The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK Market Abuse Regulation. With the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

27 November 2023

Software Circle plc

 ("Software Circle", "the Group" or "the Company")

Unaudited Interim Results for the period ended 30 September 2023

Financial highlights

¹  Earnings before interest, tax, depreciation and amortisation

²  EBITDA before R&D capitalisation

Operational highlights

?              Fundraise of £23.4m completed to drive our acquisition strategy

?              Revenue increased by £3.28m, a 66% increase         

?              Positive adj EBITDA of £1.01m, 12% of revenue

?              Newly acquired businesses fully onboarded

?              12% organic growth achieved across our acquisitions

For further information:

Software Circle plc           

Gavin Cockerill (CEO)                                                                                        07968 510 662

Allenby Capital Limited (Nominated Adviser and broker)                          0203 328 5656

David Hart / Piers Shimwell (Corporate Finance)        

Stefano Aquilino / Joscelin Pinnington (Sales and Corporate Broking)  

Interim Statement

Our first Interim report as Software Circle plc shows that we have made further progress. As we announced on 17 October 2023, we've changed the name of the Group to better reflect who we are today and who we want to become. You can read more about that and see our new look on the website www.softwarecircle.com. We kept the logo similar, so it's easier to change our Grafenia tattoos.

Currently we are home to a stable of five software business units across multiple sectors (including Nettl Systems). Our portfolio of businesses operate within the following sectors: Graphics and Ecommerce, Finance, Property and Care Management. Four of these were acquired during the latter stages of the previous financial year. Having been successfully onboarded, we are now seeing the benefits as they contribute to profitability. We thank all of our teams for their continued efforts and hard work.

Our aspiration is to become serial acquirers of Vertical Market Software businesses. To that end, we still have much work to do. Though we have most definitely achieved 'Phase 1' success and we are looking forward to what's to come.

For the year so far, our focus has been on onboarding our newly acquired businesses and welcoming the talented people that run them. Helping to implement the business systems and processes that we think can drive organic growth in each of our operating units. Benchmarking key performance metrics, providing focus, structure and know-how around operational best practice. We're seeing some encouraging results from that activity.

In addition, we've been preparing the business to scale. As we look to bring further acquisitions into the group, it's vital that we can operate with the same efficiency and effectiveness as we do now. Our focus for 'Phase 2'.

Trading Results and Cash from Continuing Operations

With our newly acquired businesses contributing in full for the interim period, revenue from continuing operations rose to £8.25m (2022: £4.97m) an increase of 66%.

Gross profit rose to £5.07m (2022: £2.02m) and our gross margin percentage increased to 61.4% (2022: 40.7%). As the profile of our business changes, so do our profit margins. More of our revenue now comes from recurring revenues for licence fees and services. As this continues to grow, the lower margin product-led revenues become a smaller part of the overall group. We would therefore expect the trend towards increasing gross margin percentage to continue as we acquire more Vertical Market Software businesses.

As a result of the four acquisitions made, our total operating costs increased, with staff costs of £2.46m (2022: £1.18m) and total other operating charges increasing to £0.94m (2022: £0.85m). Those additional costs came with additional revenues. Therefore, our EBITDA increased to a profit of £1.61m (2022: loss £0.05m). Our operating loss from continuing operations of £0.17m (2022: loss of £0.49m) is impacted by £1.65m (2022: £0.33m) of non-cash amortisation charges on intangible assets, the increase being driven by our acquisitions. Profitability has been further impacted by an impairment of £1.42m against the amount receivable from Rymack Sign Solutions Limited following the sale of Works Manchester Limited in May 2022. Despite ongoing discussions, in the absence of a resolution to date, confidence in receiving payment in full has been further reduced. This has led to a pre-tax loss of £1.88m (2022: £0.54m).

At 30 September 2023, the Company had cash of £18.71m (2022: £5.01m) and debt of £12.05m (2022: £8.29m). The increase in cash and reduction in debt from 31 March balances of £1.99m cash and £18.72m debt follows the issue of additional share capital in September, raising £23.15m after issue costs. £6.61m was subsequently used to repurchase certain of the Company's bonds with a nominal value of £7.50m, including the accrued interest.

Our operating activities generated £1.19m of cash (2022: utilised £0.29m) as our newly acquired business units contributed for the full interim period.

Capital expenditure was £0.60m (2022: £0.18m). Almost all of this amount was invested in the ongoing development of our platforms which underpin operations and ongoing revenue streams across our business units.

Trading Review

£3.75m of revenue was generated by our four acquisitions and collectively, they are growing organically and tracking ahead of valuation expectations. On current trajectory, overall EBITDA would be 15% ahead of our valuation expectations, increasing the return on capital employed from 16% to 19%, including deal costs.

Those improvements have been driven by increased topline performance and efficiencies through the addition of business processes and systems, leading to a reduced cost base. We've improved the sales performance of most of our business units versus like-for-like performance last year. Organic growth across our four acquisitions was 12% versus the same period in the previous year.  The highest being 16% the lowest being 6%.

Non recurring revenues from our Graphics and Ecommerce division, have however been affected by a reduction in business confidence. £4.50m (2022: £4.97m) of total revenue was generated by our Nettl Systems business. A 9.5% decrease of £0.47m. The nature of the product revenue that the platform generates makes it more susceptible to the macroeconomic environment. The drop in revenue has been driven primarily by a downturn in products our partners buy at wholesale prices - like signage, printing and promo goods. Sales of outdoor event materials during June - August, were particularly hard hit.

However, the reduction in product revenue through the platform today, given the sale of Works Manchester, has a lesser impact on Nettl System's overall profitability, when compared to prior periods. Recurring licence fees and subscription revenue for the Nettl systems platform and services like SEO, Websites, Hosting and Social Media remain in line with expectations.

As a group we continue to drive an increase in revenues that are recurring in nature, now contributing 60% of the Group's total revenue. The vast majority of revenue streams in businesses we look to acquire are recurring and therefore, as we add more to the Group, that percentage is likely to increase further. 

Outlook

Although the dip in revenue from our Nettl Systems business slightly dents our revenue run-rate, overall, trading and profitability remains in line with management expectations.

Our search for vertical market software businesses continues as we look to quickly, but effectively, deploy the funds from our recent fundraise on acquisitions that meet our criteria. In that regard, our deal flow continues to look healthy. We currently are in exclusive discussions with acquisition targets with a collective turnover of approximately £3.6m and an adjusted EBITDA of £1.2m. These are progressing through the due diligence process. We will continue to update the market as our acquisition strategy progresses.

Jan Mohr                                               Gavin Cockerill

Chairman                                              Chief Executive Officer

27 November 2023