COVID-19 Update and AGM Arrangements
21 April 2020
APTITUDE SOFTWARE GROUP plc
('Aptitude Software', 'Company' or 'Group')
COVID-19 Update and Annual General Meeting Arrangements
Since the release of the Group's 2019 Audited Preliminary Results on 11 March 2020 the restrictions implemented by governments around the world in response to the threat of COVID-19 have increased.
Aptitude Software's priorities are to safeguard the health and well-being of our employees, to continue to support our clients and to protect the long-term success of our business.
Aptitude Software's business continuity plans have been successfully implemented with the necessary technology and infrastructure already in place to rapidly facilitate home working for our employees. We are very pleased that all business functions, including support, development, implementation services, sales and finance, are being provided without disruption to our clients.
Liquidity, Business Model Strength and Sector Diversity
At this time of economic uncertainty caused by COVID-19 the Board is reassured that the Group is financially robust benefitting from a cash balance at 31 March 2020 of £31.2 million and no bank loans. Additionally, the Group is cash generative and profitable, reporting Adjusted Operating Profit in 2019 of £10.5 million. This financial strength should provide confidence to our clients, prospects, shareholders and employees.
Aptitude Software also benefits from its recurring revenue business model of annual licence and subscription fees as opposed to one-off initial or perpetual licences. These recurring revenues, representing over 50% of total revenue, are resilient given the nature of the Group's enterprise applications which are typically heavily integrated and central to clients' mission-critical long-term financial reporting processes, underpinned by minimum contractual terms of up to six years at inception. Furthermore, with implementation cycles of frequently over twelve months in duration, the Group has good visibility over its services revenue relating to existing client contracts for several months ahead.
In addition to the above strengths, Aptitude Software benefits from a diverse client base, across multiple geographies and industries. The Group has only minimal exposure to those industries which were immediately affected by COVID-19 such as travel, retail and leisure. The Group does have significant revenues across technology, media and telecommunications as well as banking and insurance.
Financial Impact in the First Quarter of 2020
COVID-19 did not impact the Group's financial performance in the first quarter ending 31 March 2020, with revenue and profit slightly ahead of the Board's expectations for the period. The Group's Annual Recurring Revenue at 31 March 2020 increased to £30.3 million (31 December 2019: £28.6 million) as a result of new licence sales signed in the first quarter and some benefit from the strengthening of Sterling vs. US Dollar since the year end. Consulting utilisation also remained high in the first quarter with all projects continuing to progress and consultants operating remotely and charging their time whilst working on clients' implementations.
Future Impact of COVID-19
With no clear timescale for a return to more normal business activity the impact to Aptitude Software of the economic uncertainty caused by COVID-19 is difficult to gauge with any certainty at this early stage.
In recent days the Group has seen sales cycles lengthening with a number of its insurance prospects as organisations focus on new short-term priorities arising from COVID-19. This has been made more possible for insurers with the now-confirmed delay to the introduction of IFRS 17 (which will now become effective for accounting periods commencing 1 January 2023). While the Group has not encountered any material delays with prospects in other sectors, the Board anticipates lengthening sales cycles at least until such time as the impact from COVID-19 is clearer.
All client implementations are continuing successfully, although a small number of clients have chosen to adjust the current rate of their services expenditure to allow them to deal with other priorities whilst maintaining progress. It is expected that these projects will be extended further into 2021 as a result.
The Group continues to closely monitor developments across its client base and prospects through its various engagement teams and partners.
Cost Mitigation / Investment
The Group has already taken several actions to protect the business, including the deferral of the Group's 2020 pay rises, pausing the hiring of non-essential recruits and the delay of other initiatives. Furthermore, the Group's significant travel costs are expected to be materially reduced in the short to medium term, if not for the longer term given the change in behaviours through the increased use of technology expected post the COVID-19 crisis. No further action is planned to mitigate costs until the medium-term impact of COVID-19 is better understood.
Despite the challenges of COVID-19 the Group remains confident in its long-term strategy, a strategy focused on digital finance transformation and smart compliance. To ensure that the expected return of demand is fully realised it is essential that the Group continues with its investment in the areas identified in its January 2020 announcement. The phasing of these investments will be carefully considered as the impact on the Group of the COVID-19 crisis becomes clearer.
A scenario testing exercise has been performed for the three years 2020, 2021 and 2022, with several different sets of assumptions modelled including some more pessimistic than current indications may suggest. In all scenarios Aptitude Software remains comfortably profitable and cash generative in the years under review, although below the Board's earlier expectations.
Financial performance in 2020 is not expected to be materially impacted due to the long-range visibility over services revenue from existing clients and the benefits of the Group's recurring revenue business model. The modelled continued lengthening of sales cycles in 2020 is, however, expected to have a more significant impact on 2021 services revenue due to the time lag between the signing of new business contracts and the resulting projects reaching peak levels of activity. Profitability is expected to return towards earlier expectations in 2022 on the assumption that a more normal business environment has returned in 2021.
Summary and Dividend
Despite the challenges presented by COVID-19 the Board remains confident about the prospects of the Group. Aptitude Software has excellent liquidity and a strong business model with its recurring revenues and clients across several different geographies and industries. Additionally, in the years expected to be impacted by COVID-19 the Group currently expects to remain comfortably profitable and cash generative. Given these strengths the Board continues to recommend a final dividend for 2019 of 3.6 pence per ordinary share.
Finally, the Board wishes to thank its employees in these difficult and unprecedented times both for their outstanding commitment and the excellent support and dedication they are providing to the business and to our clients whilst working remotely and supporting their families.
Annual General Meeting Arrangements in Light of COVID-19
Aptitude Software's Annual General Meeting ('AGM') is due to be held on Tuesday 28 April 2020 at 10.00 a.m. To ensure compliance with the UK Government's compulsory social distancing measures and prohibition on public gatherings, the Board has taken the decision to move the location of the AGM to 90 Milton Road, Cambridge CB4 1LA. The AGM will take place at the same time and on the same day as previously notified to shareholders in the Notice of Annual General Meeting 2020 dated 12 March 2020 ('Notice of AGM').
In order to ensure the health and safety of shareholders and Aptitude Software employees, shareholders should note that the AGM will focus only on the formal business of the AGM as published in the Notice of AGM. The UK Government's measures and guidance prohibit public gatherings of more than two people, unless these are essential for work purposes or those people live in the same household. Therefore, to comply with these measures and to reduce the transmission of COVID-19 shareholders are specifically instructed not to attend the AGM in person this year, as attendees will be restricted to those forming the quorum for the meeting. No additional shareholders will be admitted. We thank our shareholders in advance for their co-operation and understanding of this situation.
The Board urges all shareholders to appoint the Chairman of the AGM as their proxy to attend the meeting and vote on their behalf. Shareholders may register the appointment of a proxy for the AGM electronically via the website of Link Asset Services, the Company's Registrars, at www.signalshares.com. Further information on submitting proxies can also be found in the Notice of Annual General Meeting 2020. Please note the deadline for the receipt of proxies by our Registrar, Link Asset Services, is 10:00 am on Friday 24 April 2020.
Aptitude Software Group plc
Ivan Martin, Chairman 020-7496-8196
Philip Wood, Deputy Chief Executive Officer and Chief Financial Officer
Caroline Forde, Hilary Buchanan, Sam Modlin 020-3405-0212
About Aptitude Software
Aptitude Software's innovative solutions address the growing trend for digital finance transformation complemented by regulatory-focused applications. Our various products take data from complex systems, typically with multiple siloed data sources across multiple business entities, to create a unified view of finance. This allows our clients to reap significant benefits including business insights, enhanced control and regulatory compliance.
Our clients include some of the world's largest companies, typically organisations with complex financial data and technology landscapes. Development, together with a growing number of other services, continues to be performed at the Aptitude Innovation Centre in Poland with sales, support and implementation services provided from Aptitude Software's London headquarters and the North American and Singaporean regional businesses.
Aptitude Software has six office locations around the world, with clients across four continents.
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