Alfa Financial Software (LON:ALFA) reported higher first-half revenue, recurring subscription growth and an expanded contract base, while management said it remains confident in its full-year expectations despite slower software engineering revenue and foreign-exchange headwinds.
Revenue for the first half of 2026 totaled £65.1 million, up 4% at actual exchange rates and 5% at constant currency. Operating profit was £18.4 million, producing an operating margin of 28.3%. Subscription revenue rose 14% to £24.1 million and represented 37% of total revenue, as the company continued its transition toward a larger recurring-revenue model.
Profit affected by severance and FX movements
CFO Duncan Magrath said first-half performance was measured against a strong comparator period in 2025. Gross margin declined by 400 basis points, reflecting both a lower level of chargeable software engineering work than a year earlier and severance costs incurred during the period.
Operating profit declined 15% on a reported basis. However, Magrath said that excluding severance costs and foreign-exchange hedge effects, operating profit was 2% ahead of the prior year and operating margin was only slightly lower.
The company recorded £1.6 million in severance costs, including associated legal fees, with £1.2 million included in cost of sales and £0.4 million in selling, general and administrative expenses. It also experienced a £0.3 million loss on U.S. dollar hedges, compared with a $1.7 million gain on those hedges in the first half of 2025, creating a £2 million year-over-year swing.
Excluding those items, cost of sales increased 10% and SG&A rose 2%, Magrath said. Alfa’s effective tax rate was 26%, in line with 2025.
Subscription base and implementation pipeline support growth
Subscription TCV increased 22%, supported by both new customer wins and growth within the existing customer base. Alfa had 44 customers contributing subscription revenue at the end of the half, compared with 41 a year earlier. Of subscription revenue, 73% came from customers already live on Alfa Systems 5 or Alfa Systems 6, while 20% came from customers implementing AS6.
Magrath said Alfa had 15 customers in implementation, including 13 new customers and two upgrades from version 4. He said customers that began working with Alfa in 2023, 2024 and 2025 are expected to be significant contributors to future subscription revenue as they progress to go-live status and build volumes on the platform.
Using actual and internal forecast data for those three customer cohorts, Magrath said revenue from the group is expected to more than double between 2026 and 2028. He cautioned that the timing of this growth depends on implementation schedules and could be delayed if projects take longer than expected to reach go-live.
“We are, in effect, a zero churn business for Modern Alfa Systems,” Magrath said, noting that net revenue retention reflected a 3% drag from one terminating V4 customer, 6% growth from net upsell and 7% growth from new customers that are not yet live.
Software engineering declines while delivery revenue rises
Software engineering revenue fell 17% from a particularly strong first half of 2025, though it remained 43% above the first half of 2024. The decline included a £2.7 million reduction in chargeable development work for new subscription customers and a £0.5 million reduction in work for existing customers.
Incoming CFO Andrew Dickson said the £8.6 million in first-half software engineering revenue was heavily influenced by the timing of customer wins and project requirements. The figure included £2.8 million of customized license revenue, which he said is expected to be lower in future periods.
Delivery revenue rose 5% year over year, with 54% related to new customers in definition or implementation, compared with 40% a year earlier. Delivery TCV rose 22%, primarily due to the two new customer wins. Alfa said it expects to recruit additional delivery staff for 2027 to support expected growth.
The company completed two AS6 customer go-lives during the first half. One involved an existing V4 customer migrating portfolios in two countries onto a segregated Alfa Cloud instance. The other was a new customer’s limited new-business pilot, which Alfa said is expected to become its largest Alfa Cloud implementation as volumes build and existing finance books migrate.
AI and market expansions remain investment priorities
Alfa invested £19.6 million in software during the period, focusing on originations, fleet, commercial finance and artificial intelligence capabilities. COO Matthew White said the company is using AI to reduce implementation friction, accelerate development and enhance product capabilities.
White said an AI use case for data migration reduced the development effort required for data transformation code by 75% in one example. Alfa has grouped its AI offerings under the Theia brand, including Theia Core, Theia Notes, Theia Lens and Theia Connect.
The company also completed a pilot using AI tooling to accelerate software development and is moving the technology into regular business use. White said the company expects AI-enabled efficiency to reduce implementation costs, shorten time to go-live and broaden Alfa’s addressable market rather than reduce delivery revenue.
Alfa made 31 non-voluntary departures in the first half, primarily in product engineering, in response to reduced demand for customer-led software enhancements. It continued recruiting in areas with stronger demand, including cloud hosting operations and delivery.
Outlook unchanged
Management maintained its outlook for 2026. Magrath said subscription revenue is expected to continue growing, while delivery revenue is expected to grow more slowly than initially anticipated. Improved software engineering revenue is expected to offset that slower delivery growth, leaving overall growth broadly in line with prior expectations.
Alfa expects cash conversion of 80% to 90% for the full year, despite first-half conversion of 76%. The company attributed the first-half outcome to timing, following 108% conversion in the second half of 2025 that included £2.8 million in accelerated customer receipts.
Alfa paid £13.7 million in dividends during the period, comprising a £4.5 million ordinary dividend and a £9.2 million special dividend. The company said it would retain excess cash for now to preserve optionality, while maintaining its policy of a progressive ordinary dividend.
Management said it expects operating margins to improve gradually over the medium term as subscription and license revenue expand, although it does not anticipate dramatic short-term margin increases. Magrath characterized the company’s medium-term model as one targeting approximately 30% margins and 10% to 12% overall growth.
About Alfa Financial Software (LON:ALFA)
Alfa has been delivering leading-edge technology to the global asset finance and leasing industry since 1990. Our specialised expertise enables us to deliver the most challenging systems transformation projects successfully.
Alfa Systems, our class-leading SaaS platform, is at the heart of the world’s largest and most progressive asset finance operations. Supporting all types of automotive, equipment and wholesale finance, Alfa Systems is proven at volume and across borders, and trusted by leading brands to manage complex portfolios, drive efficiency and sustainability, and enhance the customer experience.
With full functionality for originations, servicing and collections, Alfa Systems is live in 37 countries, representing an integrated point solution, a rapid off-the-shelf implementation, or an end-to-end platform for the complex global enterprise.
