28 July 2022

APTITUDE SOFTWARE GROUP plc

('Aptitude Software' or 'the Group')

Interim Results for the six months ended

30 June 2022

Aptitude Software Group plc (LSE: APTD), the specialist provider of finance digitalization and subscription management software, reports its unaudited results for the six months ended 30 June 2022.

Financial Highlights

Six months ended 30 June	2022	2021	% Change
Annual Recurring Revenue1 ('ARR') at 30 June	£49.1m	£35.5m	+38%
-     Year-on-Year ARR Growth	38%	5%	+33%
-     Year-on-Year ARR Growth (Constant Currency2)	28%	12%	+16%
-     Year-on-Year ARR Growth (Organic3 and Constant Currency2)	10%	12%	-2%
Total Revenue	£36.1m	£27.6m	+31%
-     Recurring Revenue4	£24.4m	£18.3m	+33%
-     Implementation Revenue	£11.7m	£9.3m	+26%
Cash and Cash Equivalents	£23.6m	£46.8m	-50%
Net Funds6	£10.7m	£45.4m	-76%
Adjusted Operating Margin5	11.1%	18.5%	-7.4%
Adjusted Operating Profit5	£4.0m	£5.1m	-22%
Statutory Operating Profit	£2.1m	£4.7m	-55%
Interim Ordinary Dividend per Share	1.8p	1.8p	-

 

·    Year-on-year growth in Annual Recurring Revenue ('ARR') of 38%, benefiting from Organic Growth³ of 10% on a Constant Currency² basis, the acquisition of MPP Global in October 2021 and foreign exchange movements

·       Recurring Revenue, the strategic focus of the Group, grew 33% to £24.4 million (H1 2021: £18.3 million), Organic Growth of 10%, representing 68% of total revenue (H1 2021: 66%)

·     Increased investment in the Group's two strategic pillars has led to Adjusted Operating Profit reducing to £4.0 million (H1 2021: £5.1 million), in line with the investment plan described in the results in March 2022

·      Continued balance sheet strength with cash of £23.6 million (30 June 2021: £46.8 million) and Net Funds⁵ of £10.7 million (30 June 2021: £45.4 million), reduced following the acquisition of MPP Global in October 2021

Strategic Progress:

·       Aptitude Software is well positioned with its developing suite of products to benefit from the     two recognised strategic growth drivers of finance digitalization and subscription management

·        These long-term and non-cyclical strategic drivers are expected to lead to an acceleration in     the growth of both the Group's ARR and margin in the medium term

·        Fynapse, the Group's next generation strategic digital finance platform, successfully launched in March 2022 with strong positive interest in this new higher margin offering from existing clients, prospects and partners

·        First release of Fynapse solution successfully provided to the Group's charter client in the North American telco market

·     Fynapse provides users with lower total cost of ownership and significantly increased         performance whilst opening new markets for Aptitude Software and our partners

·        Continued integration of MPP Global, at the product level, organisationally and with a new        group-wide brand launch positioning Aptitude Software to fully realise the opportunity within the growing subscription management market

·     Further development of the partner network highlighted by the new strategic agreement to provide finance automation solutions to a Big-4 accountancy firm's mergers and acquisitions practice

Operational Highlights:

·        Landmark win for eSuite, the platform brought into the Group as part of the acquisition of MPP Global, to provide subscription management capability to one of the largest global broadcasters and media content owners with potential for considerable scale once the offering is launched in 2023

·      First sale in Asia of AREV, our leading revenue management product, demonstrating the growing market need for this product beyond North America and the scale of the opportunity 

·      Further sale of Aptitude Accounting Hub to a North American payments technology provider reinforcing the continuing opportunity with this established product outside of any compliance market demand

·        Further software sales across all regions of a number of the Group's applications

·    Increasing demand from insurance market clients for new multi-year solution management services agreements with further sales of this recurring service progressing well as the implementation date of IFRS 17 in 2023 approaches

·     Strengthening pipeline of opportunities following the launch of Fynapse and an end-to-end revenue automation marketing campaign in the first half of the year

·     Continued organisational strengthening with key new senior hires in technology and human resources positioning the Group for the increasing opportunities ahead

Commenting on the results, Jeremy Suddards, Chief Executive Officer, said: -

'Aptitude Software has demonstrated that it is well positioned to realise the significant opportunity from the two strategic growth drivers of finance digitalization and subscription management, providing the Group with long term, non-cyclical growth opportunities.

Development continues in Fynapse with strong market feedback, in particular from our partners, providing positive support for our investment in this next generation strategic digital finance platform.

Additionally, the Group continues to progress the integration of the recently acquired eSuite product with our revenue management capability to unlock the end-to-end revenue automation opportunity within subscription management. During a transitional year in which the Group is progressing well with its strategic investments, we achieved a good level of new sales success and up-lifts and add-ons in our prestigious existing client base.

We are pleased with both the operational and strategic progress achieved in the first half of the year and the Board is confident that the Group's performance for 2022 will be in line with its expectations.'

Contacts

Aptitude Software Group plc

Ivan Martin, Chairman                                                                                   020-3687-3200

Jeremy Suddards, Chief Executive Officer

Philip Wood, Deputy Chief Executive Officer and Chief Financial Officer   

Alma PR

Caroline Forde / Hilary Buchanan                                                                 020-3405-0205

About Aptitude Software

Aptitude Software helps complex organizations automate and transform their financial business models. Our core areas of focus are the accelerating digitalization of the finance function, and the global drive to deploy and manage subscription offerings. Aptitude Software also continues to support clients through complex regulations which often form the catalyst for broader finance transformation.

Finance digitalization enables finance leaders to improve the speed of their function, enhance the quality of its outcomes, and do so at a lower cost. Aptitude Software's products draw data from complex, often siloed systems, automate its processing through complex accounting calculations, and create a unified view of finance. Businesses are left with a transparent view of their data, delivered at extreme performance and at a lower cost of ownership improving their finance functions' ability to support their business objectives.

Subscription management is a rapidly increasingly critical driver for new and traditional businesses alike, who need to launch new offerings frequently, in ways which appeal to their customers and allow them to outperform their peers. Aptitude Software's products power the acquisition, monetization, and retention of subscribers straight through to revenue reporting. With Aptitude Software, businesses can take new subscriptions to market quickly, retain their high-value recurring revenue, and stay one step ahead of the competition. Whilst business to consumer (B2C) subscription models are increasing all the time, Aptitude Software also specialises in business to business (B2B) subscriptions which are undergoing significant business model shifts post pandemic, increasing volume and complexity to manage.

Our global client base includes some of the world's largest companies, typically organisations with complex business models, large volumes of data, and numerous internal systems. Aptitude Software is headquartered in London, has a strong and growing North American presence, and is powered by Global Innovation Centres in Poland and the North West of England. Sales, support and implementation services are provided from offices in the United States, the United Kingdom, Canada, and Singapore. www.aptitudesoftware.com

Throughout this announcement:

¹ Annual Recurring Revenue ('ARR') is the value of Aptitude Software's recurring revenue at a specific point in time, normalised to a one-year period. ARR includes recurring revenues contracted but yet to commence and excludes recurring revenues which are currently being received but are known to be terminating in the future. Included in ARR, for the first time, are recurring revenues from the Group's solution management services, comparatives have been adjusted to include such recurring revenue contracts.

² Constant Currency is calculated by comparing the H1 2022 results with H1 2021 results retranslated at the rates of exchange prevailing during H1 2022.

³ Organic Growth excludes the contribution from the acquisition of MPP Global in October 2021.

⁴ Recurring Revenue includes, for the first time, revenues from the Group's solution management services, comparatives have been adjusted accordingly.

⁵ Adjusted Operating Profit and Adjusted Operating Margin exclude non-underlying operating items, unless stated to the contrary. Further detail in respect of the non-underlying operating items can be found within Note 6.

⁶ Net Funds represents cash and cash equivalents less finance obligations, which includes capital lease obligations and a loan.

Certain non-IFRS financial measures (e.g. Adjusted Operating Profit) are included which assist management in comparing performance on a consistent basis.

Overview

Aptitude Software achieved a number of new business successes in the first half of 2022 whilst continuing to build out its customer pipeline and progress with its investments in the Group's two strategic pillars of finance digitalization and subscription management.

The new business successes across the Group's core product suite and regions contributed to year-on-year Annual Recurring Revenue ('ARR') Organic Growth of 10% on a Constant Currency basis. In addition, a key highlight for the eSuite platform brought into the Group with the acquisition of MPP Global, was the landmark win to provide subscription management capability to one of the largest leading global broadcasters and media content owners with potential for considerable scale once the offering is launched in 2023. This leading global broadcaster represents a significant new client win for the eSuite platform.

Overall, including the benefits of the MPP Global acquisition and favourable foreign exchange movements, ARR increased year-on-year by 38% to £49.1 million on 30 June 2022 (31 December 2021: £45.0 million, 30 June 2021: £35.5 million). Included for the first time within ARR is the value of the Group's recurring solution management services contracts (30 June 2022: £3.9 million, 31 December 2021: £3.2 million, 30 June 2021: £3.3 million) with comparatives updated to reflect their inclusion.

A key strategic highlight in the first half of 2022 was the launch of Fynapse, the Group's next generation digital finance platform. The first release of Fynapse has now been successfully provided to Aptitude Software's charter client in the North American telco market, an important milestone for the Group.

The Group is confident that Fynapse will accelerate the Group's growth in the medium and long term whilst also generating higher gross margins due to the cloud native technologies on which the platform is built. Fynapse provides differentiated finance digitalization capability to a market in which the Group already has outstanding credentials with the successful Aptitude Accounting Hub. The Group continues to expand the capabilities of the product whilst in parallel receiving strong interest from clients, prospects and partners resulting in a strengthening of Aptitude Software's overall pipeline of new business opportunities. 

Integration of eSuite and the MPP Global team into the wider business continues to plan. In addition to the continued integration of eSuite with Aptitude Software's revenue management capability to provide end-to-end revenue automation, the Group has recently launched new joint branding for which very positive market feedback has been received. The new branding reflects the shared values and attributes of the enlarged Group, in particular the capability of our team and applications to solve the most complex requirements more successfully than our competitors, an ability that allows us to charge a premium for our software and services.

The partnership programme continues to develop. In addition to a new agreement to provide finance automation to a Big-4 accountancy firm's mergers and acquisitions practice, the eSuite partnership network continues to be a source of opportunity. There are also a series of promising opportunities being explored for Fynapse with both the Big-4 accountancy firms as well as technology focused businesses. The partnerships are providing access to new sectors for Aptitude Software as well as providing greater access to geographies such as Germany and Japan.

The increased investment in the Group's two strategic pillars has seen expenditure on product management, research and development in the six months ended 30 June 2022 increase to £7.9 million (H1 2021: £4.4 million), an increase of 80%. Adjusting for the investment in eSuite the increase is 41% with the increase principally attributable to the accelerated investment in Fynapse. This increased expenditure has led to the planned reduction in the Group's profit in the first half of 2022 with the benefit resulting from these investments expected to accelerate growth in ARR and margins in the medium term.

In a period where the Group is progressing its investment in finance digitalization and subscription management, the Board is pleased with both the strategic and operational progress achieved in the first half of the year and is confident that the performance in 2022 will be in line with its expectations.

Corporate Strategy

Aptitude Software's strategy is focused on providing innovative finance digitalization and subscription management software serving a growing number of C-suite stakeholders. The Group has undergone a re-branding exercise as part of the integration of MPP Global. The re-branding emphasises the shared qualities and characteristics of the wider business, these are the ability of our technology and people to handle the complexity other solutions are unable to, put simply "where others see complexity, we see opportunity". The re-branding has been very positively received by our employees, clients, partners and prospects.

Finance digitalization allows finance leaders to improve the speed of their function, enhance the quality of outcomes, and do so at a dramatically lower total cost of ownership for a modern finance function. Aptitude Software's products receive data from complex, often siloed systems, automate its processing through complex accounting calculations, and create a unified view of business performance. Businesses are left with a transparent view of their finance data, delivered in a near real time basis and at a lower cost of ownership.

Subscription management is an increasingly critical driver for new economy and traditional businesses alike. Aptitude Software's products now power the acquisition, billing, and retention of subscribers straight through to revenue reporting. With Aptitude Software, businesses can take new subscriptions to market quickly, retain their high-value recurring revenue, and stay ahead of the competition.

Our global client base includes some of the world's largest companies, typically organisations with complex business models, large volumes of data, and numerous internal systems. Whilst our products are relevant for all sectors, the Group has established a strong presence in banking, insurance and technology, media and telecom ('TMT') complemented by clients in a series of other new advanced industries.

The business generates revenue from its software through a combination of licence fees (all annual recurring licences), software maintenance/support, software subscriptions for its cloud-based offerings and implementation and other recurring support services including the growing solution management service. The eSuite product also generates incremental revenue through charging volume-based usage and financial transaction fees.

Software development, together with a growing number of other services, continues to be performed at the Aptitude Global Innovation Centres in Poland and in the North West of England. Sales, support and implementation services are provided from Aptitude Software's offices in London, North West England, North America and Singapore.

Finance Digitalization

Market Drivers

Quality of data, speed of reporting and cost continue to be the top drivers on the CFO's agenda as they are increasingly challenged by the demands of operating in a digital world with growing regulatory and cost pressures. These demands result in an increase in the complexity, volume and number of sources of finance data, and the increasing requirement for decision making to move at the pace of the business in real time as opposed to simply report on a previous period's business performance. Aptitude Software's product set is well positioned to address these requirements.

Finance Digitalization Products

Fynapse, the Group's next generation digital finance platform, was launched in March 2022 with strong interest received from clients, prospects and partners for this new application. With investment continuing in the capabilities of Fynapse, new business success continues to be achieved with the established Aptitude Accounting Hub and Aptitude Insurance Calculation Engine applications.

Fynapse

Fynapse is a modular, cloud native, high performance platform addressing an organisations' need to drive finance digitalization to continue the transformation of their wider businesses. The application builds on the successful Aptitude Accounting Hub, centralising and automating finance, accounting and reporting processes, creating a deep level of operational intelligence for our clients. It delivers a brand-new user centric interface with a consolidated, yet highly granular, view of financial data which enhances business insights to assist decision making. The capabilities of the product enable even greater automation of manual accounting processes, reducing on-going operational costs and driving an improved total cost of ownership for the office of finance.

The modular design and ease of integration also allows the market opportunity to extend beyond our current industries into adjacent verticals, shortening typically long implementation cycles and allowing our partner network to implement efficiently, with minimal risk, short time-to-benefit and at a competitive total cost of ownership.

The platform is also designed to be "open" offering partners the opportunity to co-create and license their own IP, further accelerating and differentiating their services. This capability is proving an attractive proposition for the Big-4 accountancy firms and is highly differentiated from the more generalist providers in the market. In addition to the interest from consultancy focused partnerships there are also promising exploratory early discussions with global technology partners who can see the benefit our capability will bring to their own offering. 

The strategic investment continues in growing the capabilities of Fynapse with development performed at the Aptitude Innovation Centre in Wroclaw, Poland. The Group has been successful in onboarding the required talent, including the appointment of a SVP of Engineering to lead the development, increasing investment in Fynapse to planned levels. The modern cloud native technology on which Fynapse is built allows higher gross margins to be generated from this application in comparison to the Group's existing SaaS offerings within Finance Digitalization.

The timely release of future versions of Fynapse, bringing new and additional capabilities to address the requirements of different markets, is a key enabler to the Group's future ARR growth and the deployment of its implementation teams. It is therefore particularly pleasing that an important key milestone has been achieved with the successful first release of Fynapse to our charter client in the North American telco market.

Fynapse is expected to be a material growth driver and margin enhancer for the business in future years. The Group has already received strong interest from clients, prospects and partners in this new platform to strengthen Aptitude Software's overall pipeline of new business opportunities.  

Aptitude Insurance Calculation Engine

Aptitude Insurance Calculation Engine ('AICE') is a strategic, transformational application providing value to an insurer beyond addressing the requirements of IFRS 17 (effective for accounting periods commencing 1 January 2023). Beyond compliance the application enables data insights and decision support delivering long-term business benefits.

Whilst AICE clients are well progressed in their preparation for the introduction of IFRS 17, new business opportunities continue to arise for this application as demonstrated by the contract secured in the first half of 2022 with an Asian-based insurer. This demand is expected to continue beyond 2022 as insurers seek to address the requirements of IFRS 17 before their first reporting period, furthermore, there are expected to be insurers who will need to adopt a more robust approach to compliance having initially reported using alternative or manual solutions. Additionally, there are several jurisdictions which have a delayed introduction of IFRS 17 extending further the opportunity for AICE beyond 2023.

There is also a growing opportunity for the Group's solution management services with AICE clients. In the first half of 2022 a number of insurers contracted for solution management services on a recurring multi-year basis.

Aptitude Accounting Hub

The Group continued to achieve new business success in the first half of 2022 with the Aptitude Accounting Hub ('AAH'), both on a standalone basis as well as in conjunction with the sale of the Aptitude Insurance Calculation Engine.

A material new contract with a North American headquartered gift and payments company was successfully signed in the period. Working closely with one of our partners, the opportunity was secured by demonstrating a more configurable and finance enabled solution than our competitors, while also conveying our strong expertise and proven track record at scale in the accounting hub space. We expect further sales of AAH will be achieved, particularly when used in conjunction with our other regulatory focused applications.

Subscription Management

Market Drivers

The subscription economy is continuing to expand into new sectors as the benefits of subscription income are increasingly valued more than traditional non-recurring revenues. The Group has seen this phenomenon in broader sectors such as high-tech advanced industries, medical devices and automotive. As organisations move to these business models they require new systems to manage these subscriptions and require new capabilities to address the complexities of revenue recognition inherent with subscriptions.

Aptitude Software's products are focused on the needs of the world's largest companies, organisations with highly complex business models and data processing requirements which generalist providers are unable to address.

Subscription Management Products

eSuite

eSuite is a modular, cloud based end-to-end SaaS solution for large, international, enterprise customers across the media and publishing sector as well as a growing number of other verticals.

The application is focused on the subscription economy and provides identity management, CRM, automated billing, payment processing, and churn management capabilities, enabling businesses to acquire, monetize and optimise customers subscriptions. Once integrated with the Group's revenue management offering, scheduled for completion in the second half of the year, Aptitude Software will be able to offer an end-to-end subscription, billing, and revenue automation solution which is expected to provide further opportunities for automation and growth within the existing customer base while also supporting new business opportunities.

A key highlight for eSuite in the period was the landmark win to provide subscription management capability to one of the largest global broadcaster and media content owners with potential for considerable expansion in ARR once the offering is launched in 2023. Contributing to securing this new business contract was the earlier success achieved with a leading broadcaster and media content owner in the United Kingdom, a project that successfully went live in the first half of the year.

In addition to the above success, good progress continues to be achieved with publishers currently utilising a competing product that is being de-supported. A project with a major German publisher to replace this competing solution is approaching its go live. The success of this project, together with the strong relationship formed with a German focused implementation partner as part of the engagement, has generated very well progressed additional opportunities.

Another project is also approaching its conclusion in Japan with a leading car manufacturer, once again working closely with an implementation partner. eSuite has the capabilities to provide car manufacturers with subscription management capability as they seek to monitise additional in-car services. Aptitude Software continues to work closely with the Japanese-focused partner on several other exciting opportunities in this growing market.

The majority of our clients' subscription bases are very resilient and confidence remains high in the opportunity with eSuite. Nevertheless, a small number of clients have seen their businesses negatively impacted by the post-pandemic current economic challenges leading to a small but temporary contraction in the Annual Recurring Revenue of eSuite in the period. We expect this trend to be reversed in the second half of the year.

Aptitude Revenue Management

The Group's first sale of AREV, our leading Aptitude Revenue Management ('ARM') application, outside North America was achieved in the period to a Singaporean telco provider. This success in Asia is expected to lead to further opportunities in the region. In addition to this sale, a new business contract was secured with a further telco provider in North America.

The ARM applications enable finance teams to automate their revenue management functions to address the demands of the subscription economy, with the market opportunity now extending beyond our current industries into adjacent verticals including high-tech advanced industries and medical devices.

The applications simplify the whole revenue lifecycle, from contract order to revenue recognition, reporting and forecasting and go significantly beyond core IFRS 15 / ASC 606 compliance to allow total control over complex revenue management for all contract types ranging from subscription-based revenue models to complex multi-part or bundled contracts. This capability allows businesses to understand and control centrally the financial impact of all their commercial propositions, the quality of their revenue types as well as providing new and valuable insights to support future business decision making such as the introduction of new products in different markets.

Solution Management Services ("Aptitude Assure")

This service extends the responsibilities of Aptitude Software beyond traditional software maintenance services to include those that have typically been performed by the clients' own IT teams. These include the monitoring of system performance, user administration, release management and functional enhancements. The team providing these remote services to our clients is now of critical mass and able to provide efficiencies to our clients across the majority of the Group's applications.

During the first half of the year a number of Aptitude Insurance Calculation Engine clients contracted for this service in advance of their approaching go-live dates. These contracts contributed to the year-on-year growth of 18% in the Annual Recurring Revenue derived from solution management services to £3.9 million (30 June 2021: £3.3 million).

For the first time the value of the multi-year recurring solution management services contracts is included in overall Annual Recurring Revenue with comparatives restated accordingly.

Implementation Services

Aptitude Software provides implementation services to its clients, with the scale of such services depending on the nature of the application, the size of the opportunity and the balance of responsibilities between Aptitude Software and its partners. The Group's services are provided by a significant pool of highly skilled individuals, providing deep domain and technical expertise which is highly valued by our clients and provide a differentiator compared to our competitors. Demand for implementation services from the Group's on-going projects has been strong in the first half of the year, with clients frequently requesting additional services. This dynamic is expected to continue into early 2023 when a number of the projects to implement the Aptitude Insurance Calculation Engine are expected to complete.

Partner Network 

The growth and development of Aptitude Software's high-quality partner network continues to be a strategic priority. Whilst many prospects are sourced directly by the Group's own sales and marketing teams, the global reach of our partners and the depth of their relationships with large businesses provide Aptitude Software with an increasing number of advanced opportunities, enhanced market coverage and intelligence. In addition to the new business benefits provided by the partner network, the implementation expertise and capabilities of our partners supports the Group's strategic drive to increase software fees faster than its services, leading to a richer revenue mix.

With a Big-4 accountancy firm appointed as charter partner for Fynapse in the first half of the year, a series of well received meetings were held with additional partners to showcase the capabilities of Fynapse as part of the launch of the application. A further highlight has been the new agreement to provide finance automation to a Big-4 accountancy firm's mergers and acquisitions practice enabling them to accelerate the post-acquisition integration of their clients' finance functions.

Whilst the Big-4 accounting firms have global reach, for specific applications in specific jurisdictions it can be beneficial to work closely with more specialised partner organisations. The benefits of this approach are demonstrated by the success the Group is having with eSuite in the German publishing and Japanese motor manufacturing markets, two markets which would be challenging to unlock without the assistance of our partners. We are engaged with these partners on both on-going projects as well as several additional new business opportunities.

Aptitude Innovation Centres

Investment continues in the Group's two innovation centres in Poland and the North West of England. Overall there were 212 employees at the Innovation Centre in Poland at 30 June 2022 (30 June 2021: 172) with a further 47 employees focused on design, development, implementation and support based in the North West of England. Investment remains focused on both Fynapse and eSuite in these two centres.

The strengthening of the Group's talent acquisition team is allowing the Group to continue to attract new talent to the business despite increased competition for technologists in both locations. In the current competitive talent market the Group continues to invest in its people, including the initiatives described below.

Our People

The Board wishes to thank its employees for the excellent support and commitment they are providing to the business and to our clients and partners.

In the first half of the year a key focus has been the continued integration of the team brought into the Group with the MPP Global acquisition. Collaboration continues to increase with the wider business and all key talent has been successfully retained. As part of the integration the Group's wider career management programme has now been implemented together with a number of other training initiatives.

In May 2022 a new Chief People Officer joined the Group bringing new approaches and initiatives to our people strategy as we continue to focus on attracting and retaining the most talented of individuals. This senior appointment builds on the strengthening of the team supporting our team at the Group's two innovation centres.

Aptitude Software continues to progress its approach to diversity and inclusion with its established advocacy group with representation from across our global team. The business is committed to creating a working environment that recognises diversity, supporting everyone to thrive.

Overall Group headcount has increased to 477 (31 December 2021: 476, 30 June 2021: 351) as the business continues to invest in the evolution of our technology and strengthen a number of other teams. In addition to the Group's permanent headcount, since 31 December 2021 the number of contractors within the Group has increased to 54 (31 December 2021: 39).

Focus areas

The Group is focused on delivery of the opportunity within finance digitalization and subscription management.

The focus within finance digitalization is the continued development of the additional capabilities of Fynapse to address the wider market opportunity, both directly and through our Tier 1 partners, whilst continuing to develop and progress demand for our new application.

For subscription management the focus is the continued integration of Aptitude Software's state of the art, multi-tenanted eSuite SaaS platform and successfully taking our new end-to-end revenue automation product to existing and new markets.

Financial Performance

The Group delivered a solid financial performance in the period with continued growth of its recurring revenues.

The strength of the Group's balance sheet, high levels of recurring revenue and strong cash generation provide the Group with considerable financial strength with which to execute on its growth strategy.

Revenue

Recurring Revenues

Aptitude Software's Annual Recurring Revenue ('ARR') at 30 June 2022 totalled £49.1 million (31 December 2021: £45.0 million, 30 June 2021: £35.5 million) representing overall year-on-year growth of 38% with benefit from both the acquisition of MPP Global in October 2021 and favourable exchange rate movements. On a Constant Currency basis, overall year-on-year ARR growth was 28% (31 December 2021: £47.5 million, 30 June 2021: £38.4 million). Removing the impact of the acquisition of MPP Global the year-on-year ARR Organic Growth on a Constant Currency basis was 10% (12 months to 30 June 2021: 12%).

For the first time the value of recurring contracts for the Group's solution management service is included within ARR (30 June 2022: £3.9 million, 31 December 2021: £3.2 million, 30 June 2021: £3.3 million).

Whilst the Group is satisfied with the year-on-year Organic Growth rate of 10%, the business is confident that the investments in both finance digitalization and subscription management will lead to a return to Aptitude Software's historically higher growth rates.

Net retention in the 12 months to 30 June 2022, excluding eSuite, was 103% (H1 2021: 102%) (measured by the total value of on-going ARR at the period-end from clients in place 12 months earlier as a percentage of the opening ARR from those clients on a constant currency basis).

A significant majority of the Group's recurring revenue contracts include the ability to increase ARR for clients by relevant consumer price index rises ('CPI'). There are a number of contracts with variations to this mechanism which may delay the ability to pass on the full impact of CPI to clients in the short term. Additionally, there is a significant weighting of contractual renewals in the second half of the year which have yet to receive an increase at the current elevated levels of CPI.

Recurring revenues recognised in the six months ended 30 June 2022 increased by 33% to £24.4 million (H1 2021: £18.3 million), 10% on an organic basis. These now represent 68% of overall revenue (H1 2021: 66%). It is a key part of the Group's strategy to increase this percentage whilst maximising the growth rate of Aptitude Software's ARR, a strategy which in due course will lead to growth in operating margin given the margin differential between software, the largest element of recurring revenue, and implementation services.  

Implementation Services

Services revenue totalled £11.7 million for the six months ended 30 June 2022 (H1 2021: £9.3 million) Implementation services revenues continued to benefit from the strong demand from the Group's existing client base.

Research and Development Expenditure

Total expenditure on product management, research and development in the six months ended 30 June 2022 increased to £7.9 million (H1 2021: £4.4 million), an increase of 80%. Adjusting for the investment in eSuite the increase is 41% with the increase principally attributable to the accelerated investment in Fynapse.

The Board has continued to determine that none of the internal research and development costs incurred during the first half of the year meet the criteria for capitalisation. Consequently, these have been expensed as incurred through the income statement.

Operating Profit and Margins

Adjusted Operating Profit for the six months ended 30 June 2022 was £4.0 million. Operating profit on a statutory basis was £2.1 million (H1 2021: £4.7 million). Investment in the continued development of Fynapse and integration of eSuite has led to a reduction in Adjusted Operating Margin to 11.1% (H1 2021: 18.5%), in line with the Board's expectations.

Foreign Exchange

With 51% (H1 2021: 55%) of the Group's revenues being generated from North American clients, the majority of which are invoiced in US Dollars, the financial results are impacted by changes in the US dollar exchange rate. The Group's Annual Recurring Revenue at 30 June 2022 increased in the preceding 12 months by £2.9 million as a result of favourable exchange rate movements. Aptitude Software's H1 2021 revenue and Adjusted Operating Profit would have been reported at £28.1 million and £5.1 million respectively on a Constant Currency basis (compared to actual result of £27.6 million and £5.1 million). Constant Currency is calculated by comparing the H2 2022 results with H2 2021 results retranslated at the rates of exchange prevailing during H2 2022.

Non-Underlying Items

Non-underlying items of £1.9 million (H1 2021: £0.4 million) comprises principally of intangible amortisation.

Taxation

The total tax charge of £0.4 million (H1 2021: £0.8 million) represents 19% of the Group's profit before tax (H1 2021: 17%).

Statutory Results

The Group reported a profit for the period attributable to equity shareholders of £1.5 million (H1 2021: £3.9 million).

Earnings per Share

Increased investment in the business led to Adjusted Basic Earnings per Share and Basic Earnings per Share reducing to 5.2 pence and 2.6 pence (H1 2021: 7.3 pence and 6.8 pence).

Dividend

An interim dividend of 1.8 pence per share is proposed (2021: 1.8 pence). The interim dividend will be payable on 26 August 2022 to shareholders on the register at the close of business on 5 August 2022.