REG - Aferian PLC - Additional funding secured and trading update

AferianAnnouncement

31/05/2023 07:00

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RNS Number : 1441B  Aferian PLC  31 May 2023

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated by the Market Abuse Regulation
(EU) No.596/2014, as it forms part of UK law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"). Upon the publication of this announcement, this
inside information is now considered to be in the public domain.

31 May 2023

Aferian plc

 

("Aferian", the "Company" or the "Group")

 

Additional funding secured and trading update

 

Aferian plc (LSE AIM: AFRN), the B2B video streaming solutions company, today
announces that it has secured additional cash funding by way of a shareholder
loan facility of up to £3.25 million from its largest shareholder, Kestrel
Partners LLP. The securing of this shareholder loan provides additional
headroom in respect of the covenants in the Group's existing bank facility.

Donald McGarva, CEO of Aferian plc, commented:

"This additional cash funding puts the Group in a stronger financial position
and gives us adequate headroom over our covenants. The Board remains confident
in the long-term prospects of the Group. The management team and I can now
continue to focus on delivering value to both shareholders and our customers
in the fast-growing video streaming market, which is rapidly becoming the most
popular way to consume video."

 

Current trading and outlook

Trading remains broadly in line with the trading and outlook communicated in
our full year results announcement on 16 May 2023. Aferian's position in the
fast-growing video streaming market gives the Board confidence in the
long-term prospects for the Group.

 

Demand for 24i's streaming video solutions remains strong and management
expect to report growth in the first half of the current financial year. The
management team are focussed on accelerating profitability in the second half
of the year.

 

For the Amino division, as previously announced, the impact of the wider
macro-economic situation has continued for longer than expected. Management
continues to have confidence in Amino's strong medium-term sales pipeline. As
previously announced, the division's full year revenue is expected to be
significantly lower than the prior year.

 

Actions previously communicated to deliver significant efficiencies in the
Group's cost base during the first quarter of 2023 have delivered results. To
further improve the cash generation of the Group in the second half of the
current financial year, management will take additional action to reduce the
cost base of the Amino division, whilst preserving its ability to grow when
the market for streaming devices normalises. This is anticipated to generate
cost-savings in the current financial year of circa $1.3 million and
annualised cost-savings of circa $3 million, an element of which will include
capitalised research and development costs.

 

Net debt, covenants and Shareholder Loan

 

As announced on 16 May 2023, following the investment made in inventory within
the Amino business and Amino's lower than expected sales, the Group is in a
net debt position.

 

Since March 2023 the Group has remained in active discussions with its senior
loan facility providers to seek solutions in order to increase forecast
headroom over its senior loan facility covenants. Failure to comply with
financial covenants associated with the Group's existing senior loan
facilities could potentially result in the facilities being withdrawn.

 

Today, Aferian has secured a shareholder loan facility of up to £3.25 million
arranged by its largest shareholder, Kestrel Partners LLP ("Kestrel")
("Shareholder Loan"). This funding will provide additional headroom based on
the covenant definitions of the Group's existing senior loan facilities.

 

Additionally, the Group has agreed with its existing loan facility providers
to:

 ·               exclude finance charges and debt arising from the Shareholder Loan from the
                 calculation of covenants; and
 ·               reduce the total available loan facility from $50 million to $25.4 million.

 

The Group is subject to a monthly minimum liquidity and quarterly Interest
Cover, Fixed Charge Cover Ratio and Gross Leverage financial covenants.  The
quarterly covenants are tested at the end of May, August, November and
February. The Group is also subject to an annual limitation on certain capital
expenditure.

 

Whilst in advance of securing the Shareholder Loan the Group remained in
compliance with its senior loan facilities covenants, as stated in the Group's
final results announcement for the year ended 30 November 2022, management's
sensitised forecasts indicated that there was a risk that the Group might
breach its covenants at future test dates. The securing of the Shareholder
Loan provides additional headroom over the senior loan facilities covenants.

 

In addition, as part of the discussions with the Group's senior loan facility
providers, the senior loan facility providers had considered that an
independent business review ("IBR") might have been required, the substantial
cost of which would have been met by Aferian. The Directors believe this would
have been a material distraction for management. Having secured this
additional funding, discussions regarding the need for an IBR have now ceased
with the Group's existing loan facility providers, freeing up management time
to focus on the actions required to improve business performance.

 

The Group has today drawn £1.125 million of the Shareholder Loan. The Group
has the option, until 31 July 2023, to draw the remaining £2.125 million. Net
debt as at 31 May 2023 is expected to be circa $13 million and is expected to
reduce over the remainder of the financial year as inventory levels reduce.

 

It is the Board's intention to seek alternative funding to replace the
un-drawn element of the Shareholder Loan before 31 July 2023.

 

Terms of the Shareholder Loan

 

Certain funds managed by Kestrel (together the "Lenders") have provided an
unsecured term loan facility of up to £3.25 million. Amounts drawn under this
facility (including accrued interest) are (if not prepaid) repayable on 31
March 2025, unless extended at the Company's option to 31 March 2026 and 31
March 2027.

 

The main terms of the Shareholder Loan are as follows:

 ·               an arrangement fee of 2.0 per cent. of the value of the Shareholder Loan;
 ·               unsecured and subordinated to all indebtedness with the Group's existing
                 senior loan facility lenders;
 ·               10.0 per cent. annual coupon, with interest rolling up on a quarterly basis,
                 paid in kind;
 ·               pre-payable at the Company's option at any time, subject to a make-whole
                 payment to the Lenders;
 ·               further utilisations are subject to limited customary finance facility
                 draw-down conditions precedent (including the ability to issue the related
                 Warrants (as defined below)); and
 ·               four warrants issued for every £1.00 of Shareholder Loan drawn. Warrants are
                 over new ordinary shares of 1p each ("Ordinary Shares"), are exercisable and
                 transferrable after 18 months, have a 10-year duration and a strike price of
                 17p per Ordinary Share (the "Warrants").

 

The dilutive impact of the Warrants issuable to the Lenders, should the
Shareholder Loan be fully drawn, would be to increase Aferian's issued share
capital by 13 million new Ordinary Shares, representing approximately 15 per
cent. of Aferian's current issued share capital. Following today's drawing of
£1.125 million of the Shareholder Loan, Warrants over 4.5 million Ordinary
Shares are issuable to the Lenders, representing approximately 5.2 per cent.
of Aferian's issued share capital. Full exercise of the Warrants over 4.5
million Ordinary Shares issuable in connection with today's drawing of the
Shareholder Loan would result in cash proceeds of £765,000 payable to Aferian
and full exercise of all Warrants issuable in connection with the Shareholder
Loan if it were fully drawn would result in cash proceeds of £2.21 million
payable to Aferian.

 

Kestrel (who acts as agent for the Lenders under the Shareholder Loan) has
confirmed to the Company that it has no current intention of exercising any of
the Warrants in circumstances that would give rise to an obligation to make a
mandatory offer for the Company under Rule 9 of the City Code on Takeovers and
Mergers ("Takeover Code").

 

The Shareholder Loan is not subject to any financial covenants though the
Lenders' consent will be required in the event that during the life of the
Shareholder Loan Aferian wishes to:

 ·               pay any dividends; or
 ·               make any acquisitions; or
 ·               dispose of material parts of the Group's business;
 ·               enter into any additional loan facilities;
 ·               undertake any restructuring of the Group that would materially and adversely
                 affect the interests of the Lenders; or
 ·               enter into a related party transaction to which Rule 13 of the AIM Rules for
                 Companies applies

 

The Board has not made any decision on dividends payable for the current
financial year, although any decision to pay a dividend would require the
consent of Kestrel.

 

Relationship Agreement

 

Today the Group entered into a relationship agreement with Kestrel. The key
terms of this agreement are as follows:

 ·               Kestrel has the right to nominate one person for appointment as a director of
                 the Company providing that Kestrel (together with its individual partners and
                 their affiliates), indirectly or directly, holds no less than 20 per cent, of
                 the voting rights of the Company;
 ·               all transactions, agreements or arrangements entered into between a member of
                 the Group and Kestrel and/or any of its associates will be conducted at arm's
                 length and on arm's length commercial terms;
 ·               Kestrel shall exercise its voting rights to procure, so far as it is able to
                 do so by the exercise of such rights, that directors independent of Kestrel
                 shall at all times constitute a majority of the Aferian board;
 ·               Kestrel and its associates will not propose any resolution or other action to
                 cancel the trading of the Company's shares from trading on AIM without the
                 Board's approval; and
 ·               Kestrel and its associates will not undertake any action to obtain or
                 consolidate control of the Company or seek to do so, otherwise than in
                 accordance with the Takeover Code.

 

 

Related Party Transactions

 

The Shareholder Loan constitutes a related party transaction under the AIM
Rules for Companies by virtue of Kestrel being a substantial shareholder in
the Company and Max Royde, Non-Executive Director of the Company, being a
managing partner of Kestrel. The Directors (excluding Max Royde) consider,
having consulted with Investec, the Company's nominated adviser, that the
terms of the transaction are fair and reasonable in so far as shareholders are
concerned.

 

The person responsible for the release of this announcement on behalf of the
Company for the purposes of MAR is Mark Carlisle.

For further information please contact:

 

 Aferian plc                                                         +44 (0)1223 598197
 Donald McGarva, Chief Executive Officer
 Mark Carlisle, Chief Financial Officer

 Investec plc (NOMAD and Broker)                                     +44 (0)20 7597 5970
 David Anderson / Patrick Robb / Nick Prowting / Cameron MacRitchie

 FTI Consulting LLP (Financial communications)                       +44 (0)20 3727 1000
 Matt Dixon / Emma Hall / Tom Blundell

 

Important information

Certain statements, statistics and projections in this announcement are or may
be forward looking. By their nature, forward‑looking statements involve a
number of risks, uncertainties or assumptions that may or may not occur and
actual results or events may differ materially from those expressed or implied
by the forward-looking statements. Accordingly, no assurance can be given that
any particular expectation will be met and reliance should not be placed on
any forward-looking statement. Accordingly, forward-looking statements
contained in this announcement regarding past trends or activities should not
be taken as representation that such trends or activities will continue in the
future. You should not place undue reliance on forward-looking statements,
which are based on the knowledge and information available only at the date of
this announcement's preparation.

Investec Bank plc ("Investec"), which is authorised in the United Kingdom by
the Prudential Regulation Authority ("PRA") and regulated in the UK by the
Financial Conduct Authority ("FCA") and the PRA, is acting exclusively for the
Company and no one else in connection with the subject matter of this
announcement and shall not be responsible to anyone other than the Company for
providing the protections afforded to clients of Investec, nor for providing
advice in connection with any matter referred to herein. Neither Investec nor
any of its affiliates (nor any of its or their respective directors, officers,
employees, representatives or agents) owes or accepts any duty, liability or
responsibility whatsoever (whether direct, indirect, consequential, whether in
contract, in tort, under statute or otherwise) to any person who is not a
client of Investec in connection with this announcement, any statement
contained herein or otherwise.

 

About Aferian plc

 

Aferian plc (AIM: AFRN) is a B2B video streaming solutions company. Our
end-to-end solutions bring live and on-demand video to every kind of screen.
We create the forward-thinking solutions that our customers need to drive
subscriber engagement, audience satisfaction, and revenue growth.

 

It is our belief that successful media companies and services will be those
that are most consumer-centric, data driven and flexible to change. We focus
on innovating technologies that enable our customers to stay ahead of evolving
viewer demand by providing smarter, more cost-effective ways of delivering
end-to-end modern TV and video experiences to consumers. By anticipating
technological and behavioural audience trends, our software solutions empower
our customers to heighten viewer enjoyment, drive growth in audience share and
ultimately their profitability.

 

Aferian plc has two operating companies: 24i, which focusses on streaming
video experiences, and Amino, which connects Pay TV to streaming services. Our
two complementary companies combine their products and services to create
solutions which ensure that people can consume TV and video how and when they
want it. Our solutions deliver modern TV and video experiences every day to
millions of viewers globally, via our growing global customer base of over 500
service providers.

 

Aferian plc is traded on the London Stock Exchange's AIM stock market (AIM:
symbol AFRN). Headquartered in Cambridge, UK, the Company has over 350 staff
located in 11 offices, including in such major European cities as Amsterdam,
Helsinki, Copenhagen and Brno, as well as in San Francisco and Hong Kong.

 

For more information, please visit www.aferian.com (http://www.aferian.com/)

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