Alpha FX reveals stricken client owes more than £30m

Alpha FX shares tumbled after the currency hedging company revealed its largest forward contract client was struggling to pay more than £30m owed to Alpha.

The AIM-traded company also said it would scrap its final dividend to conserve £2m of cash and cancel share payments to employees.

Alpha said the spread of Covid-19 combined with the oil price collapse had caused unprecedented falls in some currencies, leaving more than 200 clients with forward contracts out of line with fair value.

These clients have paid Alpha margin to meet their obligations but one client that is short of working capital in its own business needs more time to settle £30.2m. The food produce exporter was caught by a near-16% drop in the Norwegian krone against the dollar in a week, Alpha said.

The krone's record fall left the client unable to pay the full margin owed on its forward contracts, which were cancelled. A sharp rise in demand for its products had left the client with reduced working capital. Alpha said it was in talks for the client to pay the amount owed in weekly stages to June 2022.

The company's shares fell 40% to 559.25p at 14:24 BST.

Alpha said it had a strong first quarter but that clients' need for currency hedging was closely linked to global trade. The board's preliminary view is that 2020 revenue and underlying earnings will be "broadly close" to the 2019 results. Bad debts may increase, Alpha said.

"The rapid acceleration of Covid-19 and consequential government enforced lockdowns in major economies has resulted in an unprecedented and ongoing slowdown in global trade," Alpha said. "Although it is difficult to forecast in the current environment, we currently anticipate a reduction in FX activity, and in particular forward contracts, as our clients delay or even cancel their commercial activities until their outlook becomes clearer."

The 5.4p a share final dividend will be cancelled along with the award of more than 800,000 new shares under an employee share scheme. Non-executive director Lisa Gordon will also agreed to delay exercising an option over 57,397 shares until April 2021.