REG - Software Circle PLC - Interim Results
05/12/2024 07:00
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RNS Number : 8785O Software Circle PLC 05 December 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.
5 December 2024
Software Circle plc
("Software Circle", the "Company" or the "Group")
Unaudited Interim Results for the period ended 30 September 2024
Financial highlights
Six months to Six months to
30 September 30 September
2024 2023
£8.9m £8.2m
Revenue
Operating EBITDA(1) £2.3m £1.5m
aEBITDA(2) £1.5m £1.0m
Cash flow from operations £1.5m £1.2m
Operating Cash Flow Per Share(3) 0.2p 0.5p
Cash and Cash Equivalents £12.7m £18.7m
Net Cash £2.4m £6.7m
EPS 0.3p (1.3)p
(1) Earnings before interest, tax, depreciation and amortisation (EBITDA)
before impairments, exceptional costs, acquisition related costs, central
group administration costs and the capitalisation of qualifying development
costs
(2) Operating EBITDA less central group administration costs
(3 ) Cash flow from operating activities and other investing activities
divided by the weighted average number of shares
Full definitions and basis for application of our Alternative Performance
Measures (APMs) can be found on page 18 of our latest full annual financial
statements, available at www.softwarecircle.com/reports-downloads
Operational highlights
● Two further acquisitions added to the Group, Bethebrand and Link
Maker
● Revenue increased by £0.7m, an 8% increase
● Operating EBITDA growth of 54%
● Positive aEBITDA of £1.5m, a 50% increase
● 5% organic revenue growth achieved across our acquisitions
● 19% organic growth in Operating EBITDA
● £1.8m sale of printing.com domain completed
For further information:
Software Circle plc
Gavin Cockerill
(CEO)
via: investors@softwarecircle.com
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
In our Annual Report, we said that our focus for the upcoming year would be to
continue our search for businesses that match our acquisition criteria.
Utilising the funds that we raised through equity to acquire Vertical Market
Software ("VMS") businesses. Focussing on deploying capital in a disciplined
way, driving organic growth and improving Earnings Per Share which in turn,
builds long term value for our Shareholders.
In the interim period, we've seen that focus bear fruit. We've expanded our
portfolio by adding two further acquisitions. We've continued to drive organic
growth within our acquired portfolio and have improved earnings.
We've also seen some rotations in our 'NED Squad' as announced as part of our
Trading Update on 18 September 2024. We have welcomed Brad Ormsby and Marc
Maurer who bring new experience and talent to the Board. At the same time, we
are immensely grateful to Jan Mohr and Conrad Bona who step away having been
an instrumental part in guiding the Group through significant change.
That change has seen us grow to become a home for eight software business
units across multiple sectors. Our portfolio of businesses operate within the
following sectors: Graphics and Ecommerce, Professional Services, Property,
Education, Health and Social Care.
The two new businesses and teams we've welcomed during the six-month period
ended 30 September 2024 were Bethebrand, a marketing compliance and digital
asset management platform which was acquired at the end of May, contributing
to four months in the period. Followed by Link Maker, an adoption platform
acquired at the end of July, contributing to two months in the period.
I'm pleased to report that trading continues to align with our internal
forecasts and our Trading Update on 18 September 2024. The performance of our
acquired business units remains encouraging, meeting our expectations and
reinforcing the strength of our strategic direction.
As always, we sincerely thank our talented teams across all of our businesses
for their efforts and dedication in helping continue the Group's growth both
in revenue and profitability.
Financial Results and Cash
With our newly acquired businesses contributing in part, revenue rose to
£8.9m (2023: £8.2m), an increase of 8%. We've driven organic growth in
revenue of 5% from the acquired operating units during the interim period.
However, an expected decline in the lower margin, non-recurring revenue within
our Nettl Systems business, following a turbulent previous financial year,
resulted in an overall decline in like-for-like revenue of 8% for the Group.
Moving forward we expect Nettl's revenues to stabilise at this year's level. A
focus on profitability and a new revenue mix means it has seen growth in
EBITDA for the interim period.
Gross profit for the Group rose to £6.3m (2023: £5.1m) and our gross margin
percentage increased to 71% (2023: 61%). As the profile of our business
continues to evolve, more of our revenue will come from recurring revenues. As
this continues to grow, Nettl's lower margin product-led revenues become an
ever smaller part of the overall Group. We would therefore expect the trend
towards increasing gross margin percentage to continue as we acquire more VMS
businesses.
As a result of the two further acquisitions made, our total operating costs
increased, with staff costs of £3.1m (2023: £2.5m) and total other operating
charges increasing to £1.3m (2023: £0.9m). Those additional costs came with
additional recurring revenues. This, along with the earnings growth delivered
from the existing portfolio, has meant our Operating EBITDA increased to
£2.3m (2023: £1.5m) equating to 26% of revenue (2023: 18%).
Central costs at £0.8m (2023: £0.6m) are slightly higher than originally
expected, 9% of revenue compared to an expected 7%. This is due to one-off
costs relating to Non-Executive Director recruitment, investment in our
finance platforms and other costs brought forward into this half of the year.
It is our expectation and intention to reduce central costs as a percentage of
sales over time, as we scale. Right now, we're 'tooling up' for growth. After
these Central Costs, our aEBITDA improved to £1.5m (2023: £1.0m) a 50%
increase, representing 17% of revenue (2023: 12%).
After accounting for acquisition-related costs, the completion of the £1.8m
sale of the printing.com domain, and £2.2m (2023: £1.6m) in amortisation
charges on intangible assets primarily related to ongoing acquisitions, our
Operating Profit improved to £1.4m (2023: loss of £1.6m). Capital
expenditure totalled £0.9m (2023: £0.6m), with nearly all of it dedicated to
developing our platforms, which support operations and generate ongoing
revenue across our business units.
At 30 September 2024, the Company had cash of £12.7m (2023: £18.7m) and debt
of £10.3m (2023: £12.0m). Our operating activities generated £1.5m of
cash (2023: £1.2m) impacted by the settlement of £0.6m of lease liabilities
provided for in the prior year financial statements.
Trading Review
£5.5m of revenue was generated by our seven acquired VMS businesses, the
first time the majority of our revenues has come from acquisitions.
Collectively, they are growing organically and tracking ahead of valuation
expectations. In the interim period, we've improved the Operating EBITDA of
the Group by 19%, an increase of £0.4m compared with last year.
This has meant that our Return on Capital Deployed ("ROCD"), which measures
the total cash invested to date, including related expenses, versus the
Operating EBITDA for the period, is 30% for our seven acquisitions and 26% for
the Group overall.
We use several metrics internally to provide insight, improve and measure
success within our portfolio. Our Quality Score, that measures year-on-year
Revenue Growth % + EBITDA %, is a useful barometer of health. 40% being an
industry standard indicator, showing a healthy balance between growth and
profitability. By this measure, for the interim period our portfolio of
acquired business units are now collectively at 41%. Reflecting improvements
in both earnings and revenue growth.
The Group has continued to drive an increase in recurring revenues. Adding to
the stability of our revenue streams. For the seven acquisitions that now form
part of the Group, recurring revenues are above 90%. That has meant that
recurring revenues now contribute 67% (2023: 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.
We've said that maximising Operating Cash Flow Per Share, a measure that
demonstrates the Group's cash generating ability on a per share basis, in the
long term is the number one financial priority for us. This measure for the
interim period is 0.2p (2023: 0.5p), an inevitable reduction following the
equity capital raise in September 2023. The continued redeployment of this
capital and disciplined execution of our acquisition strategy is what will
compound our Operating Cash Flow Per Share in the years to come. Building our
acquisition flywheel and implementing our business systems to drive organic
growth are our twin growth engines.
Outlook
Our annualised revenue run-rate, trading and profitability remains in line
with management expectations. On a run-rate basis, without any new
acquisitions, our annualised revenue would be approximately £20m which is a
20% increase on last year. Adjusted EBITDA above 15% of revenue, is a
realistic target. We therefore remain cautiously optimistic about the
remaining year.
Our search for VMS businesses continues as we look to effectively and
diligently deploy further funds on acquisitions that meet our specific
criteria.
We previously announced on 24 July 2024, in our final results for the year
ended 31 March 2024, the Group's intention to restructure its balance sheet
and redeem the remaining £6.7m of bonds at par. To that end, as announced on
25 November 2024, we have entered into a new £16.7m funding facility with
Shawbrook Bank Limited. We've now utilised £6.7m to settle the bonds and have
in place an additional drawdown facility of £10.0m for further acquisitions.
This is a key step in enhancing the Group's ability to fund M&A
opportunities in the future.
Matthias
Riechert Gavin
Cockerill
Chairman
Chief Executive Officer
4 December 2024
Unaudited Interim Results for the period ended 30 September 2024
Consolidated Statement of Comprehensive Income
for the six months ended 30 September 2024
Unaudited Unaudited Audited
Note Six months to Six months to Year ended
30 September 30 September 31 March
2024 2023 2024
£000 £000 £000
Total Total Total
Revenue 3 8,917 8,247 16,165
Direct costs (2,625) (3,181) (5,971)
Gross profit 6,292 5,066 10,194
Staff costs (3,073) (2,460) (5,332)
Doubtful debt expense 36 (54) (527)
Other operating charges (1,255) (941) (2,870)
Profit on disposal of domain 1,712 - -
Earnings before interest, tax depreciation and amortisation 3,712 1,611 1,465
Depreciation and amortisation (2,277) (1,784) (3,551)
Impairment of assets - (1,419) (1,440)
Value adjustment on consideration payable - - 301
Operating profit / (loss) 1,435 (1,592) (3,225)
Financial income 187 74 400
Financial expenses 4 (309) (979) (1,278)
Value adjustment on bond settlement - 622 622
Net financing expense (122) (283) (256)
Profit / (loss) before tax 1,313 (1,875) (3,481)
Taxation (68) 292 1,111
Profit / (loss) for the period 1,245 (1,583) (2,370)
Other comprehensive income
Exchange differences on translation of foreign subsidiaries (74) (3) (59)
Total comprehensive income for the period 1,171 (1,586) (2,429)
Earnings per share - Basic and diluted 5 0.32p (1.28)p (0.92)p
Consolidated Statement of Financial Position
at 30 September 2024
Unaudited Unaudited Audited
Note 30 September 2024 30 September 31 March
2023 2024
£000 £000 £000
Non-current assets
Property, plant and equipment 1,150 1,266 1,242
Intangible assets 6 23,251 15,217 15,302
Total non-current assets 24,401 16,483 16,544
Current assets
Inventories 25 28 33
Trade and other receivables 7 2,622 2,473 2,418
Consideration receivable - 350 -
Cash and cash equivalents 12,684 18,707 15,391
Total current assets 15,331 21,558 17,842
Total assets 39,732 38,041 34,386
Current liabilities
Trade and other payables 8 4,304 1,828 3,144
Other interest-bearing loans and borrowings 9 8,057 4,247 1,511
Total current liabilities 12,361 6,075 4,655
Non-current liabilities
Other interest-bearing loans and borrowings 9 2,248 7,798 6,984
Deferred tax liabilities 2,219 1,681 1,066
Total non-current liabilities 4,467 9,479 8,050
Total liabilities 16,828 15,554 12,705
Net assets 22,904 22,487 21,681
Equity
Share capital 3,901 3,901 3,901
Share premium 28,255 28,255 28,255
Merger reserve 838 838 838
Share based payment reserve 89 88 37
Translation reserve (16) 114 58
Retained earnings (10,163) (10,709) (11,408)
Total equity 22,904 22,487 21,681
Consolidated Statement of Changes in Shareholders Equity
for the six months ended 30 September 2024
Share Share Premium Merger Share based payment reserve Translation reserve Retained
Capital Reserve earnings Total
£000 £000 £000 £000 £000 £000 £000
Opening shareholders' funds at 1 April 2023 1,145 7,866 838 88 117 (9,126) 928
Total comprehensive loss for the period - - - - (3) (1,583) (1,586)
Shares issued in the period 2,756 20,669 - - - - 23,425
Costs associated with shares issued - (280) - - - - (280)
Closing shareholders' funds at 30 September 2023 3,901 28,255 838 88 114 (10,709) 22,487
Total comprehensive loss for the period - - - - (56) (787) (843)
Transfer of lapsed option reserve - - - (88) - 88 -
Share option charge - - - 37 - - 37
Closing shareholders' funds at 31 March 2024 3,901 28,255 838 37 58 (11,408) 21,681
Total comprehensive income for the period
- - - - (74) 1,245 1,171
Share option charge - - - 52 - - 52
Closing shareholders' funds at 30 September 2024 3,901 28,255 838 89 (16) (10,163) 22,904
Consolidated Statement of Cash Flows
for the six months ended 30 September 2024
Unaudited Unaudited Audited
Six months to 30 September 2024 Six months to 30 September 2023 Year ended
£000 £000 31 March
2024
Note £000
Cash flows from operating activities
Profit / (loss) for the period 1,245 (1,583) (2,370)
Adjustments for:
Depreciation, amortisation and impairment 2,277 1,784 3,551
Profit on disposal of plant and equipment (92) (15) (13)
Profit on disposal of intangible assets 3 (1,712) - -
Share based payments 52 - 37
Financial income (187) (400)
Financial expense 309 283 1,278
Value adjustment on bond settlement - - (622)
Bad debt (credit)/expense (36) 54 527
Foreign exchange loss - (12) -
Tax expense / (income) 68 (292) (1,111)
Impairment of consideration receivables - 1,419 1,440
Value adjustment on consideration payable - - (301)
Operating cash flow before changes in working capital and provisions 1,924 1,638 2,016
Change in trade and other receivables 294 (280) (274)
Change in inventories 8 3 (2)
Change in trade and other payables (946) (175) 559
Cash generated from operations 1,280 1,186 2,299
Corporation tax received / (paid) 81 - (6)
R&D tax received 96 - -
Net cash from operating activities 1,457 1,186 2,293
Cash flows from investing activities
Purchase of property, plant and equipment (56) (22) (70)
Disposal of plant and equipment 53 16 25
Disposal of intangible assets 1,712 - -
Capitalised development expenditure 6 (810) (596) (1,133)
Purchase of other intangible assets (16) - -
Interest received 212 5 334
Acquisition of subsidiaries net of cash (4,170) - (444)
Payment of deferred consideration (369) (182) (3,656)
Net cash from investing activities (3,444) (779) (4,944)
Cash flows from financing activities
Proceeds from share issue - 23,425 23,425
Costs associated with share issue - (280) (280)
Repayment of loans (181) (6,739) (6,894)
Finance costs paid (402) - -
Capital payment of lease liabilities (64) (66) (136)
Interest payment of lease liabilities (48) (33) (65)
Net cash from financing activities (695) 16,307 16,050
Net (decrease) / increase in cash and cash equivalents (2,682) 16,714 13,399
Exchange difference on cash and cash equivalents (25) (1) (2)
Cash and cash equivalents at start of period 15,391 1,994 1,994
Cash and cash equivalents at end of period 12,684 18,707 15,391
Notes
(forming part of the interim financial statements)
1 Basis of preparation
Software Circle plc (the "Company") is a company incorporated and domiciled in
the UK.
These financial statements do not include all information required for full
annual financial statements and should be read in conjunction with the
financial statements of the Company as at and for the year ended 31 March
2024. Those accounts have been reported on by the Company's auditors and
delivered to the Registrar of Companies. The report of the auditors was: (i)
unqualified; (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report;
and (iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
These interim financial statements are prepared on the same basis as the
financial statements for the year ended 31 March 2024, in which our full set
of accounting policies, including critical judgements and key sources of
estimation uncertainty, can be found.
As of the balance sheet date, the Company maintains a substantial cash
balance, providing a strong liquidity position to support its business
operations and strategic growth plans. The cash reserves are considered
sufficient to meet the current operational requirements and short-term
obligations of the Company.
The Company's primary strategic objective includes expansion through
acquisitions, which involves inherent risks, particularly concerning deferred
consideration payments. While the Company has a significant cash balance, the
Directors recognise the following risks:
● Acquisition Volume and Payment Obligations: The risk of
acquiring multiple companies in a short time frame could potentially strain
the Company's liquidity if not managed prudently.
● Deferred Consideration Payments: The Company must ensure that it
can meet deferred consideration payments as they fall due, without
compromising its operational liquidity.
To mitigate these risks, the Directors have implemented the following
measures:
● Due Diligence and Acquisition Strategy: Rigorous due diligence
processes are in place to evaluate potential acquisition targets, ensuring
that each acquisition aligns with the Company's strategic objectives and
financial capacity.
● Cash Flow Forecasting and Management: Detailed cash flow
forecasting is conducted regularly to project the timing and amounts of
deferred consideration payments, ensuring that adequate cash reserves are
maintained.
● Contingency Planning: Contingency plans are established to
address any potential shortfalls in liquidity, including securing additional
financing if necessary.
After considering the Company's strong cash position, the comprehensive risk
management strategies in place, and the ability to adjust the pace of
acquisitions if required, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern
basis in preparing these interim financial statements.
These condensed consolidated interim financial statements were approved by the
Board of Directors on 4 December 2024.
2 Significant accounting policies
The accounting policies applied by the Company in these condensed consolidated
interim financial statements are the same as those applied by the Company in
its consolidated financial statements for the year ended 31 March 2024.
3 Segmental information
Segmental reporting is prepared for the Group's operating segments based on
the information which is presented to the Board, which reviews revenue and
adjusted EBITDA by segment. The Group's costs, finance income, tax charges,
non-current liabilities, net assets and capital expenditure are only reviewed
by the Board at a consolidated level and therefore have not been allocated
between segments in the analysis below.
Analysis by location of revenue
UK & Ireland
£000 Europe Other Total
£000 £000 £000
Six months ended 30 September 2024 8,685 67 165 8,917
Six months ended 30 September 2023 7,981 64 202 8,247
Year ended 31 March 2024 15,568 169 428 16,165
Revenue generated outside the UK is in Belgium, France, Ireland, New Zealand,
the Netherlands and the USA. No single customer provided the Group with over
2% of its revenue.
Disaggregation of revenue and EBITDA
Period ended 30 September 2024
Professional & financial services
Health & social care
Graphics & Ecommerce
Property Education Central Total
£000 £000 £000 £000 £000 £'000 £000
Licence and subscription revenue 1,722 1,269 1,553 791 614 - 5,949
Product and service revenue 2,818 120 28 2 - - 2,968
Revenue 4,540 1,389 1,581 793 614 - 8,917
Operating EBITDA 632 561 544 375 225 - 2,337
Central costs - - - - - (797) (797)
aEBITDA 632 561 544 375 225 (797) 1,540
Development costs 299 140 330 41 - - 810
Acquisition costs - - - - - (299) (299)
Exceptional items - - (51) - - 1,712 1,661
EBITDA 931 701 823 416 225 616 3,712
Exceptional items
On 2 April 2024, the Company announced the sale of the printing.com domain to
JAL Equity Corp for £1,772,000. Related disposal costs totalled £60,000.
£51,000 of restructuring costs were incurred in our Health & social care
division to enable the required reinvestment into development of the operating
unit's platform, future proofing and preparing that business for growth.
Period ended 30 September 2023 Professional & financial services
Graphics & Ecommerce Health & social care
Property Education Central Total
£000 £000 £000 £000 £000 £'000 £000
Licence and subscription revenue 1,753 634 1,295 756 - - 4,438
Product and service revenue 3,705 82 20 2 - - 3,809
Revenue 5,458 716 1,315 758 - - 8,247
Operating EBITDA 476 286 380 374 - - 1,516
Central costs - - - - - (501) (501)
aEBITDA 476 286 380 374 - (501) 1,015
Development costs 311 140 20 125 - - 596
EBITDA 787 426 400 499 - (501) 1,611
4 Finance expenses
Unaudited Unaudited Audited
Six months to Six months to Year ended
30 September 30 September 31 March
2024 2023 2024
£000 £000 £000
Lease interest 48 33 66
Bearer bond interest 207 744 948
Loan interest 9 19 32
Foreign exchange gains / (losses) (57) 10 (17)
Unwinding of discount on deferred consideration 102 173 249
Total finance expense 309 979 1,278
5 Earnings per share
The calculations of earnings per share are based on the following profits and
numbers of shares:
Unaudited Unaudited Audited
Six months to Six months to Year ended
30 September 30 September 31 March
2024 2023 2024
£000 £000 £000
Profit / (loss) after taxation for the period 1,245 (1,583) (2,370)
Weighted average number of shares in issue 390,083,306 123,605,283 256,844,295
Dilutive effect of share options 2,898,742 - -
Weighted average shares in issue on a diluted basis 392,982,048 123,605,283 256,844,295
Basic earnings per share 0.32p (1.28)p (0.92)p
Diluted earnings per share 0.32p (1.28)p (0.92)p
Diluted earnings per share is calculated based on the treasury method
prescribed in IAS 33. This calculates the theoretical number of shares that
could be purchased at the average market price in the period from the proceeds
of exercised options. The difference between the number of shares under option
and the theoretical number of shares that could be purchased from the proceeds
of their exercise is deemed liable to be issued at nil value and represents
the dilution. Where the Group has reported a net loss after tax, including the
options would be anti-dilutive, therefore all outstanding options have no
dilutive effect.
6 Intangible assets
Domains Development Customer
& brand Software costs Lists Technology Goodwill Other Total
£000 £000 £000 £000 £000 £000 £000 £000
Cost
Balance at 30 September 2023 363 4,544 5,989 5,192 10,792 635 162 27,677
Additions - internally developed - - 537 - - - - 537
Addition through subsidiary acquisition - - - 547 785 319 - 1,651
Acquisition adjustment - - - (265) (265) - - (530)
Disposals - - - - - - (23) (23)
Balance at 31 March 2024 363 4,544 6,526 5,474 11,312 954 139 29,312
Additions - internally developed
- 16 810 - - - - 826
Addition through subsidiary acquisition (note 11) - - - 2,184 2,131 4,977 - 9,292
Balance at 30 September 2024 363 4,560 7,336 7,658 13,443 5,931 139 39,430
Amortisation and impairment
Balance at 30 September 2023 350 4,519 4,736 986 1,723 12 134 12,460
Amortisation (1) 17 222 221 1,113 - 1 1,573
Disposals - - - - - - (23) (23)
Balance at 31 March 2024 349 4,536 4,958 1,207 2,836 12 112 14,010
Amortisation 1 4 415 316 1,431 - 2 2,169
Balance at 30 September 2024
350 4,540 5,373 1,523 4,267 12 114 16,179
Net book value
At 30 September 2023 13 25 1,253 4,206 9,069 623 28 15,217
At 31 March 2024 14 8 1,568 4,267 8,476 942 27 15,302
At 30 September 2024 13 20 1,963 6,135 9,176 5,919 25 23,251
7 Trade and other receivables
Unaudited Unaudited Audited
30 September 30 September 31 March
2024 2023 2024
£000 £000 £000
Trade receivables 2,440 2,970 2,505
Less provision for trade receivables (610) (1,103) (660)
Trade receivables net 1,830 1,867 1,845
Total financial assets other than cash and cash equivalents classified at 1,830 1,867 1,845
amortised cost
Corporation tax - 193 232
Prepayments 312 153 130
Other receivables 480 260 211
Total other receivables 792 606 573
Total trade and other receivables 2,622 2,473 2,418
8 Trade and other payables
Unaudited Unaudited Audited
30 September 30 September 31 March
2024 2023 2024
£000 £000 £000
Trade payables 599 443 737
Accruals 613 320 383
Other liabilities 1,277 842 658
Lease settlements - - 632
Current financial liabilities measured at amortised cost 2,489 1,605 2,410
Deferred Income 1,815 223 734
Total trade and other payables 4,304 1,828 3,144
9 Other interest-bearing loans and borrowings
Unaudited Unaudited Audited
30 September 30 September 31 March
Current liabilities 2024 2023 2024
£000 £000 £000
Lease liabilities 83 138 160
Bearer bonds 5,905 - 402
Loans 177 315 324
Deferred consideration 1,892 3,794 625
8,057 4,247 1,511
Non-current liabilities
Lease liabilities 769 867 847
Loans - 177 26
Bearer bonds - 5,894 5,697
Deferred consideration 1,479 860 414
2,248 7,798 6,984
10 Dividend
The Directors have not declared an Interim Dividend (2023: Nil).
11 Acquisitions
Acquisition of Be The Brand Experience Limited (Bethebrand)
The entire issued share capital of Bethebrand, a provider of marketing
compliance and digital asset management workflow solutions for businesses
providing financial services, was acquired on 30 May 2024 for consideration of
£3,500,000. The initial consideration paid at completion was £2,800,000,
with deferred consideration of £700,000 to be paid on the first anniversary
of completion. In addition, the consideration was increased by a further
£413,000 in respect of surplus cash within the business at the acquisition,
£171,000 of which was paid on completion with the remainder deferred until
the agreement of completion accounts. The present value of expected
consideration payments at acquisition totalled £3,838,000.
Bethebrand met Software Circle's acquisition criteria by being a software
business and having a prominent position in its vertical market. Delivering
solutions that generate revenues of a recurring nature.
In the period during the current financial period that Bethebrand was owned by
the Group, it contributed revenue of £652,000 and a profit before tax of
£203,000. Had it been owned by the Group for the full period, it would have
contributed revenue of £960,000 and a profit before tax of £327,000.
Net assets of Bethebrand on acquisition:
Book Value Adjustments Fair value
£000 £000 £000
Customer base - 905 905
Technology - 994 994
Development costs 229 (229) -
Cash and cash equivalents 770 - 770
Trade and other receivables 196 - 196
Trade and other payables (631) - (631)
Deferred tax - (475) (475)
Net assets acquired 564 1,195 1,759
Consideration 3,838
Goodwill 2,079
Consideration satisfied by: £000
Cash on completion 2,971
Deferred consideration 867
3,838
An income approach was used to value contractual customer lists and
relationships, using a discount factor of 12.1%. The useful life has been
estimated at 10 years. The technology was valued by using a relief from
royalty approach, based on a royalty rate of 50% and using a discount factor
of 12.1%. The useful life has been estimated at 3 years.
Trade and other receivables include gross contractual amounts due of £148,000
of which £nil was expected to be uncollectible at the date of acquisition.
The goodwill arising from the acquisition of Bethebrand is attributable to a
number of factors, including the specialised knowledge and expertise of the
assembled workforce and the market position.
The deferred tax liabilities recognised represent the tax effect which will
result from the amortisation of the intangible assets, estimated using the tax
rate substantively enacted at the balance sheet date.
Acquisition of Link Maker Systems Limited (Link Maker)
The entire issued share capital of Link Maker, whose adoption platform
joins-up children's social care across the UK, was acquired on 25 July 2024
for consideration of £4,500,000. The initial consideration paid at completion
was £3,000,000. Up to a further £1,500,000 is payable contingent upon the
achievement of certain targets relating to the future financial performance of
Link Maker and may be achieved over the 12 months following the 1st
anniversary of completion. In addition, the consideration was increased by a
further £580,000 in respect of surplus cash within the business at the
acquisition, payable in full on the agreement of completion accounts. The
present value of expected consideration payments at acquisition totalled
£4,774,000.
Link Maker met Software Circle's acquisition criteria by being a software
business and having a prominent position in its vertical market. Delivering
solutions that generate revenues of a recurring nature.
In the period during the current financial period that Link Maker was owned by
the Group, it contributed revenue of £267,000 and a profit before tax of
£131,000. Had it been owned by the Group for the full period, it would have
contributed revenue of £729,000 and a profit before tax of £355,000.
Net assets of Link Maker on acquisition:
Book Value Adjustments Fair value
£000 £000 £000
Customer base - 1,279 1,279
Technology - 1,137 1,137
Property, plant and equipment 13 - 13
Cash and cash equivalents 1,032 - 1,032
Trade and other receivables 324 - 324
Trade and other payables (1,305) - (1,305)
Deferred tax - (604) (604)
Net assets acquired 64 1,812 1,876
Consideration 4,774
Goodwill 2,898
Consideration satisfied by: £000
Cash on completion 3,000
Deferred consideration 580
Contingent consideration 1,194
4,774
An income approach was used to value contractual customer lists and
relationships, using a discount factor of 12.1%. The useful life has been
estimated at 10 years. The technology was valued by using a relief from
royalty approach, based on a royalty rate of 50% and using a discount factor
of 12.1%. The useful life has been estimated at 3 years.
Trade and other receivables include gross contractual amounts due of £206,000
of which £nil was expected to be uncollectible at the date of acquisition.
The goodwill arising from the acquisition of Link Maker is attributable to a
number of factors, including the specialised knowledge and expertise of the
assembled workforce and the market position.
The deferred tax liabilities recognised represent the tax effect which will
result from the amortisation of the intangible assets, estimated using the tax
rate substantively enacted at the balance sheet date.
12 Post balance sheet events
On 22 November 2024 the Company entered into a new 5-year loan facility of up
to £16,700,000 with Shawbrook Bank Limited.
On 25 November 2024, £6,700,000 of the facility was used to repay the
outstanding bonds in issue, at face value, from the Company's perpetual bond
facility established in July 2020. A value adjustment loss on settlement of
£867,000 will be recognised in the second half of this financial year.
£3,350,000 of the facility utilised to repay the outstanding bonds is
repayable in monthly instalments over the 5 years, attracting interest over
SONIA of 4.95%. The remaining £3,350,000 is repayable at the end of the loan
term and attracts interest over SONIA of 5.55%.
The remaining £10,000,000 of the agreed facility is structured specifically
to enable the Company to continue with its acquisition strategy, and is to be
utilised by 22 May 2027, attracting interest over SONIA of 5.55% on funds
drawn during this time. Subsequently, 50% of funds drawn at 22 May 2027 will
convert to an amortising facility, repaying monthly on a 5-year schedule with
the balance due at the end of the loan term, attracting interest over SONIA of
4.95%. The remaining 50% is repayable at the end of the loan term and attracts
interest over SONIA of 5.55%.
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