Chief Executive Officer's Report

Introduction

Aptitude's core areas of long-term focus are the accelerating digitalization of the finance function within enterprises, and the global push towards recurring revenue managed through subscription offerings. Aptitude also continues to support clients through complex regulations which often form the catalyst for broader business transformation. The Group's main strength is the ability of its technology and people to handle the complexity other solutions are unable to, put simply "where others see complexity, we see opportunity".

Finance digitalization enables finance leaders to automate legacy manually intensive processes, improve the speed of their function, enhance the quality of its outcomes, and do so at a dramatically lower cost. Aptitude's products draw data from complex, often siloed systems, delivering high levels of automatic processing of complex accounting calculations, and creating a unified view of finance. Businesses are left with a transparent view of their data, delivered at extreme performance and at a significantly lower cost of ownership improving their finance functions' ability to support their short, medium and long term business objectives.

Subscription management is rapidly becoming a strategic imperative for new and traditional businesses alike as they move to or launch a recurring revenue model. Aptitude's products power the acquisition, monetization, and retention of subscribers straight through to complex revenue reporting. With Aptitude, businesses can take new subscription-models to market quickly, retain their high-value recurring revenue, and stay one step ahead of the competition. Whilst the prevalence of business to consumer (B2C) subscription models is increasing, Aptitude also specialises in business to business (B2B) subscriptions with the inherent complexity which the Group is able to manage ahead of its peers.

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 "Assure". 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 Technology Centres in Poland and in the North West of England. Sales, support and implementation services are provided from Aptitude's offices in London, North West England, North America and Singapore.

Corporate Strategy

Aptitude's strategy is focused on providing innovative finance digitalization and subscription management software serving a growing number of C-suite stakeholders.

The Group progressed a number of strategic activities during 2022, with details of these provided in the sections below. These activities are focused on continuing to drive an acceleration of growth in recurring revenues which represent 68% of overall revenue (2021: 68%). The growth in the proportion of such revenues in the business will, in due course, lead to both an increase in operating margins, given the higher margins achievable from these recurring revenues, and even greater future revenue visibility. 

Aptitude is fully focused on its two strategic growth drivers of finance digitalization and subscription management and does not anticipate any corporate activity to broaden its product portfolio in the short term. Notwithstanding this, the Group may, in the future, identify small bolt-on acquisition opportunities to deepen its existing capabilities which Aptitude would be well positioned to progress given its existing cash resources.

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. Aptitude'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 significant milestones achieved in the year. New business success also continues to be achieved with the established Aptitude Accounting Hub and Aptitude Insurance Calculation Engine applications.

The finance digitalization product set, the largest contributor to the Group's recurring revenue base, delivered particularly strong growth in Annual Recurring Revenue in the year with a balanced performance between new business additions and the growth of existing clients through up-sell and price increases. This robust performance underlines the strength of the long-term opportunity with Fynapse for which we continue to see strong pipeline generation across our key industries of banking, insurance and technology, media and telecom.

Fynapse

Fynapse is a modular, cloud native, high performance finance platform addressing an organisations' need to drive finance digitalization to underpin 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 finance function.

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 and delivering a faster time to value.

A strategic global partnership with Microsoft, signed in December 2022, is expected to be a material contributor to the success of Fynapse globally in the medium and long term across all industry sectors. Under this agreement Fynapse will be the only product with its capabilities to be deeply integrated with Microsoft Dynamics 365 Finance and operate on the Microsoft Azure cloud platform. This combined solution will provide Aptitude and Microsoft clients with the ability to unify data from various financial systems to increase scalability, gain the agility to rapidly adopt new regulations, automate manual processes whilst delivering better business insights and reducing the cost of the finance function.

In addition to the Microsoft partnership there is strong interest from consultancies who are attracted to the open design of Fynapse. This open design provides partners with the opportunity to co-create and license their own IP built on the Fynapse platform, further accelerating and differentiating their services. It is pleasing to report that 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.

Fynapse has been successfully delivered to the charter client in the US telco market and a multi-year subscription agreement is now in place. The implementation project with the charter client is progressing well and is expected to go-live in mid-2023 as planned. Additionally, there are a number of pipeline opportunities progressing positively and the Group is looking forward to announcing new users to the platform in 2023.

The strategic investment continues to grow the capabilities of Fynapse with development performed at the Aptitude Global Technology Centre in Wroclaw, Poland. The overall cost of our investment in Fynapse increased in 2022 to £4.9 million (2021: £1.5 million) all of which is expensed. 2023 will see modest growth in investment in Fynapse, with Aptitude's overall research & development expenditure expected to be consistent with 2022.

The Group has confidence in the success of Fynapse which is expected to be a key growth driver for the business in future years.

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 the expected modest level of new business success was achieved in 2022 with AICE, several existing clients opted to contract for Aptitude's Assure managed services offering. Assure provides clients with additional services beyond Aptitude's standard offering with its revenues recurring in nature and included within the Group's Annual Recurring Revenue for the first time.

Whilst further new business success may be achieved in 2023, a key focus will be upgrading AICE users to Assure. Projects to implement AICE clients continue with a number expected to complete in the first half of the year in line with the effective date of the IFRS 17.

Aptitude Accounting Hub

The Aptitude Accounting Hub ('AAH') is the Group's established product which centralises and automates finance, accounting and reporting processes, creating a deep level of operational intelligence for our client. It also delivers a consolidated, yet highly granular, single view of financial data which enhances business insights to assist decision making.

The Group continued to achieve new business success in 2022 with 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 an US headquartered gift and payments company was successfully signed early in the year. 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.

In the second half of the year a material multi-year agreement for the Aptitude Accounting Hub was signed with one of Australia's largest banks to replace their in-house finance data warehouse and underpin their finance transformation programme. Additionally, a contract was secured with a large US insurer prior to the end of 2022 to support their finance digitalization programme.

These clients, together with the European bank contracted in the opening months of 2023, have opted for this product to access existing capabilities in AAH.

Subscription Management

Market Drivers

The subscription economy is continuing to expand into new sectors as the benefits of subscription based recurring 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 complex subscriptions.

Aptitude'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

Whilst good levels of new business success and growth of existing accounts was achieved in 2022, overall Annual Recurring Revenue growth was subdued due to an unusually high level of churn in 2022. Impacting all products within subscription management there are several underlying reasons for the elevated level of terminations, including business failure and corporate events (especially clients being acquired) which are more prevalent in the markets particularly targeted by the subscription management product set. Whilst 2022 has seen a negative impact from the dynamic nature of the markets that are the focus of the subscription management product set, this dynamism has historically delivered, and is expected to do so again in the future, strong organic growth opportunities within the existing client base.

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 such as automotive.

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. Now integrated with the Group's revenue management offering, Aptitude can offer an end-to-end subscription, billing & revenue management automation solution which is expected to provide further opportunities for automation and growth within the existing customer base while also supporting new business opportunities. Conversations are continuing with an existing eSuite client to adopt AREV, Aptitude's leading revenue management product, to address their revenue management requirements.

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 Annual Recurring Revenue once the offering is fully launched in 2023. Contributing to securing this new 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.

Several new business clients were also secured in the second half of the year across various sectors and regions demonstrating the strength and flexibility of the product. The revenue model for this product is heavily weighted towards usage charges, as a result the addition of these new contracts to Annual Recurring Revenue in the year was insufficient to fully mitigate the impact of the contract cancellations received in the year.

The eSuite team is now fully integrated and benefitting from the expertise and processes of the wider Group. This, together with the pipeline of new eSuite opportunities and the Annual Recurring Revenue generated once the recently secured clients go-live, is expected to lead to an improved performance from this product in 2023.

Aptitude Revenue Management ('ARM')

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 in the business to business space. 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.

A number of major new business successes were achieved in 2022, a particular highlight being a multi-year agreement for AREV with a very large privately-owned US analytics software provider.

As with eSuite, a higher number of cancellations have been received in 2022 than we had experienced in prior years thereby subduing growth in Annual Recurring Revenue for ARM products. In addition to cancellations arising from corporate activity, the current economic climate has led to a higher level of scrutiny by a very small number of clients of their project pay back periods or external spend resulting in their wider transformation programmes being paused or suspended. Discussions with the small number of affected clients are on-going to agree the basis of cancellation.

Software-as-a-Service ('SaaS') Progression and Margin Evolution

As expected, growth in SaaS Annual Recurring Revenue ('ARR') has accelerated at the faster Constant Currency growth rate of 15% (total ARR Constant Currency growth of 9%) and now represents 44% of ARR (2021: 41%). Whilst all products sold in the year are capable of being deployed by SaaS, for principally regulatory reasons a very small number of clients continue to opt to deploy our technology on their own infrastructure. On-premise ARR grew on a Constant Currency basis by 4%.

Our on-premise clients currently drive the highest gross margins. As previously reported, margins have been impacted by the accelerated adoption of cloud technologies on our traditional solution portfolio given the cost profile of the Group's established products when deployed as SaaS. The launch of Fynapse, with its cloud-native capabilities, is expected to enable significantly higher margins on this solution to be achieved compared to the Group's existing SaaS deployed products and will also enable the migration of the current on-premise clients to this higher margin offering in the medium term.

Solution Management Services ('Aptitude Assure')

This service extends the responsibilities of Aptitude 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.

With several Aptitude Insurance Calculation Engine clients contracting in the year, Constant Currency growth of 32% in the Annual Recurring Revenue ('ARR') was achieved. ARR from this service, now included within the Group's overall ARR and recurring revenues, is £4.5 million (31 December 2021: £3.4 million). With further AICE clients approaching go-live further opportunities exist to continue the successful growth in this service in the year ahead.

Implementation Services

Aptitude 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 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 2022, with clients frequently requesting additional services.

The business continues to expand the enablement of its partner network to facilitate their ability to implement Aptitude's product suite reliably and efficiently. Whilst this enablement will lead to a greater proportion of services being provided by partners, it remains important to maintain a high-quality delivery capability to ensure that the Group can continue to support its partners and provide its expertise to our largest clients who wish to receive our services directly.

Partner Network 

The growth and development of Aptitude'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 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.

A Big-4 accountancy firm was appointed as charter partner for Fynapse at the time of its launch and has led to a global launch of our partnership to its internal partner community with the development of dedicated centres of excellence for integration capability. We are also enjoying interest from a number of additional partners in the capabilities of Fynapse. A further highlight has been the 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 leading to multiple new client engagements.

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 its eSuite partners in markets which would be challenging to unlock without the assistance of our partners such as Japan, Middle East and also central Europe.

The technology and go to market partnership with Microsoft is outlined in the section on Fynapse above and provides the Group with a real opportunity to accelerate the adoption of our new platform.

Aptitude Global Technology Centres

Investment continues in the Group's two technology centres in Poland and the North West of England. Overall there were 244 employees at the Global Technology Centre in Poland at 31 December 2022 (31 December 2021: 198) with a further 52 employees (31 December 2021: 45) 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 Group's capabilities in Poland provides the Group with continuing cost advantages, however, wage inflation has been significantly higher in this territory than elsewhere within the Group given both the competitiveness of the employment market for technologists in Poland as well as the country's underlying inflation. To help address these pressures, the Group has invested in both local senior management and in the people and talent team to support a number of initiatives to optimise recruitment and retention. The Group's initiatives on retention have been largely successful with employee attrition within the technology centre in Poland during the course of 2022 reducing to 15% (2021: 20%).

Our People

Aptitude's continued progress has been achieved through the talent, commitment and incredible hard work of its people. The Board wishes to thank its employees for both their outstanding commitment and the continued excellent support they provide to the business, clients and partners.

Overall Group headcount increased by 11% in the year to 527 (2021: 476) as the business continued to invest in the evolution of our technology and the strengthening of a number of other teams.

Aptitude remains fully committed to promoting equality, diversity and inclusion among its workforce, and to driving continuous improvements in these areas. During 2022 the Group established a Diversity & Inclusion SteerCo, which is formed of 18 employees across 5 countries. Key milestones and areas of focus for 2022 included the formulation and adoption of a new Equality, Diversity and Inclusion Policy, raising awareness through activities and events and that promote inclusivity, and the launch of a Women in Leadership initiative. The SteerCo has also identified a forward-looking programme of events and objectives for 2023 and beyond.

To ensure the Group carries on attracting employees to work on its strategic priorities, and retaining the most talented of individuals, the business has continued to build on the investments in our people. Particular highlights include:

Focus Areas for 2023

The Group remains focused on delivery against three go-to-market pillars: finance digitalization, subscription management and partner execution, supported by our ongoing focus on people excellence and financial confidence. Within finance digitalization we are focused on securing new Fynapse clients, the development of the strategically promising Microsoft partnership and the upcoming go-live of Fynapse's charter client. Within subscription management, key activities will centre on executing on a number of exciting opportunities with our existing product set and unlocking volume subscriptions in our 2022 new clients. Underpinning this, our wider partner relationships will continue to deepen as we add further partners to support and market our solutions. Supplementing these pillars, we will continue to invest in our people, seeking to retain and grow our teams capabilities, with an ethos of diversity and inclusion.

We are confident that these activities will lead to an acceleration in the growth of Annual Recurring Revenue which, as the higher margin recurring revenue grows as a proportion of overall revenue, will lead to increases in the Group's overall margin. 

Outlook

Overall, we are pleased with both the operational and strategic progress achieved in 2022 and, whilst watchful of the global economic environment, the Board is confident that the Group's performance for 2023 will be in line with its expectations.

Jeremy Suddards

Chief Executive Officer                                                                                                                 

20 March 2023

Group Financial Performance

Revenue

Total revenue grew by 25% to £74.4 million (2021: £59.3 million), organic growth of 14%.

Recurring Revenues

Annual Recurring Revenue ('ARR') grew by 9% on a Constant Currency basis in the year to £51.6 million at 31 December 2022 (31 December 2021: £47.5 million, 30 June 2022: £49.2 million, both restated for the prevailing exchange rates at 31 December 2022).

ARR is the key financial metric for the Group. Included within ARR are Aptitude's annual licence fees and maintenance for its on-premise clients and subscription fees for the Group's SaaS clients. In addition, and included for the first time in 2022, are the Group's revenues from its Solution Management Service offering ('Aptitude Assure'), this offering contributed ARR at 31 December 2022 of £4.5 million (31 December 2021: £3.4 million). Comparatives have been updated accordingly.

Net Retention Rate in the year was 102% (2021: 102%) (measured by the total value of on-going ARR at the year-end from clients in place at the start of the year as a percentage of the opening ARR from those clients on a Constant Currency basis). The Group benefitted from standard inflationary clauses within the majority of its contracts, however, as previously outlined, there were an unusually higher number of cancellations and reductions (e.g. clients reducing their expenditure by removing incremental services) that reduced the benefit of these increases.

Recurring revenues recognised in 2022 increased by 26% to £50.5 million (2021: £40.1 million), representing Organic Growth of 11%. eSuite, the product brought into the Group in 2021 through the acquisition of MPP Global contributed recurring revenue in the year of £8.3 million (2021: £1.9 million).

Recurring revenues, a strategic focus for the Group, continue to grow and represent 68% of overall revenue (2021: 68%). It is a key part of the Group's strategy to increase this percentage whilst maximising the growth rate of Aptitude's ARR, a strategy which in due course will lead to growth in operating margin given the margin differential between recurring and non-recurring revenues despite the growing SaaS element and the accompanying infrastructure and servicing costs. 

Non-Recurring Revenue

Non-recurring revenue, comprising implementation services and software development, totalled £23.9 million for the year ended 31 December 2022 (2021: £19.2 million) representing 24% overall growth and 21% Organic Growth. In addition to the benefit of the 2021 acquisition of MPP Global, services revenues grew in the year due to 2021 non-recurring revenue being negatively impacted by the disruption to our key markets related to the pandemic. Included within the total non-recurring revenue for 2022 is services revenue generated by eSuite of £1.0 million (2021: £0.4 million).

Research & Development Expenditure

Total expenditure on product management, research & development increased in the year ended 31 December 2022 to £17.0 million (2021: £10.6 million). Of the increase, £3.5 million is attributable to the full year costs of the eSuite team which was brought into the Group as part of the MPP Global acquisition in October 2021. The remaining increase of £2.9 million is principally attributable to the growing investment in Fynapse as well as the impact of the high rate of inflation currently experienced in Poland. Whilst the growth in 2023 of the Group's investment in Fynapse will be modest, the careful management of investment in the broader product set is expected to result in Aptitude's overall research & development expenditure being consistent with 2022, despite the continued inflationary pressures.

The Board has continued to determine that none of the internal research & development costs incurred during 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 year ended 31 December 2022 was in line with expectations at £7.5 million (2021: £9.9 million). Adjusted Operating Margin reduced in line with expectations to 10% (2021: 17%) as the Group increased investment in both Fynapse and the integration of eSuite and Aptitude Revenue Management. Operating profit on a statutory basis was £3.7 million (2021: £6.5 million).

In addition to the increased investment outlined above, the accelerated adoption of cloud technologies impacts margin expectations given the cost profile of a number of the Group's products when deployed as SaaS. The launch of Fynapse, with its cloud-native capabilities, is expected to enhance margins.

As with many technology businesses, the Group has experienced increased inflationary pressures within its cost base with inflation particularly strong in Poland, averaging 14% in 2022 (United Kingdom 9%, United States 8%). Whilst the majority of client contracts allow for inflationary increases to be applied to recurring fees, there are a number of exceptions to this including the recently acquired client bases where a project is on-going to move those clients onto the Group's standard inflationary clauses where possible. Furthermore, services' day rates typically can only be increased after the initial implementation for a client has concluded. Overall elevated inflation does not benefit the Group and is one of the contributing factors to the need to carefully manage investment levels across the business whilst ensuring momentum is maintained on the Group's strategic priorities.

Foreign Exchange

With 42% (2021: 51%) 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. Aptitude's 2021 revenue and Adjusted Operating Profit would have been reported at £59.8 million and £10.5 million respectively on a Constant Currency basis (compared to actual result of £59.3 million and £9.9 million). Constant Currency is calculated by comparing the 2022 results with 2021 results retranslated at the rates of exchange prevailing during 2022.

Non-Underlying Items

Non-underlying items of £3.8 million (2021: £3.4 million) are principally related to the £0.4 million (2021: £2.0 million) of final deal and integration costs incurred on the MPP Global acquisition and intangible amortisation of £3.4 million (2021: £1.4 million). The increase in intangible amortisation is attributable to the full year cost relating to the MPP Global acquisition completed in October 2021.

Taxation

The total tax charge before adjusting for the impact of non-underlying and other sundry items of £1.4 million (2021: £1.6 million) represents 19.6% of the Group's profit before tax (2021: 17.1%), broadly in line with the United Kingdom corporate tax rate of 19%.

Statutory Results

The Group reported a profit for the year attributable to equity shareholders of £2.6 million (2021: £5.1 million).

Earnings per Share

Adjusted Basic Earnings per Share decreased, as expected due to the planned investment in the business, by 30% to 9.9 pence (2021: 14.2 pence). As a result of both this investment and an increase in non-underlying costs incurred, Basic Earnings per Share reduced to 4.5 pence (2021: 9.0 pence).

Dividend

A final ordinary dividend of 3.60 pence per share is proposed (2021: 3.60 pence), making a total ordinary dividend of 5.40 pence per share for the year (2021: 5.40 pence).

Balance Sheet

The Group continues to have a strong balance sheet with net assets at 31 December 2022 of £60.5 million (2021: £57.2 million). Following net corporate cash outflows (dividends and loan payments) of £3.8 million in the year, cash at 31 December 2022 was £29.2 million (31 December 2021: £29.1 million) and net funds of £15.9 million (31 December 2021: £16.1 million).

Cash conversion was below the prior year's exceptional performance with the collection of some recurring revenue invoices extending into the new year. Trade receivables at 31 December 2022 increased to £10.1 million (2021: £8.8 million) of which £4.1 million (2021: £1.5 million) were overdue for payment at the year end. Of these overdue balances £2.8 million has been collected at 17 March 2023 with £1.3 million remaining outstanding, of which £1.2 million is either impaired or deferred. DSO (debtor days) increased to 46 at 31 December 2022 (2021: 37).

Notwithstanding the increase in Annual Recurring Revenue, the Group's deferred income at 31 December 2022 reduced to £29.6 million (2021: £30.9 million) due to a number of factors including the timing of a small number of invoices through the year end and multi-year advance payments of Annual Licence Fees by a small number of clients in prior years, resulting in reduced deferred income from these clients at 31 December 2022. No multi-year advance payments were received in 2022.

Philip Wood

Deputy Chief Executive Officer

20 March 2023

Group Income Statement

group statement of comprehensive income

Group Balance Sheet

Group Balance Sheet

Notes to the Audited preliminary results for the year ended 31 December 2022

1.   Segmental analysis

Business segments

The Board has determined the operating segments based on the reports it receives from management to make strategic decisions.

The only business segment for both periods was Aptitude and therefore no segmental analysis is provided for this period.

The principal activity of the Group throughout 2021 and 2022 was the provision of business-critical software and services.

1 (a) Geographical analysis

The Group has two geographical segments for reporting purposes, the United Kingdom and the Rest of the World.

The following table provides an analysis of the Group's sales by origin and by destination.

2.    Non-underlying items

3.  Income tax expense

The net adjustment to tax in respect of prior periods on underlying items totalling £319,000 (2021: £276,000) relates to the reduction in the assumed benefit from research and development relief in the UK.

The total tax charge of £610,000 (2021: £1,155,000) represents 19.0% (2021: 18.54%) of the Group profit before tax of £3,205,000 (2021: £6,229,000).

After adjusting for the impact of non-underlying items, change in tax rates, share based payment charge and prior year tax charge, the tax charge for the year of £1,375,000 (2021: £1,652,000) represents 19.57% (2021: 17.10%), which is the tax rate used for calculating the adjusted earnings per share.

At 31 December 2022, the Group had unused tax losses totalling £1,029,000 (2021: £1,029,000) available for offset against future profits. No deferred tax asset has been recognised in respect of these losses due to the unpredictability of future profit streams.

The difference between the total tax charge and the amount calculated by applying the effective United Kingdom corporation tax rate of 19.00% (2020: 19.00%) to the profit on ordinary activities before tax is as follows:

United Kingdom corporation tax is calculated at 19.00% (2021: 19.00%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

4.    Earnings per share

To provide an indication of the underlying operating performance per share, the adjusted profit after tax figure shown below excludes non-underlying items and has a tax charge using the effective rate of 19.57% (2021: 17.10%).

Adjusted earnings per share are calculated using adjusted profit after tax.

5.    Dividends

The proposed final dividend was approved by the Board on 20 March 2023 but was not included as a liability as at 31 December 2022, in accordance with IAS 10 'Events after the Balance Sheet date'. If approved by the shareholders at the Annual General Meeting this final dividend will be payable on 16 June 2023 to shareholders on the register at the close of business on 26 May 2023.

6.  Property, plant and equipment including right-of-use assets

7.  Goodwill

The acquisition of a subsidiary totalling £22.2 million in 2021 represents the amount of goodwill allocated to MPP Global business which was acquired on 9 October 2021.

8.    Intangible assets

9.    Trade and other receivables

Within the trade receivables balance of £10,091,000 (2021: £8,833,000) there are balances totalling £4,057,000 (2021: £1,544,000) which, at 31 December 2022, were overdue for payment. Of this balance £2,841,000 (2021: £1,341,000) has been collected at 17 March 2023 (2021: 14 March 2022).

The increase in the provision for impairment of receivables is in respect of outstanding invoices from a client which has ceased the implementation of the Group's products. Further information is provided within note 16.

10.    Financial liabilities

On 15 October 2021, the Group and Company entered into a loan agreement with Bank of Ireland consisting of a £10 million term loan in addition to a revolving credit facility of £10 million. The loan is secured on all the assets of the Group. Operating covenants are limited to the Group's net debt leverage and interest cover. The term loan is repayable over three years with an initial 12-month repayment holiday followed by annual capital repayments of £1,250,000. The Group can request a further one-year extension to the loan. At the end of the term, a bullet payment for the remaining balance of the loan is due. The loan is denominated in Pound Sterling and carries interest at SONIA plus 1.75%. The Group entered into an interest swap on 2 November 2021, effectively fixing the interest rate at 2.95% over the term of the loan.

11.  Trade and other payables

12. Capital lease obligations

13. Provisions for other liabilities and charges

£273,000 (2021: £334,000) of the total provision at 31 December 2022 of £316,000 (2021: £379,000) relates to the cost of dilapidations in respect of its occupied leasehold premises. The remaining £43,000 (2021: £45,000) is in relation to Poland pension provisions.

14. Share capital

15.  Cash flows from operating activities

Reconciliation of profit before tax to net cash generated from operations:

16.  Contingent liabilities

The implementation of the Group's products are frequently part of wider finance transformation programmes involving a number of different suppliers and partners. This environment can result in project scope changes, resulting in timeline extensions and budgetary demands. In this background, two clients have ceased the implementation of the Group's products and provided the Group with correspondence terminating their multi-year agreement alleging contractual breaches by Aptitude and claiming damages. The Group has rejected both the purported termination of the two agreements and claim for damages and has notified the clients of the charges due to Aptitude under the minimum terms of their agreements. The Group has assessed that they do not consider that it will be probable that there will be a cash outflow and therefore no provision has been recognised at 31 December 2022. The Group expects the matter to be resolved in the next year.

17. Statement by the directors

The preliminary results for the year ended 31 December 2022 are prepared in accordance with UK adopted International Accounting Standards (IAS) and interpretations by the IFRS Interpretations Committee applicable to companies reporting under UK adopted IFRS. They do not include all the information required for full annual statements and should be read in conjunction with the 2022 Annual Report. The accounting policies adopted in this preliminary announcement are consistent with the Annual Report for the year ended 31 December 2022.

The comparative figures for the financial year 31 December 2021 have been extracted from the Group's statutory accounts for that financial year. The 2021 financial statements, which were prepared in accordance with UK adopted international accounting standards and company law, have been reported on by the Group's auditors and delivered to the registrar of companies.

The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 December 2022 or 31 December 2021. The Annual Report for 2022 will be delivered to the Registrar of Companies in due course. The auditors' report on those accounts was unqualified and neither drew attention to any matters by way of emphasis nor contained a statement under either section 498(2) of Companies Act 2006 (accounting records or returns inadequate or accounts not agreeing with records and returns), or section 498(3) of Companies Act 2006 (failure to obtain necessary information and explanations).

The Board of Aptitude Software Group plc approved the release of this audited preliminary announcement on 20 March 2023.

The Annual Report for the year ended 31 December 2022 will be posted to shareholders in due course and will be delivered to the Registrar of Companies following the Annual General Meeting of the Company. The report will also be available on the investor relations page of our web site (www.aptitudesoftware.com). Further copies will be available on request and free of charge from the Company Secretary at 8th Floor, 138 Cheapside, London, EC2V 6BJ.