Interim Results

13 September 2022

Eleco Plc

(“Eleco”, “Group” or “the Company”)

Interim Results for the Six Months Ended 30 June 2022

The Board of Eleco plc (AIM: ELCO), the AIM-listed international construction software specialist, is pleased to announce its unaudited results for the six months ended 30 June 2022.

Financial Highlights 

·    Recurring revenue up 9% to £8.2m (2021: £7.5m), showing delivery on our SaaS transition

·    Revenue of £13.4m (2021: £13.8m) and £13.8m at constant currency

·    Adjusted EBITDA* of £2.8m (2021: £3.6m)

·    Profit before tax of £1.7m (2021: £2.3m)

·    Basic earnings per share of 1.6p (2021: 2.2p)

·    Adjusted earnings per share** of 1.9p (2021: 2.6p)

·    Cash generative with free cash flow*** of £2.1m (2021: £2.8m)

·    Interim dividend of 0.20 pence (2021: 0.20 pence)

The Board remains confident in delivering in line with market expectations for the full year

* Adjusted to exclude amortisation of intangible assets, depreciation charge and former Directors’ payments.

**  Adjusted earnings per share represents adjusted profit after tax, divided by a weighted average number of shares.

*** Free cash flow represents cash generated in operations less purchase of intangible assets and property, plant and equipment, net of finance costs and tax plus any proceeds from disposals of property, plant and equipment.

Operational Highlights

·    Successfully commenced phase two of the Group’s SaaS strategy, to offer subscription licences to existing customers, thereby supporting customer success initiatives

·    Development of a new Permit to Work module for Eleco’s scalable maintenance and facilities software, ShireSystem, for release in H2 2022.  This will be a key component in assisting customers with managing safety and compliance procedures

·    Development of the Last Planner web solution which will allow on-site and final stage planning for customers. We plan to release to market in 2023

·    A leading UK construction and regeneration group, Morgan Sindall, reported how they have been using Powerproject to drive productivity and manage modular building techniques

·    Project management specialists Treo chose Eleco’s leading project management tool, Powerproject, to manage scheduling in their South African mining and mineral processing projects

·    Furthered ESG initiatives by becoming Carbon Neutral

·    Certified as a Great Place to Work® and implemented wellbeing and personal development programmes for employees

·    Winner of the Megabuyte Quoted 25 Award for Best Performing Software Company in Industrials

Chairman, Serena Lang, said:

“Eleco delivered a positive performance in the first half of 2022, with growth in subscription revenues, a key indicator in our transition to a SaaS business. We operate in a very exciting market and are well positioned to meet the growing demands of the built environment thanks to our planning and productivity-driving best in class software.

Over the next six months, we will remain focused on growing our recurring revenues. We are migrating all hosting to a single cloud provider, driving connectivity across the Group, which will allow us to scale more effectively. We continue to explore M&A opportunities that would support our growth strategy.

Importantly, we remain well capitalised and I would like to thank our talented team and valued customers for their support. We remain confident of meeting market expectations for the full year to 31 December 2022.”

Details of conference call for equity analysts

There will be a webinar / conference call for equity analysts at 11:30am UK on Tuesday 13 September hosted by CEO Jonathan Hunter and Interim CFO Rose Clark.  Any equity analysts wishing to register should contact SEC Newgate at eleco@secnewgate.co.uk where further details will be provided.

Details of webinar for investors

As a result of the bank holiday on Monday 19 September, Eleco announces that Jonathan Hunter and Rose Clark will now provide a live presentation via the Investor Meet Company platform on Tuesday 20 September 2022 at 9:00am UK.

The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 9am the day before the meeting or at any time during the live presentation.

Investors can sign up to Investor Meet Company for free and add to meet Eleco via:

https://www.investormeetcompany.com/eleco-public-limited-company/register-investor

Enquiries:

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 and Veeuze from centres of excellence in the UK, Sweden, Germany and the Netherlands. 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.

Chairman’s Statement

I am pleased to report that during the first half of 2022, Eleco has once again achieved a robust performance. During a period of significant macro-economic and geo-political upheaval and increased pressure on overheads and talent, the business has continued to deliver on its growth strategy. 

Our strategy to focus on delivering best of breed products to core customer segments within a selection of geographies and transitioning our business to SaaS has generated recurring revenue growth of 9% to £8.2m compared with the previous year (H1 2021: £7.5m). This means that recurring revenue now accounts for approximately 61% of total revenue, up from 55%. Eleco was also strongly cash generative, providing us with the resilience to navigate the inflationary pressures affecting businesses around the world.

We have continued to invest in product development in line with our customer-centric approach, having launched new versions of our core building lifecycle products.  We also released our Artificial Intelligence (AI) wall tool in our visualisation business, and it is already being well received by our paint manufacturing customers.

Delivering on our strategy for organic growth

Overall recurring revenue at constant currency increased by 11%, demonstrating the positive progress we are making in the delivery of our strategy.

We previously stated that our total reported revenue growth will temporarily soften during our SaaS transition and the financial performance during the period is in line with our expectations. In moving to a SaaS model, we are giving choice for our customers and enhanced Customer Lifetime Value as well as underpinning visibility of income for our shareholders.

We have continued to strengthen our business, achieving new customer growth in the UK, growth in the US and strong demand in the Swedish market, where we secured our largest deal of the year so far.  Existing customers continue to expand their software usage and we are seeing more demand for hosted solutions.

In line with our previously announced strategy to focus on our core customer segments and businesses, we are holding our German ARCON architectural CAD business, for sale.  This will further streamline the business and the Board believes that the customers, staff and product life can thrive within a business with a common customer base and product type.  

Due to geo-political factors and inflationary pressures, which have severely impacted the timing of operational programmes for our customers, there has been a slowdown in demand for services and sales of new licences across Eleco’s portfolio, especially in Germany where the economy has been hit more severely by repercussions of the invasion of Ukraine. However, the Group is successfully absorbing these pressures thanks to our strong cash balance, with profits remaining in line with expectations.

Overall, we have continued to increase our customer numbers and monthly recurring revenue, making progress in our goal to become a word-class customer-centric organisation.

Board Update and Environmental, Social and Governance (ESG)

The first half of this year saw us strengthen our ESG disclosures. We formed an ESG committee, chaired by Mark Castle, and set Key Performance Indicators that we are measuring against in 2022. A key element of this is to consume renewable energy across our business, building on the 25% of our energy which currently comes from renewable energy suppliers. We are pleased to announce that Eleco is now carbon neutral, having offset our 2021 carbon emissions and we will continue to focus on sustainability and reducing our impact on the environment.  Additionally, we are also very focused on how we, as a software player can help our customer base reduce their carbon footprint and the impact the built environment has on sustainability.

Attraction and retention of talent continues to be a core focus in a tight market, and we have continued to invest in our people throughout the period, recognising that a strong, engaging culture is key to this.  We are delighted to have received the Great Place to Work® certification for our UK and Swedish regions, which is an acknowledgement of the commitment we have made to our people initiatives.

This is a great foundation to build upon as we continue to embrace our vision of becoming an employer people want to work with and for. The wellbeing of our people is a key pillar of our overall strategy and we have invested in an Employee Assistance Programme and Employee Hub, as well as encouraging our employees to spend time volunteering for a charitable cause.

Work continues on our policy framework, with updates to our Whistleblowing Policy as well as the introduction of an Anti-Slavery and Human Trafficking Policy during the first quarter. Matters of governance remain a key focus for the Board as we build on the changes made to its composition in the prior year, ensuring that Eleco is stewarded by a diverse mix of views and experience.

Our Group Leadership Team was further strengthened through the appointment of a Chief Technology Officer and I am delighted that in October we will welcome Neil Pritchard onto the Board as Chief Financial Officer.

Dividend

Dividends paid in the six months to 30 June 2022 were 0.40 pence per ordinary share (2021: 0.40 pence).

Having regard to the trading performance and cash generation in the period, the Board has decided to declare a dividend of 0.20 pence (2021: 0.20 pence), which would be covered 8 times by unaudited earnings for the period of 1.6 pence per share.

The interim dividend will be paid on 7 October 2022 to shareholders on the register at the close of business on 23 September 2022 and the ex-dividend date will be 22 September 2022.

Outlook

Eleco is operating in a very exciting market and is well positioned to meet the growing demands of the built environment thanks to our planning and productivity-driving software.

Over the next six months, we remain focused on growing our recurring revenues. We are migrating all hosting to a single cloud provider, driving connectivity across the Group and allowing us to scale more effectively.

Our people are important to the success of Eleco, and we will build on the positive momentum we have already seen with our people initiatives.  We will continue to upskill, build career pathways and provide a working environment that motivates, retains and attracts new talent in what is a competitive environment.

Our strategy continues to focus on both organic recurring revenues and profit growth, as well as exploring M&A opportunities that will support our strategy.

Eleco delivered a positive performance in the first half of 2022, with growth in subscription revenues. Importantly we were also able to strengthen our financial position considerably and I would like to thank our talented team and valued customers for their support. We are confident of meeting market expectations for the full year to 31 December 2022.

Serena Lang

Chairman

12 September 2022

Condensed Consolidated Income Statement

for the financial period ended 30 June 2022

Condensed Consolidated Statement of Comprehensive Income

for the financial period ended 30 June 2022

                                                                                                                        Six months to 30 June

Condensed Consolidated Statement of Changes in Equity

for the financial period ended 30 June 2022

Condensed Consolidated Balance Sheet

at 30 June 2022

                                                                                                                                              30 June

Condensed Consolidated Statement of Cash Flows

for the financial period ended 30 June 2022

Notes to the Condensed Consolidated Interim Financial Information

1.    General information

The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is 6 Bevis Marks, London, EC3A 7BA.

The Company is listed on the Alternative Investment Market (“AIM”).

The condensed consolidated interim financial information does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The Group’s consolidated financial statements for the year ended 31 December 2021 have been filed at Companies House. The audit report was not qualified and did not contain a reference to any matter to which the auditor drew attention by way of emphasis and did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.

2.    Basis of preparation

The condensed consolidated interim financial statements for the six months to 30 June 2022 have been prepared in accordance with the accounting policies which will be applied in the twelve months financial statements to 31 December 2022. These accounting policies will be drawn up in accordance with Applicable law and UK-adopted International Accounting Standards (UK-IAS) that are effective at 31 December 2022.

The condensed consolidated interim financial statements are unaudited. They do not include all the information and disclosures required in the annual financial statements or for full compliance with UK-IAS, and therefore should be read in conjunction with the Group’s published financial statements for the year ended 31 December 2021. The comparative figures for the year ended 31 December 2021 are not the Company’s statutory accounts for that period but have been extracted from these accounts.

The Directors, having considered the Group’s current financial resources, have concluded that they are adequate for the Group’s present requirements. Therefore, the condensed consolidated interim financial information has been prepared on the going concern basis.

The impending sale of a subsidiary company operating a niche product which is no longer core to Eleco’s strategy meets the criteria for classification in accordance with IFRS 5. The assets of the company have been presented as a disposal group held for sale and the associated liabilities  have been  presented separately on the face of the statement of financial position.

Estimates

Application of the Group’s accounting policies in preparing condensed consolidated interim financial statements requires management to make judgements and estimates that affect the reported amount of assets and liabilities, revenues and expenses. Actual results may ultimately differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2021.

Risks and uncertainties

A summary of the Group’s principal risks and uncertainties was set out on pages 16 to 19 of the 2021 Annual Report and Accounts. The Board considers these risks and uncertainties are still relevant to the current financial year and the impact of changes in the UK economy is reviewed in the Chairman’s statement contained in this report.

The Interim Report was approved by the Directors on 12 September 2022.

3.    Revenue

Revenue disclosed in the income statement is analysed as follows:

4.    Segmental information

Operating segments

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

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

Geographical, product and sales channel information

Revenue by geographical segment represents revenue from external customers based upon the geographical location of the customer.

                                                                                                                 Six months to 30 June

Revenue by product group represents revenue from external customers.

Six months to 30 June

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

Six months to 30 June

5.    Operating profit

Operating profit for the period is after charging the following items:                                                                                                                                                                                                                                                       

6.    Net finance cost

Finance income and costs disclosed in the income statement is set out below:

                                                                                                                    Six months to 30 June

7.    Earnings per share

The calculations of the earnings per share are based on profit after tax attributable to the ordinary equity shareholders of the Company and the weighted average number of shares in issue for the reporting period.

                                                                                Six months to 30 June

Shares held by the Employee Share Ownership Trust are excluded from the weighted average number of shares in the period. Adjusted profit attributable to shareholders is reconciled to reported profit attributable to shareholders in note 15.

8.    Dividends

Dividends paid in the six months to 30 June 2022 were 0.40 pence per ordinary share (2021: 0.40 pence per ordinary share).

Cash dividends of £329,000 (2021: £329,000) were paid in the six months to 30 June 2022 as follows:

The Directors have recommended an interim dividend of 0.20 pence per ordinary share (2021: 0.20 pence per ordinary share).

9.    Other intangible assets

Other intangible assets comprise capitalised development costs, acquired customer relationships and purchased intangible assets. Additions in the six months to 30 June 2022 represent purchased intangible assets of £164,000 (2021 half year: £5,000) and internal development costs capitalised of £738,000 (2021 half year: £790,000). Internal development relates to software development projects that meet the accounting policy criteria for capitalisation.

10.  Assets of disposal group held for sale

In line with our previously announced strategy to focus on our core customer segments and businesses, we are holding our German ARCON architectural CAD business, for sale.  IFRS 5 disclosure treatment is adopted here.

The table below reflects assets held for sale measured at the lower of carrying amount and fair value less costs to sell in the statement of financial position.

11.  Cash and borrowings

The net cash position of the Group as at 30 June 2022 is set out below:

The UK banking facilities are with Barclays Bank plc  and the Group facilities comprise a £1.0m overdraft facility, carrying an interest rate of 2.75 percent over base rate (undrawn at 30 June 2022, 31 December 2021 and 30 June 2021).

12.  Liabilities of disposal group held for sale

Liabilities classified as Held for sale on the face of the Statement of Financial Position are as follows:

13.  Accruals and deferred income

Deferred income represents income from the sale of software subscription licenses and from software maintenance and support contracts and is taken to revenue in the income statement on a straight-line basis in line with the service and obligations over the term of the contract.

14.  Related party disclosures

Transactions between Group undertakings, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

The Directors of the Company had no material transactions with the Company during the period, other than a result of service agreements.

15.  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 relevant information in assessing the Group’s performance, position and cash flows. We believe that these measures enable investors to track more clearly the core operational performance of the Group, by separating out items of income or expenditure relating to acquisitions, disposals and capital items. Our management uses these financial measures, along with UK-IAS financial measures, in evaluating the operating performance of the Group.