Final Results

10 February 2022

AFERIAN PLC

("Aferian", the "Company" or the "Group") 

FULL YEAR RESULTS FOR THE YEAR ENDED 30 NOVEMBER 2021 

Double digit revenue and profit growth

 Improved quality of earnings and enhanced revenue visibility achieved

Aferian plc (LSE AIM: AFRN), the B2B video streaming solutions company, announces its results for the year ended 30 November 2021. 

Donald McGarva, Chief Executive Officer of Aferian plc, said:  

"I am proud of the strong performance we've achieved in our first full year of executing and innovating against our 2025 strategy. We have delivered double digit growth across the majority of our key performance metrics and significantly improved our quality of earnings and revenue visibility with an exit run rate ARR up 43% on the previous year. This strong performance was delivered thanks to the incredible teamwork, resilience and hard work of our people and despite ongoing uncertainty brought on by the pandemic and global supply chain issues.  

"We enter 2022 in a strong position both financially and operationally. Aferian sits at the centre of the converging worlds of streaming services and traditional Pay TV. This convergence excites our customers, engages viewers and energises our product teams as we continue to innovate new ways to make it easy for people to connect to TV and video when and how they want."

Financial Key Figures

Notes 

Financial Highlights

·      Further improved quality of earnings and enhanced revenue visibility

·      higher-margin software and services revenue of approximately $22.4m, up 15%, including recurring revenue of $12.9m, up 21%

·      exit run rate ARR of $15.2m (2020: $10.6m), up 43%

·      Strong balance sheet maintained with strengthened cash position, and new banking facility of up to $100m to support our targeted M&A strategy

·      A final dividend of 2.09 pence (2.87 US cents) per share (2020: 1.87 pence / 2.39 US cents) in line with our new dividend policy to deliver returns to shareholders through growth and income

            Strategic and Operational Highlights 

·      Strong progress against our 2025 strategic goals in the first year of execution

·      Continued focus and investment to drive growth in recurring software revenues and conversion of the streaming and Pay TV convergence opportunity

·      24i: continued focus on building recurring revenues and migrating subscribers from legacy systems to 24i's more flexible and extensible platform

·      Amino: grew revenues by 19% to $75.1m, maintaining strong margins and cash generation

·      Strategically important customer deployments achieved during the period across 24i and Amino:

·      24i: deployed 24i's streaming platform for new customers including the Canadian Hockey League and Cinessance, a subscription video on demand service, which launched in November 2021 as the 'Netflix of French Film'

·      Amino: multiple new deployments of Amino's Android TV platform including at Go Malta and CableNet in Europe, Optage in APAC and Conway, Home Telecom and Hay Communications in North America

·      Successful integration of Danish streaming and Pay TV platform specialist, Nordija (now part of 24i), immediately adding $2.1m ARR upon acquisition.

·      Continued product innovation and success, 24i's video platform named best OTT Video Platform in the Streaming Media European Readers' Choice Awards, and Amino's Hybrid Android TV streaming device securing CSI Magazine's Award for Best Customer Premise Technology 2021

            Current trading and outlook 

·      We enter 2022 in a solid position and continue to strengthen our pipeline of potential M&A opportunities as we seek to continue to deliver against our 2025 strategy.

·      The Board remains confident in the Group's ability to meet current full year expectations and in the Group's future prospects.

For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Mark Carlisle, Chief Financial Officer.

For further information please contact: 

About Aferian plc 

Aferian plc (AIM: AFRN) is a B2B video streaming solutions company. Our end-to-end solutions bring live and on-demand video to every kind of screen. We create the forward-thinking solutions that our customers need to drive subscriber engagement, audience satisfaction, and revenue growth.

It is our belief that successful media companies and services will be those that are most consumer-centric, data driven and flexible to change. We focus on innovating technologies that enable our customers stay ahead of evolving viewer demand by providing smarter, more cost-effective ways of delivering end-to-end modern TV and video experiences to consumers. By anticipating technological and behavioural audience trends, our software solutions empower our customers to heighten viewer enjoyment, drive growth in audience share and ultimately their profitability.

Aferian plc has two operating companies: 24i, which focusses on streaming video experiences, and Amino, which connects Pay TV to streaming services. Our two complementary companies combine their products and services to create solutions which ensure that people can consume TV and video how and when they want it. Our solutions deliver modern TV and video experiences every day to millions of viewers globally, via our growing global customer base of over 500 service providers.

Aferian plc is traded on the London Stock Exchange's AIM stock market (AIM: symbol AFRN). Headquartered in Cambridge, UK, the Company has over 350 staff located in offices in San Francisco, Amsterdam, Helsinki, Copenhagen, Madrid, Porto, Brno, Buenos Aires, and Hong Kong. For more information, please visit www.aferian.com.

Chairman's statement:

I joined the Board of Aferian on 1 January 2022 as its Non-Executive Chairman and it's a privilege to join at such an exciting time of growth and development. Throughout my career, I've been lucky enough to help guide innovative British technology businesses as they pursue growth and become global leaders in their field. This is where my enthusiasm still lies, and why I'm excited to have joined Aferian, an equally ambitious British and international software business. The Group is at the heart of a structural industry shift towards the convergence of streaming services and traditional Pay TV, and I'm looking forward to sharing knowledge and experience to help the Company grow even more and deliver on its ambition.

This report marks the first full year since the Group announced its 2025 strategy. Whilst there is still plenty of work ahead of us, significant progress has already been made against the 2025 strategic goals. The Group has delivered another strong financial and operational performance, through both organic growth and with the acquisition of Nordija.

Since its inception, the Group's founding purpose has been to enable high quality video to be delivered over broadband. As both the video market and broadband speeds have evolved, so has the Group, but our promise has always remained unchanged - to make it easy for people to connect to the video they love, whenever they want. To continue delivering on this promise, Aferian has invested in the capability to deliver video to any screen at any time in line with the changing demands of consumers.

In June 2021, at minimal cost, the Group changed its name from Amino Technologies plc to Aferian plc to reflect its renewed purpose and expanded capabilities. The Board felt that as our business evolved, it was right that the Group's name was changed to enable us to better articulate the nature of business and the larger international opportunity on which our team is now capitalising.

Aferian Group Strategy to 2025

The Group's strategic aims remain underpinned by building a predictable and profitable software-driven growth business, with a proven track record of expanding its addressable market both organically and through targeted M&A. Our objectives are 1) to continue to grow margin through value-based investments; 2) to maintain strong levels of cash generation; 3) to deliver appropriate returns to shareholders, and 4) invest in the future growth of the Company. This year we have made significant progress against all of these objectives.

Our Group strategy to 2025 is focussed on four key drivers as follows:

·    Transformation to a software-led company

Aferian is a software-led business focused on growing higher margin recurring software revenues. This year ARR has increased by 43% to $15.2m and software & services revenue has grown by 15% to $22.4m.

·    Data-centric product development to drive growth and innovation

Aferian's data-centric product development is focused on enhancing value for our existing customers to drive upsell of product licenses, as well as on attracting new customers. As the Group has expanded it has continued to collect and enhance increasing volumes of data. Our products are designed to deliver premium levels of support and monitoring at every point in the Group's video streaming platform, as well as giving customers new and actionable insights that will help them to grow consumer engagement and loyalty.

·    A product roadmap focussed on the consumer experience

Aferian aims to deliver choice, usability and convenience to the consumer. During the year the Group has continued to develop new and existing platforms that enable pay TV to be integrated with third-party streaming services like YouTube, Netflix and Amazon Prime Video on a single streaming device. Consumers prize this level of convenience, and it helps our clients retain subscribers. The ongoing investment in developing the Group's productised video streaming platform ensures end users have the widest-possible choice of ways to access and watch the content they love.

·    M&A strategy to further underpin revenue growth and visibility

The Group is already delivering on its M&A growth ambitions and is expanding its capacity to continue to do so. In May 2021, the Group acquired Nordija (now part of 24i), a Danish specialist in Pay TV and streaming, which immediately had a positive impact on revenue and ARR. In December 2021, just after the year end, the Group also announced an increased bank facility of $50m which also includes a further $50m available by way of an accordion. The increased facility provides support to the Group in achieving its 2025 strategy, particularly with regards to the execution of potential acquisitions.

Environmental, Social and Governance ("ESG")

This year we were proud to publish our first ESG report. Our approach to ESG uses the Japanese concept of Ikigai meaning "a reason for being", which refers to having a meaningful direction or purpose in life. The ESG report provides an overview of how our business is aligned to the United Nations Sustainable Development Goals.

To further underscore the Group's commitment to making ESG foundational in what we do, in the current financial year the Remuneration Committee has introduced variable compensation targets for the Executive Directors based on the Group's ESG goals.

Board change

After almost six years on the Group's Board of Directors, Karen Bach stepped down from her role as non-executive Chairman on 31 December 2021. During her tenure, Karen made a significant contribution to the Group, including leading the Board as it developed the Group's 2025 strategy, which is already delivering meaningful improvements in revenue visibility and growth. On behalf of the Board and all our Aferian employees, I would like to thank Karen for her service, dedication and support during her tenure.

Dividend

In line with our dividend policy of paying between a third and a half of adjusted EPS as a dividend, the Board is proposing a final dividend of 2.09 pence per share (2.87 US cents*) which, if approved, would, with the already paid interim dividend of 1.0 pence (1.38 US cents*) per share, result in a total dividend for the year of 3.09 pence (4.25 US cents*) per share.

*£1: $1.37528

Mark Wells

Chairman

9 February 2022

Chief Executive Officer's review:

Strong progress towards our 2025 strategic goals

Our 2025 strategy addresses the convergence of streaming services and traditional Pay TV. Aferian has always been a B2B2C video streaming solutions company. The 2025 strategy capitalises on the increasing consumer expectation that we should all be able to connect to the TV and video content we love on any device, at any time, wherever we may be. Aferian is well positioned to capture this opportunity, making it easy for people to consume TV and video content in the way they want.

We have made strong progress towards our 2025 strategic goals. We report revenue of $92.9m (2020: $82.7m), up 12%, and improved quality of earnings and enhanced visibility with an exit run rate ARR of $15.2m (2020: $10.6m) up 43%. Recurring software revenue was 58% (2020: 55%) of total software & services revenue.

Outstanding team effort driving strong business results

We could not have achieved these results without the incredible teamwork, resilience and effort from our people. This year we have seen the continued impact of the global COVID-19 pandemic on our supply chains and our working practices. Many of our teams have continued to work from home most of the time. Delays in the supply chain of our streaming devices meant teams had to work doubly hard to source components on time as well as to source, test and validate alternative components. Despite this, our teams around the world have continued to collaborate effectively with each other, our customers and our suppliers to ensure that we have continued to provide our customers with high levels of service and timely assistance. I would like to thank our teams for their ongoing resilience and dedication in the face of a global pandemic, the impacts of which continue to be felt.

Building a predictable, software-driven growth business

We are focussed on building a predictable, software-driven growth business, while expanding our addressable market both organically and via targeted M&A. We continue to grow margins through value-based investments, maintain strong levels of cash generation, deliver appropriate returns to shareholders and invest in the future growth of the Group.

Our targeted M&A strategy is supported by our strong balance sheet and $50m bank facility which we signed in December 2021. Our M&A strategy has three pillars:

1. Acquisition of key and emerging technologies which gives the Group a competitive advantage and, therefore, improves gross margins. We have identified a number of areas which could significantly add value to our platform's capabilities by using the latest technologies to enhance our streaming platforms and make it easier for end-consumers to find the video and content they love.

2. Acquisition of market share and scale to drive operating cost efficiencies and take advantage of the growing demand for 'configurable' video experience solutions based on a standard platform. Our technology vision is founded on the iterative development of a modular video streaming platform that delivers both segmental (modular) as well as integral (end-to-end) solutions for our clients and partners, based on customisable products.      

3. Acquisition of market entry capabilities and expanded market penetration, both in terms of additional geographies and industry verticals.  Aferian has a very strong position in video being distributed over broadband via Pay TV as well as by broadcasters, publishers and content owners. The video market is dynamic, and our end-to-end streaming capabilities mean we are well placed to serve companies wishing to stream content to viewers in additional sectors such as education, hospitality and others.  We are targeting additional geographies and industry verticals to market those capabilities.

In May 2021, we commenced our targeted M&A programme by completing the acquisition of Nordija, a Danish streaming and Pay TV platform specialist, for a total consideration of €5.3m ($6.4m). As customers increasingly look to offload the day-to-day burden of managing and maintaining their end-to-end video platforms to expert partners like Amino and 24i, this move accelerates our progress in the TV as a Service ("TVaaS") market. This enables us to better capture the opportunity created by the convergence of streaming services and traditional Pay TV, which is where we see the greatest opportunity for growth.

This acquisition added $2.2m to exit run rate ARR as well as bringing specialist capabilities to our team. Nordija has a reputation for innovation and has brought high quality customers to the Group including Denmark's Waoo, Swisscom Broadcast and Telenor Sweden. We were delighted to welcome Nordija employees into our growing Group. The integration of Nordija into 24i was completed in 2021 and the acquisition was earnings enhancing in the financial year.

To provide the Group with additional funds to aid execution of its acquisitive growth strategy, Aferian also completed a share placing in the year, raising $12.7m (£9.0m).  Initially, these funds were intended to support the purchase of MobiTV, a US live TV and on-demand platform provider, which was in an auction process. Whilst our bid was ultimately unsuccessful, the availability of these additional funds enhances the Group's position in negotiating and executing future acquisitions.

The streaming market

Streaming is now a mass-market industry. Demand for streamed content continues to grow significantly, accelerated by changes in viewing habits during the COVID-19 pandemic.  The 2021 research* issued by the research firm Ampere Analysis found out that:

·         Baby boomers are now just as likely to binge-watch streamed content as their grandchildren.

·         Consumers are also shopping around for a better streaming platform deal and content, driving increased diversity in the streaming market: The average US household now subscribes to four different streaming services (+1 since 2020).

·         The average US household spends $47 per month on streaming services (up from $38 since 2020).

·         More than 1-in-10 US households are signed up to seven or more different streaming services.

*Source: cordcuttersnews.com

Within this growing industry, Aferian serves a range of market verticals:

·     Pay TV operators - companies offering a package of linear TV channels and often associated on demand content to consumers on a subscription basis. Research from SPGMI suggests 90% of operators in EMEA and 74% of operators in North America are integrating streaming with their linear channels.  

·      Enterprise video providers - companies making video available to consumers on managed streaming devices but not offering traditional Pay TV to consumer homes, for example in-room entertainment in hotels, hospitals etc.  Research from Market Intelligence suggests the Global enterprise market is set to grow at CAGR +8% to $2.1bn by 2025.

·      Content owners - for example Netflix, Disney+, Pure Flix, and Cinessance. A study by Digital TV Research suggests gross revenue from streaming TV and movies will reach $210bn on 1.5bn subscriptions by 2026.

·     Sports rights holders - for example FIFA, UEFA, NFL, and Canadian Hockey League. Research from Deltatre suggests sports rights holders worldwide spend 15% of their total budgets on their video streaming platform. That's $6.8bn in North America alone.

·      Broadcasters - for example the BBC, ITV, CNN, Game Show Network, and NPO. Research from Amagi Analytics found advertisers are shifting from traditional TV to streaming TV, with ad-supported video spendings estimated to rise to $25bn by 2025.

Aferian's Total Addressable Market

The revenues generated through streaming video over the internet are growing fast. Digital TV Research predicts the total global market will be worth $167bn by 2025. A large proportion of this will go to the industry giants like Amazon, Disney and Netflix, but that leaves significant revenue shared between the companies that make up Aferian's target market: smaller telecom operators, streaming services and enterprise video providers.

Research commissioned by Aferian and conducted by Media Asset Capital in November 2021 found that all Aferian's solutions service a total addressable market worth over $8.6bn:

2021 Key Performance Indicators

Our six key performance indicators demonstrate continued strategic progress during 2021 as we work towards our 2025 strategy goals.  The Group reported revenue growth of 12%, with exit run rate ARR up 43%. Adjusted gross profit margin is consistent with the prior year. The Group also continues to generate strong operating cash flows.  This year we also report for the first time a net customer revenue retention rate (based on recurring revenue) which increased 13% because of a very low churn rate and increased upsells to existing customers during the year.

Operational review

The Group has two operating companies: 24i and Amino.

24i

24i offers a robust technology platform that streams TV and video programming to any type of screen.  24i has a 12-year market-leading position and works with customers like NPO, Telenor, Pure Flix and Broadway HD.

24i continues to focus on building recurring revenues and has reported a significant year-on-year increase of 61% in exit run rate ARR (29% increase year-on-year on an organic basis). As previously highlighted, we will continue to invest in both sales & marketing and in our products to build our sales pipeline. 

We continue to migrate customers to the latest version of our industry-leading end-to-end streaming platform, which was launched last year. The new platform enables our customers to get their TV and video content to consumers faster and more cost-effectively. In December 2021, we unveiled 24i Mod Studio as the new identity and go to market name for our new platform. The new name and image are designed to better articulate the flexibility and modularity of the platform as well as its ability to rapidly meet the end-to-end needs of our target markets with turnkey solutions. Generally, across our platforms, customers are now benefiting from the worldwide shift to streaming and consumer demand for more flexible viewing powered by our platform. 

24i continues to grow recurring revenue organically. This is in part a reflection of low customer churn but also the success that customers enjoy from using the 24i video streaming platform which has led to increased use of recurring software licenses. For example, during the period, we have seen growth in per-subscriber revenues from customers like Delta Fiber in the Netherlands who have migrated more of their consumer base to the 24i Pay TV streaming platform from legacy systems.

With other customers, growth has come from use of an increased range of 24i solutions. For example, the convenience of 24i's cross-platform application codebase has enabled customers like KPN to upgrade their Smart TV applications and expand their offering to new devices including Android TV screens. 

Likewise, many of our existing customers are using more of 24i's products (with associated license fees) as they transition away from their legacy, custom-built applications to using our productized solution instead. We have also enhanced our content management system to allow customers to manage the processing of their video files from the same web tool they use to promote their content and manage their user experience. This helps our customers to more clearly see the benefits of our end-to-end solution and in turn helps our sales team to more clearly articulate the benefits of our solutions. 

During the year we implemented our video platform for the Canadian Hockey League, and Cinessance, an SVOD service that launched in November 2021 with the aim of becoming the 'Netflix of French Film'.  The integration of Nordija was completed in 2021 and 24i enters 2022 with a strong product portfolio, customer base and pipeline of opportunities with which to continue to grow recurring revenue.

Amino

Amino seamlessly connects Pay TV to streaming services and provides the features required in a multiscreen entertainment world.  Amino has a 20-year heritage with customers like PCCW, Cincinnati Bell, T-Mobile NL and Entel.

During the year, Amino grew revenues by 11% to $75.1m and maintained its strong margins and cash generation. By offering services that converge linear TV and streaming, Amino delivered several new deployments of its Android TV platform in the period.  These included Go Malta and CableNet in Europe, Optage in APAC and Conway, Home Telecom and Hay Communications in North America. These deployments showcase our ability to roll out a next generation TV experience as operators, such as Disney+, look to combine the best of both worlds for linear TV and streaming apps.

During the year, Amino completed the implementation of our Android TV platform and Netflix integration with PCCW in Hong Kong to enable its Now TV video service. This was done using Amino's Hailstorm Partnership with Netflix. This partnership cuts the time to integrate Netflix from as long as 12 months to only a few weeks.

Our leading SaaS device software management, customer support and analytics solution continued to grow strongly. 29 new customers deployed this solution in the year and the user base grew by 53% year-on-year. We regard this solution as a key differentiator in our competitive landscape.

The global component supply chain shortage continues to be a challenge for businesses globally, though one we are navigating well. This is a market-wide issue, and the impact of COVID-19 continues to be seen in our supply chain. We have seen extended lead times and cost increases of key components such as semi-conductors in the year. Despite these challenges, we shipped approximately 5% more devices in 2021 compared to 2020. We continue to actively manage the situation and are working closely both with customers on longer-term supply arrangements to enhance visibility and with suppliers to ensure timely deliveries of materials.  As we enter 2022, we therefore have increased visibility of orders.

Environment, Social and Governance ("ESG")

ESG is a focus for the Company, and we set out our policies and goals in detail in our first ESG report which was published in August 2021 and can be found on our website. Aferian's approach to ESG uses the Japanese concept of Ikigai meaning "a reason for being" which refers to having a meaningful direction or purpose in life, constituting the sense of one's life being made worthwhile. Using the concepts of Ikigai, we have developed our ESG framework and aligned our business to some of the United Nations Sustainable Development Goals. We have continued to make good progress on ESG as our report outlines. Notable examples of our progress include:

·     We are currently reviewing the sustainability of our hardware supply chain. All of our Tier 1 hardware suppliers operate under our Code of Conduct, which aligns with the Responsible Business Alliance (RBA) Code of Conduct and the UN Global Compact. In 2021 we launched a Tier 1 hardware supplier sustainability audit programme using RBA recognised auditors to enhance and complement our existing facility audit programmes. Though somewhat inhibited by COVID restrictions, 66% of supplier facilities were audited to RBA Validated Assessment Program (VAP) or equivalent by December 2021. 100% are scheduled to be audited by March 2022.

·     The total energy consumed by the Group's offices and computer servers directly within its control (i.e. Scope 1 Green House Gas emissions) declined during 2021. Whilst this is primarily due to the impact of COVID restrictions, we remain focussed on achieving our goal of being carbon neutral by 2025 and fully throughout our supply chain by 2030.

·     We continue to survey employees as part of our Diversity and Inclusion programme. The results of our latest survey, performed by a third party, in May 2021 once again showed that employees were engaged, and the Group scored higher than average on the Diversity and Inclusion index compared to external benchmarks. Whilst we do not collect or disclose racial or ethnic group data, our last survey showed that Group's employees represent 35 different nationalities. This year we also launched a project led by our employees in Brno, Czech Republic, sponsoring women in technology, with the aim of funding their studies and then employing them via our graduate recruitment programme.

Current trading & outlook

Overall, the Group traded well during 2021 with both revenue and recurring revenue up and continued improvement in earnings quality and visibility. In short, we have more visibility today than ever before as evidenced by our exit run rate ARR.  Having commenced our targeted M&A programme to capitalise on the convergence of Pay TV and streaming, the integration of Nordija has been completed, and we continue to evaluate a good pipeline of potential acquisition opportunities.

We enter 2022 in a solid position as we seek to continue to deliver against our 2025 strategy. We have increased firepower to pursue targeted opportunities with a strengthened net cash position at the end of the financial year, and our new banking facility to draw on. The Board remains confident in the Group's ability to meet its current full year expectations and in the Group's future prospects as it executes its strategy and vision to make it easy for people to connect to the TV and video that they love.

Donald McGarva

Chief Executive Officer

9 February 2022

Chief Financial Officer's review

Overview

The Group's financial results for the year ended 30 November 2021 demonstrate continued progress against the Group's financial objectives that were set out a year ago: to grow high margin software & services revenue, with a focus on recurring revenue.

Total revenue increased by 12% to $92.9m (2020: $82.7m).  Excluding the impact of the Nordija acquisition in May 2021, revenue grew by 9%.

High margin software & services revenue increased by 15% to $22.4m (2020: $19.5m).  Excluding the impact of the Nordija acquisition, software & services revenue increased by 3%. Software & services adjusted gross profit represented 41% of total adjusted gross profit in the year, an increase from 40% in 2020.  Adjusted gross margin has remained consistent with the prior year at 48% (2020: 48%).   In addition, the visibility of the Group's revenues increased as exit run rate Annual Recurring Revenues (ARR) increased to $15.2m (2020: $10.6m), representing growth of 43%.  Excluding the impact of the Nordija acquisition, exit run rate ARR increased by 23%.

The Group continued to generate strong operating cash flows. Adjusted operating cash flow before exceptional costs was $16.7m (2020: $18.2m) representing an adjusted EBITDA cash conversion of 91% (2020: 109%).  Operating cash flow was $14.1m (2020: $16.8m).

The Group had net cash of $14.2m at 30 November 2021 (2020: $9.5m). Since the year end date, the Group has secured a new banking facility with Barclays Bank plc, Silicon Valley Bank, and Bank of Ireland.  This increased facility of $50m, split evenly across the new three bank club, also includes a further $50m available by way of an accordion.  The new facility has a three-year term to 23 December 2024 with options to extend by a further one or two years.

The $15.0m banking facility that existed as at the balance sheet date, remained undrawn (2020: $nil).

Revenue and adjusted gross profit

Software & services revenue increased by 15% in the past financial year and grew by 3% excluding the impact of the Nordija acquisition. Software & services revenues as a proportion of total revenues for the year was steady at 24% (2020: 24%). However, the Group continues to focus on growing recurring revenues that increased by 21% from $10.7m to $12.9m.  Overall, recurring software & services revenue accounts for 58% of total software & services revenue (2020: 55%).

At 30 November 2021, exit run rate ARR increased to $15.2m (2020: $10.6m), of which $2.2m relates to the Nordija acquisition during the year.

The increase in exit run rate ARR provides enhanced revenue visibility as the Group moves forward.  In addition, we report for the first time a net customer revenue retention rate, based on recurring revenue, for the Group of 117% (2020: 104%).  The net revenue retention rate is calculated by reference to recurring revenue from existing customers, including upsells, less recurring revenue lost from customer churn during the year.  The increase of 13% is due to a very low churn rate combined with increased upsells to existing customers during the year.

Revenue and adjusted EBITDA

Adjusted EBITDA for the year ended 30 November 2021 was $18.4m (2020: $16.7m). Adjusted EBITDA is reconciled below, and is calculated as operating profit before depreciation, interest, tax, amortisation, exceptional items and employee share-based payment charges. This is consistent with the way the financial performance of the Group is presented to the Board.  The Directors believe that this provides a more meaningful comparison of how the business is managed and measured on a day-to-day basis.

24i segment

Revenue in the 24i segment increased by 17% to $17.8m (2020: $15.2m).  Excluding the impact of the Nordija acquisition, revenue is broadly in line with the prior year.  This is due to a shift in focus during the year towards driving recurring software revenue. This change has resulted in the growth of exit run rate ARR from $6.9m to $11.1m, which represents 61% year-on-year growth. Excluding the impact of the Nordija acquisition, exit run rate ARR has grown by 29%.  The increased focus on exit run rate ARR aligns with the Group's software-led strategy.

Amino segment

Device revenues increased by 11% during the year to $70.1m (2020: $63.2m). This is a strong performance given the difficulties faced within the supply chain caused by significantly increased lead times, lack of availability of components, and scarcity of shipping capacity caused by the COVID-19 pandemic. The key driver behind the 11% increase in device revenues has come from volume sales and average selling price, both of which increased by c.5% compared to 2020.  

The Group has a core customer base in respect of device revenues, whereby repeat orders are placed by the same customers over multiple financial years. Taking the last three financial years, repeat orders from existing customers over that period has accounted for 94% (2020: 97%) of total device revenue.  It is this loyal customer base, and continued product reliability, that has helped contribute to the growth in the year.

Central costs

Central costs comprise the costs of the Board, including executive directors, as well as costs associated with the Company's listing on the London Stock Exchange.  The increase of $0.5m during the year is in respect of salary related expenses, including performance related bonuses reflective of the Group's financial performance for the year.

Adjusted EBITDA

Research & development costs

The Group continues to invest in research and in the development of new products and spent $13.0m on R&D activities (2020: $10.1m) of which $8.0m was capitalised (2020: $5.5m).  

The Group's spend on core engineering activities has increased by $2.8m in the year to $11.9m (2020: $9.1m).  This includes $0.9m in relation to the Nordija acquisition in May 2021.  The remaining increase of $1.9m reflects a combination of an increased workforce and salary inflation, the latter being driven by competitive labour market conditions in which the Group operates, as well as the Group continuing to invest in software development and related products.  Specifically, the Group has invested in the products that have been driving ARR such as 24i's video streaming platforms and Amino's SaaS device management platform, Engage.

Selling, general and administrative (SGA) expenses have increased by $2.9m in the year to $15.3m (2020: $12.4m).  This increase is due to the Nordija acquisition as well as an increased group bonus pool for employees that is reflective of the improved financial performance of the Group.

A reconciliation of adjusted EBITDA to operating profit is provided as follows:

Exceptional items

Exceptional items within cost of sales in 2021 comprised a $0.2m credit (2020: $0.9m credit) in respect of royalty costs recognised in prior years which have subsequently been renegotiated.

Exceptional items included within operating expenses in 2021 comprised:

·     $1.0m (2020: $0.2m) one-off costs in respect of acquisitions and legal costs, which includes cost associated with aborted acquisitions;

·     $0.3m (2020: $1.2m) contingent post-acquisition remuneration in respect of the acquisition of 24i Unit Media BV; and

·     $0.4m (2020: $nil) post-acquisition integrations and associated restructuring costs.

Depreciation and amortisation

Excluding amortisation of intangibles recognised on acquisition, depreciation and amortisation increased to $6.7m (2020: $6.2m).  The increase of $0.5m is due to higher capitalised development costs during the year. 

Amortisation of intangibles recognised on acquisition was $3.5m (2020: $4.2m), which represents a decrease of $0.7m.  The decrease of $0.7m in the year relates to acquired intangibles from the Entone and Booxmedia acquisitions in 2015 being fully amortised by the end of the prior financial year.  Offsetting this decrease is the amortisation charge of $0.4m relating to the acquired intangibles from the Nordija acquisition during the current year.

Taxation

The tax credit of $0.5m (2020: $1.7m charge) comprises:

·    $2.8m (2020: $1.9m) current tax charge;

·    $nil (2020: $0.6m) deferred tax charge relating to a reduction in the deferred tax asset as a result of tax losses utilised in the year;

·    $2.7m credit (2020: $nil) in respect of the recognition of a deferred tax asset relating to tax losses in 24i; and

·    $0.6m (2020: $0.8m) credit relating to the unwind of the deferred tax liability recognised in respect of the amortisation of intangible assets recognised on acquisitions.

The reason for the increase in the current tax charge is due to the UK tax losses being fully utilised at the end of the prior year.

The $2.7m tax credit is in relation to the recognition of a deferred tax asset for tax losses in 24, which are now considered recognisable (due to changes to local tax laws in the Netherlands, and updated internal tax compliance procedures, the Group has further clarification over the availability, and utilisation) for tax losses that were present at the date of acquisition and have arisen since acquisition.  In 2019 a deferred tax liability was recorded as part of the acquisition accounting relating to the purchase of 24i and the Group are now of the opinion that this deferred tax liability should be offset by this equal and opposite deferred tax asset.  Further details are provided in note 9 to the condensed consolidated financial statements.

Profit after tax was $5.8m (2020: $2.7m).

Cash flow

A reconciliation of adjusted operating cash flow before tax to cash generated from operations before tax is provided as follows:

Adjusted cash flow from operations was $16.7m (2020: $18.2m) and represented 91% of adjusted EBITDA (2020: 109%).  The reduction in adjusted cash flow from operations, and the conversion to adjusted EBITDA, was due to a cash outflow from working capital of $2.4m (2020: $1.1m cash inflow).  Whilst there has been no underlying change to the Group's debtor profile or cash generated, navigating the well-known supply chain issues in the year was challenging and a higher proportion of device shipments were delivered in the fourth quarter than the previous year.  The vast majority of cash due from those debtors has subsequently been collected in full since the balance sheet date, in line with normal customer payment terms.

Exceptional cash flows in 2021 comprised the final payment of deferred consideration in respect of the 24i acquisition from 2019 of $1.3m (2020: $1.1m).  In addition, one-off costs of $1.3m (2020: $0.3m) in relation to acquisitions in the year, including the aborted acquisition of MobiTV, were paid by the Group. Including these exceptional cash outflows cash generated from operations before tax was $14.1m (2020: $16.8m).

During the year the Group spent $0.3m (2020: $0.3m) on capital expenditure in respect of tangible fixed assets and capitalised $8.0m (2020: $5.5m) of research and development costs and software licenses.   The acquisition of Nordija included initial cash consideration of $4.7m, net of cash acquired of $0.3m.  In addition, the Group acquired the remaining 8% minority interest in 24i Unit Media B.V group which included cash consideration of $1.2m.

Following the equity placing in May 2021, the Group raised $12.7m, net of share issue costs.  The Group paid dividends of $3.1m (2020: $nil) during the financial year, relating to FY20 ($2.0m) and FY21 interim ($1.1m).

The Group generated adjusted free cash flow of $3.8m (2020: $9.7m) in the year and a reconciliation is provided below:

The decrease in the year of $5.9m can be explained by the negative working capital swing of $3.5m, that has been described above, as well as increased investment in research and development costs to support ARR growth, and higher tax payments of $1.8m.  The increased tax payments relate to the transition of the Group's UK trading subsidiary from payments in arrears to quarterly instalments paid in advance during the 2021 financial year.

Financial position

The cash balance at 30 November 2021 was $14.2m (2020: $9.5m). Since the year end date, the Group has secured a new banking facility with a consortium of three banks.  This increased facility of $50m also includes a further $50m available by way of an accordion.  The new facility has a three-year term to 23 December 2024 with options to extend by a further one or two years.

The facility that existed as at 30 November 2021 of $15m, remained undrawn.  This facility has subsequently been cancelled and replaced by the new bank facility described above.

At 30 November 2021 the Group had equity of $104.4m (2020: $88.0m restated) and net current assets of $9.2m (2020: net current liabilities of $0.5m restated).

Prior year restatement

During the year the Group identified that the number of shares used in the calculation of the put option liability at inception, in respect of the 8% minority shareholders of 24i Unit Media B.V, a subsidiary of the Company, was incorrect.  As a result, the initial recognition of the put option liability in 2019 was understated by $1.1m with a corresponding entry to equity.  There is no impact on the consolidated income statement or consolidated statement of cashflows.  The comparative year in the consolidated financial statements has therefore been restated.  The impact on the comparative financial information is summarised in note 13 to the financial statements.

Dividend

Last year the Company announced a new dividend policy, aiming to deliver returns to shareholders via growth and income, and reflecting the Company's growth ambitions.  This policy of paying between 33-50% of adjusted EPS in dividend is expected to provide shareholders with a growing income stream whilst allowing the Company to invest in growth.

In August 2021, the Company paid an interim dividend of 1.0 pence (1.38 US cents*) per share in respect of the year ended 30 November 2021.

The Board is proposing a final dividend of 2.09 pence (2.87 US cents*) per share (2020: 1.87 pence). Subject to shareholder approval at the annual general meeting to be held on 21 March 2022, the dividend will be payable on 22 April 2022, to shareholders on the register on 8 April 2022, with a corresponding ex-dividend date of 7 April 2022.  If approved, this would represent a total dividend for the year of 3.09 pence (4.25 US cents*) per share (2020: 1.87 pence).

*£1: $1.37528

Mark Carlisle

Chief Financial Officer

9 February 2022

Aferian plc

Consolidated income statement

For the year ended 30 November 2021

All amounts relate to continuing activities.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Aferian plc

Consolidated statement of comprehensive income

For the year ended 30 November 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

Aferian plc

Consolidated statement of financial position as at 30 November 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

Aferian plc

Consolidated statement of cash flows

For the year ended 30 November 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

Aferian plc

Consolidated statement of changes in equity

For the year ended 30 November 2021

The accompanying notes are an integral part of these condensed consolidated financial statements

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

1   Basis of preparation

The financial information set out in this document does not constitute the Group's Annual Report (which includes the statutory financial statements) for the years ended 30 November 2021 or 2020. The Annual Report (which includes the statutory financial statements) for the years ended 30 November 2020 ("2020") and 30 November 2021 ("2021"), which were approved by the directors on 9 February 2022, have been reported on by the Independent Auditors. The Independent Auditors' Reports on the statutory financial statements for each of 2020 and 2021 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The Group's Annual Report (which includes the statutory financial statements) for the year ended 30 November 2020 have been filed with the Registrar of Companies. The Annual Report (which includes the statutory financial statements) for the year ended 30 November 2021 will be delivered to the Registrar in due course and will be available from the Parent Company's registered office at Botanic House, 100 Hills Road, Cambridge, England, CB2 1PH and from the Company's website https://aferian.com/investors/.

The financial information set out in these results has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations in conformity with the requirements of the Companies Act 2006. The accounting policies adopted in these results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the financial statements for the year ended 30 November 2020, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2020.  There are deemed to be no new standards, amendments and interpretations to existing standards, which have been adopted by the Group that have had a material impact on the financial statements.

2   Going Concern

The consolidated financial statements have been prepared on a going concern basis.  The ability of the Group to continue as a going concern is contingent of the ongoing working capital facilities and wider viability of the Group.  The Group meets its day-to-day working capital requirements through its cash balances, working capital facilities and wider capital management.

The COVID-19 pandemic continues to impact the Group's supply chain operations, as well as employees throughout the Group having to continue to work remotely from home.  From the outset, the Group implemented efficient and appropriate measures to limit the impact of COVID-19 on the results of the business and its future operations, and the Directors believe that the business continues to be able to navigate through the impact of COVID-19 due to the strength of its customer proposition, its balance sheet, its cash position and its available working capital.  Where required, those measures are still in place today as the Group follows the relevant guidance set by authorities in the locations in which we operate. 

The Group had cash resources of $14.2m as at 30 November 2021 (2020: $9.5m) and a multicurrency working capital facility of $15.0m, of which $nil was drawn at 30 November 2021 (2020: $nil).  Subsequent to the balance sheet date, the Group replaced this facility with a new, increased facility of $50.0m with a further $50.0m available to be drawn under an accordion commitment for specific working capital events.  The new facility expires on 23 December 2024 with options to extend by a further one or two years.   The Group had net current assets of $9.2m as at 30 November 2021 (2020: net current liabilities of $0.5m restated).

Aferian plc

Notes to the condensed consolidated financial statements (continued)

For the year ended 30 November 2021

2   Going Concern (continued)

The current global economic conditions continue to create uncertainty, and specific to the Group, recognising the strength and flexibility of the Group's software-led strategy, there are potential risks that the Group will be impacted by decisions further up its supply chain.  This could lead to delays in contract negotiations and deferring or cancelling of anticipated sales, and those sales and settlement of existing debts are impacted too.  The Group has a solid order book in respect of committed backlog device orders to be delivered over the next 12 months, and together with the growth in exit run rate ARR at 30 November 2021, this provides enhanced visibility to future revenue forecasts and cash flows.  In respect of this going concern assessment, the Directors have considered a number of scenarios, taking account of possible further impact from the pandemic on the business, as noted above.  However, even in the material downside scenario, the Directors are satisfied that the Group has sufficient cash resources over the period and will be able to operate within its existing working capital facilities and meet its liabilities as they fall due.  On that basis, the Directors therefore continue to adopt the going concern basis when preparing its consolidated financial statements.

3   Geographical external customer revenue analysis

For this disclosure revenue is determined by the location of the customer.

4          Exceptional items

Exceptional items within cost of sales and operating costs comprise the following charges/(credits):

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

4          Exceptional items (continued)

Exceptional items within net finance expense comprise the following charges/(credits):

5          Earnings per share

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

5          Earnings per share (continued)

The calculation of basic earnings per share is based on profit after taxation and the weighted average of ordinary shares of 1p each in issue during the year. The Company holds 1,531,458 (2020: 2,021,058) of its own shares in treasury and these are excluded from the weighted average above. The basic weighted average number of shares also excludes 242 (2020: 242) being the weighted average shares held by the EBT in the year.

The number of dilutive share options above represents the share options where the market price is greater than the exercise price of the Company's ordinary shares.

6          Dividends

The Board of directors has proposed a final dividend of $2,410,000 for the current financial year (2020: $1,970,000). This equates to 2.09 pence per share, bringing the total for 2021 to 3.09 pence per share (2020: 1.87 pence). The proposed final dividend is subject to approval by shareholders at the Annual General Meeting ("AGM") and has not been included as a liability in these financial statements.

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

7          Trade and other receivables

Other receivables due in more than one year comprise rent deposits. The carrying value of trade and other receivables classified at amortised cost approximates fair value. The Group does not hold any collateral as security. 

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

8          Trade and other payables

The carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates fair value.

The 24i founders put option liability is in respect of the non-controlling interest following the acquisition of 24i Unit Media BV in July 2019. The put option was settled in August 2021 completed via the payment of $1.2m cash and $2.7m through the issue of 1,320,042 new Ordinary shares of 1p each in the Company at a price of £1.4969 per Ordinary share (see note 11). Following the acquisition of the remaining 8% the non-controlling interest reserve balance of $93,000 and the put option reserve of $2,794,000 was transferred through equity to the Group profit and loss reserve.   

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

9          Deferred tax

Deferred tax asset

The Group had recognised deferred tax assets as follows:

The Group had potential unrecognised deferred tax assets as follows:

Factors that may affect the future tax charge

The directors recognise a deferred tax asset in respect of taxable losses based on their expectation of the Group generating taxable profits in the next 12 months. No deferred tax asset is recognised on a further $4.2m of other trading losses (2020: $10.5m).

During the year, the Group used $0.2m of tax losses (2020: $2.6m) that were previously unrecognised.

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

9          Deferred tax (continued)

Deferred tax liability

The Group also had recognised deferred tax liabilities, net of deferred tax assets, due to the tax effect of temporary differences because of the acquisition of subsidiaries as follows:

The amount recognised in the income statement was a credit of $3.3m (2020: credit of $0.8m). This includes $2.7m (2020: $nil) in respect of tax losses that have arisen in 24i Unit Media BV, a subsidiary undertaking.  This is in relation to the recognition of tax losses in 24i, which are now considered recognisable (due to changes to local tax laws in the Netherlands and updated internal tax compliance procedures giving the Group enhanced visibility over their availability and utilisation) for tax losses that were present at the date of acquisition in 2019 and have arisen since acquisition.  In 2019 a deferred tax liability was recorded as part of the acquisition accounting relating to the purchase of 24i and the Group are now of the opinion that this deferred tax liability should be offset by this equal and opposite deferred tax asset. This is because it is now considered likely that the intangible assets recorded at the acquisition date will give rise to taxable profits, such that the accumulated tax losses held by 24i at the time of acquisition can now be utilised. 

The $0.7m recognised on the acquisition of Nordija relates to fair value adjustment in relation to acquired intangibles as well as local deferred tax liabilities in relation to temporary timing differences net of recognised losses carried forward. 

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

10        Acquisition of subsidiary

On 27 May 2021 the Group acquired 100% of the issued share capital of Nordija A/S, a Danish incorporated entity whose principal activities are as a streaming and Pay TV platform specialist, for €5.2m ($6.3m). 

Nordija was acquired to enhance and scale the Group's end-to-end video streaming portfolio. Nordija brings high quality customers to the Group and its strong TV as a Service platform software, an expert team and deep experience with a wide ecosystem of technology partners and customers. The acquisition was completed in Euros.  

The preliminary amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below.

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

10        Acquisition of subsidiary (continued)

The estimated fair value of the financial assets includes trade receivables with a fair value of $0.5m and a gross contractual value of $0.6m.  The best estimate at acquisition date of the contract cash flows not to be collected is $0.1m.

Goodwill of $3.3m arising from the acquisition consists of expected growth in the sale of online video apps and solutions.  None of the goodwill is expected to be deductible for income tax purposes.

The initial shares consideration of €0.5m ($0.7m) was based on the volume weighted average share price for the 20 trading days prior to the acquisition.  The shares were issued on 2 June 2021.  Total consideration transferred includes €0.6m ($0.7m) of contingent consideration.  Included in this amount is €0.1m ($0.1m) of contingent cash.  The remaining balance of €0.5m ($0.6m) is payable through the issue of ordinary shares of Aferian plc.  The contingent consideration payment is dependent upon Nordija achieving certain milestones in respect of an existing customer contract.  The contingent consideration is expected to be settled within 12 months of the acquisition date and has been recognised as a liability in the consolidated statement of financial position.

The costs of the acquisition were $0.4m.  Nordija contributed $2.8m revenue and $1.0m profit to the Group's adjusted operating profit for the period between date of acquisition and the balance sheet date. If the acquisition of Nordija had been completed on the first day of the financial period, Group revenues for the year would have been $94.3m and Group adjusted operating profit would have been $11.5m.

The directors have not completed, to date, a full valuation of the fair value attributable to certain customer assets acquired in the transaction and this is currently being evaluated.

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

11        Share capital

In May 2021 the Company conducted a non-pre-emptive placing of 6,714,286 new ordinary shares at £1.40 per share generating gross proceeds of $13,332,000 (£9,400,000). The placing was undertaken using a cashbox structure. As a result, the Company was able to take relief under section 610 of the Companies Act 2006 from crediting share premium and instead transfer the net proceeds in excess of the nominal value to the merger reserve. Advisors' fees of $609,000 have been netted off against the gross proceeds. Net proceeds received by the Group was thus $12,723,000.

Reconciliation of movement in number of Ordinary shares of 1p each during the year

Analysis of movement in issued Ordinary shares of 1p each during the year

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

12        Cash generated from operations

Adjusted operating cash flow before exceptional cash outflows was $16,672,000 (2020: $18,164,000).

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

13   Prior year restatement

On 12 July 2019, the Group entered into a put option agreement with regards to the remaining shares not held by the Group in 24i Unit Media BV. 

The option was valued at $1,750,000 on initial recognition.  However during the year it has been identified that the number of shares used in the calculation was understated. The put option liability should have been valued at $2,794,000 on initial recognition.  In addition, the finance charge since inception should have been higher due to this error.  A summary of the impact on the financial statements is as follows:

·       An increase of $1,044,000 to trade and other payables and an increase of $1,044,000 to other reserves within equity as at 30 November 2020 and as at 30 November 2019. This impact has been treated as a restatement and reflected in the statement of financial position as shown below.

·       The increased finance expense from initial recognition to 30 November 2020 of $218,000 was deemed to be immaterial therefore no restatement has occurred with the expense included within the 2021 consolidated income statement.

The Consolidated statement of financial position and Consolidated statement of changes in equity have been restated to reflect the above.  There was no impact on the Consolidated income statement or the Consolidated statement of cash flows.

Impact on the consolidated statement of financial position:

Impact on the consolidated statement of changes in equity:

Aferian plc

Notes to the condensed consolidated financial statements

For the year ended 30 November 2021

14   Cautionary Statement

This document contains certain forward-looking statements relating to Aferian plc (the "Group"). The Group considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Group to differ materially from those contained in any forward-looking statement. These statements are made by the Directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

15   AGM / Annual Report

Pursuant to AIM Rule 20, the Annual Report and Accounts for the financial year ended 30 November 2021 ("Annual Report") is available to view on the Group's website: www.aferian.com and will be posted to shareholders shortly. Aferian will hold its AGM on 21 March 2022.