REG - Software Circle PLC - Pre-close Statement and Trading Update

Software CircleAnnouncement

30/04/2024 07:00

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RNS Number : 4931M  Software Circle PLC  30 April 2024

Prior to publication, the information contained within this announcement was
deemed by the Company to constitute inside information as stipulated under the
UK Market Abuse Regulation. With the publication of this announcement, this
information is now considered to be in the public domain.

 

30 April 2024

 

Software Circle plc

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

 

Pre-close statement and Trading Update

 

Software Circle plc (AIM: SFT) announces the following pre-close statement and
trading update for the year ended 31 March 2024 ("FY24").

 

Financial highlights

                                   Unaudited

FY 2024

                                              FY 2023
 Continuing operations      6                 5

 Operating Units
 Revenue                    £16.1m            £11.7m
 Operating EBITDA(1)        £2.8m             £1.3m
 Central Costs(2)           £(1.1)m           £(0.9)m
 Adj EBITDA(3)              £1.7m             £0.4m
 Exceptional Items          £(2.4)m           £(0.8)m
 Cash and Cash Equivalents  £15.8m            £2.0m
 Net Cash / (Debt)          £7.2m             £(16.7)m

 

(1.      ) EBITDA of operating units before central costs, exceptional
items, excluding impact of R&D capitalisation.

(2.      ) Central costs include our Executive and Non-Executive teams,
other central salaries, audit fees, other advisor fees, bond fees, AGM costs,
excludes non-recurring transaction costs and one-off bonuses related to
M&A.

(3.      ) Operating EBITDA less Central Costs.

 

It has been another year of progress and growth despite some unpleasant
headwinds from our discontinued operations that are now firmly in our
rear-view mirror.

 

This has not shifted our focus away from driving forward with the strategy to
become a serial acquirer of vertical market software businesses. Neither
should it mask the underlying strength and improvements in our continuing
operations.

 

Since releasing our half year results on 27 November 2023, we have continued
to develop the culture and framework that allows our business units to grow
their earning power, providing support and adding value where needed, whilst
maintaining their inherent entrepreneurial spirit.

 

Having added ARC Technology ("ARC"), our most recent acquisition and the first
within our Ed Tech segment, Software Circle is now home to a stable of six
software business units. Four of those businesses were acquired during the
latter stages of the Financial Year ended 31 March 2023 and have contributed
fully to FY24. The impact of acquiring ARC will be minimal in FY24 having only
been concluded during February 2024.

 

Our Current Portfolio:

 

 Business        Segment                   Date       Unaudited Group Sales FY 2024  Group Sales FY 2023

Unit
Acquired
 Nettl Systems   Graphics & Ecommerce      n/a        £8.3m                          £9.5m
 Vertical Plus   Graphics & Ecommerce      01/10/22   £2.1m                          £1.0m
 Watermark       Professional Services     07/12/22   £1.4m                          £0.4m
 CareDocs        Healthcare                18/01/23   £2.6m                          £0.6m
 TopFloor        Property                  17/02/23   £1.6m                          £0.2m
 ARC Technology  Education                 21/02/24   £0.1m                          n/a
                                           Total      £16.1m                         £11.7m

 

Focussing on our operating units, we've grown again versus the previous year.
We expect to end the full year with sales in excess of £16.1m (2023:
£11.7m). An increase of 38%.

 

Approximately £7.8m (2023: £2.2m) of total sales were generated by the five
acquired businesses as detailed in the above table. Whilst we use several
metrics to help improve and measure success within our portfolio, our Quality
Ratio, calculated as year-on-year Revenue Growth % + EBITDA %, is a useful
barometer. By that measure, we expect our portfolio of acquired business units
which have contributed for a full year to collectively be at 40%.

 

In the year ended 31 March 2024, we expect the aggregate topline growth across
the four acquired business units (excluding ARC) to have been seven per cent.
Together with improved earning power, we expect these businesses to have
delivered an aggregate 17% improvement on EBITDA compared with that which
drove our valuation expectations at the time of acquisition.

 

Approximately £8.3m (2023: £9.5m) of total sales came from our Nettl Systems
business within our Graphics & Ecommerce segment. This decrease of £1.2m
in revenue has dented our topline run rate expectation. The downturn was
driven by the impact of Works Manchester Limited's ("WML") administration
during the year, along with the wider macro-economic environment remaining
uncertain throughout. Some bad debt provisions accumulated from previous years
further impacted Nettl's profitability for the financial year.

 

Overall, we expect our operating businesses collectively to generate a
positive operating EBITDA of £2.8m (2023: £1.3m) before the effect of
R&D capitalisation. This represents a 17% EBITDA margin at the operating
level.

 

We expect the Group's central costs to be £1.1m (2023: £0.9m), excluding the
associated non-recurring deal costs and one-off bonuses involved in the
acquisitions to date of £0.3m (2023: 0.4m).

 

Therefore, we expect to deliver adjusted EBITDA of £1.7m and an adjusted
EBITDA margin after central costs of 11% before exceptional items and the
effect of R&D capitalisation. This is within the range of our 'phase 1'
stated EBITDA goal.

 

Exceptional items

We reported in the Company's interim results on 27 November 2023 that, due to
our reduced confidence of receiving payment of any deferred consideration from
Rymack Sign Solutions Limited ("Rymack") in relation to the sale of WML, the
carrying value of the total receivable of £2.8m due under the sale and
purchase agreement had been reduced by a further £1.4m to £0.4m.

 

As announced in our update on 2 April 2024, the remaining deferred
consideration was written down which, together with outstanding charges due
from WML, and net of trading balances due to Rymack's group that the Company
has set off, resulted in a further charge of £0.2m.

 

In addition to this, as a consequence of WML's administrator vacating the hub
in Trafford Park, the Company, as a guarantor of the lease, became liable for
unpaid rent arrears, ongoing rent for the remainder of the lease term and
dilapidations. The Company agreed a full and final settlement of this
liability with the landlord for £0.6m. This was paid during April 2024 and is
included as a liability in the FY24.

 

The above, combined with some additional costs on liquidating our operating
entity in France, means we expect exceptional items for FY24 to total £2.4m.

 

The sale of the printing.com domain for £1.8m, also announced on 2 April
2024, will be recognised in the upcoming financial year ending 31 March 2025
and therefore is not included in the £15.8m of Cash and Cash Equivalents
listed in the financial highlights.

 

Outlook

We're cautiously optimistic about the upcoming financial year. With the
acquisition of ARC and the organic growth we've driven, we expect annualised
sales from our current operating units to be approximately £17m excluding any
deals currently in the latter stages of due diligence. With an improved EBITDA
run rate goal of 12-15% of sales, after central costs.

 

We continue the search for businesses that meet our criteria. Were we to
deploy the remaining capital from our latest fundraise, which is our aim,
assuming a similar profile of businesses coming into the Group, we'd expect
annualised sales to reach approximately £25m with an EBITDA run rate goal of
15-20% of sales, after central costs.

 

Our current deal flow remains healthy. We will update the market with more
detailed progress when releasing our final results for the last financial
year. The Company intends to announce its full year results for the year ended
31 March 2024 in July 2024.

 

For further information:

Software Circle plc

Gavin Cockerill (CEO)
                                         07968 510 662

 

Allenby Capital Limited (Nominated Adviser and Broker)

David Hart / Piers Shimwell (Corporate Finance)
                                     0203
328 5656

Stefano Aquilino / Joscelin Pinnington (Sales and Corporate Broking)

 

Notes to editors:

Software Circle plc is a UK based acquirer of vertical market software
businesses. Our aim is to help founders find the right exit strategy, without
fuss or drama. Continuing operations in an independent, decentralised way.
Keeping the entrepreneurial spirit and culture that exists in the businesses
we acquire. Providing a permanent home for their teams, management talent and
culture.

 

For further information, please visit www.softwarecircle.com
(http://www.softwarecircle.com)

 

 

 

 

 

 

 

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