Arcontech Sees Profit Drop in H1 2025 Amid Customer Loss, Eyes Future Growth

Arcontech interim results: revenue slips, profit down, cash up

Arcontech has posted unaudited interim results for the six months to 31 December 2025. The headline: revenue declined 4.7% to £1,439,382 and profit before tax fell 23.8% to £394,622, reflecting a lost long-standing customer, some downsizing, and much lower one-off project work. Management is leaning on a “strong pipeline” and expects to rebuild the recurring revenue run-rate around the end of the financial year, with a return to growth next year.

Let’s unpack the numbers, what’s driving them, and why they matter if you hold – or are eyeing – AIM: ARC.

Revenue dip and customer churn: what changed in H1

Revenue was £1.44 million, down from £1.51 million. The Group points to a net reduction in annual contracted revenue due to churn – losing a long-standing customer and some seat downsizing – alongside a sharp drop in one-off revenues.

Two notable datapoints:

• Recurring revenues fell 3% year-on-year and now represent 99% of total revenue (H1 2024: 97%). Recurring revenue is subscription-like, contracted income – generally higher quality, but slower to replace when you lose a contract.
• One-off revenues fell 69%. Management flagged last year’s one-offs as unusually high, so this normalisation is not a shock, but it hurts the comparatives.

Profit under pressure, but margins remain healthy

Adjusted EBITDA dropped 23.6% to £341,239 as lower revenue met continued investment in staff. Operating profit fell to £297,899 from £401,464, and profit before tax was £394,622 versus £518,166.

A couple of quick reads:

• Operating margin remains robust for a niche software provider – albeit lower than last year – showing disciplined cost control despite modest top-line pressure.
• Finance income slipped to £114,336 (H1 2024: £139,066), while finance costs fell to £17,613 (H1 2024: £22,364). Net interest income continues to be a tailwind thanks to the cash balance.

Earnings per share declined to 2.95p (basic) from 3.87p. On an adjusted basis (excludes releases of historic accruals), basic EPS was 2.77p (H1 2024: 3.70p).

Cash remains a standout strength

Net cash rose 8.4% to £7,774,037 at 31 December 2025 (H1 2024: £7,166,839). Cash generated from operations was strong at £860,247, helped by a favourable working capital swing as receivables reduced to £464,415 (H1 2024: £821,336).

Capital spending was minimal at £2,921. The Group paid a final dividend of 4.00 pence per share on 31 October 2025, totalling £534,912, and also met lease payments of £58,616. Despite these outflows, the cash pile grew, underlining the company’s cash-generative, asset-light model.

Recurring revenue at 99% – what that means

With 99% of revenue now recurring, Arcontech’s income base is highly annuity-like and predictable. The flip side is that when churn happens, you usually feel it for a while because sales cycles are long. Management confirms lead times remain lengthy, but notes a “prestigious” new customer win and another contract in late-stage negotiation. Add to that growth in some existing customers, and the building blocks for stabilisation appear to be in place.

Costs, investment, and the path to rebuilding

Administrative costs ticked up to £1,141,483 (H1 2024: £1,109,882). The Board highlights ongoing investment in staff and development capability so new customer work can be delivered efficiently. That’s sensible – you need the capacity to convert a pipeline. It does, however, depress near-term profitability while revenue catches up.

Dividend policy unchanged

No interim dividend is proposed. The Board expects to continue its policy of paying a dividend following full-year results. Given the strong net cash and capital-light operations, the balance sheet can support continued distributions while funding investment – but the exact payout will reflect performance and needs at year-end.

Management outlook: rebuild this year, growth next

The Chairman’s message is consistent: churn happens, but the pipeline is strong and the expectation is to recover the recurring revenue run-rate around the end of the financial year, with a return to growth next year. The tone is confident, albeit recognising the reality of long sales cycles.

Key numbers at a glance

Revenue	£1,439,382 (↓ 4.7%)
Recurring revenue share	99% (H1 2024: 97%)
Adjusted EBITDA	£341,239 (↓ 23.6%)
Operating profit	£297,899 (H1 2024: £401,464)
Profit before tax	£394,622 (↓ 23.8%)
Basic EPS	2.95p (H1 2024: 3.87p)
Net cash (period end)	£7,774,037 (H1 2024: £7,166,839)
Cash from operations	£860,247 (H1 2024: £432,237)
Dividend paid (final FY25)	4.00 pence per share

My take: a hold-your-nerve half, with a cash cushion

There’s no sugar-coating the revenue and profit declines – churn and a 69% drop in one-offs have bitten. That said, the quality of revenue has arguably improved with 99% recurring, cash generation was excellent, and net cash is up despite dividends and lease payments.

The key debate is execution on the pipeline. Management cites a new marquee customer win, another close to signing, and growth in some existing accounts. If those land and the recurring run-rate rebuilds by year-end, the P&L should start to mend. If sales cycles stretch or further churn occurs, the recovery could slip.

On balance, this reads like a temporary step back rather than a structural wobble. The cash pile gives strategic optionality – continued investment in the core, and capacity to explore new areas of business as flagged by the Board’s capital allocation framework.

What to watch next

• Contract newsflow – confirmation that the late-stage deal signs, and evidence of the “prestigious” new win ramping.
• Recurring revenue run-rate – signs it is rebuilding by the financial year-end as guided.
• Churn and seat downsizing – stability across the existing base will matter as much as new wins.
• Cash and working capital – continued strong cash generation and deferred income trends are good health checks.
• Dividend at year-end – whether the final payout is maintained alongside investment.

Where to read more

You can find the interim report and company information at www.arcontech.com.