Elecosoft Regulatory News (ELCO)

18 April 2016

Elecosoft plc

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

Preliminary Results

For the Year Ended 31 December 2015

Elecosoft plc (AIM: ELCO), the AIM-listed construction software specialist, today announces its audited results for the year ended 31 December 2015.

Financial Highlights

Continuing operations

· Revenue £15.3m (2014 restated: £15.2m) of which 48% was from recurring maintenance and support revenue (2014 restated: 48%)

· Operating profit up 24% to £1.1m (2014 restated: £0.9m)

· Profit before tax up 47% to £1.0m (2014 restated: £0.7m)

· EBITDA up 23% to £1.8m (2014 restated: £1.5m)

· Free cash flow increased to £0.7m (2014: outflow of £0.3m)

· Earnings per share - basic and diluted up 37% to 1.1p (2014 restated: 0.8p)

· Net borrowings decreased 61% to £0.8m (31 December 2014: £2.0m)

· Share capital reduction successfully completed on 1 July 2015 - positive distributable reserves at 31 December 2015

At constant exchange rates

· Revenue £16.6m, up £1.4m, 9% (2014: £15.2m)

· Operating profit £1.2m, up 29% (2014: £0.9m)

· Profit before tax £1.1m, up 54% (2014: £0.7m)

· Sales growth across all product areas and regions at constant exchange rates

Operational Highlights

· Launched new products including Bidcon, the leading Swedish project estimating software, into the UK market

· Won a significant order to supply a US Government department

· Won 'Project Management/Planning Software 2015' award at the Construction Computing awards for the second year in a row

· Investment in overseas markets including set up of own operation in the US supporting and growing existing reseller network

· Disposal of non-core architectural consultancy business in Sweden to focus on software and related services

· Board restructuring as outlined in separate announcement released today

Executive Chairman, John Ketteley said:

"I am pleased to report sales growth across all product areas and regions in 2015 at constant exchange rates and to confirm that the transformation of Elecosoft into a profitable international construction software specialist is complete. We now have the people with the skills, the experience and the flair together with an appropriate level of financial resources to achieve our objective of becoming a key provider of leading-edge software solutions and related services to the international construction, interior design and to the architectural industries worldwide.

I am pleased to report that 2016 has started encouragingly and that we expect to deliver significant revenue and profit growth in line with market expectations"

About Elecosoft plc

Elecosoft is listed on the Alternative Investment Market in London (AIM: ELCO). It is a specialist international provider of software and related services to the architectural, engineering, construction and digital marketing industries from centres of excellence in the UK, Sweden, Germany and the US. Elecosoft's market leading software solutions are developed by teams in the United Kingdom, Sweden and Germany; and its software programs cover project management, construction site management, estimating, timber engineering, 3D design and visualisation, and cloud based digital marketing solutions.

For more information, please visit www.elecosoft.com

Chairman's Statement

Elecosoft

I am pleased to report growth across all product areas and regions in 2015 at constant exchange rates and to confirm that the transformation of Elecosoft into a profitable international construction software specialist is complete. We now have the people with the skills, the experience and the flair together with an appropriate level of financial resources to achieve our objective of becoming a key provider of leading-edge software solutions and related services to the international construction, interior design and to the architectural industries worldwide.

Financial Performance in 2015

We continued to expand our sales channels and reseller networks in our markets in 2015 and established a new sales and marketing team in the United States during the year despite the fact that the strength of Sterling against the Swedish Krona, the Euro and the US Dollar for most of 2015 put considerable pressure on Group Revenue. Nevertheless, in the year under review, as reported, we succeeded in maintaining Group Revenue in Sterling terms at £15.3m, compared with Group Revenue of £15.2m in 2014. Group recurring maintenance and support revenue was also relatively flat at £7.3m (2014: £7.4m).

The adverse impact of the strength of Sterling on Group Revenue for most of 2015 can be illustrated by the fact that in constant currency terms, Group Revenue would have been £16.6m in 2015 compared with £15.2m in 2014, an increase of 9 per cent.

Thus, Operating Profit in 2015 was £1.1m, compared with £0.9m in 2014, an increase of 22 per cent; Profit before Tax was £1.0m compared with £0.7m in 2014, an increase of 43 per cent; EBITDA was £1.8m compared with £1.5m in 2014, an increase of 20 per cent; and Continuing Operations Earnings per share for 2015 were 1.1p compared with 0.8p in 2014, an increase of 37 per cent.

The negative effect of the strength of Sterling in 2015 was less severe with regards to Operating Profit, Profit before Tax, EBITDA and Earnings per share. For example, Operating Profit at constant currency would have been £1.2m compared to £1.1m at actual rates.

Current trading and potential resumption of dividends in 2016

The Board decided not to propose the payment of a dividend in respect of the year ended 31 December 2015. However, the Board will continue to monitor the possibility of a resumption of dividends under review and will consider whether the declaration of a well-covered dividend in the latter part of 2016 would be merited.

Current financial position and Banking arrangements with Barclays Bank

The agreement with Barclays Bank to provide the banking facilities which enabled the Board of Elecosoft to complete the successful refinancing of the Group also resulted in much lower interest costs in the year under review. Continuing operations interest costs for 2015 were £120,000 compared with £220,000 in 2014, a reduction which I consider represents an appropriate reflection of the improvement in Elecosoft's financial position in the period. Better than anticipated cash flows from trading in the year under review and the receipt of the proceeds of the divestment of our Swedish architectural consultancy business provided an additional boost.

Group net borrowings at 1 January 2015 consisted of net bank borrowings of £1.6m, together with finance leases of £0.4m; and Group net borrowings at 31 December 2015 consisted of net bank borrowings of £0.4m, together with finance leases of £0.4m. Thus we were able to reduce Group net borrowings totalling £2.0m on 1 January 2015, to £0.8m on 31 December 2015 and we expect interest costs to be reduced significantly going forward.

Divestment of our Swedish Consultancy business and Software Development Collaboration Agreement with Tyrens

The second half of 2015 saw the divestment of our Swedish architectural consultancy operations to Tyrens, a leading Swedish international construction consultancy firm. The consideration for the acquisition was Swedish Krona 11.1m (£862,000) in cash. As a consequence, Elecosoft is now able to concentrate on the development of its specialist construction software interests, particularly in Sweden.

Prior to entering into the above negotiations with Tyrens in the latter part of 2015 we had been collaborating with our Swedish colleagues on the development of a state-of-the-art environmental software program for the construction industry. This was regarded by both parties as a very worthwhile project. Accordingly the parties concluded that there would be considerable merit in continuing with our software development collaboration. We have now entered into a formal collaboration agreement and look forward to working with Tyrens on new and innovative software projects within the framework of this agreement.

Software Development, Program Launches and Awards

Software development and maintenance continued to be one of Elecosoft's largest areas of expenditure in 2015. Of our total workforce of 178 employees during the year, 41, or 23 per cent, of our employees are software developers who work in centres of excellence in the UK, Sweden and Germany. These teams are responsible for the development of new software programs as well as the maintenance of our current portfolio of market leading software. In 2015, Elecosoft's development and maintenance spend was £2.3m, (2014: £2.6m) of which £665,000 (2014: £553,000) was capitalised as required pursuant to IAS 38. Software assets amortised in the year amounted to £495,000 (2014: £372,000).

For the second year in succession our development team based at Elecosoft UK must be congratulated on Asta Powerproject® project management software being voted the "Best Project Management and Planning Software of 2015" by peers at the Construction Industry Software Awards.,

Our Swedish colleagues also successfully launched Bidcon® BIM, the new BIM estimating software, which will complement Asta Powerproject BIM and thus become a key element of Elecosoft's 5D BIM solution. Bidcon has been very well received by the Swedish estimating software market and has already penetrated the UK and Norwegian markets.

Our German colleagues also launched Arcon Evo, our new 3D architectural visualisation program. It is the successor to the original, highly regarded Arcon Classic program, which had for so long dominated this sector of the German 3D architectural visualisation market. We have also entered into a collaboration agreement with Buildit® magazine to market the Arcon Evo program in conjunction with the Buildit® magazine in the spring of 2016 in the UK.

The Board

This year has seen a couple of changes to the Company's Board. Nick Caw has left the Company to pursue other interests and we appreciate his significant contribution to the transformation of Elecosoft since his appointment as CEO in July 2014 and wish him every success in the future. In addition, it is my pleasure on your behalf to welcome Jason Ruddle to the Board. He is currently the Managing Director of Elecosoft UK and has agreed to become Chief Operating Officer of the Group.

Jason began his career some 30 years ago as an apprentice in the construction industry; and early in his career gained a reputation as an individual who was keen to embrace change by embracing technology. He also enjoys a reputation among his colleagues for having a sound and common sense approach to business and under his leadership Elecosoft UK, of which he became Managing Director, began to travel very well and it is now our most profitable business. I was therefore delighted when he agreed to join the Board and we wish him well in his new Group role.

Employees

Elecosoft is a committed people business and when I say "committed people" I mean all my fellow Elecosoft employees in the United States, Sweden, Germany, Belgium, the Netherlands and the UK and thank them for their continuing dedicated contribution to Elecosoft, year in and year out,

Our employees consist of software developers who strive to develop the most innovative products and related services for Elecosoft's customers worldwide; of support coaches who are the link between our software and our software users; of sales teams and trainers who continue to service and expand our customer base and attend to the requirements of our existing customers; of market and digital specialists who generate new ideas and bring our products to the attention of the markets we serve; of our communications experts and "back office" colleagues, who together administer Elecosoft's finance, legal, communication and accounting functions and maintain the fabric of Elecosoft's corporate structure; and finally of my colleagues on the Board. These are the people that make Elecosoft tick, and I would like to thank them on your behalf for what they all do for your Company.

Outlook

Elecosoft has now established itself as an international provider of market leading software applications for 5D BIM project management, estimation, 3D architectural visualisation, visual business systems, engineering software, and cloud based solutions. Although our software and related services are aimed principally at the international construction industry market, we also develop market leading software for digital marketing and architectural applications. Elecosoft has a major presence in the markets it serves; it is financially sound; and above all has outstanding teams of highly dedicated, talented, and creative developers backed by a strong management team. For these reasons, I have every confidence in the future of Elecosoft as we move forward. I am pleased to report that 2016 has started encouragingly and that we expect to deliver significant revenue and profit growth in line with market expectations

John Ketteley

Executive Chairman

15 April 2016  

Operating Review

As a management team we have a number of medium-term objectives which include moving to become a genuinely integrated business, achieving predictable growth in both revenue and profit ahead of the wider software market, financial stability and being recognised as a creator of innovative solutions. With our legacy business largely behind us, 2015 allowed us to concentrate solely on our future as a software business and on making progress towards these objectives. There were of course challenges but I believe the progress made in the year has set us well for another solid performance in 2016. 

An integrated business 

Historically, due to our structure, we had made limited efforts to integrate our businesses - something we addressed in 2015. As our customers are increasingly seeing the benefit of integrating offerings and owning a range of complementary, marketing-leading solutions it was a logical step to consolidate our branding. We changed the majority of our Operating Company and our plc to Elecosoft - reflecting both our long heritage (Eleco) and our future focus (Software). From early 2016, we now trade in all markets bar Germany under the Elecosoft banner. This is part of a wider marketing restructure covering all major areas including product branding, websites and collateral. That work continues and we hope will be largely completed in 2016. 

We brought disparate teams together, most notably our developer community to meet and talk regularly, to a structured agenda for the first time. This has already led us to work collectively in a number of areas including planning a common licensing platform, integrated product roadmap, sharing of resource for problem solving and a move towards a standard User Interface Design across our platform.  

Predictable growth in revenue and profits, ahead of industry averages market 

2015 was the first time as a software-only business that we gave external guidance to the market on our performance. Taking into account currency we were in-line on revenue and ahead on PBT. In part this was due to improvements made to our reporting and planning activities. Our business model is based on growing revenue and profitability in tandem which we achieved in the year under review. Resource investment in 2015 (and budgeted for 2016) was predominately in sales and marketing roles and, in the main, hiring for new positions such as dedicated UK Bidcon, US channel resource and French Staircon sales staff.

Delivering Innovation 

2015 saw the launch of two significant releases of our BIM tool, a 3D viewer for our project scheduling tool (Asta Powerproject) and estimating (Bidcon). That the tool is designed to link to our Estimation tool has also helped us differentiate by bringing our two core products together to deliver a unique 5D BIM. Our ability to be agile and accommodating to customer specific requirements also helps set us apart from competitors who lack this flexibility due to their size or structure.

The complete rewrite of our main estimating solution, Bidcon gave us the opportunity to sell meaningfully in markets outside of Sweden for the first time. Despite competition from well-established local providers we were able to win customers in these new markets due to the technical strength of the offering. This was a significant milestone, validating the rewrite and underscoring the quality of the original Swedish-based approach. 

The anticipated release of a new version of our CAD solution, Arcon Evo, also highlighted the benefit of our Research and Development (R&D) programme, with a significant increase in maintenance contracts reflecting customer confidence in the future development path of the products 

Brands 

Project management 

Our project management solution (Asta Powerproject) remains in great health and was the engine of our growth again in 2015. Our commitment to the US coincided with our largest license deal of the year, through a reseller to a US state department of transport which was strong validation of what great resellers can do in assisting with the scaling of our business. We also had a record turnout for our UK National User Forum in the Autumn.

Our Swedish based businesses had a mixed year - a stable domestic performance in Bidcon and Statcon was not matched internationally and we also faced challenges in our growing Staircon businesses. Considerable progress was made in the year to address the issues as part of a wider restructuring of our Swedish businesses. 

Visualisation 

We continued to see a strong performance from our Flooring visualisation business (ESIGN) and solid German domestic activity by Arcon. Growth was slower overall in our Arcon Evo business due to issues with our international reseller activity but work is underway to address this. 

Territories 

With the backdrop of a buoyant UK construction market, we saw another strong year of growth in this market in our core offerings. We introduced two significant new offerings across our BIM and Bidcon solutions and saw increased interest in both product areas through the year that have carried into 2016.

As reported in our 2014 accounts, in Sweden we undertook a complete overhaul of our business, including installing an entirely new management team and a complete reorganisation of our operations. This included the disposals of our non-core consulting business to Tyrens AB, a consolidation of development teams, and restructuring of our sales teams. We believe this makes us more streamlined and better places us for an improved financial performance in 2016.

We expanded our direct investment in three key markets - the US, the Netherlands and Germany. The focus in the first two will initially be on Asta Powerproject but will expand beyond this as we become more established in these markets in 2016. The timing and size of our largest US win has helped create the momentum we needed to gain credibility in the market and saw underlying sales grow by 55% even with that deal excluded. 

Operations  

One of our biggest challenges in 2015, as with 2014 was the impact of currency and consequently our activity in mainland Europe was adversely impacted by the strengthening of Sterling. We made improvements to our day to day reporting and enhanced our budgeting process - all aimed at providing a more cohesive, standardised operating model across the Group. 

Outlook

Elecosoft's long-term goal remains to be a leading provider of integrated software solutions to the global architectural, engineering and construction ("AEC") industry. We made good progress towards this goal in 2015, in 2016 we will focus predominately in growing in the markets we are already committed to. 

John Ketteley 

Executive Chairman 

15 April 2016 

Financial Review

The execution of the Group's strategy to grow its market share in existing and new markets during the year had a positive impact on the scale and growth rate of the Group's operations and financial performance. Exchange rate movements in the Group's core trading currencies during the year had an adverse impact but the Group enjoyed strong underlying sales growth.

Revenue

Continuing operations revenue for the year increased 1% to £15.3m.This increase was adversely impacted by the strength of Sterling against the Swedish Krona and Euro which account for over 50% of the Group's sales. On a constant currency basis revenue would have been £16.6m which represents a growth of 9%.

The Group continues to enjoy high levels of recurring revenue from maintenance and support with the balance of the revenue coming from services and licence sales. The level of deferred income at the balance sheet date, which is a measure of future maintenance revenue, increased from £3.4m to £3.7m during the year representing a growth rate of over 7%.

Revenue through resellers grew 44% in the year to £1.0m and is key growth area moving into 2016. The revenue mix has changed since the disposal of the Swedish architectural consultancy business during the year with a reduced contribution from lower margin services income. The mix is now at: Licences 30% (2014: 24%), Maintenance 48% (2014: 45%) and Services 22% (2014: 31%)

The geographic performance of the Group was mixed with strong sales growth in the UK up 13% to £4.9m (2014: £4.3m) and the Rest of World up 100% to £0.8m (2014: £0.4m). These upsides were partly offset by weaker sales across the Rest of Europe due to the currency headwinds referred to above. On a constant currency basis revenue grew in both Scandinavia and Germany by 2% and 4% respectively.

Gross profit

Gross profit is revenue less the direct cost of providing products and services to customers, principally the costs of training and consultancy staff. In 2015 the gross profit margin improved slightly from 88% to 89% due to a changed mix of Licences, Maintenance and Services revenue.

Overheads

Selling and administrative expenses were broadly flat at £12.4m after amortisation of intangible assets of £0.5m (2014: £0.4m) as the Group continued its tight control on overheads. The average number of employees during the year was 178 (2014: 170).

Software product development expenses amounted to £2.3m for the year (2014: £2.6m) of which £0.7m (2014: £0.6m) was capitalised. The projects which met the requirements of the accounting policy for capitalisation and were therefore capitalised in the year relate to the following products: Arcon Evo, BIM APP v2, BIM APP v3 and Bidcon.net. The carrying value of these software assets together with the carrying value of software assets capitalised in previous periods was reviewed for impairment at the balance sheet date and no impairment was required.

Profit

Continuing operations operating profit was £1.1m (2014: £0.9m) a growth of 24% over the prior period. Profit before tax was £1.0m, up £0.3m, over 46% compared to the prior period. Taxation cost was £0.2m in the period (2014: £0.2m) representing 20% of profit before tax. (2014: 25%)

Balance Sheet and Cash Flow

Shareholder's equity increased to £7.9m, up £1.2m, 17% at 31 December compared to 2014. Net borrowings, including finance leases, were significantly lower at £0.8m compared to £2.0m in the prior period. This improvement was driven by strong free cash flow and business disposal proceeds and resulted in a significant drop in gearing from 30% at 1 January 2015 to 10% at 31 December.

Trade and other receivables decreased to £2.9m (2014: £3.1m) partly due to the business disposal during the year. This represented 48 days sales outstanding compared to 49 for the prior period. Trade and other payables decreased to £1.3m (2014: £1.6m) and accruals were lower at £1.4m (2014: £1.7m).

Cash generated from operations amounted to £1.6m in the year, compared to a cash outflow of £0.4m in the prior period. Free cash flow increased to £0.7m compared to a cash outflow of £0.3m in the prior period.

The table below summarises the cash flow performance in the year.

Capital and financing

The UK banking facilities are with Barclays Bank plc and the Group facilities comprise the following:

· a term loan of £3.0m, with 16 quarterly loan repayments of £187,500 commencing from October 2014, carrying an interest rate of 3.25% over base rate; and

· a £1.0m overdraft facility, carrying an interest rate of 2.75% over base rate

Security provided to the bank for the provision of these facilities is a cross guarantee and debenture between the parent company and certain UK subsidiary companies and a commitment of the shares of the operating companies.

Covenants have been made to the bank in respect of three elements: EBITA to gross financing costs, net borrowings to EBITDA and cash flow to debt service. These covenants are tested quarterly.

A share capital reduction was completed on 1 July 2015 and consequently the share capital, share premium and other reserve accounts have been adjusted in both the Group and Company Balance Sheets.

Business disposal / Discontinued operations

The Group disposed of its non-core architectural consultancy business in Sweden in December 2015 for a total consideration of £862,000 (Swedish Krona 11,075,000). The profit before tax on disposal of this business, net of related purchased goodwill, was £468,000. Consequently the trading results of this operation for the period up to the disposal date have been presented under discontinued operations and the prior period has been restated accordingly.

Earnings per share and dividends

The basic earnings per share on continuing operations is 1.1p (2014: 0.8p).The basic earnings per share on total operations is 1.6p (2014: loss 0.2p before discontinued exceptional items).

The successful completion of the share capital reduction and improved trading performance during the year will give the Board the opportunity to consider and recommend dividends in the foreseeable future. At present the Board has not recommended the payment of a dividend in respect of the year ended 31 December 2015.

Graham Spratling

Group Finance Director

15 April 2016

Consolidated Income Statement

For the year ended 31 December 2015

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2015

Consolidated Statement of Changes in Equity

For the year 31 December 2015

Consolidated Balance Sheet

At 31 December 2015

Consolidated Statement of Cash Flows

for the year ended 31 December 2015

Extract from Notes to the Consolidated Financial Statements

1. Revenue

Revenue from continuing operations disclosed in the income statement is analysed as follows:

2. Segment information

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.

The chief operating decision maker has been identified as the Executive Directors. The Group revenue is derived entirely from the sale of software licences, software maintenance and support and related services. Consequently, the Executive Directors review the three revenue streams but as the costs are not recorded in the same way the information is presented as one segment and as such the information is presented in line with management information. 

Geographical, Product and sales channel information

Revenue by geographical area represents continuing operations revenue from external customers based upon the geographical location of the customer.

Revenue by geographical destination is as follows:

Rest of World includes revenue from customers in the USA of £571,000 (2014: £163,000)

Revenue by product group represents continuing operations revenue from external customers.

Revenue by product group is as follows:

The Group utilises resellers to access certain markets.. Revenue by sales channel represents continuing operations revenue from external customers.

Revenue by sales channel is as follows:

Non-current assets excluding deferred tax by geographical area represent the carrying amount of assets based in the geographical area in which the assets are located.

Non-current assets by geographical location are as follows:

Information about major customers

Revenues arising from sales to the Group's largest customer were below the reporting threshold of 10% of Group revenue (2014: Below 10% reporting threshold).

3. Exceptional items

Exceptional items represent income and costs considered necessary to be separately disclosed by virtue of their size or nature:

4. Operating profit

The continuing operations operating profit for the period is stated after charging/(crediting) the following items.