# Aferian delivers record software revenues and improved visibility of earnings

- Link: https://www.directorstalkinterviews.com/aferian-delivers-record-software-revenues-and-improved-visibility-of-earnings/4121118819
- Published: 2023-05-16T07:10:59+01:00
- Author: Jacob Brown

_Progress on software-led strategy with record software revenues and improving quality
and visibility of earnings_

_Structural industry shift towards convergence of video streaming services and traditional
pay TV supports strategic positioning and growth ambitions_

_Continued 24i new business momentum in H1 in line with expectations with recovery
in Amino expected later in the financial year_

**Aferian plc** ([LON:AFRN](https://www.directorstalkinterviews.com/company/aferian-plc/afrn.l)),
the B2B video streaming solutions company, has announced its results for the year
ended 30 November 2022. 

> **Donald McGarva, Chief Executive Officer of Aferian plc, said: ** 
> _“Aferian delivered record software revenues up 8% to $24.1m in 2022 against a
> challenging macroeconomic environment. We have continued to invest in innovation
> across the Group, strengthening our data-centric product offering and are seeing
> increasing quality of engagement with current and prospective customers._
> _“The wider macroeconomic environment during the year led some customers to review
> their capital expenditure and delay new orders, with particular impact on Amino
> device revenues and Group cash flow. While Amino continues to have a strong sales
> pipeline for the second half of 2023, this customer trend has continued longer
> than we expected into the first half of this year. Conversely, 24i has continued
> its strong new business momentum into the first half of 2023. Aligned to our goals,
> the quality and visibility of our earnings has continued to improve as we entered
> the new financial year with Annual Recurring Revenue (ARR) 23% higher than last
> year._
> _“Post period end, we have taken several actions to reduce the Group’s operating
> cost base and capital R&D spend in order to streamline the way we do business 
> and position us for future growth. Video streaming is everywhere, all the time
> and Aferian is well-positioned to benefit from the continued convergence of streaming
> and pay TV across our industry.”_

**Financial Key Figures**

| **_US$m unless otherwise stated_** | **2022** | **2021** | **Change %** | 
| Revenue | 91.1 | 92.9 | (2%) | 
| Exit run rate Annual Recurring Revenue (ARR) ^((2))  | 18.7 | 15.2 | 23% | 
| Statutory operating (loss)/profit | (16.6) | 5.2 | N/A | 
| Statutory operating cash flow before tax | 6.4 | 14.1 | (55%) | 
| Statutory basic (loss)/earnings per share (US cents) | (20.5) | 7.0 | N/A | 
| Adjusted operating profit ^((3))  | 7.5 | 11.8 | (36%) | 
| Adjusted operating cash flow before tax ^((4))  | 8.9 | 16.7 | (46%) | 
| Adjusted basic earnings per share (US cents) ^((5))  |  6.6 | 11.5 | N/A | 
| Net cash | 4.0 | 14.2 | (72%) | 
| Dividend per share (pence) | 1.0 | 3.1 | (68%) |

Notes 

| (1)      | Constant currency basis calculated using the closing FX rate for FY21 in both years. | 
| (2)      | Exit run rate ARR is annual run-rate recurring revenue as at 30 November 2022. | 
| (3)      | Adjusted operating profit is a non-GAAP measure and excludes amortisation of acquired intangibles, impairment of goodwill exceptional items and share-based payment charges | 
| (4)      | Adjusted operating cash flow before tax is a non-GAAP measure and excludes exceptional items and impairment of goodwill.  | 
| (5)      | Adjusted basic earnings per share is a non-GAAP measure and excludes amortisation of acquired intangibles, impairment of goodwill, exceptional items and share-based payment charges.   |

**Financial Highlights**

·      Progress in the Group’s transformation to a software-led business:

o Record higher-margin software and services revenue of $24.1m, up 8% year-on-year.

·      Further momentum demonstrated in improving the quality and visibility of 
Group earnings:

o Recurring revenue of $16.1m, up 25% year-on-year.

o Exit run rate ARR of $18.7m, up 23% year-on-year.

·    The wider macroeconomic environment led to some customers temporarily reducing
capital expenditure and delaying new orders, resulting in a decline in revenues 
in the Amino device business and a weaker operating cash flow performance.

o Device revenues were down 5% year-on-year, leading to reported revenue of $91.1m
for 2022 (2021: $92.9m).   

o Adjusted EBITDA of $14.6m, down 21% year-on-year, due to the decline in Amino 
device revenues.

o $12.5m non-cash impairment loss recognized on goodwill which was included in the
statutory operating loss

·     Good operating cash flow generation despite significant investment in inventory
to mitigate global supply chain disruption during the period.

o Adjusted cashflow from operating activities before tax was $8.9m (2021: $16.7m)
representing an adjusted EBITDA cash conversion of 61% (2021:91%)

·    No final dividend payment (2021: 2.09 pence / 2.87 US cents), resulting in 
a total dividend for the year of 1.0 pence (1.26 US cents) (2021: 3.09 pence / 4.26
US cents)

**Strategic and Operational Highlights** 

·      **Strengthened our data-centric product portfolio**

o **Acquisition of The Filter**, now fully integrated with 24i, is attracting new
customers and offering new capabilities for existing customers.

o **Launched 24iQ**: the Group’s personalisation and content recommendation service,
shortlisted for four separate innovation awards in the USA and Europe.

·      **Continued innovation in consumer experience and product capability:**

o **24i:** Strong market response to launch of 24i Mod Studio as the new identity
and go to market name for 24i’s video streaming platform, highlighting its flexibility
and modularity. Launched new fully managed, cloud-hosted TV as a Service solution,
FokusOnTV.

o **Amino:** Launched new version of the device management platform targeting the
$1.6bn global digital signage market, with encouraging initial traction. Over 120
customers have now deployed our SaaS device software management platform.

·      **Supported customers with critical, innovative rollouts and deployments:**

o **24i:** Supported KAN, the Israeli Public Broadcasting Corporation, enhancing
the experience for its viewers on multiple Smart TV devices to watch the FIFA World
Cup. FokusOnTV launch led to new partnership with Swisscom Broadcast and the addition
of three new customers.

o **Amino:** Device management platform enabled Vodafone Iceland to upcycle its 
deployed base of video streaming devices with enhanced video streaming services.
Supported PCCW to publicly launch its new generation of Now TV streaming services,
facilitating the integration of Netflix and other third-party streaming content 
alongside its own.

**Post period end update**

| ·      | Actions to identify and deliver efficiencies in the Group’s cost base have reduced the Group’s annualized cost base by c.$5m, underpinned by efficiencies identified in the operations and research & development teams of both our 24i and Amino divisions. | 
| ·      | As of 25 April 2023, Donald McGarva stepped-in to the role of 24i CEO, alongside his existing duties as CEO of parent company, the Aferian group.  He will lead 24i for the foreseeable future.  | 
| ·      | Board Changes: | 
|  | o Max Royde appointed Non-Executive Director on 4 April 2023 and was subsequently appointed Chair of the Remuneration Committee.  | 
|  | o Steve Vaughan stepped down as Non-Executive Director and Chair of the Remuneration Committee on 27 April 2023. | 
| ·      | At the date of this announcement, the Group is in compliance with its banking covenants and is in discussions with its banks regarding its current facility arrangements. |

**Current trading and outlook **

We expect to report growth in the 24i division (_which focusses on streaming video
experiences_) in H1 FY23 over H1 FY22, reflecting the Group’s position in the fast-
growing video streaming market.

For the Amino division (_which connects Pay TV to streaming services_), as previously
announced on 10 March 2023, the impact of the wider macro-economic situation has
continued for longer than we expected. Therefore, device sales in H1 FY23 have been
materially lower than initially anticipated. While Amino continues to have a strong
medium-term sales pipeline, we expect Amino’s full year revenue for FY23 to be significantly
lower than delivered in FY22. The FY23 outcome for Amino remains heavily dependent
on the receipt of expected orders that have, to date, been deferred or delayed. 
However, we have been encouraged by the recent receipt of the first material order
in seven months from one of our US distributors.

In light of the Amino performance, we have taken appropriate steps to identify and
deliver significant efficiencies in the Group’s cost base during the first quarter
of 2023 to improve margins and cash generation.

Following the investment made in inventory within the Amino business, the Group 
currently has a net debt position, and expects this to continue throughout the current
financial year. As previously announced on 10 March 2023, we expect Group revenue
and adjusted EBITDA for FY23 to be significantly below FY22, albeit that the Group
is expected to generate a material positive EBITDA.

**Chairman’s statement:**

In 2022, Aferian made good progress with its key ambition of becoming a software-
led company. During the year, Aferian increased its higher margin software and services
revenues by 8% to $24.1m and has grown exit annualised run rate recurring revenue(
ARR) by 23% to $18.7m. However, challenging macro-economic conditions in the second
half of the year negatively impacted device revenues, meaning that total Group revenues
declined by $1.8m to $91.1m.

In my report last year, I explained that the Group is at the heart of a structural
industry shift towards convergence of video streaming services and traditional pay
TV. Today, video streaming is omnipresent. While Aferian doesn’t address the household-
name streaming giants like Netflix, and you won’t see our name on screen, we are
very much part of this booming market behind the scenes. Our B2B solutions power
the tier 1 to tier 4 companies who distribute video to consumers.

Aferian’s portfolio of video streaming products and services combine the cost savings
and fast time-to-market of white label solutions with an advanced level of configurability.
This allows our customers to create unique and attractive consumer experiences. 
This focus on building a configurable, integrated video streaming platform differentiates
Aferian from its competitors. 

On a divisional level, the Board is confident that investments made in 2022 in enhancing
the 24i video streaming platform will ensure 24i continues to deliver double digit
percentage revenue and ARR growth in 2023. The launch of 24i’s fully managed TV 
as a service platform in September 2022 illustrates that the Group is continuing
to expand its product roadmap with a focus on continual improvement of the consumer
experience whilst decreasing costs and operational complexity for its customers.

Macro-economic conditions for the Amino video streaming device business in the second
half of 2022 were challenging and negatively impacted revenues and operating cash
flow. As indicated in our March 2023, trading update, this has worsened in the first
half of 2023. That said, this business has historically maintained strong gross 
profit margins and in 2022 the Group invested in expanding its product line into
digital signage, additional software-led device management tools as well as inventory
to de-risk the well-publicised, industry-wide hardware supply chain challenges. 
The Board is, therefore, confident that this division is well placed to capitalise
on the growth opportunities it sees in the video streaming market in the second 
half of the year and beyond.

The acquisition of The Filter in April 2022 strengthened the Group’s data-centric
product portfolio by adding its advanced video streaming analytics, recommendations
and personalisation service. Personalisation is becoming a key consumer pre-requisite
and we are now able to deliver this. Unfortunately, as previously disclosed, due
to adverse factors the Group was unable to complete a material and transformational
acquisition that had been planned for the second half of 2022. While M&A growth 
remains a core part of our strategy, our focus in 2023 will be on driving organic
growth and profitability to deliver strong levels of cash generation until markets
normalise. 

**ENVIRONMENTAL, SOCIAL AND GOVERNANCE**

We have continued to make excellent progress on our ESG commitments. This year, 
the Board set ESG targets for the Executives for the first time. I am pleased to
report these targets were met in full, including the removal of all non-recyclable
packaging from the Group’s supply chain. We will continue this focus on ESG in the
coming year with both internal and external initiatives on [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news),
equality and diversity.  

**BOARD CHANGES **

2022 has seen several changes to the Group’s Board of Directors. Erika Schraner 
stood down in July 2022 after three years as a Non-Executive Director. Joachim Bergman
also left the Board in April 2022 after stepping down as 24i CEO. Steve Vaughan,
non-executive director of Aferian since March 2019 and chair of the Remuneration
Committee during the year, resigned from the Board on 27 April 2023. I thank them
all for their valuable contribution to the success of the Group during their tenure.
I was pleased to welcome Bruce Powell MBE to the board as a Non-Executive Director
and Chair of the Board’s Audit Committee in August 2022. At the same time, Steve
Oetegenn transitioned from Non-Executive Director to a new Executive Director role
as Group President of the Americas. On 4th April 2023, Max Royde was also appointed
to the Board as a Non-Executive Director. Following the resignation of Steve Vaughan,
Max Royde took up the position of Chair of the Board’s Remuneration Committee on
27 April 2023. 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. At the time of his appointment, this holding amounted to 22,781,891
shares or 26.12% of the issued share capital of the Company.

We are keenly aware of the need for both diversity and a balance between Executive
and Non-Executive Directors on the Board. We are currently reviewing the composition
of the Board and expect to improve the diversity of its membership in the coming
12 months.  

**DIVIDEND **

In August 2022, the Company paid an interim dividend of 1.0 GBP pence (1.26 US cents*)
per share in respect of the year ended 30 November 2022. The Board is not proposing
a final dividend (2021: 2.09 pence / 2.87 US cents). This represents a total dividend
for the year of 1.00 GBP pence (1.26 US cents) per share (2021: 3.09 pence / 4.26
US cents) and is 19% of adjusted earnings per share. This is lower than the Group’s
stated policy of 33-50% of adjusted earnings per share and reflects the short-term
impact on the Group of the challenging macro-economic environment in the first half
of 2023.

**SUMMARY**

Aferian addresses the fast-growing video streaming market with forward-thinking 
technology solutions. The 24i division’s performance has been robust and it is expected
to continue to grow during FY23, which leads the Board to remain positive about 
prospects for the Group.

As announced on 10 March 2023, the challenging macro-economic environment and, in
particular, the impact of lower shipping and production lead times have resulted
in both our US distributors and their clients wishing to reduce inventory levels.
This has resulted in significantly decreased sales within the Amino division in 
the first half of FY23. The management team therefore took appropriate steps to 
identify and deliver significant operating cost efficiencies during the first quarter
of 2023, to improve margins and cash generation over the remainder of the year.

Whilst the speed of recovery in sales within the Amino division remains uncertain,
the Board is encouraged by its strong medium-term sales pipeline. The Board is confident
that the steps taken to reduce the Group’s cost base have not compromised its core
strengths in software, or the ability of the Amino division to recover as the market
for streaming devices normalises.

**Mark Wells**
Chairman 15 May 2023

*Average FX rate for the year was £1 : $1.26 (2021: £1 : $1.38). **

**Chief Executive Officer’s Review**

**INTRODUCTION **

Aferian’s transition to a software-led business has continued to make progress in
2022 and, aided by both organic growth and the acquisition of The Filter in April
2022, software revenues grew to a record $24.1m in the year. Management’s focus 
in 2022 was to continue to grow recurring revenues whilst also accelerating the 
transformation of the Aferian Group to a software-led business by investing in accretive
acquisitions. Recurring revenue growth was achieved as exit annualised run rate 
revenues (“ARR”) increased by 23% to $18.7m. Whilst we completed one small acquisition
in April 2022, unfortunately, we were forced to abort a transformational acquisition
in October 2022 having invested a significant amount of time and effort on the process.

As previously communicated, the wider macro-economic situation also resulted in 
a decline in revenues within the Amino device business. Rising interest rates have
understandably led to our customers looking more carefully at their investment in
working capital and seeking to defer capital expenditure. As a result, we have seen
some customers delaying their orders of new streaming devices, preferring to run
down their existing inventory rather than maintaining stock levels at this time.

We, therefore, report revenue for 2022 of $91.1m (2021: $92.9m), which includes 
a $3.5m decrease in device revenues compared to 2021. 

Whilst we have experienced device revenues being negatively impacted by current 
economic headwinds in the first half of 2023, we have confidence in the medium and
long-term growth drivers of the video streaming market as well as Aferian’s ability
to address that market. In February 2023, we completed a restructuring programme
to improve the efficiencies of the Group’s operations during which we took the difficult
but necessary decision to reduce the Group’s operating cost base by c.$2.9m and 
capital research and development spend by c.$1.8m.

These cost reductions were underpinned by efficiencies identified in the operations
and research and development teams of both our 24i and Amino divisions. In our 24i
video streaming platform division, cost savings were identified as the culmination
of synergies generated by merging the operations and management of 24i, Nordija 
and The Filter. Despite these cost reductions, we continue to expect 24i to deliver
double digit percentage growth in both revenue and ARR in 2023. In addition, cost
reductions in the Amino business were made, whilst retaining the core talent who
are delivering new opportunities which we expect to drive growth in the second half
of the year.

At the date of the approval of this document, the Group remains in compliance with
its banking covenants and, as we disclosed on 10 March 2023, discussions are ongoing
regarding its current facility arrangements. Further details are provided in the
CFO report and note 2 to the condensed consolidated financial statements below.

**MARKET GROWTH        **

Aferian’s video streaming platforms serve a fast-growing market that continues to
be driven by the consumer-led transition from traditional linear TV to video streamed
over the internet anytime and anywhere. The global video streaming market continues
to grow and is fast becoming the most popular way to consume video. For example,
in July 2022 monthly Nielsen data showed that, for the first time, video streaming
accounted for a larger audience share (34.8%) in the US than either cable TV (34.4%)
or broadcast TV (21.6%). In addition, average global video viewing time (minutes
consumed per day) is predicted to continue to increase at around 10% ^(1) until 
at least 2026^(2) . 

Growth in Aferian’s 24i video streaming platform revenue is expected to be driven
by the launch of new video streaming services using Aferian’s platforms and the 
continued growth in those streaming services as a result of the above trends. In
addition, all video service providers, including our Pay TV, broadcast and content
owner customers are investing in upgrading their streaming infrastructure and operations
to keep pace with the latest features offered by market leaders such as Netflix 
and Disney+.  

For Pay TV operators, it’s not just about keeping up with these giants of the streaming
industry, they also need to partner with those giants – offering consumers a way
to access the widest-possible range of content from a single device. This cannot
be done using traditional linear satellite and cable technology; hence operators
need to continue investing in next-generation, content-aggregating, managed streaming
devices. 

Media headlines that focus on churn rates for the leading video streaming services
naturally miss a great deal of the nuance in this dynamic market. In March 2022,
a quarter of US consumers were found to have cancelled a streaming video service
in the past 12 months only to re-subscribe to the same service. In the United Kingdom,
Germany, Brazil, and Japan, the figure for this “churn and return” behaviour is 
around 22% overall, and globally it’s the younger generations of subscribers who
are most likely to come back^(3). 

Although cost-of-living pressures will inevitably make our customers look harder
at their cost base and the prices they charge their consumers, we believe this presents
an opportunity for the Group. Our cost-effective, off-the-shelf solutions and managed
services represent an excellent alternative for video service providers who want
to continue delivering great consumer experiences but are re-assessing the value
of their current custom-built solutions and the cost of employing in-house expertise.

^(1) Boston Consulting Group, 2021

^(2) Deloitte, 2009 State of the Media Democracy survey

^(3) Deloitte, 2022 Digital Media Trends survey

**2022 KEY PERFORMANCE INDICATORS **

The Group reported a decrease in revenue of 2% driven by lower video streaming device
sales. Importantly, however, software and services revenue has increased by 8% and
exit run rate ARR by 23% (32% on a constant currency basis). Adjusted gross profit
margin was 2 percentage points lower than the prior year. The Group also continues
to generate good operating cash flows, albeit reduced by the strategic impact of
the investment in inventory made in the year to mitigate against supply chain disruptions.
The Group reports a net customer revenue retention rate^(4) of 107% (2021: 117%).
This is due to growth in the subscriber base of our existing customers during the
year, in addition to a very low customer churn rate.

|  | **2022****$m** | **2021****$m** | **Change****%** | 
| Total revenue | **91.1** | 92.9 | (2%) | 
| Software & services revenue | **24.1** | 22.4 | 8% | 
| Annual run rate recurring revenue (“ARR”) at 30 November | **18.7** | 15.2 | 23% | 
| Adjusted operating cash flow before tax | **8.9** | 16.7 | (55%) | 
| Net customer revenue retention rate on recurring revenue* | **107%** | 117% | (16%) |

*Net customer revenue retention rate on recurring revenue based on constant currency
basis.

In 2022, the Group invested heavily in 24i sales and marketing as well as research
and development to successfully drive growth in recurring revenue, although negatively
impacting both cash flow and profit margins. In addition, in order to mitigate against
potential supply chain delays in the second half, Amino invested in inventory of
streaming devices which required further investment in working capital. In 2023,
the management team will focus on reducing inventory and improving cash flows whilst
also improving the returns generated by the investments already made in 24i. 

^(4) Net revenue retention rate is calculated by reference to recurring revenue 
from existing customers, including upsells, less recurring revenue lost from customer
churn during the year

**OPERATIONAL REVIEW 

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

**24i**

24i offers a robust video streaming platform that supports all the key use cases
a video content owner must address in order to prepare and stream TV and video content
to the full range of consumer connected devices. Operating since 2009, 24i serves
Pay TV operators, broadcasters and content owners in Europe, North America, Latin
America and the Middle East.  

The market has responded well to the December 2021 launch of 24i Mod Studio as the
new identity and go to market name for 24i’s video streaming platform. This was 
designed to highlight the flexibility and modularity of the platform as well as 
24i’s turnkey solutions for different verticals. In September 2022, Mod Studio was
named “Best TV Everywhere or Multi-screen Video” solution in the CSI Awards, a leading
industry barometer of streaming technology.  

New customer wins in the period have included KAN, the Israeli Public Broadcasting
Corporation, and SEGI.TV in North America. In addition, in September 2022, 24i launched
its new fully managed, cloud-hosted TV as a Service solution, FokusOnTV. This is
based on the technologies of Nordija, which it acquired in May 2021, and has resulted
in a new partnership with Swisscom Broadcast and the addition of three new customers
to this service. 

The acquisition of The Filter in April 2022 led to the launch of 24iQ, a new data-
driven, fully managed personalisation service in May 2022. 24iQ is offered as an
integrated solution or a standalone service. Work to integrate the 24iQ technology
and expertise into 24i Mod Studio is complete and the solution is being deployed
to the first Mod Studio customers. Since its launch, 24iQ has been shortlisted for
four separate innovation awards in the USA and Europe.  

24i continues to grow recurring revenue and has reported a significant year-on-year
increase of 29% in exit run rate ARR (40% increase year-on-year on a constant currency
basis). This growth is as a result of low customer churn and subscriber growth in
our customers’ video streaming services which has led to increased use of recurring
software licenses. Growth has also resulted from the use of an increased range of
24i solutions. For example, we have supported existing customers Waoo in Denmark
and Telenor Sweden with their rollouts of advanced new streaming services based 
on devices using Google’s popular Android TV operating system. 

Notwithstanding this excellent performance, I believe further performance enhancements
can be made. For this reason, in April 2023, I decided to step-in as CEO of the 
24i division. Investments made in sales and marketing in 2022 have resulted in an
increase in the rate of new business wins. For 2023, the 24i management team and
I are focused on growing revenue and ARR at double digit percentages, whilst also
increasing profit margins. In addition, investment in research and development will
be reduced in 2023 now that the initial phase of the 24i video platform development
has been completed.

**Amino**

Amino’s managed video streaming devices enable Pay TV operators to bring their live
and on-demand content to every connected household with the quality of service and
level of support that consumers demand for their big-screen viewing experience. 
Amino has recently celebrated its 25th anniversary as a force for innovation and
growth in the video streaming market.  

Our SaaS device management platform remains a key differentiator for Amino in the
Pay TV market. During the year, we added a new dashboard that better visualises 
customer service KPIs. This enables more proactive customer support, helping our
customers to keep their video services running smoothly. 120 customers have now 
deployed the SaaS platform solution, leading to a 5% year-on-year growth in the 
number of end-user devices managed. Combined with Amino’s streaming device operating
system, this device management platform enabled Vodafone Iceland to upcycle their
deployed base of video streaming devices with enhanced video streaming services.
This project was completed in partnership with 24i whose software is also part of
the Vodafone Iceland device ecosystem. In addition, this platform was also deployed
at PCCW in Hong Kong which launched its Now TV video service using Amino’s software
to integrate Netflix alongside PCCW’s own selection of live and on-demand content.

In May, we launched a new version of this device management platform specifically
targeting at the needs of the $1.6bn global digital signage market. We have seen
encouraging developments in the growing digital signage market, including new business
in 2022 with a leading UK-based audio-visual provider to supply video streaming 
devices that deliver high-quality live video content to a leading chain of betting
shops around the UK and Ireland.  

In the first half of 2022, our device revenues were impacted by global supply chain
challenges including shipping and production delays, caused principally by COVID-
19 related manufacturing shutdowns in China. Second half device production was, 
therefore, weighted into the third quarter of the year in order to mitigate any 
further potential delays. Following this, well-documented global economic headwinds,
which have resulted in increased interest rates, led some customers to delay device
orders as they seek to temporarily reduce working capital and defer capital expenditure.
As a result, device revenues were down 5% year-on-year and inventory levels increased,
negatively impacting operating cash flows. 

These economic headwinds continue to negatively impact device sales in the first
half of 2023. Management had forecast a decrease in device sales for a share of 
FY23 due to shortened supply chain lead times. Consequently, the assumptions used
in the review of the carrying value of Goodwill relating to the Amino business have
been revised, which reflect the expected, based on a probability expected basis,
negative impact of both the current macro-economic uncertainty as well as a more
conservative view of long-term performance and growth rates of streaming devices.
Following these revisions an impairment to the carrying value of this goodwill of
$12.5m has been recorded.

Despite these near-term headwinds, in the second half of 2023 we expect a return
to growth in streaming devices and device management software having invested in
both new product lines such as digital signage as well as sales and marketing in
new geographic markets in 2022.

The focus of the Amino management team in 2023 will be to reduce inventory levels
and improve working capital as well as to drive additional orders as anticipated
growth returns in the second half of the year. 

**M&A

In April 2022, we completed the next step in our targeted M&A programme with the
acquisition of The Filter, a UK-headquartered, AI-powered video recommendation service
for an initial consideration of £1.2m ($1.5m). An additional consideration of up
to £2.5m ($3.2m) for this acquisition is payable on achievement of certain ARR growth
over the first two years. 

The Filter’s managed services combine cutting-edge data science, analysis and machine
learning technologies to help consumers find and watch more of the video content
they love. This technology has now been fully integrated into 24i and has been launched
as 24iQ, a standalone managed service which combines the Filter’s enhanced analytics,
recommendations and personalisation with 24i’s existing data analytics services.

More and more of our customers are looking for innovative ways to personalise their
services for individual consumers, improving the speed at which each user can find
content that’s appealing to them on the device of their choice. Harnessing the power
of the data available in video streaming services to optimise the user experience
in this way is an essential strategic step to drive customer satisfaction and retention
to counteract churn and protect revenue. 

A further, significant acquisition opportunity which would have been transformational
for the Group was aborted at an advanced stage in October 2022, resulting in a one-
off charge of approximately $5.1m. Whilst M&A remains a core part of our medium-
term software-led strategy to grow the business, the management team’s focus in 
2023 will be on organic growth and cash generation.

**ENVIRONMENT, SOCIAL AND GOVERNANCE (“ESG”)**** **

Aferian has continued to focus on ESG in 2022 and we published a detailed update
to our ESG report in August 2022. For the first time, the Executive Team were given
specific ESG targets by the board, all of which were achieved before year end. Examples
of our achievements in this area include: 

| ·      | All our Tier 1 hardware suppliers operate under our Code of Conduct, which aligns with the Responsible Business Alliance (RBA) Code of Conduct and the UN Global Compact. In 2022 we completed the audit of these Tier 1 hardware suppliers using RBA recognised auditors to enhance and complement our existing facility audit programmes.    | 
| ·      | This year we completed a project to eliminate all non-recyclable packaging from our product supply chain. Plastic packaging and cable ties have now been replaced with paper-based products that can be recycled in most households. We also upcycled more than 2 metric tonnes of Amino streaming devices.   | 
| ·      | In October 2022 we launched an internal initiative called “Do The Right Thing” that is designed to highlight the importance of ESG topics to Aferian’s staff and to inspire them to get involved in making a difference both in their local communities and to Aferian’s overall ESG performance. We are pleased to see the enthusiastic way in which staff have embraced the campaign, already suggesting creative ways in which the Group can advance make greater progress towards sustainability and its target of making all Group offices Carbon Neutral by 2025.   | 
| ·      | Our global #FutureIsBright graduate programme has admitted its second cohort of trainees, including the first graduate of our partnership with the pioneering non-profit organisation Czechitas which trains women in the Czech Republic for jobs in IT. This year we have increased our involvement with Czechitas, providing mentors for trainees as well as sponsorship, industry talks and office tours. |

It is important that we pay tribute to the continued dedication and commitment of
Aferian’s people around the world who have once again delivered a sterling performance
in the face of ongoing supply chain challenges as well as economic factors beyond
their control. While most of the world has enjoyed a growing sense of post-pandemic
normality this year, our team in Hong Kong has still faced significant disruption
to their personal and working lives as a result of COVID-19 restrictions. We are
proud of the resilience and fortitude with which they have borne this enduring situation
and thank them for their continued hard work and good humour in the most difficult
of circumstances.  At the same time, our small but valued team of developers based
in Ukraine has continued to work as normally as possible under the most extraordinarily
difficult circumstances since the start of the conflict in February 2022. I wish
to personally thank all our staff for their contribution to our performance during
2022.  

**CURRENT TRADING AND OUTLOOK **

We expect to report growth in the 24i division (_which focusses on streaming video
experiences_) in H1 FY23 over H1 FY22, reflecting the Group’s position in the fast-
growing video streaming market.

For the Amino division (_which connects Pay TV to streaming services_), as previously
announced on 10 March 2023, the impact of the wider macro-economic situation has
continued for longer than we expected. Therefore, device sales in H1 FY23 have been
materially lower than initially anticipated. While Amino continues to have a strong
medium-term sales pipeline, we expect Amino’s full year revenue for FY23 to be significantly
lower than delivered in FY22. The FY23 outcome for Amino remains heavily dependent
on the receipt of expected orders that have, to date, been deferred or delayed. 
However, we have been encouraged by the recent receipt of the first material order
in seven months from one of our US distributors.

In light of the Amino performance, we have taken appropriate steps to identify and
deliver significant efficiencies in the Group’s cost base during the first quarter
of 2023 to improve margins and cash generation.

The Group is currently trading, and expects to finish the current financial year,
in a net debt position. As previously announced on 10 March 2023, we expect Group
revenue and adjusted EBITDA for FY23 to be significantly below FY22, albeit that
the Group is expected to generate a material positive EBITDA.

**Donald McGarva** 

Chief Executive Officer 

15 May 2023 

**Chief Financial Officer’s Review**

**OVERVIEW **

Whilst showing a decline in total revenue, the Group’s financial results for the
year ended 30 November 2022 demonstrate continued progress against the Group’s primary
financial objectives: to grow high margin software & services revenue, with a focus
on recurring revenue.

High margin software & services revenue increased by 8% to $24.1m (2021: $22.4m).
Software & services adjusted gross profit represented 45% of total adjusted gross
profit in the year, an increase from 42% in 2021.  Adjusted gross margin has remained
broadly consistent with the prior year at 46% (2021: 48%). In addition, the visibility
of the Group’s revenues increased as exit run rate Annual Recurring Revenues (ARR)
increased to $18.7m (2021: $15.2m), representing growth of 23%. On a constant currency
basis, exit run rate ARR increased by 32%.

However, device revenues decreased by $3.5m year-on-year and, as a result, total
revenue decreased by 2% to $91.1m (2021: $92.9m).

The Group continued to generate good operating cash flows albeit reduced due to 
the additional $6.7m strategic investment in inventory made during the year. Adjusted
operating cash flow before exceptional costs was $8.9m (2021: $16.7m) representing
an adjusted EBITDA cash conversion of 61% (2021: 91%).  Operating cash flow was 
$6.4m (2021: $14.1m).

The Group had net cash of $4.0m at 30 November 2022 (2021: $14.2m). The Group has
a banking facility with Barclays Bank plc, Silicon Valley Bank, and Bank of Ireland
of which the Group had drawn $7.5m at 30 November 2022 (2021: $nil). This facility
of $50m, split evenly across the new three bank club, also includes up to a further
$50m available by way of an accordion. On 30 December 2022, the Group executed an
amendment letter to update the covenant definition in the existing banking facility
which has a committed term to 23 December 2024 with options to extend by a further
one or two years. As part of the amended covenant definition, the amount of available
facility is subject to a cap of 2.5 times the amount of 12 month rolling Adjusted
Lender EBITDA, tested on a monthly basis. We have prepared a base case cash flow
forecast covering a period of at least 12 months from the date of approval of the
financial statements and various sensitivity analyses. If the base case forecast
is achieved, the Group and parent company will be able to operate within the monthly
liquidity covenant test. However, the recovery of the Amino division revenues, continued
growth in 24i division revenues and cash conversion expected in H2 2023 are key 
assumptions. Failure to achieve the base case view of forecast sales pipeline conversion
assumed in the base case forecast could result in the Group failing to comply with
financial covenants associated with its existing banking facility, potentially resulting
in the facilities being withdrawn. We are currently in further active discussions
with the Group’s existing loan facility providers to negotiate a further covenant
definition revision taking account of current management forecasts however there
is currently no certainty as to the outcome of these discussions with the lender
as referred to in Note 1 of the financial statements.

**REVENUE AND ADJUSTED GROSS PROFIT **

| ** ** | **2022****$m** | 2021$m | Change | 
| **Software & services** | ** ** |  |  | 
| Revenue |  |  |  | 
| Recurring | **16.1** | 12.9 | 25% | 
| Non-recurring | **8.0** | 9.5 | (16%) | 
| Total revenue | **24.1** | 22.4 | 8% | 
| Adjusted gross profit | **19.0** | 18.4 | 4% | 
| _Adjusted gross profit margin %_ | **_79%_** | _83%_ | (4%) | 
| **Devices including integrated software** | ** ** |  |  | 
| Revenue | ** ** |  |  | 
| Non-recurring | **67.0** | 70.5 | (5%) | 
| Total revenue | **67.0** | 70.5 | (5%) | 
| Adjusted gross profit | **23.0** | 26.3 | (13%) | 
| _Adjusted gross profit margin %_ | **_34%_** | _37%_ | _(3%)_ | 
| **Total** | ** ** |  |  | 
| Revenue | ** ** |  |  | 
| Recurring | **16.1** | 12.9 | 25% | 
| Non-recurring | **75.0** | 80.0 | (6%) | 
| Total revenue | **91.1** | 92.9 | (2%) | 
| Adjusted gross profit | **42.0** | 44.7 | (6%) | 
| _Adjusted gross profit margin %_ | **_46%_** | _48%_ | _(2%)_ |

Devices revenue (which includes integrated software) decreased by 5% year-on-year.
In the second half of the year global economic headwinds which have resulted in 
increased interest rates led some customers to delay device orders as they seek 
to temporarily manage their working capital and capital expenditure.

Software & services revenue increased by 8% year-on-year. Software & services revenues
as a proportion of total revenues for the year increased slightly to 26% (2021: 
24%). However, the Group continues to focus on growing recurring revenues that increased
by 25% from $12.9m to $16.1m.  Overall, recurring software & services revenue accounts
for 67% of total software & services revenue (2021: 58%). At 30 November 2022, exit
run rate ARR increased to $18.7m (2021: $15.2m). On a constant currency basis exit
run rate ARR at 30 November 2022 would have been $20.0m.

The software and services gross profit margin has reduced by 4bps compared to the
prior year.  This decline was due to a difference in the revenue mix of the 24i 
business and investment made in additional resources for customer-onboarding.

The increase in exit run rate ARR provides enhanced revenue visibility as the Group
moves forward. In addition, we report a net customer revenue retention rate, based
on recurring revenue at constant currency, for the Group of 107% (2021: 117%). The
net revenue retention rate is calculated by reference to recurring revenue from 
existing customers, including upsells, less recurring revenue lost from customer
churn during the year. Whilst the retention rate is still above 100%, which is positive
as our customer subscriber base continues to grow, it is lower than the prior year
due to less upsell revenue from existing customers.**

**REVENUE AND ADJUSTED EBITDA **

|  | Revenue |  | Adjusted EBITDA | 
|  | **2022****$m** | 2021$m |  | **2022****$m** | 2021$m | 
| 24i | **19.1** | 17.8 |  | **0.7** | 1.2 | 
| Amino | **72.0** | 75.1 |  | **15.8** | 19.7 | 
| Central costs | **–** |                  –   |  | **(1.9)** | (2.5) | 
| **Total** | **91.1** | 92.9 | ** ** | **14.6** | 18.4 |

Adjusted EBITDA for the year ended 30 November 2022 was $14.6m (2021: $18.4m). 
Adjusted EBITDA is reconciled below, and is calculated as operating profit before
depreciation, interest, tax, amortisation, impairment of goodwill,  exceptional 
items and employee share-based payment charges. This is consistent with the way 
the financial performance of the Group is presented to the Board.  The Directors
believe that this provides a more meaningful comparison of how the business is managed
and measured on a day-to-day basis.

**24I SEGMENT **

|  | **2022****$m** | 2021$m | 
| Software & services | **19.1** | 17.4 | 
| Devices including integrated software | **–** | 0.4 | 
| Revenue | **19.1** | 17.8 | 
| Adjusted cost of sales | **(5.1)** | (3.8) | 
| Adjusted gross margin | **14.0** | 14.0 | 
| _Adjusted gross margin %_ | **_73%_** | _79%_ | 
|  | ** ** |  | 
| Adjusted operating costs | **(13.4)** | (12.8) | 
| Adjusted EBITDA | **0.7** | 1.2 | 
| _Adjusted EBITDA %_ | 3% | 7% | 
|  | ** ** |  | 
| Capitalised development costs | **5.8** | 5.8 |

Revenue in the 24i segment increased by 7% to $19.1m (2021: $17.8m).  This is due
to a shift in focus during the year towards driving recurring software revenue. 
This change has resulted in the growth of exit run rate ARR from $11.1m to $14.3m,
which represents 29% year-on-year growth (40% on a constant currency basis).  The
increased focus on exit run rate ARR aligns with the Group’s software-led strategy.

The gross profit margin for the 24i segment has reduced by 6% compared to the prior
year. This was, in part, due to the completion in 2021 of a significant high-margin
project.  In addition, gross profit margin for 2022 was impacted by investment made
in additional resources for customer-onboarding. We expect that the gross margin
will improve in 2023 as the 24i business increases in scale.

Furthermore, adjusted operating costs increased by $0.6m during the period. The 
majority of this increase results from the cost of running the Nordija business 
for a full year following the acquisition in May 2021. As a result, adjusted EBITDA
has reduced from $1.2m in 2021 to $0.7m in 2022.  Following the cost reduction actions
taken in February 2023 as outlined in the CEO report we expect EBITDA margin to 
improve in 2023.

**AMINO SEGMENT **

|  | **2022****$m** | 2021$m | 
| Software & services | **5.0** | 5.0 | 
| Devices including integrated software | **67.0** | 70.1 | 
| Revenue | **72.0** | 75.1 | 
| Adjusted cost of sales | **(44.1)** | (44.4) | 
| Adjusted gross margin | **27.9** | 30.7 | 
| _Adjusted gross margin %_ | **_39%_** | _41%_ | 
|  | ** ** |  | 
| Adjusted operating costs | **(12.1)** | (11.0) | 
| Adjusted EBITDA | **15.8** | 19.7 | 
| _Adjusted EBITDA %_ | **22%** | 26% | 
|  | ** ** |  | 
| Capitalised development costs | **2.0** | 2.3 |

Device revenues decreased by 4% during the year to $67.0m (2021: $70.1m). In the
first half, volumes shipped were negatively impacted by delays in the supply chain
caused by significantly increased lead times, lack of availability of components,
and scarcity of shipping capacity caused by the COVID-19 pandemic. In the second
half, the key driver behind the overall 4% decline in device revenues has come from
decreased order volumes as a result of global economic headwinds resulting in increased
interest rates which have led some customers to delay device orders as they seek
to temporarily reduce working capital and capital expenditure.

The Group has a core customer base in respect of device revenues, whereby repeat
orders are placed by the same customers over multiple financial years. Taking the
last three financial years, repeat orders from existing customers over that period
has accounted for 93% (2021: 94%) of total device revenue.

Management had forecast a decrease in device sales for FY23 due to shortened supply
chain lead times. Consequently, the assumptions used in the review of the carrying
value of Goodwill relating to the Amino business have been revised which reflect,
on a probability expected basis, negative impact of both the current macro-economic
uncertainty as well as a more conservative view of long-term performance and growth
rates of streaming devices. Following these revisions an impairment to the carrying
value of this goodwill of $12.5m has been recorded.

**CENTRAL COSTS **

|  | **2022****$m** | 2021$m | 
| Operating costs | **(1.9)** | (2.5) |

Central costs comprise the costs of the Board, including executive directors, as
well as costs associated with the Company’s listing on the London Stock Exchange.
The decrease of $0.6m during the year is primarily in respect of a reduction to 
bonuses.

**ADJUSTED EBITDA **

|  | **2022****$m** | 2021$m | 
| Revenue | **91.1** | 92.9 | 
| Adjusted cost of sales | **(49.1)** | (48.2) | 
| Adjusted gross margin | **42.0** | 44.7 | 
| _Adjusted gross margin %_ | **_46%_** | _48%_ | 
| Customer support and professional services | **(5.3)** | (6.0) | 
| Research and development | **(6.0)** | (5.0) | 
| SG&A | **(16.1)** | (15.3) | 
| **Total adjusted operating expenses** | **(27.4)** | (26.3) | 
| **Adjusted EBITDA** | **14.6** | 18.4 |

**RESEARCH & DEVELOPMENT COSTS**

The Group continues to invest in research and in the development of new products
and spent $13.8m on R&D activities (2021: $13.0m) of which $7.8m was capitalised(
2021: $8.0m).  

|  | **2022****$m** | **_% of revenue_** | 2021$m | _% of revenue_ | 
| Core engineering expenses | **12.2** | **_13%_** | 11.9 | _13%_ | 
| Product management | **0.7** | **_1%_** | 0.6 | _1%_ | 
| R&D senior management | **0.9** | **_1%_** | 0.5 | _1%_ | 
| Total research and development expenses | **13.8** | **_15%_** | 13.0 | _14%_ | 
| Capitalised development costs | **(7.8)** | **_ _** | (8.0) | _–_ | 
| **Net research and development costs** | **6.0** | **_ _** | 5.0 | _–_ |

Aferian Plc’s spend on core engineering activities has increased by $0.3m in the
year to $12.2m (2020: $11.9m). The increase of $0.3m reflects a combination of an
increased workforce and salary inflation, the latter being driven by the Group’s
continued investment in software development and related products.  Specifically,
the Group has invested in the products that have been driving ARR such as 24i’s 
video streaming platforms and Amino’s SaaS device management platform.

Selling, general and administrative (SGA) expenses have increased by 5% in the year
to $16.1m (2021: $15.3m). 

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

|  | **2022****$m** | 2021*$m | 
| **Adjusted EBITDA** | **14.6** | 18.4 | 
| Exceptional items: | ** ** |  | 
| ·          Within cost of sales | **0.0** | 0.2 | 
| ·          Within operating expenses | **(6.7)** | (1.7) | 
| ·          Impairment of goodwill | **(12.5)** | – | 
| Employee share-based payment charge | **(0.4)** | (1.1) | 
| Depreciation and amortisation | **(11.6)** | (10.6) | 
| **Operating profit** | **(16.6)** | 5.2 |

**EXCEPTIONAL ITEMS**

Exceptional items within cost of sales in 2022 comprised a $0.05m credit (2021: 
$0.2m credit) in respect of royalty costs recognised in prior years which have subsequently
been renegotiated.

Exceptional items included within operating expenses in 2022 comprised:

·      $5.2m (2021: $0.4m) one off costs relating to diligence costs in respect 
of the aborted material acquisition

·      $0.4m (2021: $0.6m) one-off costs in respect of acquisitions and legal costs;
and

·      $1.1m (2021: $0.3m) post-acquisition integrations and associated restructuring
costs

·      $12.5m (2021: $nil) goodwill impairment charge

**DEPRECIATION AND AMORTISATION**

Excluding amortisation of intangibles recognised on acquisition, depreciation and
amortisation was $7.0m (2021: $6.7m). 

Amortisation of intangibles recognised on acquisition was $4.6m (2021: $4.0m), which
represents an increase of $0.6m.  The increase of $0.6m in the year primarily relates
to the amortisation of the acquired intangibles from the Nordija acquisition during
the prior year and The Filter during the current year.

**TAXATION**

The tax charge of $0.5m (2021: $0.6m credit) comprised:

·    $2.0m (2021: $2.8m) current tax charge; offset by

·    $0.8m release (2021: $0.1m) of an uncertain tax provision held in respect of
the use of tax losses in the USA; and

·    $0.7m (2021: $3.4m) credit relating to the unwind of deferred tax assets and
liabilities recognised on acquisitions in the current and prior years.

Loss after tax was $17.4m (2021: $5.4m profit).

**CASH FLOW**

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

|  | **2022****$m** | 2021$m | 
| Adjusted operating cash flow before tax | **8.9** | 16.7 | 
| Post-acquisition remuneration in respect of the acquisition of 24i Unit Media BV | **–** | (1.3) | 
| Post-acquisition integration and associated restructuring costs | **(1.5)** | (0.3) | 
| Acquisition and one-off legal costs^(1) | **(1.0)** | (1.0) | 
| **Cash generated from operations before tax** | **6.4** | 14.1 |

Adjusted cash flow from operations was $8.9m (2021: $16.7m) and represented 61% 
of adjusted EBITDA (2021: 91%).  The reduction in adjusted cash flow from operations
and the conversion from adjusted EBITDA was due to a cash outflow from working capital
^(1) of $5.6m (2021: $2.4m cash outflow). Whilst the Group continues to generate
good operating cash flows, navigating the well-known supply chain issues in the 
year was challenging and resulted in an additional $6.7m investment in inventory
in the year to mitigate potential supply chain delays.

Exceptional cash flows in 2022 comprised one-off costs of $2.5m (2021: $2.6m) including
$1.0m (2021: $0.3m) post-acquisition integrations and associated restructuring costs,
and $1.0m one off costs associated with the aborted material acquisition paid by
the Group^(1). Including these exceptional cash outflows cash generated from operations
before tax was $6.4m (2021: $14.1m).

During the year the Group spent $0.2m (2021: $0.3m) on capital expenditure in respect
of tangible fixed assets and capitalised $7.8m (2021: $8.0m) of research and development
costs and software licenses. The acquisition of The Filter included initial cash
consideration of $1.5m. 

The Group paid dividends of $3.3m (2021: $3.1m) during the financial year, relating
to 2021 ($2.3m) and 2022 interim ($1.0m).

Notes 

| (1) | Cash outflow from working capital excludes the impact of a $4.1m increase in payables for the aborted acquisition costs to be settled in Q1 FY23.  |

The Group generated adjusted free cash outflow of $3.0m (2021: $3.8m cash inflow)
in the year and a reconciliation is provided below:

|  | **2022****$m** | 2021$m | 
| Adjusted operating cash flow before tax | **8.9** | 16.7 | 
| Corporation tax paid | **(2.4)** | (3.2) | 
| Purchases of intangible assets | **(7.6)** | (8.0) | 
| Purchase of property, plant and equipment | **(0.2)** | (0.3) | 
| Net interest paid | **(0.7)** | (0.1) | 
| Lease payments | **(1.1)** | (1.3) | 
| Adjusted free cash flow | **(3.0)** | 3.8 |

The decrease in the year of $6.8m can be attributable to the increase of $6.7m relating
to the investment in inventory in the year to mitigate potential supply chain delays,
that has been described above.

**FINANCIAL POSITION**

Aferian Plc had net cash of $4.0m at 30 November 2022 (2021: $14.2m). The Group 
has a banking facility with Barclays Bank plc, Silicon Valley Bank, and Bank of 
Ireland of which the Group had drawn $7.5m at 30 November 2022.  This facility of
$50m, split evenly across the new three bank club, also includes a further up to
$50m available by way of an accordion which is designated for M&A activity. The 
facility has a committed term to 23 December 2024 with options to extend by a further
one or two years. The facility includes financial covenants whereby the banking 
facility may be restricted as a result of not meeting certain financial metrics.

At 30 November 2022 the Group had equity of $78.9m (2021: $104.0m) and net current
liabilities of $1.4m (2021: net current assets of $9.2m).

Goodwill has reduced by $13.2m to $56.3m (2021: $69.5m), reflecting the $12.5m impairment
charge on Amino software and devices CGU (formerly Entone, Inc) together with foreign
exchange translation movements.  Management had forecast a decrease in device sales
for part of FY23 due to shortened supply chain lead times. Consequently, the assumptions
used in the review of the carrying value of Goodwill relating to the Amino business
have been revised, which reflect the expected, based on a probability expected basis,
negative impact of both the current macro-economic uncertainty as well as a more
conservative view of long-term performance and growth rates of streaming devices.

**GOING CONCERN**

These financial statements have been prepared on the going concern basis.  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 is set out in this document 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 cash flow forecast covering a period of 
at least 12 months from the date of approval of the financial statements. In addition,
they have prepared various sensitised analyses. These reflect a variety of possible
cash flow scenarios where the Group achieves further reduced revenues, reduction
in gross margins and combinations of both, together, if required, with the timely
deployment of cost containment and reduction measures that are aligned with the 
anticipated levels of performance. Overall, if the base case forecast is achieved,
the Group and parent company will be able to operate within its existing working
capital facilities. However, the recovery of the Amino division revenues, continued
growth in 24i division revenues and cash conversion expected in H2 2023 are key 
assumptions. Failure to achieve the base case view of forecast sales pipeline conversion
assumed in the base case forecast could result in the Group failing to comply with
financial covenants associated with its existing banking facility, potentially resulting
in the facilities being withdrawn.

We are currently in active discussions with the Group’s existing loan facility providers
to seek solutions in order to increase the safety headroom based on the current 
covenant definitions. Should those not be successful we may need to seek additional
funding through a placement of shares or other sources of funding which have not
yet been secured. The Group has a history of successfully negotiating covenant revision,
and raising financing.

Taking account of these matters, the Directors have concluded that the circumstances
set forth above indicates the existence of material uncertainty that may cast significant
doubt on the Group’s ability to continue as a going concern. However, given the 
Group’s current performance, the Directors have considered it is 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 were unable to
continue as a going concern.

 
**DIVIDEND**

In August 2022, the Company paid an interim dividend of 1.0 pence (1.26 US cents*)
per share in respect of the year ended 30 November 2022. The Board is not proposing
a final dividend (2021: 2.09 pence / 2.87 US cents*). This would represent a total
dividend for the year of 1.00 GBP pence (1.26 US cents) per share (2021: 3.09 pence/
4.26 US cents) and is 19% of adjusted earnings per share.

* Average FX rate for the year was £1 : $1.26 (2021: £1 : $1.38).

**Mark Carlisle**

Chief Financial Officer

15 May 2023**

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