REG - Eleco PLC - Final Results
23/04/2024 07:00
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RNS Number : 5935L Eleco PLC 23 April 2024
RNS
23 April 2024
Eleco Plc
("Eleco", the "Group" or the "Company")
Annual Results
Audited Results for the Year Ended 31 December 2023
The Board of Eleco plc (AIM: ELCO), the specialist software provider for the
built environment, is pleased to announce its audited results for the year
ended 31 December 2023:
Financial highlights
Revenues
· Annualised Recurring Revenues (ARR)(1) up 24% to £22.6m (2022:
£18.2m)
· Total Recurring Revenues (TRR)(2) of £20.7m (2022: £16.9m), an
increase of 22%, representing 74% of reported revenue (2022: 64%)
· Headline total reported revenue £28.0m (at constant currency
£28.3m) (2022: £26.6m), an increase of 5% and 6% at constant currency
Profitability
· Gross margins: 89.81% (2022: 88.38%), an improvement of 143 basis
points
· EBITDA(3): £5.8m (2022: £5.2m), an increase of 12%
· Profit before taxation (PBT): £3.4m (2022: £2.9m), an increase of
17%
· Profit after taxation (PAT): £2.7m (2022: £2.4m), an increase of
13%
· Basic earnings per share: 3.2p (2022: 2.9p), an increase of 10%
· Adjusted EBITDA(4): £6.1m (2022: £5.4m), an increase of 13%
· Adjusted profit before tax(4): £4.2m (2022: £3.6m), an increase of
17%
· Adjusted profit after tax(4): £3.3m (2022: £3.0m), an increase of
10%
· Adjusted basic earnings per share(4): 4.0p (2022: 3.6p), an increase
of 11%
Cash and dividends
· Cash: post M&A activity, £10.9m (2022: £12.5m). The Group
remains free of debt.
· Final dividend: 0.55p per share (2022: 0.50p per share), an increase
of 10%
· Total proposed final and interim dividends: 0.80p per share (2022:
0.70p per share), an increase of 14%
Operational highlights
M&A Strategy
· Acquisition of BestOutcome Limited to widen capabilities and customer
base and post year end, acquisition of Vertical Digital to enhance the Group's
technical capabilities to a multinational audience.
· A focus on margin improvement led to a discontinued number of
lower-margin product lines (end-of-life products).
· Strategic profitable divestment of low-margin non-core business Eleco
Software GmbH (Arcon) with proceeds returned to shareholders as a special
dividend.
Technology
· Asta Powerproject awarded 'Project Management Software of the Year'
at the UK Construction Computing Awards for the tenth consecutive year,
recognising Eleco's commitment to innovation and excellence in the
construction industry.
· ISO 27001 accreditation achieved by Elecosoft UK Limited and
BestOutcome Limited, in recognition of their IT systems meeting or exceeding
the latest industry standards, and information security and data protection
best practices being followed.
· AstaGPT, Generative AI support was developed in-house, launched post
year end.
Growth
· Record recurring revenue growth and year-on-year headline revenue
growth returns.
· Great Place to Work® certification achieved for all business units
that qualify.
· Successfully implemented a direct sales channel in the USA, with in
excess of 40 new direct customers following focused investment on sales and
marketing.
Jonathan Hunter, Chief Executive Officer of Eleco plc, said:
"I am proud to acknowledge the significant strides Eleco has taken toward
achieving its strategic objectives this year. The Company performed extremely
well in 2023 and delivered record levels of recurring revenue growth, while
securing future revenues through the increased levels of subscription
licences.
Our commitment to growth, both organically and through acquisitions, remains
firm. We continue to seek acquisitions that augment our customer base,
complement our technological arsenal, expand our geographic footprint, and
advance our SaaS platform.
The expansion and international reach of our businesses requires us to
maintain good governance, profitability and talent, and to nurture a culture
of innovation and growth. With these fundamental components firmly in place
and supported by our highly skilled management team, I am confident that Eleco
is primed to further enhance its performance and continue its growth in 2024."
(1) ARR is defined as normalised annualised recurring revenues and includes
revenues from subscription licences, contract values of annual support and
maintenance, and SaaS contracts. Normalisation is calculated as recurring
revenue in the final month of the year multiplied by twelve. This ARR
figure is calculated including the contribution from the BestOutcome business
to the Group going forward.
(2) TRR is defined as the recurring revenues from subscription licences,
contract values of annual support and maintenance, and SaaS contracts.
(3) EBITDA is defined as Earnings before Interest, Tax, Depreciation, and
Amortisation and Impairment of Intangible Assets
(4) Adjusted measures are further defined in note 8.
For further information, please contact:
Eleco plc +44 (0)20 7422 8000
Jonathan Hunter, Chief Executive Officer
Neil Pritchard, Chief Financial Officer
Cavendish Capital Markets Limited +44 (0)20 7220 0500
Geoff Nash / Emily Watts / Seamus Fricker (Corporate Finance)
Louise Talbot / Tim Redfern / Harriet Ward (ECM)
SEC Newgate UK +44 (0)20 3757 6882
Elisabeth Cowell / Bob Huxford eleco@secnewgate.co.uk (mailto:eleco@secnewgate.co.uk)
About Eleco plc
Eleco plc is an AIM-listed (AIM: ELCO) specialist international provider of
software and related services to the built environment through its operating
brands Elecosoft, BestOutcome, Vertical Digital and Veeuze from centres of
excellence in the UK, Sweden, Germany, the Netherlands, Romania and the USA.
The Company's software solutions are trusted by international customers and
used throughout the building lifecycle from early planning and design stages
to construction, interior fit out, asset management and facilities management
to support project management, estimation, visualisation, Building Information
Modelling (BIM) and property management.
For further information please visit www.eleco.com
(http://www.elecosoft.com/) .
Chairman's Statement
In my first year as Chair, I am delighted to report that Eleco's clear
strategy has delivered another strong set of results.
This has resulted in a robust financial performance as well as notable
industry achievements at a time when we are endeavouring to meet the combined
challenges of the digital evolution and the need for ever greater efficiency
and productivity whilst remaining conscious of our environmental
responsibilities.
The Group has entered the final phase of its transition to a recurring revenue
business, based around the SaaS and subscription model it started in late
2021. Now reporting our 2023 results, our key financial measures all reflect
strong growth. ARR (Annual Recurring Revenue) and TRR (Total Recurring
Revenue) were up 24 per cent and 22 per cent respectively and Adjusted EBITDA
up 13 per cent to £6.1m (2022: £5.4m). Adjusted EPS was 4.0 pence (2022: 3.6
pence). The business also continues to generate strong cash flows; even though
2023 saw us make an acquisition and increased dividend payments to our loyal
shareholders, we ended the year with a cash position of £10.9m (2022: cash
£12.5m).
As well as the focus on streamlining its solution portfolio to higher-margin
products, the Group also sold the non-core Eleco Software GmbH ('Arcon')
business and acquired BestOutcome Limited. The latter is a leading UK provider
of simple, scalable Project Portfolio Management (PPM) software for projects
and structured programmes. Post year end, we also welcome, as part of our most
recent acquisition, our new colleagues from the Vertical Digital group of
companies in Romania (see note 7), who with their diverse, proven R&D
capabilities will further enhance and advance our innovation roadmaps.
Board changes
After nearly nine years as a director and latterly as Chair, Serena Lang
stepped down in May 2023. She oversaw a number of developments which further
transformed the business into a customer-centric, building lifecycle-focused
operation, also adopting a new cultural focus. I thank Serena for the
significant contribution she made to the Group during her tenure.
Serving as Interim Chair since her departure, and following a formal
recruitment process with an independent search agency, I was delighted to
accept the role of Chair in October 2023.
Paul Boughton stepped down earlier in 2023 as a Non-Executive Director and was
replaced by Alyson Levett, who brings a wealth of leadership experience from
within the software sector and succeeded Paul as Chair of the Audit and Risk
Committee. We were also delighted that in April 2024 James Pellatt joined the
Board as Non-Executive Director, providing a customer perspective and
extensive experience in real estate, innovation and sustainability.
Employees
Eleco has a distinct and rich corporate culture which is reflected in the
Company's clear purpose: to solve the challenges of the built environment
through digital transformation. On behalf of the Board, I would like to thank
all my colleagues at Eleco for their dedication to making the business what it
is today.
Dividends
In line with the further success of the Group and our growth in profitability,
the Board is proposing a final dividend of 0.55 pence per share, which, with
the interim dividend of 0.25 pence per share, gives a total for the year of
0.80 pence per share, up 14 per cent (2022: 0.70 pence per share). This is in
line with the Group's progressive, sustainable dividend policy.
Current trading and outlook
Eleco's future prospects remain strong. We are well placed to deliver on our
expansion plans via both inorganic and organic growth. International markets
continue to be robust and we have seen a positive start to the year. As at 31
March 2024, our ARR was £24.5m. It gives a clear indication of our continued
organic growth in recurring revenues. Looking forward, the Group is trading in
line with 2024 expectations.
Mark Castle
Non-Executive Chairman
22 April 2024
CEO Report
I am proud to say that Eleco delivered a robust performance in the year under
review, with its underlying revenue growth and profitability ahead of
consensus estimates, despite challenging macroeconomic climates and
geopolitical uncertainties.
The progress and success of our strategic approach is evidenced in the 2023
results, with growth in our higher margin building lifecycle solutions and the
discontinuation of products that were not contributing to the future of the
Group. This approach allowed Eleco to expand its Project Portfolio Management
capabilities with the accretive, cash acquisition of BestOutcome Limited
announced at the end of June. To demonstrate its confidence in the strategy,
the Board increased the interim dividend by 25 per cent and returned the
proceeds of the divestment of Arcon (Eleco Software GmbH), a slightly
loss-making CAD solution, by way of a special dividend.
Trading
Group revenues for the year ended 31 December 2023 were £28.0m (2022:
£26.6m), an increase of five per cent. Annualised Recurring Revenue
(recurring revenue in the last month multiplied by twelve months) to 31
December 2023 increased by a record 24 per cent to £22.6m (2022: £18.2m) and
the Total Recurring Revenue increased 22 per cent to £20.7m (2022: £16.9m).
Recurring revenues now represent 74 per cent of the total Group revenues
(2022: 64 per cent) and grow as a percentage of total revenue as the SaaS
transition journey continues.
Profit measures have also improved, with an increase in adjusted EBITDA of 13
per cent to £6.1m (2022: £5.4m), adjusted profit after tax of 10 per cent to
£3.3m (2022: £3.0m) and adjusted basic EPS up 11 per cent to 4.0 pence
(2022: 3.6 pence). The business continues to be cash generative, and despite
the acquisition of BestOutcome Ltd announced at the end of June 2023 for a net
£3.5m before acquisition expenses and increased dividend payments to a total
of £1.1m, the cash position ended the year at £10.9m (2022: cash £12.5m).
UK revenues increased by 21 per cent to £13.0m (2022: £10.7m), the
equivalent of 46 per cent of Group revenues. The UK revenues included £1.0m
of BestOutcome Ltd sales from the start of H2 2023.
Overseas revenues decreased by six per cent to £15m (2022: £15.9m), the
equivalent of 54 per cent of Group revenues, with Germany and Sweden's
revenues impacted by divested and end-of-life products.
Strategy
Eleco's strategy is to build on its established position as a trusted and
innovative partner for its international customers and the wider built
environment through a combination of organic and inorganic growth.
The strategic objective is to scale and continue to be relevant in order to
solve the challenges of the built environment. The Group is delivering its
purpose through a well-governed, profitable and resilient operating business,
which we refer to as the Growth Platform, and underpins the three strategic
pillars which are:
· Go-to-Market
· Technology and Innovation
· Mergers and Acquisitions (M&A)
Go-to-Market
The Group continued to develop its sales and marketing techniques and
resources throughout the period, establishing a sales enablement programme to
support existing colleagues to perform at their best and also accelerate the
onboarding and scaling of its sales capabilities.
The Asta suite of products was subject to a comprehensive rebrand, reframing
the value proposition to demonstrate that it has now become, arguably, the
best platform of solutions for schedulers. During the period, Asta won the
Construction Computing Project Management Software of the Year Award for the
tenth consecutive year.
The Group saw success in its US go-to-market strategy by working closely with
the reseller channel to introduce a direct-to-market operation, attracting a
total of 118 new customers and setting strong foundations for future growth.
Early in 2024, we hosted our US Innovation Summit, where prestigious customers
such as Mortenson Construction and PennDOT (Pennsylvania Department of
Transportation) shared their positive experiences of using our solutions.
Eleco established a relationship with the C-Tech Club, a not-for-profit
community created for almost 400 founders and CEOs of international
construction technology start-ups. As a lead sponsor, we bring both our
trusted industry expertise and heritage to this forum for fresh thinking and
help identify new technological trends and developments for our customers.
Following its acquisition, BestOutcome has been integrated into the Group
using its own PM3 Project Management solution. Investments have been made in
sales and development resources while plans have been developed to introduce
PM3 into international English-speaking markets.
European operations continued to face a challenging economic climate due to
the energy crisis resulting from events in Ukraine. Prompt actions were taken
in Sweden to discontinue end-of-life applications that were no longer
contributing to growth and efforts were focused on core products, ultimately
delivering a seven per cent increase in new customers in that region.
Following a change to the management structure of our German operations, the
new management teams successfully implemented go-to-market initiatives and
operating procedures across the Netherlands and Germany which resulted in new
client wins.
Eleco's CAD and Visualisation solutions Veeuze and Staircon continued to focus
on software development as well as business development in international
markets. Both business lines were impacted by lower service revenues due to
budget restrictions resulting from the uncertain economic conditions within
their customer bases. Despite this, they continued to attract new logos, and a
first customer for Veeuze was signed in Australia.
Technology and Innovation
The Group reinvested 13 per cent of revenue (2022: twelve per cent) into its
diverse, international team of talented technical colleagues and product
managers, who work to enhance our core solutions as well as developing new
solutions for our customers.
Our vision is to solve the challenges of the built environment, and we are
both proud and fortunate to be working with customers comprising the most
forward-thinking engineers and innovators in the industry. Our customers are
increasingly turning to Eleco for guidance on enhancing their workflows and
improving the value and integrity of their construction data, focusing on
cloud-based SaaS solutions and innovative insights. This shift underscores the
Group's evolution towards developing a solution-oriented approach, responding
to the digital transformation needs in the construction sector. Recognising a
bottleneck in meeting these needs due to the varied technical expertise
required beyond mere software solutions, Eleco saw the necessity of expanding
its capabilities. The outcome of considering the substantial cost of building
an in-house team to address this challenge led to the strategic acquisition of
the profitable Vertical Digital business. This move bolsters Eleco's ability
to meet its technical resourcing demands, facilitating a more comprehensive
support structure for our clients' projects. Read more about Vertical Digital
in the M&A section of this report.
An area of technology focus in 2023 was the development of the Group's
Artificial Intelligence ('AI') roadmap, resulting in the release of AstaGPT in
March 2024. AstaGPT saves valuable time by providing tailored, expert guidance
quickly and intuitively through the use of Generative AI from our high-quality
documentation. AstaGPT will also help new customers get to grips with using
Asta for the first time, as tested and proven when onboarding new members of
our own team. Use of AstaGPT is already exceeding our existing support portal
traffic and continues to grow.
We also embarked on research initiatives with early-stage construction-focused
businesses that specialise in AI to prototype unique opportunities that will
potentially provide value to our customers.
Our technology roadmaps for 2024 and beyond now heavily focus on helping our
customers leverage the benefits of well-structured data and position them to
be best placed to capitalise on the new technology developments that are
coming to the market. Our multi-skilled team approach to solving industry
problems using Product, Development, Innovation, Data, Business Development
and Marketing is proving to be a winning formula as evidenced by AstaGPT and
our new module for other core solutions.
Mergers and Acquisitions
The Group's acquisition strategy aims to enhance the value of the Group and
expand its capabilities and profitability by actively pursuing opportunities
where acquisitions complement and/or extend Eleco's technology/solutions
and/or increase the customer base and/or geographical footprint.
In 2023, we acquired BestOutcome Ltd and sold the non-core Arcon business. The
former is a UK leading provider of simple, scalable Project Portfolio
Management (PPM) software and we have been extremely pleased with the
integration of this business into our building lifecycle portfolio offering.
Post year end, we completed the acquisition of the Vertical Digital group of
companies in Romania for an initial consideration of €1.3m and potential
deferred and contingent outflow ('Earn Out') of up to a maximum of €250,000
for financial years ending 31 December 2024 and 31 December 2025.
Vertical Digital has a proven track record in providing agile and innovative
software development, technical consulting and upskilling solutions across
many European and multinational end-customers including Lufthansa Technik,
PwC, VW Financial Services, Deloitte and Zoopla.
The Acquisition will add critical capabilities to Eleco, including the ability
to service and scale its customers by connecting systems and providing
technical consulting which will support their digital transformation journeys,
thus increasing the Group's product breadth and focus on customer centricity.
The Acquisition will also provide for elastic augmentation of our internal
research and development capacity which will further improve product time to
value.
Vertical Digital meets Eleco's acquisition criteria, having an established
track record with the ability to deliver on common customer needs, enhance
product digitalisation and advance Eleco's roadmap. At 31 December 2023,
Vertical Digital delivered total revenue of €1.2m (c.£1.0m), growth of 44
per cent compared with 2022, and a net profit before taxation of €0.3m
(c.£0.2m) based on unaudited figures and accounting policies prior to Eleco
plc Group control.
The management team will remain in the business, with Dan Pop responsible for
the expansion of our new Eastern European business unit and Alex Gheboianu
accepting a wider responsibility as the Group's Chief Technology Officer. Alex
has a BSc in Computer Science, 15 years' experience in software engineering
and enterprise architecture as well as being a certified IT trainer,
developing training programmes in over 31 countries.
Growth Platform
In delivering Eleco's growth ambitions, we understand the importance of
maintaining and strengthening the value-creating operational platform.
Accordingly, our strategy is underpinned by enabling growth initiatives that
support growth and the future success of Eleco.
People and Culture
Eleco is an expanding people business and the diversity, calibre of talent,
alignment with our management vision and cultural values remain hugely
important to delivering our strategic ambitions. Fostering a strong company
culture based on a value framework that makes colleagues feel a sense of
ownership and care for all stakeholders leads to better decisions being made
for the future.
Demonstrated through our certifications as a Great Place To Work®, our
cultural values have brought increased levels of trust and openness to our
organisation, where colleagues feel confident in sharing creative thoughts,
collaborating and ultimately performing to the best of their ability.
Furthermore, our cultural values support the implementation of operational
transformation more swiftly.
Systems
Reliable and secure systems are important for any growing business and Eleco
is no exception when we consider our growth ambitions. During H2 2023 and
early 2024, we successfully implemented NetSuite ERP in the UK, and the
implementation will continue across all regions in 2024 and 2025.
ESG Credentials
Progressive improvements in environmental, social and governance credentials
play significant importance in supporting Eleco's growth, as it demonstrates
the quality of its business and value it brings to stakeholders. During the
period, a stakeholder materiality assessment was conducted to identify where
the management of Eleco should prioritise its efforts.
Some of the positive contributions to society during the year include the
provision of software products to some 8,000 educational institutions, 29 per
cent of employees utilised at least one day volunteering across all regions,
and over 50 per cent of staff received at least one day of self-development
training. Furthermore, we moved toward greater use of electrified vehicles and
continued to reduce carbon emissions, as well as contributing to carbon
compensation schemes to make the Group carbon neutral.
Setting our sights on becoming Net Zero, an ESG Implementation Team was formed
in Q1 2024. The team comprises colleagues from each business unit, with the
responsibility for implementing environmental improvements across the Group.
Governance continued to play an importance in the period under review as we
revised our company-wide policy framework, which was read and signed by every
employee. We also provided every employee with training and scenario testing
on the detection of cyber security threats and attacks.
We are also pleased to report that Elecosoft UK and BestOutcome were
accredited with the international standard ISO 27001, which recognises that
companies are following information and data security best practices, and that
all of their IT systems either meet or exceed the latest industry standards.
Our Markets
In every field of endeavour, technology drives progress. Building technology
continues to improve efficiency, productivity, safety and quality. However, it
takes some time for construction businesses to embrace and adopt new
technology. While the construction sector is often criticised for being slow
to adopt technology, it is also a sector that is under immense and
increasingly complex demands. Such demands create new challenges for our
customers, driving a need for them to not only contend against their
competitors with an increasing rate of technology adoption but also with the
growing complexity of building projects, the demand to deliver safely and in a
sustainable way whilst considering the future operational efficiency and
environmental and social impact of the structure.
Eleco operates across markets with a number of macroeconomic and macro
societal drivers including population growth, digitalisation, regulation and
land space. The world's population is expected to grow to 9.7bn by 2025. 6.5bn
people will be in cities, with the population of urban areas increasing by
200k people every day. This is driving unprecedented demand for new urban
buildings.
There is also continual pressure on margins in an industry which is very
cost-intensive, complex, multi-disciplined, multi-party and typically lengthy
in its projects, as well as pressure to raise environmental standards, with
most geographies continuing to increase regulatory and compliance
requirements.
The market opportunities are considerable as FMI research identifies US$1.9bn
total addressable market in Construction Project Management software, US$3.4bn
in Maintenance and Facility Management software and more broadly, US$6bn in
BIM software solutions covering the building lifecycle with growth rates
across all markets in the high single to mid double-digit levels.
Critical to the success of any and every project is the management of time and
cost, and that is where Eleco has focused its technical building lifecycle
strategy; it is in the management of time and task from early stages through
to construction and operations. Supporting the project delivery is also
estimating, BIM, data and visualisation.
Across the many geographies in which it operates, Eleco continues to see
excellent opportunities for strong organic growth by expanding its existing
customer base, with more software capabilities being provided to more
customers in more geographies and adding to total customer lifetime values.
At the same time, the Group is capitalising on the industry's digitalisation
inflexion point, with data becoming a common thread across all customers'
departments. This provides opportunities to sell more capabilities across
organisations and fulfil joined-up thinking for our customers. Linked to the
demand in data usage to satisfy this, there are increasing opportunities for
bespoke services based on the Group's software being at the centre of these
numerous construction workstreams.
Outlook
I am proud to acknowledge the significant strides Eleco has taken towards
achieving its strategic objectives this year, performing extremely well in
2023 and delivering record levels of recurring revenue growth, as well as
securing future revenues through the increased levels of subscription
licences.
I extend my gratitude to our exceptional colleagues across the Group for their
invaluable contribution, trust and dedication.
Eleco's customers are increasingly recognising digitalisation as a vital tool
to address their business challenges in meeting market demands. Enhancing
Eleco's go-to-market capabilities will not only ensure customer success but
also fortify our ability to scale, bolstering our reputation as a trusted
technology partner in the built environment.
Our commitment to growth, both organically and through acquisitions, remains
firm. We continue to seek acquisitions that augment our customer base,
complement our technological arsenal, expand our geographic footprint, and
advance our SaaS platform.
The expansion and international reach of our businesses requires us to
maintain good governance, profitability and talent, and to nurture a culture
of innovation and growth. With these fundamental components firmly in place
and supported by our highly-skilled management team, I am confident that Eleco
is primed to further enhance its performance and continue its growth in 2024.
Jonathan Hunter
Chief Executive Officer
22 April 2024
CFO Review
Introduction and overview
As we enter the now final phase of our SaaS and subscription transition
process, I continue to be delighted with the Group's performance: showing
recurring revenues of nearly three quarters of total revenue at the end of
2023, when prior to the transition some three years ago they were less than
half of total revenues. The decision to embark on this difficult journey
predates my joining the Group, but is one that has been managed incredibly
well, and I strongly endorse and build further upon it, for the future of the
Group.
As a result of this journey, our product solution portfolio's revenues and
earnings are more sustainable, predictable and resilient. Even more value is
therefore created for our shareholders and our customers by implementing this
fundamental business model change. But we do not stop there.
We are focused on strategic fit and providing value for our shareholders.
After a hiatus for full and comprehensive strategic review purposes and
understandable Covid-19 reasons, 2023 has seen us dispose of the non-core
Arcon business and acquire BestOutcome whose project portfolio management
software solution elegantly adds to our portfolio of building lifecycle
solutions. And our innovation in our products continues, together with a
number of enhanced go-to-market initiatives to drive organic performance in
the Group. The acquisition of the Vertical Digital group of companies,
announced post year end, is designed to supplement R&D capability in
skills, knowledge and resources in an agile and dynamic manner and enhance our
offering to our customers.
Revenue and gross margins
I am pleased to report that we increased top line revenues year-on-year, 2023
over 2022. This is despite the SaaS and subscription journey that impacts
headline revenue due to the absence of one-off, upfront perpetual licence
revenue recognition.
Reported revenue was £28.0m, or £28.3m in constant currency terms (2022:
£26.6m). Group underlying revenue, which excludes currency movement, the
end-of-life of three products discussed below, the disposal of Arcon (Eleco
Software GmbH) and the acquisition of BestOutcome Limited, was up seven per
cent to £26.8m (2022: £25.1m).
At the start of 2023, as part of our focus on streamlining its solution
portfolio to higher margin products, we discontinued a number of
Nordic-focused products. Additionally, one external product was discontinued
by a third party for which we acted as reseller in the region.
Geographically speaking, the biggest revenue components of the Group remain
the UK with 46 per cent (including the addition of BestOutcome Limited),
followed by Scandinavia with 21 per cent (despite the impact of the
end-of-life products), then Germany with 14 per cent (where we have two
businesses). Group wide, we have no material customer concentration within our
Reported Revenue.
From the standpoint of types of revenue, we report the split between perpetual
licences, recurring revenues and services provided to assist our investors in
understanding where we are on the SaaS and subscription journey. In accordance
with the SaaS transition, perpetual licence sales at £1.5m in 2023 were less
than half that of 2022 (2022: £3.6m); and recurring related revenues £20.7m
(2022: £16.9m). Services income, more discretionary in nature and subject to
macroeconomic pressures, was lower at £5.7m (2022: £6.0m).
Annualised Recurring Revenues (ARR) and Total Recurring Revenues (TRR) remain
key metrics for the Group, again signalling our substantive progress in the
SaaS and subscription transition. ARR is the exit rate of the year (i.e.
December's recurring revenues multiplied by twelve).
ARR, arguably the best indicator on forward visibility of revenues, as at 31
December 2023, increased by 24 per cent to £22.6m (2022: £18.2m). TRR was up
22 per cent to £20.7m (2022: £16.9m) reflecting recurring revenues across
the whole year, from start of 2023 to the end of 2023, and this represented 74
per cent of group revenues (2022: 64 per cent of total revenues).
The Group's high growth margins demonstrate the value we add to our customers.
It should be noted that gross margins tend to be impacted by the initial
phases of the SaaS journey because perpetual licences involve more upfront
revenue relative to associated cost of sales. I am pleased to report that
having moved further along in the financial transition that the Group gross
margin has actually improved to 89.81 per cent (2022: 88.38 per cent). This
reflects the focus on improving the margins of our product solution portfolio,
discussed earlier, and the relative proportion of revenues from one-off
services income being lower, a trend we reported on at the interims.
As another positive indicator of future growth, the level of deferred income
at 31 December 2023 increased by 26 per cent to £9.8m (2022: £7.8m). This
includes £1.0m of deferred income as part of the BestOutcome acquisition.
Operating expenses and R&D investment
Total selling and administrative expenses increased seven per cent to £21.9m
from £20.5m in 2022. Stripping out the addition of approximately half a
year's overheads from the inclusion of BestOutcome, plus one-off advisor fees
and stamp duties of £0.3m (2022: £nil) but also the disposal of Arcon's
costs present in the prior year, this showed an underlying increase of £1.0m
or five per cent.
Within this total spend, depreciation and amortisation of intangible assets
was ahead of the previous year at £2.4m (2022: £2.2m) reflecting both
increased investment in R&D and our M&A activity.
Operating expenses included an adverse £0.3m swing in FX, given negative FX
of £0.1m in 2023 (2022: positive FX of £0.2m).
Staff costs, excluding share-based payments, were £16.6m (2022: £15.4m),
which also incorporates the addition of the BestOutcome staffing expenses.
Regarding the remainder of the operating expenses, sales and marketing areas
showed further uplift in activity from the increased Go-To-Market focus of our
businesses.
Share option payment costs were steady at £0.2m (2022: £0.2m) year-on-year.
Total software product research and development investment before amortisation
increased to £3.6m for the year (2022: £3.1m) of which £2.3m (2022: £1.6m)
was capitalised. Total R&D costs represented 13 per cent of revenue (2022:
twelve per cent). This has been one of the key factors which has secured the
Group's leading-edge position in its markets by supporting opportunities for
new innovation.
Profitability
EBITDA increased by twelve per cent to £5.8m (2022: £5.2m) and Adjusted
EBITDA was up 13 per cent to £6.1m (2022: £5.4m). A reconciliation for
EBITDA (adjusting earnings for interest, taxation, depreciation and
amortisation and impairment of assets), adjusted EBITDA and adjusted operating
profit is provided in note 8.
Due to higher revenue and gross profits, alongside a disproportionately
lower increase in overheads, operating profit was higher at £3.2m (2022:
£3.0m). On top of the trading operating profit, the Group registered a £0.2m
gain on disposal (2022: £nil) of Eleco Software GmbH (Arcon) in 2023, adding
to bottom line earnings.
Net finance income of £0.1m (2022: £nil) reflects an improved interest rate
environment that has continued post year end.
Group adjusted profit before tax was up 17 per cent to £4.2m (2022: £3.6m)
and reported profit before tax increased by 17 per cent to £3.4m (2022:
£2.9m). Adjusted profit before tax includes acquisition related expenses and
amortisation of acquired intangible assets.
The Group tax charge in the year was £0.8m (2022: £0.5m). This increased due
to the higher underlying profit; a differing profit mix between the Group
companies, with more relating to the UK; a lower current tax credit adjustment
in respect of previous years for the UK; and a higher charge for non UK tax in
respect of previous years. The underlying effective rate of 22 per cent (2022:
19 per cent) was therefore similar to the weighted rate of UK corporation tax
of 23.5 per cent.
Profit after tax was therefore 13 per cent ahead at £2.7m (2021: £2.4m),
generating a basic earnings per share figure of 3.2 pence per share (2022: 2.9
pence per share).
Adjusted basic earnings per share was 4.0 pence per share (2022: 3.6 pence per
share). A reconciliation of diluted and adjusted basic earnings per share is
provided in note 4.
Operating cash, cash and liquidity
The Group generates high gross margins from its software offerings, and with
an increase in more predictable recurring revenues and excellent contract
retention rates resulting from high levels of customer satisfaction, provides
strong cash generation. This enables us to be resilient in tougher
macroeconomic times and has allowed us to announce increased dividend payments
in recent interim and year end statements.
The Group continues to have a strong cash flow. As at 31 December 2023, the
Group's cash position was £10.9m (2022: £12.5m).
Cash generated from operations before working capital was £5.8m (2022:
£5.4m) following on from higher profits. Overall, working capital movements
have contributed a net cash inflow of £0.6m (2022: £0.9m). Net tax cash paid
in 2023 in Group jurisdictions amounted to £0.5m (2022: £0.7m).
Capital expenditure on intangible assets, principally comprising the
capitalisation of software product development costs, was £2.3m (2022:
£1.6m). Also broadly similar to the prior year, capital expenditure on
property, plant and equipment was £0.1m (2022: £0.2m).
The biggest single outflow in investing activities outside of this was the
£3.8m net outflow for the acquisition of BestOutcome Limited in July 2023.
Also, in M&A activity, the Group disposed of its interest in its
wholly-owned non-core subsidiary Eleco Software GmbH, the German architectural
CAD business (Arcon), to FirstInVision GesmbH, an Austrian architectural
software business, for a total consideration of £0.5m (€0.6m) in February
2023.
Free cash flow, taking cash generated from operations less the intangibles and
tangibles additions, and net of finance and taxation, was broadly similar to
the prior year at £3.8m (2022: £3.8m). This represents 117 per cent of
operating profits (2022: 127 per cent).
Financing activities, consisting of consideration paid on acquisitions, lease
liabilities, equity dividends and any issue of shares, resulted in net
outflows of £1.6m (2022: net outflow of £1.2m). Behind this, dividends paid
in 2023, relating to the 2023 interim dividend and 2022 final and special
dividends amounted to £1.1m (2022: £0.5m).
Following our M&A activities in 2023, the net overall outflow of cash in
the period was £1.5m (2022: inflow of £2.6m). Had the acquisition not been
made in 2023, the cash figure would have increased by 18 per cent. Post year
end, the acquisition of the Vertical Digital group of companies will see a
cash outflow of circa £1.0m.
Dividends
The Company's debt-free, robust cash status, while maintaining an appropriate
progressive and sustainable dividend policy, allows for the retention of
surplus cash for corporate development initiatives to promote and invest in
the future growth and size of the Group, thereby increasing the value to all
shareholders.
The Board has proposed a final dividend of 0.55 pence per share, which, with
the interim dividend of 0.25 pence per share, gives a total for the year of
0.80 pence per share (2022: 0.70 pence). Last year the Group also paid a
special dividend in relation to the cash proceeds received from the disposal
of Arcon of 0.58 pence per share as part of a further commitment to our
shareholders.
The proposed final dividend will be paid on 28 June 2024 to shareholders on
the share register as at 14 June 2024 with an associated ex-dividend date of
13 June 2024.
Summary
I continue to look to an exciting and bright future for the Eleco Group and
the initiatives and growth at pace. We remain fortunate to have technology
businesses rooted in the real world, with customers facing challenges and
opportunities that we can solve and to which we can add real certainty and
value. High gross margins often signify the value added by a business and
Eleco is fortunate to have high margins, high retention rates and high cash
generation, not something that all technology businesses possess.
Add to these characteristics our loyal, committed and hardworking staff and
greater, more innovative offerings, and it is clear Eleco has strength and
resilience both on and off its balance sheet. We are steadfastly focused on
delivering value for our customers, a respectful culture that is enjoyed by
all of our colleagues, and increasing shareholder value for our investors.
Neil Pritchard
Chief Financial Officer
22 April 2024
Consolidated Income Statement
For the year ended 31 December 2023
2023 2022
Continuing operations £'000 £'000
Revenue 28,006 26,566
Cost of sales (2,855) (3,087)
Gross profit 25,151 23,479
Depreciation and amortisation of intangible assets (2,404) (2,217)
Acquisition related expenses and stamp duties (279) -
Share-based payments (190) (201)
Other selling and administrative expenses (19,075) (18,078)
Selling and administrative expenses (21,948) (20,496)
Operating profit 3,203 2,983
Gain on business disposal 152 -
Finance expense (65) (59)
Finance income 127 20
Profit before taxation 3,417 2,944
Taxation (762) (549)
Profit after taxation for the financial year 2,655 2,395
Attributable to:
Equity holders of the parent 2,655 2,395
Earnings per share (pence per share)
Basic earnings per share 3.2p 2.9p
Diluted earnings per share 3.2p 2.9p
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
2023 2022
£'000 £'000
Profit for the year 2,655 2,395
Other comprehensive expense:
Items that will be reclassified subsequently to profit or loss: (124) (107)
Translation differences on foreign operations
Other comprehensive expense net of taxation (124) (107)
Total comprehensive income for the year 2,531 2,288
Attributable to:
Equity holders of the parent 2,531 2,288
Consolidated Statement of Changes in Equity
For the year ended 31 December 2023
Share Share Merger Translation Share options reserve Employee share ownership trust Retained
capital premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2022 832 2,406 1,002 (278) 352 (358) 19,890 23,846
Dividends - - - - - - (493) (493)
Share-based payments - - - - 201 - - 201
Transactions with owners - - - - 201 - (493) (292)
Profit for the year 2,395 2,395
Other comprehensive expense:
Exchange differences on translation of net investments in foreign operations - - - (107) - - - (107)
Total comprehensive (expense)/income for the year - - - (107) - - 2,395 2,288
At 31 December 2022 832 2,406 1,002 (385) 553 (358) 21,792 25,842
Dividends - - - - - - (1,094) (1,094)
Share-based payments - - - 190 - - 190
Deferred tax on intrinsic value of vested options - - - - (122) - - (122)
Issue of share capital - 12 - - - - - 12
Transactions with owners - 12 - - 68 - (1,094) (1,014)
Profit for the year - - - - - - 2,655 2,655
Other comprehensive expense:
Exchange differences on translation of net investments in foreign operations - - - (124) - - - (124)
Total comprehensive (expense)/income for the year - - - (124) - - 2,655 2,531
At 31 December 2023 832 2,418 1,002 (509) 621 (358) 23,353 27,359
Consolidated Balance Sheet
At 31 December 2023
2023 2022
£'000 £'000
Non-current assets 18,544 15,337
Goodwill
Other intangible assets 9,000 6,591
Property, plant and equipment 766 745
Right-of-Use assets 1,274 1,479
Deferred tax assets 111 51
Total non-current assets 29,695 24,203
Current assets
Inventories 113 44
Trade and other receivables 5,033 4,057
Current tax assets 232 356
Assets of the disposal group held for sale - 794
Cash and cash equivalents 10,903 12,137
Total current assets 16,281 17,388
Total assets 45,976 41,591
Current liabilities
Lease liabilities (542) (467)
Trade and other payables (1,904) (1,523)
Liabilities of the disposal group held for sale - (428)
Accruals and deferred income (12,574) (10,305)
Current tax liabilities (253) -
Total current liabilities (15,273) (12,723)
Non-current liabilities
Lease liabilities (918) (1,215)
Deferred tax liabilities (2,400) (1,785)
Provisions (26) (26)
Total non-current liabilities (3,344) (3,026)
Total liabilities (18,617) (15,749)
Net assets 27,359 25,842
Equity
Share capital 832 832
Share premium 2,418 2,406
Merger reserve 1,002 1,002
Translation reserve (509) (385)
Share options reserve 621 553
Employee share ownership trust (358) (358)
Retained earnings 23,353 21,792
Equity attributable to shareholders of the parent 27,359 25,842
Consolidated Statement of Cash Flows
For the year ended 31 December 2023
2023 2022
£'000 £'000
Cash flows from operating activities 2,655 2,395
Profit after taxation for the year
Income tax expense 762 549
Amortisation of intangible assets 1,774 1,596
Depreciation charge 630 621
Profit on sale of property, plant and equipment (13) (24)
Finance expense 65 59
Finance income (127) (20)
Share-based payments expense 190 201
Gain on business disposal (152) -
Decrease in provisions - (25)
Cash generated from operations before working capital movements 5,784 5,352
(Increase)/decrease in trade and other receivables (780) 193
Increase in inventories and work in progress (70) (27)
Increase in trade and other payables and accruals and deferred income 1,461 755
Cash generated from operations 6,395 6,273
Net taxation paid (501) (719)
Net cash inflow from operating activities 5,894 5,554
Investing activities (2,256) (1,550)
Investment in development expenditure
Investment in other intangible assets (127) (81)
Purchase of property, plant and equipment (133) (158)
Acquisition of subsidiary undertakings net of cash acquired (3,838) -
Net proceeds on disposal of subsidiary undertakings 510 -
Proceeds from sale of property, plant and equipment 37 53
Net cash outflow from investing activities (5,807) (1,736)
Financing activities
Finance expense (65) (59)
Finance income 127 32
Repayment of bank loans - (102)
Repayments of principal of lease liabilities (595) (556)
Equity dividends paid (1,094) (493)
Issue of share capital 12 -
Net cash outflow from financing activities (1,615) (1,178)
Net (decrease)/increase in cash and cash equivalents (1,528) 2,640
Cash and cash equivalents at 1 January 12,538 10,055
Exchange losses on cash and cash equivalents (107) (157)
Cash and cash equivalents at 31 December 10,903 12,538
10,903 12,137
Cash and cash equivalents comprise:
Cash and short-term deposits
Cash held for sale - 401
10,903 12,538
1. General Information
Eleco plc ("the Company") and its subsidiaries (together "the Group") are
primarily involved in software sales and development. Eleco plc, a Public
Limited Company incorporated and domiciled in England, is the Group's ultimate
parent Company. The address of Eleco plc's registered office is Dawson House,
5 Jewry Street, London EC3N 2EX, United Kingdom and the principal place of
business is Dawson House, 5 Jewry Street, London EC3N 2EX.
Whilst the financial information included in this preliminary results
announcement has been prepared in accordance with the recognition and
measurement requirements of UK-adopted International Accounting
Standards this announcement does not itself contain sufficient information to
comply with UK-adopted International Accounting Standards and does not
constitute statutory accounts for the purposes of section 434 of the Companies
Act 2006.
The principal accounting policies used in preparing this preliminary results
announcement are those that the Company has adopted for its statutory accounts
for the year ended 31 December 2023 and are unchanged from those previously
disclosed in the Group's Annual Report and Accounts for the year ended 31
December 2022.
Statutory accounts for 2022 have been delivered to the Registrar of Companies
and those for 2023 will be delivered in due course. The Company's auditors RSM
UK LLP, have reported on the 2023 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. The 2022 audit 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.
The Annual Report and Accounts for the year ended 31 December 2023 are
available on the Company's website https://eleco.com/results/latest-results
The information in this results announcement was approved by the Board on 22
April 2024.
2. Segment reporting and revenue
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 makers have 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.
During the year, the Executive Directors reviewed the three revenue streams,
having previously reviewed these as one. 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.
Revenue
Revenue from continuing operations disclosed in the income statement is
analysed as follows:
2023 2022
£'000 £'000
Perpetual licence revenue 1,532 3,606
Recurring maintenance, support and subscription revenue 20,732 16,927
Services revenue 5,742 6,033
Total revenue 28,006 26,566
Revenue is recognised for each category as follows:
· Perpetual licence revenue - recognised at the point of transfer
(delivery) of the licence to a customer
· Recurring revenue: SaaS, maintenance, support and subscriptions - as
these services are provided over the term of the contract, revenue is
recognised over the life of the contract.
· Services revenue - recognised on delivery of the service.
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:
2023 2022
£'000 £'000
UK 13,034 10,678
Scandinavia 5,880 6,388
Germany 3,950 4,449
USA 1,184 1,101
Rest of Europe 3,364 3,393
Rest of World 594 557
28,006 26,566
Revenue by product group represents continuing operations revenue from
external customers.
Revenue by product group is as follows:
2023 2022
£'000 £'000
Software for:
Building Lifecycle 19,824 17,248
CAD and Visualisation 6,775 7,432
Other - third party software 1,407 1,886
28,006 26,566
3. Taxation
Taxation on profit on ordinary activities
The tax charge in the income statement from continuing operations is as
follows:
2023 2022
£'000 £'000
Current tax:
UK corporation tax on profits of the year 508 359
Tax adjustments in respect of previous years (54) (104)
454 255
Foreign tax 282 276
Tax adjustments in respect of previous years 23 -
Total current tax 759 531
Deferred tax:
Origination and reversal of temporary differences (80) 9
Change in tax rates - -
Tax adjustments in respect of previous years 83 9
Total deferred tax 3 18
Tax charge in the consolidated income statement 762 549
Income tax for the UK has been calculated at the weighted average rate of UK
corporation tax of 23.5 per cent (2022: 19 per cent) on the estimated
assessable profit for the period. Taxation for foreign companies is calculated
at the rates prevailing in the relevant jurisdictions.
4. Basic and diluted earnings per share
2023 2022
Weighted average Weighted average
Net profit Net profit
attributable to shareholders number of attributable to shareholders number of
shares Earnings shares Earnings
per share per share
Ordinary Shares £'000 (millions) (pence) £'000 (millions) (pence)
Basic earnings per share 2,655 82.3 3.2 2,395 82.2 2.9
Diluted earnings per share 2,655 83.7 3.2 2,395 83.0 2.9
Adjusted basic earnings per share 3,272 82.3 4.0 2,962 82.2 3.6
In determining the diluted earnings per share the dilutive impact of share
options on weighted average number of shares was included.
5. Dividends
Dividends declared and to be paid
The Directors have recommended a final dividend of 0.55 pence per ordinary
share (2022: final dividend of 0.50 pence per ordinary share). The dividend
is subject to approval by shareholders at the AGM and has not been included as
a liability in these financial statements.
Dividends paid in the year
Dividends paid in the year were 1.33 pence per ordinary share (2022: 0.60
pence per ordinary share). Cash dividends of £1,094,000 (2022: £493,000)
were paid during the year.
2023 2022 2023 2022
Ordinary Shares pence per share pence per share £'000 £'000
Declared and paid during the year
Interim - Full Year 2023 0.25 0.20 206 164
Special - Full Year 2022 0.58 - 477 -
Final - Full Year 2022 0.50 0.40 411 329
1.33 0.60 1,094 493
6. Acquisition of BestOutcome Ltd
The Company announced on 27 June 2023 that it had acquired 100 per cent of
Buckinghamshire-based BestOutcome Limited ("BestOutcome"), a UK provider of
simple, scalable Project Portfolio Management (PPM) software, for an initial
consideration of £4.825 million in cash (and an adjusted value of £3.838
million on a cash-and-debt-free equivalent with £1.3 million of cash in the
business at the time of the acquisition) ("the Acquisition"). The Acquisition
was exclusively financed by the Company's internal cash resources.
BestOutcome's core products PM3 and PM3 Time are used to manage strategic
programmes and multiple portfolio management projects. The Acquisition
strengthens Eleco's Building Lifecycle portfolio, representing further
progress in Eleco's growth strategy to enhance its predictable recurring
revenue and to increase value to its shareholders by investing in synergistic
software products and technologies, scalable and building on and with its
existing Building Lifecycle portfolio. BestOutcome has a particular strength
in winning public sector business, including the NHS, universities and county
councils. This gives Eleco Group a greater foothold in the wider built
environment, while also complementing its private sector exposure.
For the above reasons, combined with the anticipated profitability of
BestOutcome's products in other Group markets, synergies arising, plus the
ability to hire the assembled workforce of BestOutcome (including the founders
and management team), the Group understandably paid a premium over the
acquisition net assets, giving rise, aside from other valued intangibles, to
goodwill. All intangible assets, in accordance with IFRS 3 Business
Combinations, were recognised at their provisional fair values on acquisition
date, with the residual excess over net assets being recognised as brands,
customer relationships and goodwill. Intangibles arising from the acquisition
consisted of brands, customer relationships, intellectual property and
R&D, and have been independently valued by professional advisors.
The following table summarises the consideration and provisional fair values
of assets acquired and liabilities assumed at the date of acquisition:
£'000
Intangible fixed assets:
Brands 238
Customer relationships 897
Development expenditure 675
Other intangibles 3
Property, plant and equipment 18
Trade receivables and prepayments 196
Cash and cash equivalents 1,266
Trade and other payables (161)
Deferred income (1,047)
Corporation tax (85)
Deferred tax liabilities (433)
Net assets acquired 1,567
Goodwill 3,258
Acquisition cost 4,825
There are no non-controlling interests in relation to the BestOutcome Ltd
acquisition. Fair values in the above table have only been determined
provisionally and may be subject to change in the light of any subsequent new
information becoming available in time. The review of the fair value of assets
and liabilities acquired will be completed within twelve months of the
acquisition date. Receivables at the acquisition date are expected to be
collected in accordance with the gross contractual amounts.
The acquisition cost was satisfied by:
£'000
Cash 4,825
Share consideration -
Total consideration 4,825
The net cash outflow arising on acquisition was:
£'000
Cash consideration paid 4,825
Acquisition related costs 279
Cash and cash equivalents within the BestOutcome business on acquisition (1,266)
Total net cash outflow on acquisition 3,838
Other costs relating to the acquisition have not been included in the
consideration cost. Directly attributable acquisition costs include external
legal and accounting costs incurred in compiling the acquisition legal
contracts and the performance of due diligence activity and the fair value
exercise, together with stamp duty, and total £279,000. These costs have been
charged in selling and administrative expenses in the consolidated income
statement.
BestOutcome Ltd, in common with other Group companies, has a 31 December
calendar year end. In the preceding financial year 2022 BestOutcome Ltd
generated revenue of £2.0 million and net profit before taxation of £0.2
million based on figures and accounting policies prior to Eleco plc Group
control.
Had the acquisition taken place from the start of the Group's financial year
(from 1 January 2023) and based on figures and accounting policies prior to
Eleco plc Group control, management estimate that BestOutcome Ltd would have
contributed revenue of £1.0 million and profit before taxation of £0.1
million to the Group results in this first half year of 2023.
BestOutcome Ltd contributed revenue of £1.0m and profit before taxation of
£0.1 million since joining the Eleco plc Group in the second half of 2023.
7. Post-balance sheet event
On 16 April 2024, after the 2023 year end, the Group, through its wholly owned
subsidiary Elecosoft Ltd, acquired 100% of the share capital of the Vertical
Digital group of companies, consisting of Vertical Digital SRL and Sons of
Coding SRL. (the 'Acquisition') for a consideration of €1.3m (£1.1m). The
Acquisition's completion date was therefore 16 April 2024. The Group funded
the Acquisition exclusively by utilization of its existing internal cash
resources for this initial consideration. Cash and cash equivalents within the
Acquisition entities at the acquisition date totalled £0.1m and the
Acquisition has no debt.
Vertical Digital has a proven track record, in providing agile and innovative
software development, technical consulting and upskilling solutions across
many European and multinational end-customers including Lufthansa Technik,
PwC, VW Financial Services, Deloitte and Zoopla.
The Acquisition will add critical capabilities to Eleco, including the ability
to service and scale its customers by connecting systems and providing
technical consulting which will support their digital transformation
journeys, thus increasing the Group's product breadth and focus on customer
centricity.
The Acquisition will also provide for elastic augmentation of our internal
research and development capacity which will further improve product time to
value.
The transaction terms provide for a cumulative potential deferred and
contingent outflow ('Earn Out') of up to a maximum of €250,000 for financial
years ending 31 December 2024 and 31 December 2025, based on the local senior
management (the former owners) attaining specific performance targets set by
Eleco plc in those years. These specific performance targets are linked to
achievement of revenue over those two financial years, subject to minimum
gross margin and net margin thresholds. There are no non-controlling
interests in relation to the Acquisition.
The Vertical Digital Group of companies, in common with other Group companies,
has a 31 December calendar year end. In the year to 31 December 2023, before
Eleco plc Group control, Vertical Digital delivered revenue of €1.2m
(c.£1.0m) and a net profit before taxation of €0.3m (c.£0.2million) based
on unaudited figures and Vertical Digital's accounting policies. Had the
acquisition taken place from the start of the Group's financial year (from 1
January 2023) and based on figures and accounting policies prior to Eleco plc
Group control, management estimate the contribution towards Group revenues
would be of a similar quanta.
Given the proximity of the acquisition to the annual report and accounts being
published, and the relatively immaterial size of the acquisition relative to
the Group's scale, the Group is therefore unable at this stage to reasonably
estimate and determine the fair value of net assets acquired and resulting
goodwill and other associated intangibles under IFRS 3 Business Combinations
at the date of this report. The Group will work through the fair value
exercise under IFRS 3 and provisional disclosures will be reported in the
Group's 2024 interim results.
In accordance with the provisions of IAS 10 Events After the Reporting Period,
the Directors consider that the acquisition is a non-adjusting post balance
sheet event, meaning an event after the reporting period end that is
indicative of a condition that arose after the end of the reporting period,
and therefore the FY23 numbers prior to this acquisition have not been
adjusted. An estimate of its financial effect is described above.
8. Additional performance measures
The Group uses adjusted figures, which are not defined by generally accepted
accounting principles ("GAAP") such as UK-IAS. Adjusted figures and underlying
growth rates are presented as additional performance measures used by
management, as they provide additional relevant information in assessing the
Group's performance, position and cash flows. In addition to the standard
measures in the financial statements, the measures enable investors to track
the core operational performance of the Group, for example by separating out
items of income or expenditure relating to acquisitions, disposals and capital
items. For example, one-off acquisition expenses due to advisor fees would not
ordinarily be incurred in normal trading. Amortisation will vary
considerably where the Group has to recognise separable purchased intangibles
and amortisation on those intangibles will therefore fluctuate. Management
uses these financial measures, along with UK-IAS financial measures, in
evaluating the operating performance of the Group.
Year ended 31 December Year ended 31 December
2023 2022
£'000 £'000
Operating profit 3,203 2,983
Gain on business disposal 152 -
Amortisation of intangible assets 1,774 1,596
Depreciation charge 630 621
EBITDA 5,759 5,200
EBITDA 5,759 5,200
Gain on business disposal (152) -
Acquisition related expenses 279 -
Share-based payments 190 201
Adjusted EBITDA 6,076 5,401
Operating profit 3,203 2,983
Acquisition related expenses 279 -
Amortisation of acquired intangible assets 474 499
Share-based payments 190 201
Adjusted operating profit 4,146 3,683
Profit before tax 3,417 2,944
Gain on business disposal (152) -
Acquisition related expenses 279 -
Amortisation of acquired intangible assets 474 499
Share-based payments 190 201
Adjusted profit before tax 4,208 3,644
Tax charge (762) (549)
Gain on business disposal 48 -
Acquisition related expenses (66) -
Amortisation of acquired intangible assets (111) (95)
Share-based payments (45) (38)
Adjusted tax charge (936) (682)
Profit after tax 2,655 2,395
Gain on business disposal (104) -
Acquisition related expenses 213 -
Amortisation of acquired intangible assets 363 404
Share based payments 145 163
Adjusted profit after tax 3,272 2,962
Adjusted profit after tax 3,272 2,962
Weighted average number of shares 82.3 82.2
Adjusted earnings per share (pence) 4.0 3.6
Cash generated from operations 6,395 6,273
Purchase of intangible assets (2,383) (1,631)
Purchase of property, plant and equipment (133) (158)
Acquisition related expenses 279 -
Adjusted operating cash flow 4,158 4,484
Adjusted operating cash flow 4,158 4,484
Net interest received/(paid) 62 (27)
Tax paid (501) (719)
Proceeds from disposal of property, plant and equipment 37 53
Free cashflow 3,756 3,791
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