Netcall Regulatory News (NET)

NETCALL PLC

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

Acquisition of MatsSoft, a leading cloud-based low-code software provider

Netcall plc announces the acquisition (the "Acquisition") of MatsSoft Limited ("MatsSoft"), a leading cloud-based low-code software provider. The initial consideration is £11.1 million in cash and the issue of 3,499,864 new ordinary shares of 5p each in the capital of Netcall ("Netcall Shares"). Potential further consideration of up to £2.3 million cash and 9.5 million Netcall Shares is also payable dependent on achieving specified performance targets achieved over various periods from completion of the Acquisition. The Acquisition is being funded from the Company's existing cash resources and a £7.0 million loan note ("Loan Note") from Business Growth Fund ("BGF").

MatsSoft is headquartered in Bedford, UK and has approximately 60 customers globally across private and public sectors, including Vodafone, Nationwide Building Society, ITV and Adur & Worthing Councils. It was founded in 2008 and employs 56 people.

MatsSoft's low-code software platform enables rapid delivery of enterprise-grade business applications with a minimum of hard coding and upfront investments. This addresses the growing gap between organisations' demand for business applications and the resources available to deliver these solutions.

Thereby the platform helps customers innovate faster and can increase their speed to market. Increasingly organisations use low-code platforms to drive digital transformation and competitive differentiation as well as improve customer engagement.

MatsSoft is named one of "The 14 Providers That Matter Most" in the Low-code Wave published by Forrester Research. According to Forrester, companies report that their low-code platforms helped them accelerate development by five to 10 times.

MatsSoft recorded revenue for the year ended 31 December 2016 up 22% to £5.5 million (2015: £4.5 million) of which recurring revenue(1) was up 38% to £3.3 million(2). MatsSoft reported adjusted EBITDA(3) for the year ended 31 December 2016 of £0.1 million with reported net assets as at 30 April 2017 of approximately £1.4 million(2).

Henrik Bang, CEO of Netcall, commented: "We are today taking a big step forward in delivering on our strategy of helping organisations improve customer engagement and are thrilled to have MatsSoft as a part of Netcall. We see a great opportunity offering the MatsSoft capabilities to our customers across the public and private sectors as well as expanding into new markets.

The acquisition will enhance our ability to deliver a unique and powerful set of capabilities and applications that will help our customers accelerate the transformation of their customer engagement. Furthermore, this acquisition increases our cloud presence and will give Netcall access to the fast growing low-code market which, according to Forrester is rapidly being adopted by organisations across the private and public markets.

Group trading for the year ended 30 June 2017 was broadly in line with expectations as the Group successfully continues its transition to cloud."

Strategic rationale for the Acquisition

· Complements Netcall's Liberty platform and enhances its ability to drive organisations' digital transformation programmes and competitive differentiation more quickly and more effectively.

· Enables Netcall and its customers and partners to build and distribute Liberty applications easily and rapidly.

· Provides Netcall with access to a new market and adds higher growth digital revenue streams to its product suite.

·  Accelerates Netcall's migration to cloud, bolstering support for global customers and internationalisation.

· Migration of some of Netcall Liberty applications to the MatsSoft platform, enabling faster delivery of Liberty solutions to customers.

Consideration for the Acquisition:

Netcall has agreed to pay the vendors of MatsSoft (the "Vendors"):

· an initial consideration of £11.1 million in cash and 3,499,864 Netcall Shares; 

· deferred cash consideration of up to £2.3 million subject to MatsSoft achieving certain financial hurdles post acquisition to 4 August 2019;

· up to 5.6 million Netcall shares subject to Netcall's share price reaching certain hurdles up to £1.20 by 4 August 2019; and

· up to a further 3.9 million Netcall Shares subject to new revenue from a potential new contract post acquisition to 31 December 2019.

Any Netcall Shares to be issued to the founders or option holders of MatsSoft pursuant to the Acquisition will be subject to a 12 month lock-in with orderly market provisions thereafter for a further 12 months. Any Netcall Shares issued to the institutional investors of MatsSoft will not be subject to any lock in.

Loan Note:

Immediately prior to the Acquisition the Company agreed terms with BGF for a £7.0 million investment into the Company through the issue of the Loan Note. The Loan Note has an annual interest rate of 8.5 per cent. payable quarterly in arrears and is repayable on or before 31 March 2025. In connection with the Loan Note BGF has been issued with options over 4,827,586 million Netcall Shares at a price of 58 pence per Netcall Share.

 Netcall current trading(4):

Netcall expects to report results for the year ended 30 June 2017 broadly in line with market expectations.

Trading in the year has been robust with an increasing share of the sales mix coming from SaaS-based contracts, in line with Group's cloud transition. The growing proportion of SaaS-based contracts enhances the Group's revenue visibility over future periods by adding to the recurring revenue base. The success of this transition is evidenced by the growth in the annualised run-rate of core recurring revenue, which increased 8% since the start of the year to £11.8 million at year end. As Netcall enters the new financial year, the order book for contracted future minimum revenues has increased by 15% to £17.0 million (2016: £15.0 million).

Revenue for the year ended 30 June 2017 is expected to be £16.2 million (2016: £16.6 million), of which £10.9 million (2016: £10.1 million) is recurring(5). Adjusted EBITDA is expected to be £4.5 million (2016: £4.5 million). The Group's cash balance at 30 June 2017 was £12.7 million (2016: £14.1 million), following the payment of the enhanced dividend and ordinary dividend, comprising £2.8 million in total, on 11 January 2017.

Dividend policy

Since the implementation of the Group's enhanced dividend policy on 29 September 2015, the Group has paid out £5.8 million in total in enhanced dividends over the two year period. Following today's acquisition and in line with the strategy outlined at the start of the enhanced programme, the Board intends to terminate the enhanced dividend programme and expects to continue to pay out normal dividends.

Issue of Netcall Shares

As part of the initial consideration for the Acquisition, Netcall has allotted 3,499,864 Netcall Shares to the Vendors of MatsSoft.

Application will be made to the London Stock Exchange for the 3,499,864 Netcall Shares to be admitted to trading on AIM ("Admission") and it is expected that Admission will become effective and trading will commence at 8.00 a.m. on 11 August 2017.

After Admission, the total number of Netcall Shares in issue will be 144,571,620 which includes 1,869,181 Netcall Shares which are held in treasury. As such, the total number of Netcall Shares with voting rights will therefore be 142,702,439. This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FCA's Disclosure and Transparency Rules.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014

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About Netcall plc

Netcall's mission is to help organisations engage effectively with their customers through the provision of easy to use, functional, smartly designed software applications delivered on its integrated platform, Liberty. Netcall's software product suite, incorporating omni-channel contact centre, workforce optimisation, business process management and case management, helps its customers meet the growing demands of consumers, work smarter, gain competitive advantage, lower operating costs and achieve targets. Netcall's aim is to build a strong business by expanding its customer engagement Liberty platform, both on-premise and cloud capabilities, for both new and existing customers.

Netcall's customer base contains 700 organisations in both the private and public sectors. These include two thirds of the NHS Acute Health Trusts, major telecoms operators such as BT and leading organisations including Interflora, Lloyds Banking Group, Cineworld, Axa, and British Sugar.

For further information, please consult the Netcall website: www.netcall.com.

Notes

(1) revenue from licenses, hosting & support and messaging.

(2) this information is unaudited and has been extracted from the financial statements of MatSoft and the management accounts of MatsSoft Holdings Ltd and MasSoft Inc.

(3) profit before interest, depreciation, amortisation, exceptional items and share-based payment charges.

(4) this information is unaudited and has been extracted from the management accounts of Netcall plc.

(5) revenue from support and hosting contracts.