ELECO PUBLIC LIMITED COMPANY

Earnings Release • Mar 27, 2017

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RNS Number : 5702A

Elecosoft PLC

27 March 2017

27 March 2017

Elecosoft plc

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

Preliminary Results

For the Year Ended 31 December 2016

Elecosoft plc (AIM: ELCO), the construction software specialist, is pleased to announce its audited results for the year ended 31 December 2016.

Financial Highlights

Continuing operations

·   Revenue up 17% to £17.8m (2015: £15.3m) of which 48.5% was from recurring maintenance and support revenue (2015: 47.7%)

·     Revenue up 8% in constant currency terms (2015: 9%)

·     Operating profit up 42% to £1.6m (2015: £1.1m)

·     Adjusted operating profit up 68% to £1.9m* (2015:£1.1m)

·     Profit before tax up 50% to £1.5m (2015: £1.0m)

·     EBITDA up 35% to £2.4m (2015: £1.8m)

·     Increased R&D spend of £2.6m (2015:£2.3m) of which £0.6m is capitalised

·     Free cash flow up 71% to £1.2m (2015: £0.7m)

·     Basic earnings per share up 55% to 1.7p (2015: 1.1p)

·     Adjusted earnings per share up 94% to 2.1p* (2015: 1.1p)

·     Final dividend of 0.25p, total year dividend of 0.40p

At constant exchange rates

·     Revenue £16.5m, up 8% (2015: £15.3m)

·     Operating profit £1.5m, up 34% (2015: £1.1m)

·     Profit before tax £1.4m, up 42% (2015: £1.0m)

Operational Highlights

·    Acquired Icon in October 2016 which develops software for 7 of the top 10 UK retailers including ASDA, Boots & John Lewis

·    Released updated versions of Asta Powerproject® and Asta Powerproject® BIM, Staircon®, Statcon® and launched a new product Bidcon® BIM that provides quantity take-off from a 3D BIM file

·     First ESIGN sale to Chinese flooring manufacturer

·    For the third year running Elecosoft won the 'Best Project Management/Planning Software' award at the UK Construction Computing awards

·     Achieved ISO 9001 accreditation recognising Elecosoft as a 'quality supplier'

·     An increasing number of customers are taking advantage of the full Elecosoft product portfolio

·     Acquired an established reseller in the Netherlands

* Adjustment for £0.2m acquisition expenses associated with Icon and one off director termination payment of £0.1m

Executive Chairman, John Ketteley said:

"I am pleased to report a significantly improved trading and financial performance by Elecosoft in 2016. Elecosoft is fast becoming a truly international provider of market leading construction software applications for digital construction, 5D BIM, project management, estimation, 3D architectural design, timber engineering, and visual marketing software applications. I am therefore pleased to say that the current year has started well, our financial position is strong and Elecosoft is particularly well placed post-Brexit from a trading standpoint."

For further information please contact:
Elecosoft plc JHB Ketteley , Executive Chairman David Pearson, Finance Director Jonathan Hunter, Group Marketing & Business Development Director	www.elecosoft.com  Tel: 0203 857 5210
finnCap Ltd
Adrian Hargrave / Kate Bannatyne (Corporate Finance) Camille Gochez (Corporate Broking)	Tel: 0207 220 0500
Redleaf Communications
Rebecca Sanders-Hewett / David Ison / Susie Hudson	Tel: 0207 382 4730 [email protected]

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

I am pleased to report a significantly improved trading and financial performance by Elecosoft in 2016, and comment on the acquisition of Icon during the year. My statement for the year ended 31 December 2016 is set out below.

Trading performance

Revenues

Elecosoft's Revenues for the year under review rose from £15,260,000 to £17,795,000, an increase of 17 per cent. The proportion of recurring maintenance revenue remained steady at approximately 48 per cent in the year under review and this recurring revenue increased by 18 per cent to £8,622,000 from £7,278,000 last year.

Profits

Operating profit for the year under review was £1,594,000 (2015: £1,126,000) an increase of £468,000 or 42 per cent in the year under review. This result is after acquisition expenses of £212,000 being legal and professional fees relating to the acquisition of Icon in October 2016 and a former Director's termination payment of £109,000. On the basis of these adjustments, adjusted operating profit for the year was £1,915,000 (2015: £1,137,000) an increase of 68%.

Profit after tax on continuing operations for the year under review was £1,243,000 (2015: £802,000) an increase of 55 per cent. Basic earnings per share of continuing operations for the year under review was 1.7p (2015: 1.1p), an increase of 0.6p or 55 per cent.  Adjusted EPS as set out in the paragraph above was 2.1p (2015: 1.1p) an increase of 94%.

EBITDA for the year under review was £2,432,000 (2015: £1,795,000) an increase of £637,000 or 35 per cent in the year under review.

Financial Performance

Elecosoft continued to generate cash from operations in the year under review and at 31 December 2016 Net Assets increased to £9,716,000 (31 December 2015: £7,893,000). The net increase in cash and cash equivalents in the year under review amounted to £694,000, which together with the beneficial effect of changes in exchange rates used to translate overseas cash balances of £260,000 contributed to a significant improvement in Elecosoft's financial position during the year.

The Business

I am pleased to say that in many ways 2016 was a record year. For example, the number of Elecosoft employees increased to a record 190 (2015: 178). Elecosoft UK won the award for best Project Planning software at the Construction Computing Software Awards for the third year running; Turnover and Profits in 2016 were at record levels; Elecosoft Sweden launched its latest BidconBIM and Bidcon Climate module in conjunction with Tyrens AB; and ESIGN made its first sale to a Chinese flooring manufacturer who claims to be the largest laminated flooring manufacturer in the world.

The Acquisition of Icon

The acquisition of Icon was also significant for Elecosoft being the first substantial acquisition made by the Group for a number of years. Icon brought with it a number of good things, beginning with its enthusiastic team of outstanding software professionals, who had successfully promoted their building specification and information management systems to the giants of the UK Retail Industry - its clients now include 7 of the top 10 UK retailers, including Boots, Sainsbury's, Asda, Morrisons, John Lewis, Waitrose and The Co-operative. Icon has also worked closely with McCarthy & Stone, the largest UK specialist in the construction of retirement homes, in the development of state of the art construction software.

Icon has also provided an excellent SaaS capability to Elecosoft, with opportunities to link with Elecosoft's Bidcon® estimating software and Asta Powerproject® software which is developed in the UK. During our discussions leading up to the acquisition of Icon in October, we were pleased to hear that Jim Awe, Chief Software Architect at Autodesk Inc with which Icon had collaborated in the development of its web-based viewer, had made the following comment;

"For far too long, designers have been forced to sync associated data back into the original 3D model where it doesn't really belong. What Icon has done is an awesome demonstration of the principle of Internet-enabled design data. The data can reside and be managed in the appropriate place, but is still visible and accessible in the context of the model."

I am pleased to say that my colleagues are already beginning to exploit Icon's potential and we are confident of the opportunities that Icon will present to Elecosoft in the form of the expertise of the developers and staff of Icon and also the potential to cross-sell Icon and Elecosoft's products to each other's customers.

The total consideration payable for Icon was £2.4m and was partly financed by a new term loan of £1.8 from Barclays Bank, and £600,000 by way of an issue of 2.2m ordinary shares of Elecosoft to the vendors of Icon. As part of this transaction, the Group also took the opportunity to refinance its existing term loan.

Software Development

Software development expenditure for the year under review increased to £2,593,000 (2015: £2,305,000) of which the amount capitalised was £625,000 (2015: £665,000). The total development spend for the period represented 15 per cent of sales (2015: 15 per cent) and is consistent with our commitment to our customers to maintain and enhance our market leading software programmes.

For some years now, regular monthly meetings of all our lead developers across the Group have taken place to facilitate the interchange of ideas and technical opportunities. Our Lead Developer Community, is a major contributor to the technology strategies that emerge from these meetings. I hesitate to say much more because I don't wish to shine light onto magic. But I would like thank those involved in the Lead Developer Community for the creativity, the flair, the imagination and the technical know-how that they exercise as they strive to keep our technology ahead of the curve.

Re-branding

The initial "Elecosoft" rebranding exercise was announced by our Consultec colleagues at the Nordberg Fair in Stockholm in 2016 and was positively received by both customers and the market at that time. More importantly, the rebrand has since had a very beneficial effect on our business in Scandinavia with Elecosoft Sweden becoming the leading construction software provider in the Swedish construction market. We intend to rebrand the remaining elements of the Group worldwide in 2017, while seeking ways to retain some of our original brands which are well established with our customers.

Board and Management

The Board will continue in its present form and following the addition of two new Directors, whom shareholders are invited to elect, would consist of five Executive Directors and three Non-Executive Directors.

The five Executive Directors together will constitute a newly constituted Group Executive Committee, who will be responsible for the day to day running of the Group; and the three Non-Executive Directors will continue to be responsible for maintaining and enhancing Elecosoft's corporate governance standards and will participate in the Audit, Remuneration, and Nomination Committee.

The Group Executive Committee and all other Committees will be responsible to the Board, to which they will provide regular reports on those matters for which they are responsible.

The Board of Elecosoft will comprise the following directors in the year ahead.

David Pearson                        Finance Director

Jason Ruddle                          Managing Director of Elecosoft UK Ltd

Anders Karlsson                    Managing Director of Elecosoft Consultec AB

Jonathan Hunter                   Marketing and Business Development Director        

Serena Lang                             Non Executive Deputy Chairman

Jonathan Edwards                 Non Executive

Kevin Craig                               Non Executive

John Ketteley                          Executive Chairman

I am pleased to welcome Anders Karlsson, the Managing Director of Elecosoft Consultec AB to the Board and I am delighted that the two executives, who are Managing Directors of their respected companies which are the largest operations in the Elecosoft Group will serve as Directors of Elecosoft plc. 

Also announced earlier this year was that Graham Spratling who has been with Elecosoft for nine years, of which two were as Finance Director, has decided for personal reasons to stand down. I am pleased to say that Graham volunteered to assist David Pearson, who joined us very recently, to complete the accounts which you have before you. I would like to thank him for his contribution to our affairs during the time that he has spent with us and wish him well.

David Pearson, has had a distinguished career in IT and Finance and has led a number of high level investigations in these areas, has agreed to join the Board as Finance Director and we welcome him on board as we continue the progress of the Group.

Finally, we have announced today the appointment of Kevin Craig as a Non-Executive Director with immediate effect. Kevin brings with him a wealth of advisory and media industry experience and we look forward to working with him.

Dividend

Having regard to Elecosoft's strong trading and financial performance in the second half of the year, the Board has decided to recommend the payment of a final dividend of 0.25 pence per share. The Board has also proposed that subject to the necessary approval by shareholders at the Annual General Meeting, that shareholders will be offered an opportunity to elect to receive dividends in the form of new shares in Elecosoft in lieu of the proposed final dividend.

Payment of the Final Dividend will be subject to approval by Shareholders at the Annual General Meeting and will be paid on 24 May 2017 to shareholders on the register at the close of business on 7 April 2017; the ex-dividend date will be 6 April 2017. As mentioned above, and subject to approval by Shareholders at the Annual General Meeting being given at the annual general meeting, arrangements will also be made to provide a scrip dividend alternative. The latest date to elect for the scrip dividend alternative will be 10 May 2017.  The scrip reference price is 38.95p 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 on 24 March 2017.  The Company will, on or before 10 April 2017, post to shareholders a letter containing additional information on the scrip dividend alternative and how shareholders may participate. At the same time, a copy of this letter will be available on the Company's website: www.elecosoft.com

Brexit

In the period leading up to the Referendum on 23 June 2016, the Board concluded that the pattern of cash generation across the Group was such that each of Elecosoft's operations, and in particular its UK operations would be in a position to service and repay their borrowing obligations in accordance with their terms.

The Board also decided that our overseas interests, which are profitable and cash generative, should retain their cash balances in their own currencies because the Board's view was that, whichever way the Referendum vote went, the Group would still be in a position to meet all its financial obligations as they fall due, whether in Sterling or our other major trading currencies, namely the Swedish Krona, the Euro and the US dollar.  This position is not only logically sound to match cash position with operations, given the movement of currencies in 2016, this alignment has also strengthened the Group's financial position in Sterling terms.

Employees

Elecosoft has development teams, testing teams, marketing teams, sales teams, training teams, finance teams, administration teams and support teams and our people is our greatest asset. In 2016 they worked very hard to produce what I consider to be a good result achieved in not the easiest of markets. I would therefore like to take this opportunity to thank them all on your behalf for their contribution to Elecosoft's performance in 2016 and to say that I am confident that they will produce another good result in 2017, of which they will be proud.

Outlook

These are uncertain times and with the added uncertainties that events such as Brexit may bring, we know that new challenges will present themselves as we go forward. However, that said we are confident that we shall be able to meet them because of the resilience, innovative skills, dedication and application of our employees and the urgent need for companies such as Elecosoft to provide the means to enhance the performance of industries in which we involved and in particular, the construction industry. I believe that it is because of the effort, creativity and collaboration of all our employees in all the countries in which Elecosoft operates that Elecosoft is fast becoming a truly international provider of market leading construction software applications for 5D BIM, project management, estimation, 3D architectural design, timber engineering, digital visualisation, and augmented reality software applications.

I am therefore pleased to say that the current year has started well, our financial position is strong and Elecosoft is particularly well placed post the EU referendum, from a trading standpoint. Therefore, against this background, we will continue to invest in our core business of developing market leading software solutions and also to ensure that high quality training is available to our customers in the markets we serve. We will also be taking additional measures to enhance the co-ordination between our sales, support and training teams to improve our service to our customers and remain open to inorganic growth opportunities to accelerate our development should they arise.

John Ketteley

Executive Chairman

24 March 2017

Operating Review

A strong, stable and progressive year with our wider software portfolio delivered revenue and profit growth beyond market expectations. With a new management team and renewed focus on our core strengths and strategy to grow Elecosoft as a leading provider of innovative integrated solutions we stepped out of blocks and led from the start amongst growing competition. Although we experienced some challenges and timing delays in our use of resellers this year, we continue to have our sights set on expanding through them going forward. The performance of our leading applications of Asta Powerproject® and Bidcon® within project management and estimating was outstanding, with double digit growth achieved both in the UK and Sweden which contributed to a successful year and surpassed a number of key milestones.

•              Revenue grew to £17.8m up from £15.3m

•              Profit before tax of £1.5m up from £1.0m

Our Focus on Sales Growth

With an underlining growth performance across our core revenue lines of licences, maintenance and services, the Group delivered results significantly ahead of industry sector bench marks. With a prominent influence through our direct model approach, we have proven that amongst a number of major global competitors Elecosoft is highly regarded as a provider of quality software and services. Revenue growth is pivotal to our long term strategy and with an improved performance in all graphical areas, Elecosoft is in a strong position to maintain our current momentum. A summary of revenue growth on 2015 is as follows:

•              UK revenue increased by 13%

•              Scandinavia revenue increased by 13%

•              Germany revenue increased by 29%

•              Rest of Europe increased by 22%

•              Rest of World increased by 17%

Historically, our software portfolio has centred on the PC market but with ever increasing competition and expansion into other verticals we have a growing number of SaaS product offerings that sit alongside and complement our existing applications. Through continued investment in our direct approach and through channel expansion, Elecosoft is in a strong position to maintain progressive growth over and above the broader market.

Growing International Awareness

With a wide portfolio of products that cover project management, construction site management, estimating, timber engineering, 3D design and visualisation, cloud based digital marketing and data storage solutions we have some great opportunities in reaching out to a wider audience with our integrated offering. With a continuing trend across the globe to standardise processes through common data exchanges and a collaborative approach to sharing of data, Elecosoft is strongly placed to deliver international awareness and growth.

In recent years, we have established the cross selling of our products to help deliver on local government legislations which in turn has positioned Elecosoft as a major player in the provision of 4D & 5D BIM. Our marketing teams have successfully developed and implemented promotional plans for market sector and territory growth to help drive the increased awareness out to the end client through increased use of webinars, exhibition attendance, event speaking and corporate sponsorship. With the acquisition in January of one of Asta Powerproject's Dutch resellers, we have also delivered on the plans to improve the performance of the business and also commenced the transition approach to selling more products to existing and new customers.

Our colleagues in Sweden delivered a sterling performance with the new management team that was orchestrated the previous year and also expanded their international reach by establishing new resellers in New Zealand, Canada, Finland and Denmark for Bidcon®, Statcon® and Staircon®. We have seen successful expansion within the interior market with key business wins in China and the US through our modular marketing solution for simplifying and automating databased marketing activities throughout the marketing chain.

Brand Awareness

Elecosoft is now a well-established technology organisation focused on delivering leading edge applications across multiple sectors with strong brand identity both at company and product level. The company has been very successful in leveraging the Elecosoft name into established market spaces with clear and directive marketing campaigns directed from the Group management team. Our new website now reflects a product identity through the six main disciplines of focus, these being:

Project Management

Asta Powerproject® has continued to gain market share within its core focus on construction and infrastructure organisations across the globe. Many leading contractors worldwide have delivered major projects utilising the project management tool and have expanded their use on growing bolt-on tools such as Asta Powerproject® BIM and Site Progress Mobile. The application is now available in 13 languages and continues to be enhanced based on the client feedback and industry requirements.

Estimating

Our cost estimating software Bidcon®, remains a key part of our integrated solution selling into new and existing customers. With a strong adoption in its home market in Sweden, Bidcon® is now leading the way alongside Asta Powerproject® in providing a full 5D BIM solution to the wider audience either through our direct model or via the growing reseller channel.

CAD/Design

Our prominent position in Germany with Arcon Evo® and o2c® is maintained with continued development of the product based on customer feedback and technology advancements. This in turn is growing the product awareness and is being used to expand the use of the software into new markets through our eCommerce offering and a reseller channel.

Visualisation

Our reach into the Interiormarket through our Esign portfolio highlights the significant steps we've made in gaining 80% of the European floor manufactures who use our offering to successfully marketing their interior products through Digitalisation, Visualisation, Configuration and Product Information Management (PIM). During 2016 we've seen good progress on wider global adoption with floor manufacturers in China and the US working with our German colleagues on adopting our offering.

Engineering

Our portfolio of timber engineering applications maintain their strong market presence in the UK, Sweden, Germany and Benelux and have recently seen adoption through resellers in Canada, Finland and Denmark. With local territories demands of increased housing stock and commercial timber structures through focus on modular construction, our applications of Staircon®, Framing and Statcon® serve the needs of design, manufacturing and site management processes.

Information Management

The management of information in any business is critical to gaining success and with our Marketing manager offering to the floor manufacturers which sits alongside our visualisation tools, we've seen further adoption within existing and new clients. This is assisting organisations to efficiently control multi-channel marketing from a central database and saves considerable time and expenses in the company-wide data workflow.

With the acquisition of Icon taking place in late October, the opportunity to expand its current offering outside the retail sector is a strong focus moving forward. Icon's one-stop property asset information system is a web-based building information management system that is used from concept design, through construction and fit-out to completion and management. This clearly complements our existing project management and cost estimating suite of programs and presents a great opportunity in further upselling within the existing client base across our territory bases.

Award Winning Software

Offering the best possible proposition to our customers has remained our core focus and is central to driving the growth of our software offering in both our direct markets and reseller channel. Our customers have continued to recognise the quality of our products, service and extending range of products, evidenced by the continued success of our award winning software. Asta Powerproject® achieved for the 3rd year in succession the Project Management/Planning Software of the Year Award at the Construction Computing Awards 2016. Recognition was also made for our cost estimating application, Bidcon®, as this was voted runner-up in the Estimation & Valuation Software category. We believe this reflects the strengthening recognition of our consumer brand.

The retention rate of our customers is important to support our growth and this has remained in line with historical trends. We have introduced to our markets product releases across the whole software portfolio that reflect the requirements of our customers. We have seen progression in our eCommerce product offering with our CAD and visualisation 22 applications and have continuous plans to expand the reach into new territories using effective web platforms.

Outlook

2016 delivered a milestone year in revenue and profit growth and looking forward the teams within Elecosoft are excited about the future and look forward to contributing to another fruitful year both in our direct markets and growing international reach through the reseller channel network.

John Ketteley

Executive Chairman

24 March 2017 

Financial Review

The Group has had a successful year with strong trading performances in all areas validating the strategy. The acquisition of Integrated Computing and Office Networking Limited ("Icon") in October positions the Group for the future. Exchange rate movements in the Group's core trading currencies during the year had a positive impact on the results which has accentuated the Group's strong underlying performance.

Revenue

Revenue for continuing operations for the year increased 17% to £17.8m (2015: £15.3m) This growth was accentuated by the weakness of Sterling against the Swedish Krona, the US Dollar and the Euro which collectively accounted for over 60% of the Group's sales. The underlying growth at constant exchange rates was 8% (2015: 9%).

The Group continues to drive high levels of recurring revenue from Maintenance and Support with the balance of the revenue coming from Licence sales and Services. The level of deferred income at the balance sheet date, which is a measure of future maintenance revenue, increased from £3.7m to £4.4m during the year representing a positive growth rate of 19%.

Revenue growth was driven by direct sales with an increase of 17% to £16.6m (2015: £14.2m) with the Group committed to growing both the Direct and Reseller channels going forward. The mix of sales across Licences 28% (2015: 30%), Maintenance 48% (2015: 48%) and Services 24% (2015: 23%) is balanced and similar to prior years.

The geographic revenue performance of the Group was good on all fronts with Germany leading the growth 29% to £3.0m (2015: £2.3m), while the UK and Scandinavia both grew 13% during the year. The strategy to move into new geographic markets continues to provide strong results with the Rest of the World up by 20% to £2.6m (2015: £2.1m).

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 2016 the gross profit margin fell slightly from 89% to 87% due to the slight changed mix of Licences, Maintenance and Services revenue.

Overheads

Selling and administrative expenses increased 11% over prior year to £13.8m (2015: £12.4m). Tight control of overheads is expected to be a feature of the Group while ensuring that development is prioritised. The average number of employees during the year was 190 (2015: 178).

Software product development expenses amounted to £2.6m for the year (2015: £2.3m) of which £0.6m (2015: £0.7m) was capitalised demonstrating the commitment to Group-wide development.

The major projects during the year which met the requirements of the accounting policy for capitalisation and were therefore capitalised in the year include the following: Arcon Evo phase 2, Bidcon BIM and Bidcon.net databases. 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 £1.6m (2015: £1.1m) a growth of over 40% over the prior period, a reflection of strong revenue performance with overhead control. Adjusted Operating Profit for the year was £1,915,000 (2015: £1,137,000) an increase of 68%. Profit before tax was £1.5m, up £0.5m, an increase of 50% compared to the prior period. Taxation amounted to £0.3m in the period (2015: £0.2m).

Balance Sheet and Cash Flow

Shareholder's equity increased to £9.7m, up £1.8m, 23% at 31 December compared to 2015.

Net borrowings, including finance leases, increased by £0.5m to £1.3m (2015: £0.8m) as a result of additional borrowings of £1.8m to complete the Icon acquisition.

Trade and other receivables increased to £3.7m (2015: £2.9m) as anticipated and in line with the growth of the Group. This represented 54 days sales outstanding compared to 48 for the prior period. Trade and other payables increased to £1.5m (2015: £1.3m) and accruals were slightly higher at £1.6m (2015: £1.4m) in line with Group activities.

Cash generated from operations amounted to £2.4m in the year up from £1.6m in 2015. Free cash flow increased to £1.2m compared to £0.7m in 2015, a continuing upward trend reflective of the Group performance overall.

							2016	2015
							£'000	£'000
	Cash generated in operations						2,422	1,640
	Net capital expenditure						(1,103)	(645)
	Net interest paid						(82)	(152)
	Income tax paid						(17)	(127)
	Free cash flow						1,220	716
	Acquisitions and disposals						(1,700)	726
	Loan (repayments)/proceeds						1,438	(1,091)
	Finance lease repayments						(153)	(251)
	Equity dividends paid						(111)	-
	Net cash inflow						694	100
	Exchange difference						260	(15)
	Net increase in cash and cash equivalents						954	85

Capital and financing 

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

·    The previous loan was repaid and a new term loan of £3.16m, with 16 quarterly loan repayments of £197,500 commencing from October 2016 was agreed to help fund the acquisition of ICON, carrying an interest rate of 2.75% over base rate, a reduction of 0.5% on the previous facility; 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.

Business disposal / Discontinued operations

There were no disposals in the period.

Earnings per share and dividends

The basic earnings per share on continuing operations is 1.7p (2015: 1.1p).The basic earnings per share on total operations is 1.7p (2015: 1.6p).

The Board has recommended the payment of a final dividend in respect of the year ended 31 December 2016 of 0.25p per share, with a scrip alternative to be made available.

David Pearson

Group Finance Director

24 March 2016

Consolidated Income Statement

For the year ended 31 December 2016

							2016		2015
						Notes	£'000		£'000
	Continuing operations
	Revenue					1,2	17,795		15,260
	Cost of sales						(2,374)		(1,688)
	Gross profit						15,421		13,572
	Operating expenses before amortisation of intangible assets, acquisition expenses and termination payments						(12,875)		(11,940)
	Amortisation of intangible assets					2	(631)		(495)
	Operating expenses before acquisition expenses and termination payments					3	(13,506)		(12,435)
	Operating profit before acquisition expenses and termination payments						1,915		1,137
	Acquisition expenses						(212)		-
	Former directors' termination payments						(109)		(11)
	Selling and administrative expenses					3	(13,827)		(12,446)
	Operating profit					2,3	1,594		1,126
	Finance income					5	3		1
	Finance cost					5	(93)		(121)
	Profit before tax						1,504		1,006
	Tax					6	(261)		(204)
	Profit for the financial period from continuing operations					2,8	1,243		802
	Profit for the financial period from discontinued operations						-		360
	Profit for the financial period						1,243		1,162
	Attributable to:
	Equity holders of the parent						1,243		1,162
	Earnings per share - basic
	Continuing operations					8	1.7	p	1.1	p
	Discontinued operations					8	0.0	p	0.5	p
	Total operations					8	1.7	p	1.6	p
	Earnings per share - diluted
	Continuing operations					8	1.6	p	1.1	p
	Discontinued operations					8	0.0	p	0.5	p
	Total operations					8	1.6	p	1.6	p

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2016

							2016		2015
							£'000		£'000
	Profit for the period						1,243		1,162
	Other comprehensive income:
	Items that will be reclassified subsequently to profit and loss:
	Translation differences on foreign operations						92		(11)
	Other comprehensive income net of tax						92		(11)
	Total comprehensive income for the period						1,335		1,151
	Attributable to:
	Equity holders of the parent						1,335		1,151

Consolidated Statement of Changes in Equity

For the year 31 December 2016

		Share capital	Share premium	Merger reserve	Translation reserve	Other reserve	Retained earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
	At 1 January 2016	749	-	-	(172)	(338)	7,654	7,893
	Dividends	-	-	-	-	-	(111)	(111)
	Share-based payments	-	-	-	-	13	-	13
	Elimination of cancelled share based payments	-	-	-	-	(14)	-	(14)
	Issue of share capital	22	578	-	-	-	-	600
	Transactions with owners	22	578	-	-	(1)	(111)	488
	Profit for the period	-	-	-	-	-	1,243	1,243
	Other comprehensive income:
	Exchange differences on translation of net investments in foreign operations	-	-	-	92	-	-	92
	Total comprehensive income for the period	-	-	-	92	-	1,243	1,335
	At 31 December 2016	771	578	-	(80)	(339)	8,786	9,716
		Share capital	Share premium	Merger reserve	Translation reserve	Other reserve	Retained earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
	At 1 January 2015	7,487	7,923	4,086	(161)	(358)	(12,255)	6,722
	Share-based payments	-		-	-	20	-	20
	Capitalisation of merger reserve	4,086	-	(4,086)	-	-	-	-
	Capital reduction	(10,824)	(7,923)	-	-	-	18,747	-
	Transactions with owners	(6,738)	(7,923)	(4,086)	-	20	18,747	20
	Profit for the period	-	-	-	-	-	1,162	1,162
	Other comprehensive income:
	Exchange differences on translation of net investments in foreign operations	-	-	-	(11)	-	-	(11)
	Total comprehensive income for the period	-	-	-	(11)	-	1,162	1,151
	At 31 December 2015	749	-	-	(172)	(338)	7,654	7,893

Consolidated Balance Sheet

At 31 December 2016

							2016		2015
							£'000		£'000
	Non-current assets
	Goodwill						11,469		10,152
	Other intangible assets						3,321		1,910
	Property, plant and equipment						868		503
	Total non-current assets						15,658		12,565
	Current assets
	Inventories						11		9
	Trade and other receivables						3,674		2,871
	Current tax assets						67		173
	Cash and cash equivalents						2,576		1,957
	Total current assets						6,328		5,010
	Total assets						21,986		17,575
	Current liabilities
	Bank overdraft						(339)		(674)
	Borrowings						(790)		(750)
	Obligations under finance leases						(163)		(139)
	Trade and other payables						(1,459)		(1,255)
	Provisions						(228)		(203)
	Current tax liabilities						(89)		(2)
	Accruals and deferred income						(6,003)		(5,068)
	Total current liabilities						(9,071)		(8,091)
	Non-current liabilities
	Borrowings						(2,370)		(972)
	Obligations under finance leases						(218)		(225)
	Deferred tax liabilities						(570)		(242)
	Non-current provisions						(41)		(139)
	Other non-current liabilities						-		(13)
	Total non-current liabilities						(3,199)		(1,591)
	Total liabilities						(12,270)		(9,682)
	Net assets						9,716		7,893
	Equity
	Share capital						771		749
	Share premium account						578		-
	Translation reserve						(80)		(172)
	Other reserve						(339)		(338)
	Retained earnings						8,786		7,654
	Equity attributable to shareholders of the parent						9,716		7,893

Consolidated Statement of Cash Flows

for the year ended 31 December 2016

					2016		2015
					£'000		£'000
	Cash flows from operating activities
	Profit before tax				1,504		881
	Net finance costs				90		123
	Depreciation charge				207		174
	Amortisation charge				631		495
	Profit on sale of property, plant and equipment				(28)		(18)
	Share-based payments charge				13		20
	Decrease in provisions				(75)		(20)
	Cash generated in operations before working capital movements				2,342		1,655
	Decrease in trade and other receivables				403		349
	Increase in inventories and work in progress				(1)		(1)
	Decrease in trade and other payables				(322)		(363)
	Cash generated in operations				2,422		1,640
	Interest paid				(85)		(153)
	Interest received				3		1
	Income tax paid				(17)		(127)
	Net cash inflow from operating activities				2,323		1,361
	Investing activities
	Purchase of intangible assets				(754)		(754)
	Purchase of property, plant and equipment				(449)		(58)
	Acquisition of subsidiary undertakings net of cash acquired				(1,700)		(28)
	Proceeds from sale of property, plant, equipment and intangible assets				100		167
	Sale of business net of expenses				-		754
	Net cash (outflow)/inflow from investing activities				(2,803)		81
	Financing activities
	Proceeds from new bank loan				3,160		-
	Repayment of bank loans				(1,722)		(1,091)
	Repayments of obligations under finance leases				(153)		(251)
	Equity dividends paid				(111)		-
	Net cash inflow/(outflow) from financing activities				1,174		(1,342)
	Net increase in cash and cash equivalents				694		100
	Cash and cash equivalents at beginning of period				1,283		1,198
	Effects of changes in foreign exchange rates				260		(15)
	Cash and cash equivalents at end of period				2,237		1,283
	Cash and cash equivalents comprise:
	Cash and short-term deposits				2,576		1,957
	Bank overdrafts				(339)		(674)
					2,237		1,283

Extract from Notes to the Consolidated Financial Statements

1. Revenue

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

							2016	2015
							£'000	£'000
	Licence sales						4,955	4,536
	Recurring maintenance and support revenue						8,622	7,278
	Services income						4,218	3,446
	Total revenue						17,795	15,260

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.

				2016		2015
				Software		Software
				£'000		£'000
		Revenue		17,795		15,260
		Adjusted operating profit		4,721		3,446
		Depreciation charge		(207)		(174)
		Product development costs		(1,968)		(1,640)
		Operating profit before amortisation of intangible assets and exceptionals		2,546		1,632
		Amortisation of intangible assets		(631)		(495)
		Acquisition expenses		(212)		-
		Former directors' termination payments		(109)		(11)
		Operating profit		1,594		1,126
		Net finance cost		(90)		(120)
		Segment profit before tax		1,504		1,006
		Tax		(261)		(204)
		Segment profit after tax		1,243		802
		Internal development costs capitalised		(625)		(665)
		Total development costs		(2,593)		(2,305)
		Operating profit		1,594		1,126
		Amortisation of intangible assets		631		495
		Depreciation charge		207		174
		EBITDA		2,432		1,795

Adjusted operating profit of £4,721,000 (2015: £3,446,000) is stated before depreciation and amortisation of intangible assets, product development costs and certain items considered as non-recurring. The latter includes acquisition expenses and termination payments relating to former directors.

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 2016 are explained in the Financial Review.

				2016		2015
				Software		Software
				£'000		£'000
	Group assets and liabilities
		Segment assets		21,986		17,595
		Unallocated assets		-		-
		Total Group assets		21,986		17,595
		Segment liabilities		12,270		9,682
		Unallocated liabilities		-		-
		Total Group liabilities		12,270		9,682

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:

							2016	2015
							£'000	£'000
	UK						5,498	4,857
	Scandinavia						6,745	5,950
	Germany						2,982	2,308
	Rest of Europe						1,653	1,359
	Rest of World						917	786
							17,795	15,260

Rest of World includes revenue from customers in the USA of £633,000 (2015: £571,000).

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

Revenue by product group is as follows:

							2016	2015
							£'000	£'000
	Project management						8,572	7,493
	Site management						474	396
	Estimating						2,964	2,557
	Engineering						2,827	2,373
	CAD/Design						1,137	1,001
	Visualisation						1,821	1,440
							17,795	15,260

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

2. Segment information continued

Revenue by sales channel is as follows:

							2016	2015
							£'000	£'000
	Direct						16,674	14,236
	Reseller						1,121	1,024
							17,795	15,260

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:

							2016	2015
							£'000	£'000
	UK						8,027	7,130
	Scandinavia						6,145	4,350
	Germany						1,396	1,040
	Rest of Europe						88	44
	Rest of World						2	1
							15,658	12,565

Information about major customers

Revenues arising from sales to the Groups' largest customer were below the reporting threshold of 10% of Group revenue (2015: Below 10% reporting threshold).

3. Operating profit

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

			2016		2015
			£'000		£'000
	Software product development		1,968		1,640
	Depreciation of property, plant and equipment		207		174
	Amortisation of intangible assets acquired		389		380
	Amortisation of capitalised development costs		242		115
	Profit on disposal of property, plant and equipment		(28)		(18)
	Foreign exchange (gains)/losses		(73)		85
	Fees payable to the Company's auditor for the audit of the Company's financial statements		38		35
	Fees payable to the Company's auditor for other services:
	- Audit of the subsidiaries financial statements		54		39
	- Other assurance services		2		-
	Operating lease rentals:
	Plant, equipment and vehicles		42		47
	Properties		394		359
	Acquisition expenses		212		-
	Former directors termination payments		109		11

4. Employee information

The average number of employees during the period, including Directors, in continuing operations was made up as follows:

							2016	2015
							number	number
	Sales & marketing						54	57
	Client services						56	52
	Software development						46	41
	Management and administration						34	28
							190	178

Staff costs during the period, including Directors, in continuing operations amounted to:

							2016	2015
							£'000	£'000
	Wages and salaries						8,194	6,814
	Social security						1,680	1,419
	Pension costs						566	485
	Share-based payments						13	20
							10,453	8,739
	Less: Development staff costs capitalised						(625)	(665)
							9,828	8,074

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. The details of the criteria for capitalisation is set out in the Significant Accounting Policies under section I.

The remuneration of the Directors, who are the key management personnel of the Group, is set out below:

							2016	2015
							£'000	£'000
	Short-term employee benefits						576	643
	Post-employment benefits						23	22
	Termination benefits						100	11
	Share based payments						13	20
	Executive Directors						712	696
	Fees - non-executive Directors						82	90
							794	786

The emoluments of the highest paid Director were £280,000 (2015: £361,000). Employers NIC payments in respect of the Directors' remuneration was £85,000 (2015: £95,000)

The remuneration of the non-executive Directors is determined by the Board. The non-executive Directors do not have service contracts but are appointed for an initial term of three years, which may thereafter be renewed from year to year. They do not participate in any of the Groups' share based incentive or pension schemes.

5. Net finance income/(cost)

Finance income and costs from continuing operations is set out below:

							2016	2015
							£'000	£'000
	Finance income:
	Bank and other interest receivable						3	1
	Finance costs:
	Bank overdraft and loan interest						(84)	(107)
	Finance leases and hire purchase contracts						(9)	(14)
	Total net finance cost						(90)	(120)

6. Taxation

(a) Tax on profit on ordinary activities

The tax charge in the income statement from continuing operations is as follows:

							2016	2015
							£'000	£'000
	Current tax:
	UK corporation tax on profits of the year						34	2
							34	2
	Foreign tax						145	121
	Total current tax						179	123
	Deferred tax:
	Origination and reversal of temporary differences						87	74
	Tax adjustments in respect of previous years						(5)	7
	Total deferred tax						82	81
	Tax charge in the income statement						261	204

Income tax for the UK has been calculated at the standard rate of UK corporation tax of 20.0% effective from 1 April 2015 (2015: 20.25%) 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 20.0% for the period under review. The reconciliation is explained below:

							2016	2015
							£'000	£'000
	Profit on continuing operations before tax						1,504	1,006
	Tax calculated at the average standard rate of UK corporation tax of 20.0% (2015: 20.25%) applied to profits before tax						301	204
	Effects of:
	Expenses not deductible for tax purposes						90	46
	Research & development tax relief						(54)	(94)
	Group relief/losses surrendered not paid						-	4
	Non taxable statutory compensation						-	(15)
	Deferred tax not recognised						(15)	39
	Share option deduction						-	4
	Prior year adjustments						(5)	7
	Utilisation of losses						(80)	(17)
	Tax rate differences in foreign jurisdictions						16	24
	Other differences						8	2
	Continuing operations tax charge for the year						261	204

(c) Unrecognised tax losses

The Group has tax losses of £696,000 (2015: £762,000) arising at one of its operations in Germany for which no deferred tax

asset has been recognised and tax losses of £1,764,000 (2015: £1,874,000) arising in the UK. Potential deferred tax asset not recognised in respect of losses in UK subsidiaries is £347,000 (2015: £390,000). No deferred tax is recognised on the unremitted earnings of overseas subsidiaries.

7. Dividends

Dividends of £111,000 (2015: £nil) were paid during the year as follows:

						2016	2015	2016	2015
	Ordinary shares					per share	per share	£'000	£'000
	Declared and paid during the year
	Interim - current year					0.15	-	111	-
	Final - previous year					-	-	-	-
						0.15	-	111	-

The directors have recommended a final dividend of 0.25p per ordinary share for 2016 (2015: 0.0p) resulting in a total dividend for the year of 0.40p per ordinary share (2015: 0.0p) If the 2016 final dividend is approved at the Annual General Meeting the dividend will be paid on 24 May 2017 to shareholders on the register at the close of business on 7 April 2017 (ex-div date 6 April 2017) 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 2017.

8. Basic and diluted earnings per share

The calculation of the basic and diluted earnings per ordinary share from continuing operations is based on the data below:

		2016		2015
	Continuing operations	£1,243,000		£802,000
	Discontinued operations	-		£360,000
	Total profit after taxation	£1,243,000		£1,162,000
	Basic weighted average number of shares	74,433,243		73,970,534
	Dilutive effect of share options	1,029,000		882,000
	Diluted weighted average number of shares	75,462,243		74,852,534

Basic earnings per ordinary share is calculated from continuing operations profit after tax attributable to ordinary equity shareholders of the Company and the weighted average number of shares in issue for the reporting period.

	Basic earnings per share	2016		2015
	Continuing operations	1.7	p	1.1	p
	Discontinued operations	-	p	0.5	p
	Total operations	1.7	p	1.6	p

Dilutive earnings per ordinary share is calculated by adjusting the weighted average number of shares in issue for the reporting period to include the assumed conversion of the dilutive share options outstanding at 31 December 2016.

	Diluted earnings per share	2016		2015
	Continuing operations	1.6	p	1.1	p
	Discontinued operations	-	p	0.5	p
	Total operations	1.6	p	1.6	p

Shares held by the Employee Share Ownership Trust are excluded from the weighted average number of shares in the period.

Notes

1.     The financial information in this announcement, which is audited, does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. Statutory accounts of the Company, on which the Auditors will report, will be delivered to the Registrar of Companies. The comparative figures for the 12 months to 31 December 2015 have been taken from, but do not constitute, the Company's statutory financial statements for that financial year.

2.     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.

3.     The Groups' 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 48% (2015: 48%) of the Groups' 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 £2,743,000 at 31 December 2016 (2015: £3,081,000) these amounts are after deferred income of £4,401,000 (2015: £3,708,000) 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

4.     The information herein has been prepared on the basis of the accounting policies adopted for the year ended 31 December 2016, 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 2015.

5.     The Annual General Meeting of Elecosoft plc will be held Brewers' Hall, Aldermanbury Square, London EC2V 7HR on 4th May 2017 at 12 noon.

6.     The Annual Report and Accounts for the year ended 31 December 2016 will be sent to shareholders by 10 April 2017 and will be available to view on the Company's website, www.elecosoft.com, from that date.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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