined using the Monte Carlo model at the grant date. On 30 April 2021 the Group a warded an L TIP conditional on per formance conditions, 50% based on EPS per formance (non-market condition) and 50% on TSR (market condition) as well as a thr ee-year employment fulfilment. For those shar e schemes with market-related vesting conditions, the fair value is determined using the Monte C arlo model at the grant date. F or share options issued with EPS (non- market) performance vesting conditions, the fair value of the underlying option is equal to the grant date share price. The follo wing table list s the inputs to the mo del used for the awar ds granted in the year ended 31 Decemb er 2021 based on information at the date of grant: L TIP awards (granted in April) TSRelement EP Selement Share price at date of grant 136p 136p A ward price 0p 0p V olatility 60.3% – Embedde d TSR 6.9% – A verage correlation 41.1% – Life of a ward 3 years 3 years Risk -free rate 0.12% – Fair value per awar d 73.6p 136.0p NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 170 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   On 30 Nov ember 2021, the Group awar ded to cer tain employees an L TIP conditional on employment only . The fair value of these awards is equal to the closing share price on the date of grant (192 pence) , discounted by the expecte d 12-month dividend yield to reflect the lack of dividend accrual ov er the vesting perio d (three years) . The expected price volatility is base d on the historic volatility (based on the remaining life of the scheme) , adjusted for any expected changes to future volatility due to publicly available inf ormation. All of these Company schemes, as well as any non-cyclical a wards, are equity-settled by awar d of or dinar y shares. The total share-based payment char ge relating to Alfa F inancial Software Holdings PLC shares for the y ear is split as follows: £m 2021 2020 Employ ee share schemes – value of ser vices 1.1 1.3 Expense in relation to fair value of social security liability on employee share schemes 0.4 0.2 T otalcostofemploy eeshareschemes 1.5 1.5 Details of the share options outstanding during the year are as follo ws: 2021 2020 Outs tanding at 1 Januar y 6,139,161 6,482,950 Conditionally awar ded in year 2,034,359 2,358,444 Exer cised (2,575,681) (2,592,919) F or feited or expired in y ear (127,098) (109,314) Outstandingat31De cember 5,470,741 6,139,161 Ex ercisableattheendofthey ear – –  On 30 Nov ember 2021, the Group launched an Employee ShareSa ve Scheme – the Sa ve As Y ou Earn (SA YE) scheme in the UK and Employ ee Stock Pur chase Plan (ESPP) scheme in the US . Under these scheme s, eligible employ ee s can save up to a set limit each month. A t the end of the savings period (three years for S A YE and two years for ESPP ) , employees c an choose whether or not they wish to buy the shares at the option price or take back their savings as cash. The option price is the share price at the start of the plan with a 20% discount for the UK scheme and 15% discount for the US scheme. The fair value of these awar ds hav e been determine d using the Monte Carlo model at the grant date. The expected price volatility is based on the his toric volatility (based on the remaining life o f the scheme) , adjus ted for any expected changes to future v olatility due to publicly available information. 31December2021 S AY E ESPP Numberof share options Ex ercise price Numberof share options Ex ercise price Outs tanding at beginning of year – – – – Granted during the year 774,659 153.6p 77,724 167.0p Outstanding at the end of the year 774,659 153.6p 77,724 167.0p Exer cisable at the end of the year – – – – S AY E 31December 2021 ESPP 31December 2021 Share price 205.0p 205.0p Exer cise price 153.6p 167.0p Expecte d volatility 57.5% 57.2% Expecte d life 36 months 24 months Risk -free rate 0.51% 0.45% Expecte d dividend yields 2.45% 2.33% FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 171     The Group has no capital commitments, no material contingent liabilities and no contingent asset s.   On 18 January 2022 the Group announced the launch of a share buyback programme. R efer to the Company w ebsite for mor e details. There ha ve been no other reportable subse quent events.   A 2020 ordinary dividend of 1 pence per share was paid on 2 July 2021 amounting to £3.0m (2020: £nil) . A special dividend of 10 pence per share was paid on 5 November 2021 amounting to £29.7m (2020: £44.2m) . Subject to appro val at the Annual General Me eting on 12 May 2022, a 2021 dividend of 1.1 pence per shar e will be paid on 24 June 2022 to holders on the register on 27 May 2022. The or dinary shares will b e quoted ex-dividend on 26 Ma y 2022.     The ultimate parent undertaking is CHP Software and Consulting Limited (the ‘Par ent’) , which is the parent undertaking of the smalles tand largest group in r elation to these consolidate d financial statement s. The ultimate controlling party is Andrew Pag e.   The principal subsidiaries and joint ventures of the Gr oup and the Group percentag e of equity c apital are set out below . All the se are consolidated within the Group ’s financial statements. Registered address and country of incorporation Principal activity Held by Company 2021 Held by Group 2021 Held by Company 2020 Held by Group 2020 Alfa F inancial Software GroupLimited Moor Place, 1 F ore S treet A venue, London, EC2Y 9D T , UK Holding company 100% 100% 100% 100% Alfa F inancial Software Limited Moor Place, 1 F ore S treet A venue, London, EC2Y 9D T , UK Software and service s – 100% – 100% Alfa F inancial Software Inc 350N Old W o odward A venue, Birmingham, MI 48009, USA Software and service s – 100% – 100% Alfa F inancial Software AustraliaPty Limite d Lisgar House, Level 3, 32 Carring ton Street, Sy dney , NSW , 2000, Australia Services – 100% – 100% Alfa F inancial Software NZLimited Level 1 Building B, 600 Gr eat South Road, Gr eenlane, Auckland 1051, New Z ealand Services – 100% – 100% Alfa F inancial Software GmbH Bockenheimer Landstraße 20, 60323 F rankfur t am Main, Germany Software and service s – 100% – 100% Alfa iQ Moor Place, 1 F ore S treet A venue, London, EC2Y 9D T , UK Software and service s – 51% – 51% Alfa iQ was establishe d in May 2020 – see note 19 for mor e detail. NOTEST OTH ECONSOLID A TEDFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED 172 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   32.3 Transactions with related parties F ull details of the Directors’ compensation and interest s are set out in the Directors’ Remuner ation Report on page s 100 to 121. See note 8 for further detail on monies paid to key management (including Directors) . Dividends to the amount of £21.7m wer e paid to the Par ent (2020: £29.6m) . Dividends of 1 pence and 10 pence per share wer e paid to all shareholders in 2021 (2020: 15 pence per share) . Directors and other key management receiv ed dividends base d on their beneficial interest in the shares of the Company . Directors’ beneficial interest s in the shares of the Company ar e disclosed in the Remuneration Report on page 116. The balances out standing from the Par ent at 31 Decemb er 2021 and 2020 wer e £nil and £nil respectively . In the prior period the Group inv es ted £0.4m in Alfa iQ consisting of: a capital contribution of £0.3m; and an interest-free loan fair value d at £0.1m. A t 31 Decemb er 2021 the value of the inv es tment is carried at £0.2m (2020: £0.3m) and the loan fair value d at £0.1m (2020: £0.1m) . In the current period, the Group enter ed into a rental agreement with CHP So ftware and Consulting Limited for rental of a meeting r oom on the 9th floor of Moor Place for £0.03m per annum (2020: £nil) and at 31 December 2021 there was £nil balance out standing from, or to , the Par ent (2020: £nil) . There w ere no other outs tanding receivable balances from relat ed par ties at the end of the repor ting period.   Asset s and liabilities are offset and the net amount is reported in the consolidated s tatement of financial position where Alfa curr entlyhas a legally enforc eable right to offset the recognised amount s, and there is an intention to r ealise the asset and settle theliability simultaneously . The follo wing table present s the recognised asset s and liabilities that are offset as at 31 December 2021 and 31 De cember 2020 intheconsolidated statement of financial position. 31 December 2021 £m Gross amounts Amounts offset Netamounts presented Accrued income 14.0 (7.7) 6.3 Contract liabilities – deferred licence (13.0) 7.7 (5.3) 31 December 2020 £m Gross amounts Amounts offset Net amounts presented Accrued income 12.6 (7.6) 5.0 Contract liabilities – deferred licence (9.5) 7.6 (1.9) COMP ANYST A TEMENTOFFINANCIALP OSITION FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 173 £m Note 2021 2020 Asset s Non-currentassets Inv es tment in subsidiar y companies 4 427.6 348.7 T otalnon-currentassets 427.6 348.7 Currentassets Other receivables 5 0.1 0.2 Cash and cash e quivalent s 6 0.1 0.1 T otalcurrentassets 0.2 0.3 T otalasset s 427.8 349.0 Liabilitiesandequity Currentliabilities Amounts owed to subsidiaries 7 39.9 0.2 Other payables 8 0.7 0.4 Accruals 0.4 0.4 T otalcurrentliabilities 41.0 1.0 Non-currentliabilities Amounts owed to subsidiaries 7 – – Pro vision 8 0.2 – T otalnon-currentliabilities 0.2 – T otalliabilities 41.2 1.0 Capitalandreserves Ordinary shares 9 0.3 0.3 Own shares 10 (3.4) – Retained earnings 389.7 347.7 T otalequity 386.6 348.0 T otalliabilitiesande quity 427.8 349.0 Retained earnings includes a profit of £74.8m for the 2021 financial y ear (31 Decemb er 2020: £79.8m) . See the statement ofchanges inequity on the next page for further detail. The Company has taken advantag e of the exemption under Section 408 of the Companies Act 2006 from pr esenting it s own profitandloss account. The above Compan y statement of financial position should be read in conjunction with the accompanying notes. The Company financial statements on pages 173 to 178 were appro ved and authorised for issue by the Boar d of Directors on 8 March2022 and signed on it s behalf . Andrew Denton Duncan Magrath Chief Executive Officer Chief Financial Officer Alfa F inancial Software Holdings PLC Registered number 10713517 COMP ANYST A TEMENTOFCHANG ESINEQUITY 174 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 £m Note Called-up share capital Own shares Retained earnings T otal e quity Balance as at 1 January 2020 0.3 – 310.7 311.0 T otal comprehensive pr ofit for the period – – 79.8 79.8 Employ ee share schemes – value of employee service s 11 – – 1.4 1.4 Dividends 12 – – (44.2) (44.2) Balance as at 31 December 2020 0.3 – 347.7 348.0 T otal comprehensive pr ofit for the period – – 74.8 74.8 Employ ee share schemes – value of employee service s 11 – – 1.1 1.1 Dividends 12 – – (32.7) (32.7) Own shares acquired 10 – (4.6) – (4.6) Own shares issued 10 – 1.2 (1.2) – Balanceasat31December2021 0.3 (3.4) 389.7 386.6 As at 31 Decemb er 2021 £3.4m (2020: £2.3m) of the retained earnings balance relates to reserves held to settle the Alfa employee share schemes, and doe s not qualify as distributable reser ves. The above Compan y statement of changes in equit y should be read in conjunction with the accompan ying notes. FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 175 NOTEST OTH ECOMP ANYFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1   Alfa F inancial Software Holdings PLC is a public compan y limited by shares and is incorporated and domiciled in England. The se financial statement s are the separate financial statements for the Company . The registered office is Moor Place, 1 F ore Street A venue, London, EC2Y 9D T , United Kingdom. The registered no . of Alfa is10713517. The principal activity of the Company is as a holding company .   The financial statement s of Alfa F inancial Software Holdings PLC ha ve been prepared in compliance with F inancial Reporting Standard 102, the F inancial Reporting Standar d applicable in the United Kingdom and the R epublic of Ireland (‘FRS 102’) and the Companies Act 2006. The principal accounting policies applie d in the preparation of these financial statements are set out above. These policies have been consistently applied to the years presented, unless other wise state d. These financial statement s have been prepared on a going conc ern basis, under the historic al cost convention. The Dir ectors have used the going concern principle on the basis that the current pr ofitable financial projections of the Company and its subsidiaries indicate they will continue in operation for the f oreseeable future. As describ ed in note 1.1 to the Consolidated financial statement s, this asse ssment includes downside stress testing in line with FRC guidance. The Company financial statements have been prepared in pounds sterling which is the functional and presentational currency of the Company and hav e been presented in £m. As permitted by FRS 102 the Company has taken advantage of the disclosur e ex emptions available under that standard in relation to financial instrument s, presentation of a Cash Flow Statement, share-based payments, the aggregate remuneration of key manag ement personnel and related party trans actions with other wholly-owned members of the Group . The parent compan y meet s the definition of a qualif ying entity under FRS 102. Where r equired, equivalent disclosures are given in the Gr oup accounts of Alfa Financial So ftware Holdings PLC. In the current period it was concluded that the Company exercises control over the emplo yee benefit trust because it is exposed to , and has a right to, variable r eturns from this trust and is able to use its p ower o ver the trust to aff ect those returns. Therefor e the trust has be en consolidated by the Com pany . The impact of consolidation of the trust in the prior period was immaterial.   Subsidiaries are all entities ov er which the Compan y has contr ol. The Company controls an entity when the Company is exposed to, or has rights to, variable r eturns from its involvement with the entity and has the ability to aff ect those returns through its power ov er the entity . Unless other wise state d, subsidiaries have shar e capital consisting solely of ordinary shares, and the propor tion of ownership inter es ts held equals the voting rights held by the Company . The countr y of incorporation or registration is also each subsidiary ’ s principal place of busine ss. Inv es tment s in subsidiary under takings are state d at cost, including those cos ts as sociated with the acquisitions, le ss pro vision for anyimpairment in value. Where e vents or changes in circumstance s, including an adverse mo vement in the shar e price, indicate that thecarr ying amount of an inv es tment may not be reco verable, an impairment revie w is per formed. An impairment write-down is r ecognised to the extent that the carr ying amount of the asset exceeds the higher of the fair value less cos t to sell and value in use. Any subsidiary under takings sold or acquired during the year are included up to, or fr om, the dates of change of contr ol. Where contr ol of a subsidiary is los t it is recognised in the profit or loss. Amounts subsidiarie s are unsecured, interest-free and repa yable on demand. The carr ying amount s of such payables are consider ed tobe the same as their fair values due to their shor t-term nature.   Basic financial asset s, including trade and other receivables, cash and bank balance s and other receivables, are initially recognised attransaction price, unless the arrangement constitute s a financing transaction. A t the end of each reporting p eriod financial asset s measured at amortise d cost are assesse d for objective evidence o f impairment. If an as set is impaired the impairment loss is the differ ence between the carr ying amount and the present value of the es timated cashflows discounted at the asset’s original eff ective interest rate. The impairment loss is recognised in profit or loss. 176 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 NOTEST OTH ECOMP ANYFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED   Basic financial liabilities, including trade and other payables and trading balances and loans from subsidiaries are initially recognised attransaction price, unless the arrangement constitute s a financing transaction, where the debt instrument is measured at the present value of the future r eceipt s discounted at a market rate of interest. The Company derecognises financial liabilities when, and only when, the Company’s obligations ar e discharged, cancelled or expired. Other payables are initially recorded at fair value and subsequently measured at amortise d cost . As the total carr ying amount is due within the next 12 months from the balance sheet date, the impact of applying the effective int erest method is not signific ant and therefor e the carr ying amount equals to the contractual amount or the fair value initially recognised. Pa yables are classified as current liabilities if receipt or payment is due within one year or less.   Ordinary shares Ordinary shares are classified as equity . There ar e no restrictions on the distribution of c apital and the repa yment of capital. Own shares Own shares repr esent the shares of Alfa Financial S oftware Holdings PLC that are held b y the employ ee b enefit trust . Own shares are recorded at cost and deducted from equity .   Grants made to subsidiar y employees will not result in a charge recognised in the income statement, any charges for shar e-based payment s are r ecognised as an increase in the cost of investment in subsidiaries (as a c apital contribution) . For full details of the Gr oup ’ s share-based payments, refer to note 29 to the consolidated financial statements.   Dividends are r ecognised through equity when approved by Alfa ’ s shareholders or on pa yment, whichever is earlier .   Estimates and judgement s are continually evaluated and are based on historical experience and other factors, including expectations offuture ev ents that are believed to be reasonable under the circumstances. The resulting accounting estimate s will, by definition, seldom equal the related actual result s. There w ere no critical accounting judgements that would hav e a significant effect on the amount s recognised in the parent compan y financial statement s or key sources of estimation uncer tainty at the reporting date thatwould have a significant risk of causing a material adjustment to the carr ying amount s of asset s and liabilities within the next financial year .   The Company’s exposur e to financial risks is managed as par t of the Group ’ s financial risk management. F ull details about the Group ’ sexposure to financial risks and how these risks could aff ect the Group ’ s future financial per formance ar e given in note 3 totheconsolidated financial statement s.   £’000s 2021 2020 Cost As at 1 Januar y 348.7 347.4 Capital contributions to subsidiaries 0.9 1.3 Rev ersal of impairment 78.0 – Asat31December 427.6 348.7 The carr ying amount of the inv es tment is £427.6m at 31 December 2021 (2020: £348.7m) . The recov erable amount of the investment was determined based on value-in-use c alculations using cash flow projections of the Company and its subsidiaries from financial budgets and for ecas t s for a fiv e-year period using a pre-tax discount rate of 11% (2020: 11%) . Cash flows beyond these periods have been extrapolated using a steady 2% (2020: 2%) averag e growth rate. This gro wth rate doe s not exceed the long-term averag e growth ratef or the market s in which the Company and its subsidiaries op erate. In addition, the market capitalisation of the Company as at31 December 2021 was £569.0m. As the recov erable amount, and the market capitalis ation of the Company , are in ex cess of thecarr ying amount of the investment, no impairment charge has been recognised during the current financial y ear . As the circumstances that resulted in an impairment charge in 2018 of £78.0m no longer apply , it has b een reversed in the curr ent year . FINANCIAL ST A TEMENTS Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 177   A t 31 Decemb er 2021, other receivables relate to prepa yments of £0.0m (2020: £0.2m) and V A T receivable s of £0.1m (2020: £0.0m) .   £m 2021 2020 Cash and cash e quivalent s 0.1 0.1   £m 2021 2020 Amounts owed to subsidiaries – current 39.9 0.2 Amounts owed to subsidiaries – non-current – – T otalamount sow edtosubsidiaries 39.9 0.2 Current amounts owed to subsidiaries of £39.9m relate primarily to cash advanced by Alfa F inancial Software Limited to the Company for dividend payments (2020: £0.2m) .   Other payables relate to accruals of social security and other taxes of £0.0m (2020: £0.1m) , trade creditors of £0.1m (2020: £0.1m) andsalar y cost s of £0.6m (2020: £0.2m) . Long-term provision r elates to the employer national insuranc e contribution of £0.2m of the 2021 and 2020 share grant expense that r elates totheemploy ee s of the Company (2020: £0.0m) .   Each ordinary share has a par value of 0.1 pence. All shares are fully paid and ha ve equal voting rights. Issuedandfullpaid Shares – ordinary £m A t 31 Decemb er 2021 300,000,000 0.3 A t 31 Decemb er 2020 300,000,000 0.3   2021 £m 2020 £m Balance at 1 January – – Acquired in the year 4.6 – Issued on exercise of options (1.2) – Balanceat31December 3.4 – The own shar es reser ve repr esent s the cost of shares in Alfa Financial S oftware Holdings PLC purchased in the market and held b y the Company’s employee benefit trust to satisfy options under the Group ’ s share options plans (see Note 1.2 o f the Group accounts). The number ofordinary shares held b y the emplo yee benefit trust at 31 December 2021 was 2,590,260 (2020: 552,783) . As at 31 December 2021, the Company held 0.86% (2020: 0.18%) of it s own calle d up shar e capital.   Under the rules of the Company ’ s L TIP plans, on 1 June 2018, 1 November 2019, 2 June 2020, 30 April 2021 and 30 No vember 2021 selected employees of theCompany ’ s subsidiary were granted awar ds in the form of nil cost options ov er ordinary shares in Alfa. On 30 November 2021, emplo yees of theCompan y ’ s subsidiary that met the set criteria w ere invited to join a ShareSav e S cheme – the SA YE scheme f or the UK employ ees and the ESPP scheme f or the US emplo yees. Under these schemes, eligible employ ees can save up to a set limit eachmonth and at the end of the vesting period can use these savings to buy or dinary shares in Alfa (at a discount) or take these back as cash. Refer to not e 29 of the consolidated account s for mor e detail on these scheme s. The cost of the share-based remuneration is passed to the relevant subsidiary . 178 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021   A 2020 ordinary dividend of 1 pence per share was paid on 2 July 2021 amounting to £3.0m (2020: £nil) . A special dividend of 10 pence per share was paid on 5 November 2021 amounting to £29.7m (2020: £44.2m) . Subject to appro val at the Annual General Me eting on 12 May 2022, a 2021 dividend of 1.1 pence per shar e will be paid on 24 June 2022 to holders on the register on 27 May 2022. The or dinary shares will b e quoted ex-dividend on 26 Ma y 2022. Refer to not e 31 of the consolidated account s for mor e detail.   The Company has no employ ees other than the Directors. Full details of the Dir ectors’ compensation and interes ts are set out in the Directors’ Remuneration R epor t on pages 100 to 121.   On 18 January 2022 the Group announced the launch of a share buyback programme. R efer to the Company w ebsite for mor e details. There ha ve been no other reportable subse quent events.   The Compan y has taken advantage o f the exemption under FR S 102:33.1A from disclosing transactions with other members of the Group. The immediate and ultimate parent undertaking is CHP Software and Consulting Limited, which is the parent undertaking of the smalles t andlargest group to consolidate these financial statement s. The registered office o f the immediate and ultimate parent undertaking is MoorPlace, 1 For e Street A venue, London EC2Y 9D T and copies of the financial statement s of CHP Software and Consulting Limited can beobtained from this address. The ultimate controlling party is Andrew Pag e. See a full listing of Company ’ s subsidiarie s and joint venture in not e 32.2 of the Group accounts. NOTEST OTH ECOMP ANYFINANCIALST A TEMENTS  FORTHEYEAREND ED3 1DECEMBER202 1CONTINUED OTHER INFORMA TION Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 179 API: Application Programming Interface. A GM: Annual General Me eting. Alfa: The Group or Alfa F inancial SoftwareHoldings PLC and its subsidiaryunder taking s (as defined bytheCompanies Act 2006) . APM: Alternative P er formance Measure. Article s: The Article s of Association oftheCompany . Banks: Customers classified as banking institutions are finance entities associate d with regulated banking groups. Basicearningspershare: Calculated by dividing the profit attributable to equity holders of Alfa by the w eighted average number of ordinary shares out standing during the year . Board: The Boar d of Directors of Alfa F inancial Software Holdings PLC. CompaniesAct: The Companies Act 2006 (as amended) . CEO: Chief Executive Officer . CFO: Chief Financial Officer . CGU: Cash-generating unit. Company: Alfa F inancial Softwar e Holdings PLC, a company incorporated in England and W ales with registered number 10713517 whose registered office is at Moor Place, 1F ore Str eet A venue, London, EC2Y 9D T , United Kingdom. CL T: Compan y Leadership T eam. CODM: Chief Operating De cision Maker . COO: Chief Operating O fficer . CSR: Corporate Social Responsibility . Customerconcentration: The pr opor tion ofgroup r evenues made up by the top 5 or top 10 customers, in each relevant period asstated DBSP: Deferred Bonus Share Plan. Directors: The Directors of the Compan y whose names are set out on pages 74 to 75. DisclosureandT ransparencyR ules: The Disclosure and T ransparency Rules made under Part VI of the Financial S ervice s andMarkets Act 2000 (as amende d) . EMEA: Eur ope, the Middle East and A frica. ESG: Environmental, S ocial and Governance. EPS: Earnings per share. EU: Eur opean Union. EURIBOR: the Euro Int erbank Offer Rate. FCA: Financial Conduct A uthority FCF: F ree cash flow . FR C: The Financial R epor ting Council. FTE: Full time equivalent. FVOCI: F air value through other comprehensiv e income. FV TPL: Fair value through pr ofit or loss. GHG: Greenhouse gases. Group: Alfa F inancial Software Holdings PLC and its subsidiarie s. HMR C: Her Majes ty ’ s Rev enue & Customs. KPI: Key performance indicator . IP: Intellectual propert y . IR T: Incident R esp onse T eam. I&S: Implementation and Support (“I&S”)expense. LIBOR: London Inter-bank Offer ed Rate. L TIP: Long- T erm Incentive Plan. ML: Machine Learning. OEMs: Original equipment and automotive manufacturers. Operatingfreecashflo wconv ersion: Operating free cash flow is calculated ascash from operations, less capital expenditures, less the principal element oflease payment s in respect of IFRS 16. Operating free cash flow conv ersion repr esent s Operating free cash flow generated as a proportion of Operating profit. PDMR: Person Dischar ging Managerial Responsibilities. PDP: Performance Dev elopment Plan. RFI: Request for information. R&PD: R esearch and product development. SG&A: Sales, general and administrative expenses. SI: Systems integrator . SONIA: Sterling Overnight Index A verage. The effective o vernight interest rate paid by banks for unsecured transactions in the British sterling market. STFR: Single total figur e of remuneration. TC V:  T otal contract value. TheCode: The UK Corporate Governance Code published by the FRC in July 2018. TSR: T otal shareholder return. U AT : User acceptance te sting UI : Userinterface. VAT : UK value adde d taxation. XaaS: Ev er y thing as a ser vice. GLOSS AR YOFTERMS 180 Alfa Financial S oftware Holdings PLC Annual R eport and Account s 2021 SHAREHO LDERI NFOR MA TI ON Alfa Financial Software Holdings PLC Registered Office Moor Place 1 F ore Str eet A venue London EC2Y 9D T www .alfasystems.c om T+44 (0)20 7588 1800 Registered Number: 10713517 Stock code: ALF A ISIN: GB00BDHXPG30 LEI: 213800C5UOZHUTNUGA28 Investor relations ir@alfasystems.com Media relations T ulchan Communic ations LLP Auditor RSM UK A udit LLP Brokers Barcla ys Bank plc Inv es tec Bank plc Corporate lawyer White & Case LLP Remuneration advisors Ellason LLP T apes try Global Compliance LLP Registrar/shareholder queries Equiniti Limited Aspect House, Spencer Road, Lancing , W e st Sussex BN99 6D A T elephone 0371 384 2030 and out side the UK +44 (0)121 415 7047 Online: help.share view .co. uk (from here, y ou will be able to securely email Equiniti with y our enquir y .) Consultancy , design and production www.luminous.c o.uk Design and production www.luminous.c o.uk Thi s rep or t i s pri nte d on 10 0% re c ycle d paper , which is cer tified carbon balanced by World L an d T ru s t Ltd. Bl ackdo g Di gi ta l is a c arb on n eu tr al comp any an d is co mmi t te d to all ro und excel le nce an d imp roved e nvi ronm ent al pe r for man ce is a n imp or t a nt pa r t of o ur ‘G o G reen ’ s tr ate g y . Lumi nou s are ce r ti fi ed in u sin g Ca rbo n Ba lan ced p ap er fo r the A lf a Fi nan cia l Sof t ware H ol din gs PLC Ann ual Re po r t . Thi s proj ec t h as ba la nce d thro ugh Wor ld La nd T r us t th e eq uiv al ent o f 21 0k g of Car bo n Di oxid e. Thi s sup po r t wi ll en abl e World L an d T ru s t to prot ec t 4 0 m 2 of critically threatened tropical for est . CBP011490 © Alfa Financial Software Holdings PLC, 2021 Moor Place 1 Fore Street Avenue London EC2Y 9DT UK +44 (0)20 7588 1800