By Elric Langton | 1 September 2023
I have a financial interest in Aferian.
Aferian’s trading update for December 2023 starkly contrasts its earlier buoyant June announcement of resilient H1 2023 results, unveiling a reality that isn’t just disappointing but rather starkly disheartening. The initial optimism, underscored by a 17% year-on-year growth in high-margin software and services revenue to $14 million and a robust 16% increase in recurring revenue, now seems like a distant memory. As detailed in the recent update, the reality presents a bleaker outlook, with revenue and adjusted EBITDA expected to scrape the bottom of the forecast range at approximately $47-48 million and $1.6-2.6 million, respectively.
Today’s profit warning, essentially a gut punch for stakeholders, underlines the ongoing struggles within its Amino business unit. The unit, pivotal to Aferian’s operations, faces “further deterioration” due to significantly delayed customer purchasing decisions—a dire predicament that has necessitated another round of cost-cutting measures, with an additional $3 million to be slashed annually. This is a drastic step back from the company’s earlier assertions of resilience and points to more profound, perhaps systemic, issues within the segment.
Moreover, the financial structure seems increasingly precarious. While the net debt showed a considerable reduction from $12.9 million in May to $6.1 million by November end, it bounced back distressingly to $12.3 million by March 2024, revealing a troubling volatility in its financial obligations. The move to extend the maturity of a reduced banking facility from $25.4 million to $16.5 million, which is also up for renegotiation by November 2024, indicates a scrambling for financial stability rather than strategic foresight.
Chairman Mark Wells’ remarks on the company’s foundational strength and the progress made by the 24i video streaming business this quarter might strike a hopeful note. Still, they ring somewhat hollow against the backdrop of the Amino unit’s failures. It is clear that while some parts of Aferian may be adapting and even prospering, others are floundering, with the potential to drag the rest of the company down with them. This update, far from inspiring, suggests a company desperately playing catch-up with its own earlier optimism, now facing the reality of its operational and strategic challenges.
The financial situation of the Group as of 31 March 2024 indicates several risks and challenges that could affect its status as a going concern: