Chairman's statement:

FY2023 posed significant challenges for Aferian. Unfavourable macro-economic conditions, coupled with a change in competitive environment, led to a substantial decrease in sales of Pay TV streaming devices compared to the previous year resulting in an impairment of a significant share of the Group's goodwill and intangible assets. In response to this decline, the Group has implemented substantial measures to reduce its cost base. With the backing of its shareholders and debt facility lenders, the Group continues to have access to adequate financial resources to execute its strategy. The key ambition remains to build a more predictable software-driven growth business.

Despite these challenging trading conditions, we remain optimistic about the long-term outlook for the video streaming sector, particularly where both Amino and 24i operate. The media and entertainment sector continues its migration from traditional broadcast distribution models such as cable and satellite to streaming as the preferred mode of video delivery, and the Enterprise and Digital Signage market is presenting significant new opportunities for Amino. Aferian has been at the forefront of this type of content delivery for over 25 years and the continued transition to streaming demonstrates a growing market opportunity for the Group. Aferian's strategy is to serve this growing market by leveraging its expertise and investments already made in its software capabilities. This will enable the Group to organically build a more predictable, software-driven growth business.

During the year, we have also continued to make excellent progress on our ESG commitments, as detailed in the latest iteration of our ESG report which was published in August 2023. This includes further progress on initiatives across our businesses to reduce the carbon footprint of our supply chain both in the delivery of video streaming software and devices. We have also continued to invest in our people through partnerships with local education organisations as well as our own internal leadership, training and graduate programmes to nurture future talent into the industry.

On 4 April 2023, Max Royde was appointed to the Board as a Non-Executive Director. Following the resignation of Stephen Vaughan on 27 April 2023, Max Royde took up the position of Chair of the Board's Remuneration Committee. Max is a managing partner at Kestrel Partners, an investment management company specialising in business-critical software companies, which has a beneficial holding in Aferian. On 31 August 2023, Allen Broome was appointed to the Board as a Non-Executive Director. Allen currently serves as the Chief Executive Officer at MediaKind, a prominent global media technology provider, after previously leading the research and development organisation for two years in the role of Chief Technology Officer. With a robust background in software development and a track record of spearheading transformative technological changes in the media industry, Allen brings valuable experience to the Board.

On 22^nd April 2024 Aferian plc announced that, following fourteen years of service, Donald McGarva will step down from his role as CEO and leave the Company in October 2024. The Board would like to take this opportunity to thank Donald for his contribution to the Company and wish him well for the future.

A review of the composition of the Board is underway and the Company will make a further announcement once this has been completed.

The Board is not proposing a final Dividend (2022: 1.0 GBP pence/1.26 US cents per share) for this financial year in order to retain the capital available to the Group to pursue its strategy.

Mark Wells 

Chairman

30 May 2024

Chief Executive Officer's Review

Sales of Pay TV streaming devices in the year were significantly lower than the prior year at $21.3m, representing a decrease of 68% year-on-year. Whilst the video streaming device market continues to grow, particularly in the Enterprise Video and Digital Signage sector, the number of Pay TV devices shipped in the period was impacted by customers de-stocking in response to reduced lead-times and a more challenging competitive environment. This downturn within the Amino division's revenues has had a significant impact on Group results for the year resulting in a significant impairment to the Group's goodwill and intangible assets.

Continued demand experienced by the 24i division, which serves the video streaming market, meant the Group made progress in executing on its strategy to grow software and services revenue in this market. Software and services revenue for the year closed the year at $26.6m, a double-digit increase of 10% versus prior year.

Group revenue for the year was $47.8m, a decrease of 48% versus prior year. As a result, and to position ourselves better with our customers' changing needs, we took proactive steps to reduce the Group's cost base in both 24i and Amino during the year. These actions have generated c$12m of annualised cost savings for the Group. To position the Group for profitability in the second half of 2024, post year end we also completed further cost reduction programmes in early December 2023 and April 2024 which generated an additional c$6m of annualised cost savings.

Aferian secured additional cash funding by way of a loan arranged by the Group's largest shareholder of $1.3m on 31 May 2023. The Group also successfully raised $4.0m (before expenses) on 25 July 2023, through an issue of equity share capital to be used for general working capital purposes.

Positively, in April 2024, we secured an extension to the Group's $16.5m senior lending facilities to September 2025 as well as an extension to the Group's $1.3m term loan arranged by its largest shareholder Kestrel Partners LLP to January 2026.  Securing these extensions combined with the management actions taken to streamline the operations of the Group in the last twelve months now provides a stable financial platform on which the Group can move forward.

FY2023 KEY PERFORMANCE INDICATORS 

Our key performance indicators demonstrate growth in software & services revenue (up 10%), although exit run rate Annual Recurring Revenue decreased by 21% to $14.7m due to some customer contracts ending at the backend of FY2023. The executive management team remain focused on reducing inventory levels and improving operating cash flows following the cost reduction actions taken and as trading improves in 2024.

OPERATIONAL REVIEW 

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

24i

24i's robust, end-to-end SaaS video streaming platform enables all kinds of video content owners and distributors to monetise their content investments by quickly launching and efficiently managing attractive streaming services on all consumer devices. These include mobile phones and tablets to Smart TVs and the managed devices provided by pay TV operators.

24i revenue analysis

In FY2023 revenue grew as 24i launched new products strategically positioned to capitalise on the expansion of ad-funded streaming, specifically targeting what is commonly referred to as Free Ad supported Streaming TV ('FAST') channels Today, thousands of these streaming-only TV channels are available on aggregation platforms worldwide.

In March 2023, we announced a partnership with global FAST experts, Amagi, in which 24i can support the owners of these channels to quickly launch their own streaming apps, build direct relationships with their consumers and develop new monetisation strategies. The first joint Amagi and 24i customer, US food and travel video streaming network Tastemade, launched their 24i-based apps followed thereafter by Virgin Media.

Other customer project wins in the year included Israeli Public Broadcaster, KAN, which used 24i's application framework and SaaS content management platform to launch a series of new Smart TV streaming applications with sophisticated new features such as personalisation in December 2022 to coincide with the FIFA World Cup. The 24i-powered app was downloaded more than 380,000 times during the tournament alone.

We proactively reduced the cost base of 24i as a result of further synergies identified from our prior M&A endeavours and the successful completion of product development. Regrettably, two significant customer contracts ending at the back end of FY2023 resulted in lower exit ARR revenue for 24i at 30 November 2023. Nonetheless, the demand for 24i's video streaming platform remains robust, and our past investments in sales and marketing are yielding positive outcomes.

Amino

Amino's managed video streaming devices and SaaS management platform enable Pay TV and Digital Signage operators to deliver their live, scheduled and on-demand content with the quality of service and level of support that consumers demand for their big-screen viewing experience.

Amino revenue analysis

The significant decrease in Pay TV device revenues was due to customers delaying device orders, deferring capital expenditure post COVID-19 and throughout the continued cost-of-living crisis. Whilst we expect the impact of this to reverse in FY2024 we are also seeing increased competition from commoditised low margin Pay TV streaming devices. As a result, we anticipate that Amino's revenue will be lower than levels recorded in FY2023. We have already adjusted the Amino cost base in line with these revenue forecasts.

Having made the decision in early 2022 to invest in components and finished goods as a precautionary measure to mitigate supply chain risks linked to the COVID-19 pandemic, inventory in Amino at 30 November 2023 was $5.1m, $4.1m lower than prior year. As lead times reduce, we have taken the decision to also reduce inventory and anticipate inventory levels to reduce back towards 30 November 2021 levels (which were $2.6m) in 2024.

With Pay TV operators looking to maximise their own cost efficiencies, Amino's SaaS device management platform continues to gain traction in the market. This platform has now been deployed by over 120 Pay TV operators who use it to remotely maintain and upgrade devices located in consumer homes, ensuring they maintain a high level of service quality whilst also reducing customer support costs. Unlike previous generations of satellite and cable TV set-top-boxes, streaming devices can be posted to customers, self-installed and remotely managed, providing a major cost saving compared to the old model of an engineer home visit installation for every customer.

Encouragingly, we have witnessed ongoing advancements in the deployment of our digital signage devices. These devices play a crucial role in streaming information and entertainment content to digital displays across diverse settings, ranging from betting shops and stadiums to healthcare facilities, retail outlets, transportation hubs, and government facilities.

Notably, our digital signage devices have been successfully deployed in several international airports in India. Furthermore, one major betting shop operator is undertaking a migration of its services from legacy satellite delivery to next-gen low-latency IP video delivery by leveraging Amino digital signage devices throughout its shops in the UK and Ireland. This transition not only enhances the quality of service and reduces latency for an improved customer experience; but also results in significant operational cost savings driven by secure remote device management and control across an extensively distributed network.

Whilst the video streaming device market is forecast to continue to grow it has evolved with low-cost manufacturers meeting the needs of many pay TV operators who, whilst needing to upgrade their services to incorporate video streaming, remain focused on cost reduction. Therefore, to enhance profitability, Amino's focus will be on delivering value to its customers through:

·      delivering higher quality, higher margin Pay TV streaming devices which can also be bundled with the Group's Software-as-a-Service ("SaaS") device management platform. This SaaS device management platform is also integrated with third party devices and sold on a standalone basis; and

·      driving growth in its digital signage and enterprise video business selling into large integrators and via distributors.

CURRENT TRADING AND OUTLOOK

Although the 24i video streaming business has seen a decline in its ARR, following the cost reduction actions taken it is making progress in line with its focus on profitability and cash flow. It has also seen new customer deployments and multiple contract extensions being delivered in the first half of the year. Unfortunately, since 30 November 2023 there has been a further deterioration in the trading of the Amino business due to lower than expected orders for video streaming devices as customers have delayed purchasing decisions longer than anticipated. Although we have taken management actions to further reduce the Group's cost base in the first half of FY2024, we expect Group adjusted EBITDA for FY2024 to be lower than the FY2023 adjusted EBITDA of $1.6m (though still positive), and for this to be weighted into the second half of the financial year. Net debt at 31 March 2024 was $12.3m and is expected to be higher at 31 May 2024 reflecting the seasonal billing cycle of the Group and the costs of management actions taken in the first half to reduce the cost base and renegotiate the Group's loan facilities. Positively, the extension of the Group's loan facilities provides a stable financial platform on which the Group can move forward.

Donald McGarva 

Chief Executive Officer 

30 May 2024

Chief Financial Officer's Review

FINANCIAL OVERVIEW

Group revenue decreased by 48% to $47.8m from $91.1m in 2022, primarily driven by a significant decrease in the number of devices shipped during the financial year. This is due in part to macro-economic impacts and customer destocking activities prompted by reduced lead-times, following the accumulation of stock to navigate COVID-19 supply chain challenges.

On a revenue segment basis, sales of streaming devices were significantly lower than prior year at $21.3m (2022: $67.0m) representing a decrease of 68%. There was, however, a positive performance from our high-margin software and services revenue segment which grew by 10% to $26.6m (2022: $24.1m). However, exit ARR decreased by 21% and as a result we expect the software and services revenue to decrease in FY24. ARR is projected to grow from this lower base as new contract deployments continue.

The Group's gross profit margin of 52% was up 600 basis points on the prior year. Adjusted EBITDA^*1 was $1.6m (2022: $14.6m), a decrease compared to prior year of 88% primarily driven by the fall in devices revenue. The 24i business improved adjusted EBITDA to $2.9m (2022: $0.7m). However, adjusted EBITDA in Amino decreased to $0.4m (2022: $15.8m) due to the significant reduction in reported device sales.

Throughout the year, proactive measures were implemented to reduce the Group's cost base through a targeted cost-reduction program. This initiative resulted in approximately c$12m of annualised cost savings for the Group of which c$8m were in operating costs and c$4m in capex spend. Central costs include expenses related to the Board, including executive directors, and costs associated with the Company's listing on the London Stock Exchange. These costs reduced by $0.1m to $1.7m, mainly driven by a reduction in Executive director salaries.

The Group reported a statutory operating loss of $63.9m (2022: $16.6m loss), after $0.1m (2022: $0.4m) share based payment charge, $48.9m (2022: $12.5m) impairment of goodwill and acquisition intangibles, $4.3m (2022: $6.7m) exceptional items and $4.4m (2022: $4.6m) amortisation of intangibles.

The net finance expense was $0.8m (2022: $0.3m), a tax credit of $1.2m (2022: $0.5m tax charge) leading to a loss after tax of $63.4m (2022: $17.4m).

^*1 Adjusted EBITDA is calculated as operating loss before depreciation, interest, tax, amortisation, impairment of goodwill, exceptional items and employee share-based payment charges     

Exceptional Items

RESEARCH & DEVELOPMENT COSTS

The Group maintained its commitment to research and development of new products with spend of $13.0m on R&D activities (2022: $13.8m) of which $5.4m was capitalised (2022: $7.8m). Management initiatives during the year have successfully reduced the Group's annualised operating cost base by c.$12m such that capitalised R&D is expected to be c. $2m in 2024.

NET FINANCE EXPENSE

Net finance expense stood at $0.8m (2022: $0.3m), which represented the interest charged on our borrowing facilities of $2.0m (2022: $0.5m), $0.0m interest charged on lease agreements (2022: $0.1m) in accordance with IFRS 16 (leases) and a $1.2m debit (2022: $0.4m credit) relating to the unwinding of the discount on contingent consideration.

TAXATION

The Group recognised a total tax credit of $1.2m (2022: $0.5m tax charge). The effective tax rate of 1.9%, was lower than the blended statutory corporation tax rate of 23% primarily due to operating losses and amortisation of acquisition intangible assets. The Group's net cash tax payment for the year was $0.4m (2022: $2.4m). The deferred tax liability as at 30 November 23 was $0.5m (2022: $1.1m) mainly reflects the unwinding of deferred tax on the acquisitions in prior years. The deferred tax asset recognised in the year was $0.3m (2022: nil).

CASH FLOW

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

Adjusted operating cash flow^*2 from operations was $3.2m (2022: $8.9m). The reduction in adjusted cash flow from operations was due in large part to a cash outflow from working capital of $2.6m (2022: $5.6m) mainly relating to a decrease in trade and other payables of $17.3m (2022: $0.2m increase). Effective management of working capital remains a pivotal focus area for the Group.

Exceptional cash flows in FY2023 comprised one-off costs of $8.2m (2022: $2.5m).

^*2 Adjusted operated cash flow is calculated as cash flows from operations less cash paid/received from exceptional items

FINANCIAL POSITION

At 30 November 2023, the Group's net debt was $6.1m (2022: net cash $4.0m). The Group has a banking facility with Barclays Bank plc, HSBC plc, and Bank of Ireland of which the Group had drawn $10.6m at 30 November 2023 (2022: $7.5m). On 31 May 2023 the Group agreed with its existing loan facility providers to reduce the total available loan facility from $50m to $25.4m, with a further reduction of the facility to $16.5m. On 22 April 2024 Aferian plc secured an extension to its $16.5m multicurrency working capital facility, previously due to mature on 23 December 2024, to 30 September 2025.

In addition, on 31 May 2023, the Group secured a loan of $1.3m arranged by its largest shareholder, Kestrel Partners LLP. This loan is now repayable on 31 January 2026.

At 30 November 2023, the Group had equity of $22.3m (2022: $78.9m) and net current liabilities of $6.3m (2022: $1.4m). Net current assets excluding cash drawn under the banking facility is $4.3m (2022: $6.1m). Goodwill has reduced by $46.4m to $11.3m (2022: $56.3m), reflecting the $48.9m impairment charge across the Group together with foreign exchange translation movements. 

GOING CONCERN

These financial statements have been prepared on the going concern basis.

The Parent Company is a holding entity and as such its going concern is inter-dependent on the Group therefore its going concern assessment was performed as part of the Group's assessment.

The Directors have reviewed the Group's going concern position taking account of its current business activities and their future forecast performance. The factors likely to affect its expected future financial performance are set out in this Annual Report and include the Group's objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to credit and liquidity risks.

The directors have prepared a base case and severe but plausible downside cashflow forecasts for the Group covering a period of at least 12 months from the date of approval of the financial statements (being to June 2025). However, if the Group fails to deliver their plausible downside cashflow forecast, the Group could be unable to operate within its multicurrency working capital facility limits as a result of non-compliance with the financial covenants associated with its existing facilities (which were amended on 22 April 2024 when Aferian Plc secured an extension to its $16.5 million multicurrency working capital facility, previously due to mature on 23 December 2024, to 30 September 2025). In conjunction with this extension, the interest margin payable on the drawn amount of the facilities was increased to between 3% to 4.5% over SONIA (dependent on net leverage). In addition, the leverage, interest cover and fixed charge cover ratio covenants were removed, and the available liquidity covenant was relaxed. At the same time, the term of the Group's unsecured $1.3m term loan facility provided by certain funds managed by Kestrel Partners LLP was extended to 31 January 2026).

However, should the Group trade at a level below that of its severe but plausible downside forecast, it could be in breach of covenant compliance which will also have a direct impact on the Parent Company's going concern status, this indicates the existence of material uncertainty that may cast significant doubt on both the Group and Company's ability to continue as a going concern and therefore they may be unable to realise their assets and discharge their liabilities in the normal course of business.

However, the Directors consider that the Group and Parent Company will trade in a positive scenario and therefore deem it to be appropriate to prepare the financial statements on a going concern basis and the financial statements do not include the adjustments that would be required if the Group and Parent Company were unable to continue as a going concern.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers strategic, financial and operational risks and identifies actions to mitigate those risks.

DIVIDEND

The Board is not proposing a final Dividend for this financial year (2022: 1.0 GBP pence/1.26 US cents* per share).

* Average FX rate for the year was £1 : $1.26 in 2022.

Mark Carlisle

Chief Financial Officer

30 May 2024

Aferian Plc

Consolidated income statement

For the year ended 30 November 2023

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 2023

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