Earnings Release • Mar 19, 2019
Earnings Release
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Elecosoft PLC
19 March 2019
19 March 2019
Elecosoft plc
("Elecosoft", the "Company" or the "Group")
Preliminary Results for the Year Ended 31 December 2018
Based on unaudited annual accounts
Elecosoft plc (AIM: ELCO), the construction software specialist, is pleased to announce its results for the year ended 31 December 2018.
Financial Highlights
· Revenue up 11% to £22.2m (2017: £20.0m) of which 57% was recurring maintenance, support and subscription revenue (2017: 55%)
· Revenue from acquisitions contributed 8% of reported revenue growth
· Recurring revenues up 14% to £12.6m
· Reported operating profit up 11% to £2.6m (2017: £2.4m)
· Profit before tax up 8% to £2.4m (2017: £2.3m)
· Reported basic earnings per share down 4% to 2.4p (2017: 2.5p)
· Adjusted operating profit* up 41% to £3.9m (2017: £2.8m)
· Adjusted earnings per share* up to 3.9p (2017: 2.9p)
· Cash generated from operations up 7% to £4.5m (2017: £4.2m)
· Free cash flow** down 2% to £2.6m (2017: £2.6m)
· Adjusted free cash flow before cash impact of exceptional items** up 24% to £3.3m (2017: £2.6m)
· 101% of adjusted operating profit converted into adjusted operating cashflow (2017: 102%)
· Net debt of £2.1m, with £6.0m cash at year end (2017: £1.0m net cash)
· Full year dividend up 13% (0.08p) to 0.68p (2017: 0.60p) with final recommended dividend of 0.40p
· Software development spend up 1% to £2.8m (2017: £2.7m), representing 13% of revenue
(* Adjusted profit measures exclude acquisition related expenses and amortisation of acquired intangible assets.)
(* Non-gaap measures, see note 9.)
(** Free cash flow is defined as cashflow from operating activities less capitalised software, capex and adding back proceeds from the disposal of assets.)
Operational Highlights
· Significant progress made in relation to Elecosoft's strategy to extend its software portfolio to cover each stage of a building's life cycle, both before and after completion of the build phase
o Acquisition of Shire Systems Limited ("ShireSystem"), a leading UK provider of computerised maintenance management software ("CMMS") in July 2018
o Acquisition of Active Online GmbH ("ActiveOnline"), a visualisation software business which specialises in soft furnishings and materials for photographic room scenes with AR and VR capabilities in November
· Launch of Powerproject Vision in the UK the new cloud-based collaboration and construction planning software solution
· Launch of Memmo in Sweden, Elecosoft's new site management software
· UK nationwide Powerproject User Forum, Powerproject also won Project Management/ Planning Product of the Year for the 5th consecutive year at Construction Computing Awards
· Continued success in the sales of Staircon, Elecosoft's stair design SW, with a new all-time-high in sales 2018 and launch of Staircon Online Designer
· Bidcon Climate Module shortlisted by Swedish Boverket, the Swedish National Board of Housing, Building and Planning, as one of three preferred LCA estimation solutions.
· Appointment of Ben Moralee as Finance Director and Mukul Mistry as Corporate Development Director
Executive Chairman, John Ketteley said:
"2018 was a year of continuing growth and progress for Elecosoft, despite uncertainties attributable to the Brexit saga. However our management is conscious of the need in such conditions to apply sound financial policies, maintain a strong balance sheet and ensure that the fundamentals of our business remain in good shape. Elecosoft is increasingly seen as evolving into a leading international provider of construction software, with applications in various phases of construction projects, with software for property maintenance, digital storage of property data and visualisation software of the highest quality for internal property applications. Our co-ordinated software range has also enabled Elecosoft to initiate an increasingly successful strategy of cross selling in markets it serves. Brexit may well continue to effect markets in 2019. However, given the strength of Elecosoft's finances, the international spread of its markets, and the creativity and quality of Elecosoft's market leading software portfolio, I look forward to the year ahead with confidence."
| For further information, please contact: | |
| Elecosoft plc | Tel: +44 (0)20 7422 8000 |
| John Ketteley, Executive Chairman | |
| Jonathan Hunter, Chief Operating Officer Ben Moralee, Group Finance Director |
|
| finnCap Limited | Tel: +44 (0)20 7220 0500 |
| Geoff Nash/ Kate Bannatyne (Nomad) | |
| Camille Gochez (ECM) | |
| Newgate Communications | Tel: +44 (0)20 3757 6880 |
| Elisabeth Cowell / Fiona Norman | [email protected] |
About Elecosoft plc
Elecosoft is a specialist international provider of software and related services to the Architectural, Engineering, Construction and Owner/Operator (AECO) industries 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 solutions cover project management, construction site management, estimating, timber engineering, 3D design and visualisation, property management and cloud based digital marketing solutions. Elecosoft is listed on the Alternative Investment Market in London (AIM: ELCO).
Executive Chairman's Statement
"I am pleased to report on a year of continuing growth and significant progress in the year ended 31 December 2018."
Trading
Revenues
Group Revenues for the year ended 31 December 2018 were £22.2m (2017: £20m), an increase of 11 per cent. Group Revenues are generated from Project Management Software, Site Management Software, Estimating Software, Engineering Software, CAD/Design Software, Information Management Software, Visualisation Software and Maintenance Management Software and related training and support.
UK revenues increased 27 per cent to £8.2m (2017: £6.5m) equivalent to 37 per cent of Group revenues. UK revenues included sales of £1.1m by ShireSystem from 5 July 2018, the date of acquisition.
Overseas revenues increased of 3.0 per cent to £14.0m (2017: £13.5), equivalent to 63 per cent of Group revenues. However our Swedish revenues were adversely affected by the weakness of the Swedish Krona in the year under review. Overseas revenues included £0.4m revenues of Active Online from 6 November 2018, the date of acquisition.
Overseas revenues were generated as follows: Scandinavia: £6.8m (2017: £7.2m); Germany: £3.4m (2017: £3.1m); Rest of Europe: £2.5m (2017: £2.2m); and Rest of World £1.3m (2017: £1.1m).
Profits
Adjusted operating profit for the year, before deduction of exceptional items and amortisation of acquired intangible assets was £3.9m (2017: £2.8m), an increase of 41 per cent; and adjusted earnings per share were 3.9 pence (2017: 2.9 pence), an increase of 34 per cent.
Operating profit for the year under review was £2.6m (2017: £2.4m). Profit before tax for the year under review was £2.4m (2017: £2.3m) and profit after tax for the year was £1.8m (2017: £1.9m) a decrease of 4 per cent.
Financial Performance
The Board is very conscious of the need of a fast-growing technology business, such as Elecosoft, to have in place adequate access to the Companies own cash resources and banking facilities.
Cash generated from operations, in the year under review, amounted to £4.5m (2017: £4.2m) and Adjusted Free Cash Flow (before exceptional items), also increased by 24 per cent to £3.3m (2017: £2.6m).
We entered a facility agreement with Barclays Bank on the 4th July for a £8.0m sterling, 5 year term loan facility, with a 3 year fixed rate term basis reverting to a Floating Rate thereafter. Deducting cash balances of £6.0m, Elecosoft's net debt as at 31 December 2018 was £2.1m (2017: £1.0m net cash).
I would like to record the appreciation of the Board for the excellent well-structured banking facilities and support that we have received from Barclays to finance our growing business.
Group net assets at 31 December 2018 amounted to £15.7m (31 December 2017: £11.5m).
Software Development
Market leading software has been key to the success of Elecosoft's business and its software portfolio has been developed over the years by its own teams of developers in the UK, Germany, Sweden and now Spain.
Our development teams which are the lifeblood of a software company, have continued to grow as a result of developers joining our existing teams of experienced colleagues and through acquisition.
I am proud to say that our development teams have made remarkable progress in developing market-leading construction software over the years because of the complexity and speed of innovation that is required in the development of construction software. Our software development teams are undoubtedly a valuable resource and the Board has therefore decided that we should develop a strategy specifically aimed at retaining our software developers and, where necessary, strengthening our development teams.
Mukul Mistry, Group Corporate Development Director, will be the Director responsible for the co-ordination and management of all the Group's software development interests, its software development teams and a comprehensive group wide software strategy.
Software development expenditure in the year under review increased to £2.8m (2017: £2.7m), which included expenditure on major software development projects totalling £1.0m, which were capitalised in the year (2017: £1.1m).
Acquisition, trading and marketing highlights
2018 has been another significant year for Elecosoft with the acquisition of both Shire Systems Ltd ("ShireSystem") and ActiveOnline GmbH ("ActiveOnline"), each of which complement existing Elecosoft business.
ShireSystem, based in Southampton, was acquired in July 2018, and provided Elecosoft with an immediate foothold in the strategically important Computerised Maintenance Management Systems (CMMS) market. It also increased Elecosoft's coverage of software solutions across the life cycle of property assets and facilities.
ActiveOnline which is based in Wesel, Germany, was acquired in November 2018, and will collaborate closely with ESIGN, Elecosoft's international software visualisation business based in Hannover, Germany. ESIGN specialises in the development of software for the visualisation of hard and flat surfaces, and ActiveOnline specialises in the development of software for the visualisation of curved surfaces, soft fabrics and coverings. ActiveOnline has created and maintains an extensive world class visualisation software database of fabrics and materials.
Both companies are already actively pursuing cross-selling of products across the Group.
IconSystem which is based in Market Harborough also successfully increased its market penetration of the property related data storage market in the year under review. It also won "EE" the mobile telephone company as a major client.
Marketing highlights included the launch of Elecosoft's German website, www.elecosoft.de; successful participations at trade events such as Nordbygg in Sweden and the BAU Show in Munich, Germany in January 2019. Esign also released "Pixmo" a new internet platform for visualising ceramic tiles in Germany www.pixmo.live ; Elecosoft Sweden also launched Memmo, a new site management software, in Sweden.
Elecosoft UK launched Powerproject Vision, it's new cloud-based collaboration application for construction planning. Elecosoft celebrated Powerproject® winning the award for Best Project Planning Software at the 2018 Construction Software Awards ("the Hammers") for the fifth year running. This is a truly momentous achievement for Powerproject and its dedicated team of developers. Elecosoft also plans to launch Version 15 of its flagship Powerproject® project management software in April 2019, together with the latest version of Elecosoft's Site Progress Mobile. The release in Germany of the latest version of Elecosoft's Arcon Evo and Arcon Professional, Elecosoft's 3D CAD software, was also well-received by the German architectural sector resulting in strong direct and online sales of both products.
Brexit
As a Group, Elecosoft finds itself in the enviable position to be able to mitigate any uncertainty by continuing to refine the cash management strategies started in the period leading up to the Referendum on 23 June 2016.
Since this period, we have actively managed our revenue streams and local income and expenditures within and without the EU to ensure there is adequate cash generated and held in these regions.
This spread of business with local income and expenditures creates a natural hedge to volatility and uncertainty and while closely monitored we have yet to undertake any additional actions outside the normal course of business.
The Elecosoft Team and the Board
Employees
I am delighted that the average number of employees in the Elecosoft team has increased from 201 in 2017 to 228 in 2018. They are a strong and talented group of people who work with skill, enthusiasm and humour in all the markets we serve. On behalf of the Board and shareholders, I would like to take this opportunity to thank them for all their efforts and support in 2018 and to wish them every success in the year ahead. I also extend a warm welcome to those new employees, who have joined us during the year.
The Elecosoft Board
Executive Directors
Jonathan Hunter, Chief Operating Officer
Jonathan Hunter, Chief Operating Officer, is responsible for monitoring the management of the Group's existing operations and also for identifying potential acquisition opportunities and technologies which are compatible with our existing operations. Accordingly, he played a leading role in identifying and acquiring ShireSystem in the UK and in the acquisition of ActiveOnline in Germany, in the year under review. He is now collaborating with colleagues to maximise the synergistic potential of both these businesses.
Anders Karlsson, Managing Director of Elecosoft Consultec AB
Anders Karlsson, Managing Director Elecosoft Consultec AB, is responsible for our Swedish operations which generates approximately a third of the group revenues as well as developing and managing almost half of our products.
He has over 20 years of business development and management experience, he was initially appointed Managing Director of Consultec Byggprogram AB in August 2005 and then re-joined the Group after four years as CEO of an international signage company. He has been responsible for the growth of Staircon in both the US and Australia, the delivery of Elecosoft's Memmo and Bidcon Climate module software products. I would like to take this opportunity to congratulate him and his team on their delivery.
Mukul Mistry, Corporate Development Director
I take this opportunity formally to welcome Mukul Mistry, BSc to the Board. He joined the Board in June 2018 and was appointed Corporate Development Director. Mukul has 20 years of experience in the technology industry spanning continents, industries and a range of niche and mainstream technology specialties. He is responsible for business development initiatives in the US, international channels and our German operations where he will oversee the integration of ActiveOnline with our ESIGN business. As mentioned elsewhere in this report, he has also been appointed Group Head of Software.
Ben Moralee, FCA. Group Finance Director
Ben Moralee was appointed Group Finance Director in September 2018. Ben joined Elecosoft following the departure of Simon Morgan, in September 2018. He held a number of senior financial positions before joining Elecosoft, including Financial Controller at Serena Software Europe Limited, a subsidiary of MicroFocus PLC; and Head of Finance at Figleaves, a subsidiary of N Brown Group PLC.
Non-Executive Directors
The importance of the contribution effective Non-Executive Directors to ensuring appropriate standards of Corporate Governance cannot be overstated and on behalf of my executive colleagues and myself and shareholders, I would also like to thank, our Non-Executive Directors, Serena Lang, our Deputy Chairman, David Dannhauser and Kevin Craig, for their sound judgements and constructive comments during the year.
Tomas Astrom
I would like to take this opportunity to thank Tomas Astrom, Finance Director of our Swedish business, on his 16 years of outstanding service to Elecosoft and wish him well in his retirement.
Proposed Dividend
In light of Elecosoft's strong trading performance and cash generation in 2018, the Board has decided to recommend a final scrip dividend of 0.40 pence per share, with a cash alternative dividend of 0.40 pence per share, to give a total dividend for the year of 0.68 pence per share.
This represents an increase of 13 per cent relative to the previous year (2017 total dividend: 0.60 pence per share). The scrip reference price is 74.74 pence, calculated from the average of the closing price for an ordinary share of the company as derived from the daily official list of the London Stock Exchange during the period of five dealing days ending 18th March 2018.
Payment of the final dividend will be subject to approval by shareholders at the Annual General Meeting and will be paid on 31 May 2019 to shareholders on the register at the close of business on 29 March 2019; the ex-dividend date will be 28 March 2019.
Outlook
Despite the uncertainties engendered by Brexit, Elecosoft has performed well in the first two months of the current financial year. We also anticipate releasing a number of new products in the next few months, including the eagerly awaited Version 15 of Powerproject and Site Progress Mobile.
ShireSystem has performed very well since its acquisition and is already demonstrating the potential for cross selling its products. The potential of the combination of ActiveOnline with ESIGN has also been evident since the acquisition of ActiveOnline.
Our Development Centres in the UK, Sweden, Germany and now Spain, are close to our main customers, which is important because the success of our software development activities depends on close collaboration with our customers so that we are able to deliver to them software that exactly meets their requirements.
The rate of growth and international spread of our businesses also requires us to maintain close and prudent financial monitoring and financial policies. With these key elements in place and with a highly skilled development and management team, I believe that Elecosoft is well placed to improve further its performance and growth in 2019 for the benefit of our customers, our employees and our shareholders and I look forward with confidence in the year ahead.
John Ketteley
Executive Chairman
19 March 2019
Financial Review
2018 was another successful financial year, with both reported revenue growth and operating profits up 11% on 2017. The core business has grown in spite of the macroeconomic uncertainties and unfavourable movements in trading currencies.
We successfully completed the acquisitions of ShireSystem, a computerised maintenance management software business extending our software portfolio further into the building lifecycle, and ActiveOnline a visualisation software business, complementary to our existing ESIGN business.
Funding for the acquisition of ShireSystem was secured by way of entering into a new term loan facility of £8m and raising a further £2.25m through a share placement to accelerate the acquisition and integration of ActiveOnline with our existing visualisation business ESIGN.
We have continued to convert a high proportion of cash from our operating profits into operating cashflow and at the year-end we have shown a net debt position of £2.1m, following the £8m term loan.
Revenue
Revenue from continuing operations for the year increased 11% to £22.2m (2017: £20.0m). Underlying revenue growth (excluding the impact of acquisitions and movements in foreign exchange rates) was 5%. The acquisitions of ShireSystem and ActiveOnline in July 2018 and November 2018 respectively contributed a further 8%, while the overall negative impact of a foreign exchange offset the underlying revenue growth by 2%.
The overall revenue profile of the Group remains strong, with the proportion of revenue derived from recurring maintenance, support and subscription revenue which increased to 57% (2017: 55%). The level of deferred income at the balance sheet date, measuring future maintenance revenue, increased by 18% to £5.7m (2017: £4.8m).
Reported revenue growth was driven by direct sales with an increase of 12% to £21.0m (2016: £18.8m). Sales through reseller channels grew by 4% to £1.3m.
The Group delivered solid revenue growth of 23% in its core mature markets of the UK and Germany, which together comprise 53% of total revenue. Scandinavia revenues were down by 6%, driven by unfavourable foreign currency impact between Sterling and Krona. The Group's strategy to penetrate new geographic markets was reflected in strong revenue growth in the USA, which grew 18% to £0.8m, in the Rest of Europe, which grew 14% to £2.5m and the Rest of World, which grew 34% to £0.5m.
Profit
Gross profit is revenue less the direct cost of providing products and services to customers, principally the costs of training and consultancy staff.
Reported operating profit grew 11% to £2.6m (2017: £2.4m).
The period includes costs of £0.7m in relation to the acquisition of ShireSystem and ActiveOnline. After excluding the impact of these costs, together with the impact of the non-cash amortisation of acquired intangible assets as set out below, adjusted operating profit for the Group increased by 41%.
| 2018 | 2017 | ||
| £'000 | £'000 | ||
| Operating profit | 2,619 | 2,361 | |
| Acquisition expenses | 689 | - | |
| Amortisation of acquired intangible assets | 595 | 412 | |
| Adjusted operating profit | 3,903 | 2,773 |
Software product development expenses amounted to £2.8m for the year (2017: £2.7m) of which £1.0m (2017: £1.0m) was capitalised demonstrating the commitment to investing increasingly in new product development and substantial product upgrades. The spend capitalised in the year includes investments in Memmo, Staircon Online Designer and Powerproject Vision all launched in the second half of 2018, and investment in Powerproject Version 15 to be launched in 2019. 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.
Finance costs in the year, largely in respect of the Group's term debt, totalled £0.2m (2017: £0.1m), resulting in a profit before tax of £2.4m (2017: £2.3m).
The Group tax charge in the year was £0.6m (2017: £0.3m) and represented 24.6% of profit before tax (2017: 15.8%). The increase in rate compared with 2017 reflects the disallowable nature of the acquisition related expenses.
The net profit attributable to ordinary shareholders decreased by 4% to £1.8m (2017: £1.9m).
After adjusting for the post-tax effect of acquisition expenses and amortisation of acquired intangible assets adjusted net profit attributable to ordinary shareholders increased by 37% to £3.0m (2017: £2.2m).
| 2018 | 2017 | ||
| £'000 | £'000 | ||
| Net profit after tax | 1,829 | 1,897 | |
| Acquisition expenses | 689 | - | |
| Amortisation of acquired intangible assets | 482 | 291 | |
| Adjusted net profit after tax | 3,000 | 2,188 |
Cash flows
Cash generated from operations increased to £4.5m (2017: £4.2m), reflecting the strong trading performance of the Group and continued focus on management of working capital. Overall working capital movements were favourable, contributing a net cash inflow of £0.4m (2017: £0.5m).
Capital expenditure on intangible assets, principally comprising the capitalisation of software product development costs of £1m, was £1.1m (2017: 1.2m), reflecting the increased focus on the development of new products and major product upgrades. Capital expenditure on property, plant and equipment was £0.1m (2017: £0.2m)
After deducting capital expenditure and acquisition related expenses, adjusted operating cashflow, as set out below, was £4.0m (2017: £2.8m), meaning that 101% of adjusted operating profit (2017: 102%) was converted into cash. This reflects the strength of the overall business model where 57% of the group's revenue is recurring and typically invoiced annually in advance, and the close focus on management of working capital.
| 2018 | 2017 | ||
| £'000 | £'000 | ||
| Cash generated in operations | 4,455 | 4,167 | |
| Purchase of intangible assets | (1,064) | (1,154) | |
| Purchase of property, plant and equipment | (123) | (180) | |
| Acquisition expenses | 689 | - | |
| Adjusted operating cashflow | 3,957 | 2,833 |
Free cash flow before dividends and acquisition related expenses increased by 24% in the year to £3.3m (2017: £2.6m). Cash dividends paid to shareholders amounted to £0.2m (2017: £0.2m).
| 2018 | 2017 | ||
| £'000 | £'000 | ||
| Adjusted operating cashflow | 3,957 | 2,833 | |
| Net interest paid | (151) | (98) | |
| Tax paid | (618) | (251) | |
| Proceeds from disposals of property, plant and equipment | 83 | 161 | |
| Adjusted free cash flow | 3,271 | 2,645 | |
| Acquisition expenses | (689) | - | |
| Free cash flow | 2,582 | 2,645 |
Funding and liquidity
The Group ended the year with a net debt position of £2.1m (2017: net cash £1.m)
The Group's net cash position comprises cash at hand of £6.0m (2017: £4.7m), offset in part by gross borrowings of £7.9m (2017: £3.4m) and obligations under finance leases of £0.3m (2017: £0.3m). Gross borrowings comprise a term debt of £7.6m from Barclays and a loan balance against the ActiveOnline property acquired £0.3m.
The £7.6m term debt taken out in July, replaced a previous loan balance of £2m. The loan is repayable in quarterly instalments over the next five years, with £1.6m to be paid annually. The term debt carries a fixed interest rate of 3.768% over the next three years.
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: EBITDA to gross financing costs, EBITDA to gross borrowings and cash flow to debt service. These covenants are tested quarterly.
Earnings per share (EPS) and dividends
Basic EPS decreased 4% to 2.4p (2017: 2.5p).
Adjusted basic EPS, adjusted for the impact of exceptional acquisition related expenses, amortisation of acquired intangibles assets and the for associated tax impact, increased 34% to 3.9p (2017: £2.9p)
The Board has recommended the payment of a final scrip dividend in respect of the year ended 31 December 2018 of 0.40p per share (2017 final dividend: 0.40p), with a cash alternative to be made available. This gives total dividends in respect of the financial year of 0.68p per share (2017: 0.60p), an increase of 13% over 2017.
Consolidated Income Statement
For the year ended 31 December 2018
| 2018 | 2017 | ||||||||
| £'000 | £'000 | ||||||||
| Continuing operations | |||||||||
| Revenue | 22,220 | 19,996 | |||||||
| Cost of sales | (2,684) | (2,421) | |||||||
| Gross profit | 19,536 | 17,575 | |||||||
| Amortisation and impairment of intangible assets | (1,124) | (1,035) | |||||||
| Acquisition expenses | (689) | - | |||||||
| Other selling and administrative expenses | (15,104) | (14,179) | |||||||
| Selling and administrative expenses | (16,917) | (15,214) | |||||||
| Operating profit | 2,619 | 2,361 | |||||||
| Finance income | - | - | |||||||
| Finance cost | (192) | (107) | |||||||
| Profit before tax | 2,427 | 2,254 | |||||||
| Tax | (598) | (357) | |||||||
| Profit for the financial period | 1,829 | 1,897 | |||||||
| Attributable to: | |||||||||
| Equity holders of the parent | 1,829 | 1,897 | |||||||
| Earnings per share - (pence per share) | |||||||||
| Basic | 2.4 | p | 2.5p | ||||||
| Diluted | 2.3 | p | 2.5p |
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
| 2018 | 2017 | |||||||
| £'000 | £'000 | |||||||
| Profit for the period | 1,829 | 1,897 | ||||||
| Other comprehensive income: | ||||||||
| Items that will be reclassified subsequently to profit and loss: | ||||||||
| Translation differences on foreign operations | (82) | 14 | ||||||
| Other comprehensive income net of tax | (82) | 14 | ||||||
| Total comprehensive income for the period | 1,747 | 1,911 | ||||||
| Attributable to: | ||||||||
| Equity holders of the parent | 1,747 | 1,911 |
Consolidated Statement of Changes in Equity
For the year 31 December 2018
| Share capital | Share premium | Merger reserve | Translation reserve | Other reserve | Retained earnings | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 January 2017 | 771 | - | 578 | (80) | (339) | 8,786 | 9,716 |
| Dividends | - | - | - | - | - | (197) | (197) |
| Share-based payments | - | - | - | - | 56 | - | 56 |
| Issue of share capital | 3 | - | (3) | - | - | - | - |
| Transactions with owners | 3 | - | (3) | - | 56 | (197) | (141) |
| Profit for the period | - | - | - | - | - | 1,897 | 1,897 |
| Other comprehensive income: | |||||||
| Exchange differences on translation of net investments in foreign operations | - | - | - | 14 | - | - | 14 |
| Total comprehensive income for the period | - | - | - | 14 | - | 1,897 | 1,911 |
| At 31 December 2017 | 774 | - | 575 | (66) | (283) | 10,486 | 11,486 |
| Dividends | - | - | - | - | - | (188) | (188) |
| Share-based payments | - | - | - | - | 106 | - | 106 |
| Issue of share capital | 44 | 2,050 | 429 | - | - | - | 2,523 |
| Transactions with owners | 44 | 2,050 | 429 | - | 106 | (188) | 2,441 |
| Profit for the period | - | - | - | - | - | 1,829 | 1,829 |
| Exchange differences on translation of net investments in foreign operations | - | - | - | (82) | - | - | (82) |
| Other | - | (1) | - | - | - | 1 | - |
| Total comprehensive income for the period | - | (1) | - | (82) | - | 1,830 | 1,747 |
| At 31 December 2018 | 818 | 2,049 | 1,004 | (148) | (177) | 12,128 | 15,674 |
Consolidated Balance Sheet
At 31 December 2018
| 2018 | 2017 | |||||||
| £'000 | £'000 | |||||||
| Non-current assets | ||||||||
| Goodwill | 15,746 | 11,480 | ||||||
| Other intangible assets | 7,536 | 3,432 | ||||||
| Property, plant and equipment | 1,203 | 833 | ||||||
| Deferred tax assets | 139 | 219 | ||||||
| Total non-current assets | 24,624 | 15,964 | ||||||
| Current assets | ||||||||
| Inventories | 8 | 16 | ||||||
| Trade and other receivables | 4,491 | 3,738 | ||||||
| Current tax assets | 54 | 37 | ||||||
| Cash and cash equivalents | 6,036 | 4,737 | ||||||
| Total current assets | 10,589 | 8,528 | ||||||
| Total assets | 35,213 | 24,492 | ||||||
| Current liabilities | ||||||||
| Bank overdraft and borrowings | (1,648) | (1,802) | ||||||
| Obligations under finance leases | (98) | (120) | ||||||
| Trade and other payables | (1,600) | (1,496) | ||||||
| Provisions | (144) | (209) | ||||||
| Current tax liabilities | (343) | (241) | ||||||
| Accruals and deferred income | (7,713) | (6,592) | ||||||
| Total current liabilities | (11,546) | (10,460) | ||||||
| Non-current liabilities | ||||||||
| Borrowings | (6,202) | (1,580) | ||||||
| Obligations under finance leases | (197) | (204) | ||||||
| Deferred tax liabilities | (1,553) | (721) | ||||||
| Non-current provisions | (41) | (41) | ||||||
| Total non-current liabilities | (7,993) | (2,546) | ||||||
| Total liabilities | (19,539) | (13,006) | ||||||
| Net assets | 15,674 | 11,486 | ||||||
| Equity | ||||||||
| Share capital | 818 | 774 | ||||||
| Share premium account | 2,049 | - | ||||||
| Merger reserve | 1,004 | 575 | ||||||
| Translation reserve | (148) | (66) | ||||||
| Other reserve | (177) | (283) | ||||||
| Retained earnings | 12,128 | 10,486 | ||||||
| Equity attributable to shareholders of the parent | 15,674 | 11,486 |
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
| 2018 | 2017 | |||||||
| £'000 | £'000 | |||||||
| Cash flows from operating activities | ||||||||
| Profit before tax | 2,427 | 2,254 | ||||||
| Net finance costs | 192 | 107 | ||||||
| Depreciation charge | 263 | 247 | ||||||
| Amortisation charge | 1,124 | 1,035 | ||||||
| Profit on sale of property, plant and equipment | (16) | (15) | ||||||
| Share-based payments charge | 106 | 56 | ||||||
| Decrease in provisions | (63) | (20) | ||||||
| Cash generated in operations before working capital movements | 4,033 | 3,664 | ||||||
| Increase in trade and other receivables | (753) | (65) | ||||||
| Decrease/(increase) in inventories and work in progress | 15 | (5) | ||||||
| Increase in trade and other payables and accruals and deferred income | 1,160 | 573 | ||||||
| Cash generated in operations | 4,455 | 4,167 | ||||||
| Interest paid | (151) | (98) | ||||||
| Interest received | - | - | ||||||
| Income tax paid | (618) | (251) | ||||||
| Net cash inflow from operating activities | 3,686 | 3,818 | ||||||
| Investing activities | ||||||||
| Purchase of intangible assets | (1,064) | (1,154) | ||||||
| Purchase of property, plant and equipment | (123) | (180) | ||||||
| Acquisition of subsidiary undertakings net of cash acquired | (7,169) | - | ||||||
| Proceeds from sale of property, plant, equipment and intangible assets | 83 | 161 | ||||||
| Sale of business net of expenses | - | - | ||||||
| Net cash inflow from investing activities | (8,273) | (1,173) | ||||||
| Financing activities | ||||||||
| Proceeds from new bank loan | 6,025 | - | ||||||
| Repayment of bank loans | (807) | (790) | ||||||
| Repayments of obligations under finance leases | (139) | (226) | ||||||
| Equity dividends paid | (188) | (197) | ||||||
| Issue of share capital | 2,083 | - | ||||||
| Net cash (outflow)/inflow from financing activities | 6,974 | (1,213) | ||||||
| Net increase in cash and cash equivalents | 2,387 | 1,432 | ||||||
| Cash and cash equivalents at beginning of period | 3,725 | 2,237 | ||||||
| Effects of changes in foreign exchange rates | (76) | 56 | ||||||
| Cash and cash equivalents at end of period | 6,036 | 3,725 | ||||||
| Cash and cash equivalents comprise: | ||||||||
| Cash and short-term deposits | 6,036 | 4,737 | ||||||
| Bank overdrafts | - | (1,012) | ||||||
| 6,036 | 3,725 |
Extract from Notes to the Consolidated Financial Statements
1. Revenue
Revenue disclosed in the income statement is analysed as follows:
| 2018 | 2017 | ||||||||
| £'000 | £'000 | ||||||||
| Licence sales | 5,271 | 5,135 | |||||||
| Recurring maintenance, support and subscription revenue | 12,595 | 11,018 | |||||||
| Services income | 4,354 | 3,843 | |||||||
| Total revenue | 22,220 | 19,996 | |||||||
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 and profits are not monitored or recorded in the same way the information is presented as one segment and as such the information is presented in line with management information.
| 2018 | 2017 | ||||||
| Software | Software | ||||||
| £'000 | £'000 | ||||||
| Revenue | 22,220 | 19,996 | |||||
| Adjusted EBITDA | 4,695 | 3,643 | |||||
| Amortisation and impairment of purchased intangible assets | (529) | (623) | |||||
| Depreciation | (263) | (247) | |||||
| Adjusted Operating profit | 3,903 | 2,773 | |||||
| Amortisation of acquired intangible assets | (595) | (412) | |||||
| Acquisition expenses | (689) | - | |||||
| Operating profit | 2,619 | 2,361 | |||||
| Net finance cost | (192) | (107) | |||||
| Segment profit before tax | 2,427 | 2,254 | |||||
| Tax | (598) | (357) | |||||
| Segment profit after tax | 1,829 | 1,897 | |||||
| Operating profit | 2,619 | 2,361 | |||||
| Amortisation of intangible assets | 1,124 | 1,035 | |||||
| Depreciation charge | 263 | 247 | |||||
| Acquisition expenses | 689 | - | |||||
| Adjusted EBITDA | 4,695 | 3,643 |
Development project costs are expensed as incurred unless they meet the accounting policy requirements for capitalisation. The software projects that have been capitalised in the twelve months to 31 December 2018 are explained in the Financial Review. Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, and adjusted to exclude acquisition expenses.
2. Segment information continued
| 2018 | 2017 | ||||||
| Software | Software | ||||||
| £'000 | £'000 | ||||||
| Group assets and liabilities | |||||||
| Segment assets | 35,213 | 24,492 | |||||
| Unallocated assets | - | - | |||||
| Total Group assets | 35,213 | 24,492 | |||||
| Segment liabilities | 19,539 | 13,006 | |||||
| Unallocated liabilities | - | - | |||||
| Total Group liabilities | 19,539 | 13,006 | |||||
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:
| 2018 | 2017 | |||||
| £'000 | £'000 | |||||
| UK | 8,227 | 6,468 | ||||
| Scandinavia | 6,772 | 7,239 | ||||
| Germany | 3,442 | 3,066 | ||||
| USA | 777 | 656 | ||||
| Rest of Europe | 2,482 | 2,178 | ||||
| Rest of World | 520 | 389 | ||||
| 22,220 | 19,996 |
Revenue by product group represents continuing operations revenue from external customers.
Revenue by product group is as follows:
Software for:
| 2018 | 2017 | |||||
| £'000 | £'000 | |||||
| Project management | 9,774 | 9,161 | ||||
| Site management | 411 | 460 | ||||
| Estimating | 2,843 | 2,973 | ||||
| Engineering | 2,350 | 2,008 | ||||
| CAD/Design | 2,070 | 2,352 | ||||
| Information management | 1,180 | 1,044 | ||||
| Visualisation | 2,395 | 1,998 | ||||
| Maintenance management | 1,197 | - | ||||
| 22,220 | 19,996 |
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:
| 2018 | 2017 | |||||
| £'000 | £'000 | |||||
| Direct | 20,950 | 18,780 | ||||
| Reseller | 1,270 | 1,216 | ||||
| 22,220 | 19,996 |
2. Segment information continued
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:
| 2018 | 2017 | |||||
| £'000 | £'000 | |||||
| UK | 15,104 | 8,836 | ||||
| Scandinavia | 6,208 | 5,893 | ||||
| Germany | 3,242 | 1,156 | ||||
| USA | 2 | 3 | ||||
| Rest of Europe | 68 | 76 | ||||
| Rest of World | - | - | ||||
| 24,624 | 15,964 |
Information about major customers
Revenues arising from sales to the Group's largest customer were below the reporting threshold of 10% of Group revenue (2017: Below 10% reporting threshold).
3. Operating profit
The continuing operations operating profit for the period is stated after charging/(crediting) the following items.
| 2018 | 2017 | ||||||
| £'000 | £'000 | ||||||
| Software product development | 1,770 | 1,694 | |||||
| Depreciation of property, plant and equipment | 263 | 247 | |||||
| Amortisation of acquired intangible assets | 595 | 412 | |||||
| Amortisation of other intangible assets | 529 | 401 | |||||
| Impairment of other intangible assets | - | 222 | |||||
| Receipt from administrators of former group company | - | (166) | |||||
| Profit on disposal of property, plant and equipment | (16) | (15) | |||||
| Foreign exchange (gains)/losses | (31) | 55 | |||||
| Fees payable to the Company's auditor for: | - | - | |||||
| The audit of the parent company and consolidated financial statements | 43 | 33 | |||||
| Fees payable to the Company's auditor and its associates for other services: | - | - | |||||
| The audit of the Company's subsidiaries | 64 | 49 | |||||
| Other services | 14 | 8 | |||||
| Operating lease rentals: | |||||||
| Plant, equipment and vehicles | 267 | 56 | |||||
| Properties | 214 | 440 | |||||
| Acquisition expenses | 689 | - |
4. Employee information
The average number of employees during the period, including Directors, in continuing operations was made up as follows:
| 2018 | 2017 | ||||||
| number | Number | ||||||
| Sales & marketing | 56 | 55 | |||||
| Client services | 74 | 59 | |||||
| Software development | 58 | 50 | |||||
| Management and administration | 40 | 37 | |||||
| 228 | 201 |
Staff costs during the period, including Directors amounted to:
| 2018 | 2017 | ||||||
| £'000 | £'000 | ||||||
| Wages and salaries | 9,584 | 8,977 | |||||
| Social security | 1,951 | 1,833 | |||||
| Pension costs | 679 | 582 | |||||
| Share-based payments | 105 | 56 | |||||
| 12,319 | 11,448 | ||||||
| Less: Development staff costs capitalised | (1,014) | (1,052) | |||||
| 11,305 | 10,396 |
Pension costs relate to contributions to defined contribution pension schemes. Development staff costs are charged to projects and capitalised if those projects meet the criteria for capitalisation.
5. Net finance
| 2018 | 2017 | ||||||
| £'000 | £'000 | ||||||
| Finance costs: | |||||||
| Bank overdraft and loan interest | (187) | (101) | |||||
| Finance leases and hire purchase contracts | (5) | (6) | |||||
| Total net finance cost | (192) | (107) |
6. Taxation
(a) Tax on profit on ordinary activities
The tax charge in the income statement from continuing operations is as follows:
| 2018 | 2017 | ||||||
| £'000 | £'000 | ||||||
| Current tax: | |||||||
| UK corporation tax on profits of the year | 276 | 122 | |||||
| Tax adjustments in respect of previous years | (27) | 72 | |||||
| 249 | 194 | ||||||
| Foreign tax | 324 | 231 | |||||
| Total current tax | 573 | 425 | |||||
| Deferred tax: | |||||||
| Origination and reversal of temporary differences | (4) | (55) | |||||
| Tax adjustments in respect of previous years | 29 | (13) | |||||
| Total deferred tax | 25 | (68) | |||||
| Tax charge in the income statement | 598 | 357 |
Income tax for the UK has been calculated at the weighted average rate of UK corporation tax of 19% (2017: 19.25%) on the estimated assessable profit for the period. Taxation for foreign companies is calculated at the rates prevailing in the relevant jurisdictions.
(b) Reconciliation of continuing operations tax charge
The tax assessed on continuing operations accounting profit before income tax for the year is the same as the standard rate of UK corporation tax of 19% (2017: 19.25%) for the period under review. The reconciliation is explained below:
| 2018 | 2017 | ||||||
| £'000 | £'000 | ||||||
| Profit on continuing operations before tax | 2,427 | 2,254 | |||||
| Tax calculated at the average standard rate of UK corporation tax of 19% (2017: 19.25%) applied to profits before tax | 462 | 434 | |||||
| Effects of: | |||||||
| Expenses not deductible for tax purposes | 171 | 32 | |||||
| Research & development tax relief | (101) | (36) | |||||
| Deferred tax not recognised | - | (16) | |||||
| Prior year adjustments | 34 | (23) | |||||
| Utilisation of losses | (26) | (60) | |||||
| Tax rate differences in foreign jurisdictions | 56 | 26 | |||||
| Other differences | 2 | - | |||||
| Continuing operations tax charge for the year | 598 | 357 |
6. Taxation continued
(c) Unrecognised tax losses
The Group has tax losses of £1,673,000 (2017: £1,673,000) arising in the UK. The potential deferred tax asset not recognised in respect of losses in UK subsidiaries is £291,000 (2016: £293,000). No deferred tax is recognised on the unremitted earnings of overseas subsidiaries.
7. Dividends
Dividends paid during the year comprised a final 2017 dividend of 0.40p per ordinary share (2017: 0.25) and a 2018 interim dividend of 0.28p per ordinary share (2017: 0.20p).
Shareholders were offered an opportunity to receive the 2017 final dividend in the form of new shares in lieu of the proposed final dividend. The 2018 interim dividend was declared as a scrip dividend, with shareholders having the option to receive an alternative cash dividend of the same value.
Cash dividends of £188,000 (2017: £197,000) were paid during the year as follows.
| 2018 | 2017 | 2018 | 2017 | |||||
| Ordinary shares | pence per share | pence per share | £'000 | £'000 | ||||
| Declared and paid during the year | ||||||||
| Interim - current year | 0.28 | 0.20 | 88 | 64 | ||||
| Final - previous year | 0.40 | 0.25 | 100 | 133 | ||||
| 0.68 | 0.45 | 188 | 197 |
Scrip dividends were issued in the year as follows.
| Shares issued | Value of shares issued (£'000) | |||||||
| Ordinary shares | 2018 | 2017 | 2018 | 2017 | ||||
| Declared and paid during the year | ||||||||
| Interim - current year | 153,240 | 204,629 | 126 | 89 | ||||
| Final - previous year | 414,178 | 146,721 | 202 | 57 | ||||
| 567,418 | 351,350 | 328 | 146 |
The directors have recommended a final scrip dividend of 0.40p per share, with an alternative cash dividend of 0.40 pence per share, to give a total dividend for the year of 0.68 pence per share. The scrip reference price is 74.74p, calculated from the average of the closing price for an ordinary share of the company as derived from the daily official list of the London Stock Exchange during the period of five dealing days ending 18 March 2019.
If the 2018 final dividend is approved at the Annual General Meeting in May 2019 the dividend will be paid on 31 May 2019 to shareholders on the register at the close of business on 29 March 2019 (ex-div date 28 March 2019). In accordance with IFRS, the dividend is not provided for as a liability in the accounts until it becomes a legal liability of the Company and therefore will be recorded in the interim and annual accounts for 2019.
8. Basic and diluted earnings per share
| 2018 | 2017 | ||||||
| Net profit attributable to shareholders | Weighted average number of shares | EPS | Net profit attributable to shareholders | Weighted average number of shares | EPS | ||
| £'000 | (millions) | (pence) | £'000 | (millions) | (pence) | ||
| Basic earnings per share | 1,829 | 77.4 | 2.4 | 1,897 | 76.3 | 2.5 | |
| Diluted earnings per share | 1,829 | 78.2 | 2.3 | 1,897 | 76.7 | 2.5 | |
| Adjusted basic earnings per share | 3,000 | 77.4 | 3.9 | 2,188 | 76.3 | 2.9 |
Shares held by the Employee Share Ownership Trust are excluded from the weighted average number of shares in the period.
9. Additional performance measures
The Group uses adjusted figures, which are not defined by generally accepted accounting principles ("GAAP") such as IFRS. Adjusted figures and underlying growth rates are presented as additional performance measures used by management, as they provide relevant information in assessing the Group's performance, position and cash flows. We believe that these measures enable investors to track more clearly the core operational performance of the Group, by separating out items of income or expenditure relating to acquisitions, disposals and capital items. Our management uses these financial measures, along with IFRS financial measures, in evaluating the operating
performance of the Group.
| Year ended | Year ended | ||
| 31 December | 31 December | ||
| 2018 | 2017 | ||
| £'000 | £'000 | ||
| Operating profit | 2,619 | 2,361 | |
| Acquisition related expenses | 689 | - | |
| Amortisation of acquired intangible assets | 595 | 412 | |
| Adjusted operating profit | 3,903 | 2,773 | |
| Profit before tax | 2,427 | 2,254 | |
| Acquisition related expenses | 689 | - | |
| Amortisation of acquired intangible assets | 595 | 412 | |
| Adjusted profit before tax | 3,711 | 2,666 | |
| Tax charge | (598) | (357) | |
| Amortisation of acquired intangible assets | (113) | (121) | |
| Adjusted tax charge | (711) | (478) | |
| Profit after tax | 1,829 | 1,897 | |
| Acquisition related expenses | 689 | - | |
| Amortisation of acquired intangible assets | 482 | 291 | |
| Adjusted profit after tax | 3,000 | 2,188 | |
| Cash generated in operations | 4,454 | 4,167 | |
| Purchase of intangible assets | (1,064) | (1,154) | |
| Purchase of property, plant and equipment | (123) | (180) | |
| Acquisition related expenses | 689 | - | |
| Adjusted operating cash flow | 3,956 | 2,833 |
Notes
1. Elecosoft plc ("the Company") and its subsidiaries (together "the Group") are primarily involved in software sales and development. Elecosoft plc, a Public Limited Company incorporated and domiciled in England, is the Group's ultimate parent Company. The address of Elecosoft plc's registered office is 66 Clifton Street, London, EC2A 4HB and the principal place of business is 66 Clifton Street, London, EC2A 4HB.
The unaudited financial information set out in this statement does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 31 December 2017, as defined in section 434 of the Companies Act 2006. The auditors have not yet reported on the 2018 accounts.
Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered in due course. The Company's auditors Grant Thornton UK LLP, have reported on the 2017 accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") this announcement does not itself contain sufficient information to comply with IFRS.
The principal accounting policies used in preparing this preliminary results announcement are those that the Company will apply in its statutory accounts for the year ended 31 December 2018 and are unchanged from those disclosed in the Company's Annual Report and Accounts for the year ended 31 December 2017 except for the adoption of new standards effective 1 January 2018 as described in notes to the financial statements for the year ended 31 December 2017. The adoption of those new standards did not have a material impact on the financial statements.
Full financial statements for the year ended 31 December 2018 will be posted to shareholders in due course.
2. During the period Elecosoft acquired ShireSystem and Active Online. The Directors have performed a provisional analysis of the fair value of both ShireSystem and ActiveOnline which are included in the consolidated balance sheet in line with IFRS3.
3. The Group's activities, together with the factors likely to affect its future development, performance and position are set out in the Operating Review and Financial Review.
4. The Group's clients include many top contractors in the building and construction sector in the UK, Sweden, Germany, Benelux and the United States with no significant client concentration. The software products and services provided by the Group are reasonably embedded in their client's core operations and 57% (2017: 55%) of the Group's revenue is from recurring revenue contracts.
These maintenance contracts are renewed throughout the year although there is a slightly greater weighting in the fourth quarter. For these reasons, the Group has good visibility on any potential deterioration in its trading outlook and potential risk to the business. Not-withstanding the Group has net current liabilities of £957,000 at 31 December 2018 (2017: £1,932,000) these amounts are after deferred income of £5,660,000 (2017: £4,789,000) relating to annual maintenance contracts which are non-refundable. Historically, there is a low level of maintenance cancellations each year and the Board closely monitors clients that are potentially at risk of cancellation as well as the pipeline of new business.
The Group has both cash and undrawn credit facilities available to support its business operations and therefore the Board believes that the Group is well-positioned to manage the business risks. Revenue, operating profit and cash flow budgets have been prepared at business unit level. After making appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements
5. The information herein has been prepared on the basis of the accounting policies adopted for the year ended 31 December 2018, set out in the Company's Annual Report and Accounts and as previously disclosed in the Company's Annual Report and Accounts for the year ended 31 December 2017.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
END
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