Preliminary Results

29 March 2021

Eleco plc

(“Eleco”, the “Company” or the “Group”)

Audited Results for the Year Ended 31 December 2020

Directorate Change

The Board of Eleco plc (AIM: ELCO) is pleased to announce its results for the year ended 31 December 2020.

Financial Highlights

·      Revenues are in line with last year at £25.2m (2019: £25.4m)

·      Recurring revenues increased to 56% (2019: 53%) (includes maintenance, support, subscription and SaaS revenue)

·      Reported operating profit up 9% to £4.2m (2019: £3.8m)

·      Profit before tax up 12% to £3.9m (2019: £3.5m)

·      Reported basic earnings per share up 18% to 3.9p (2019: 3.3p)

·      Adjusted operating profit* up 12% to £5.1m (2019: £4.5m)

·      Adjusted basic earnings per share* up 17% to 4.8p (2019: 4.1p)

·      Free cash flow** up 36% to £5.5m (2019: £4.1m)

·      Net cash £6.2m, with £10.7m cash at year end (2019: £1.1m net cash)

·      Final recommended dividend of 0.40p

(* Adjusted profit measures exclude acquisition related expenses, amortisation of acquired intangible assets and former Director payments.)

(* Non-GAAP measures, see note 8.)

(** 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

·    Continued to expand our customer base and maintained high customer retention levels.

·   Transitioned the global workforce to home working in the face of Covid-19 restrictions. Continued our daily business and customer support and training without any disruption to customers. 

·    Released our ShireSystem Wallboard leading performance indicator module which visually shares relevant, actionable data with a number of stakeholders.

·  Continued to invest in the development of Memmo, our SaaS site management software which received a positive response with both new and existing customers in our Swedish markets.

·   Released Powerproject subscription licencing.

·   Released the first version of Bidcon Connect enabling customers to get read access to estimations in the cloud.

·  Winner of best ‘Project Management Software of the Year’ of the seventh consecutive year at the UK Construction Computing Awards.

Executive Chairman, Serena Lang said:

“The year under review has shown Eleco’s resilience during a period of uncertainty, with profit before tax and net cash both improving in a meaningful way. This robust financial performance, together with our established position as a provider of best-in-breed software solutions for blue chip customers in the construction and built environment sectors, provides us with a strong platform for growth.

“I am therefore pleased to present our relaunched growth strategy today. Following our strategic review, which commenced in Q4 2020, Eleco now has a clear focus on securing a high-value customer base in additional markets outside of those we currently count as our core, both organically and through M&A. This strategy, outlined in detail below, has been informed by the market and our customers, and we have an excellent team in place, with the right experience, to create shareholder value. I would like to thank our colleagues for the way they responded to the Covid-19 pandemic.

“Importantly, the market opportunity for Eleco is compelling; the markets we serve are experiencing an accelerated adoption of technology due to the pandemic, rising material costs and increased regulation. The strong start to trading that we have experienced since the beginning of 2021 attests to this. With a strong customer base and a high level of recurring revenue, we look to 2021 and beyond with confidence and to building further shareholder value.”

About Eleco plc

Eleco PLC is an AIM-listed (AIM: ELCO) specialist international provider of software and related services to the Architectural, Engineering, Construction and Owner/Operator (AECO) industries and interior furnishing industries from centres of excellence in the UK, Sweden, Germany, Netherlands and the USA.

The Company’s market leading software solutions are developed by teams in the United Kingdom, Sweden and Germany, and its solutions include project management, estimating, timber engineering, CAD and visualisation, asset and facility management and cloud based digital marketing solutions.

For further information please visit www.eleco.com

Executive Chairman’s Statement

The year under review has shown Eleco’s resilience during a period of uncertainty, with profit before tax and net cash both improving in a meaningful way. I am extremely proud of the way our colleagues responded to the Covid-19 pandemic and continue to do so. I am also grateful to our customers for their willingness to embrace new ways of working with us, especially for services that are traditionally face-to-face such as training and consultancy. This enabled us to prioritise the health and wellbeing of our employees, customers, resellers and suppliers whilst playing our part in reducing the spread of the virus.

In March 2020, we closed all offices and implemented home working for all our employees. Not knowing what the impact of the pandemic was likely to be on our business we quickly put in place tighter financial controls and cost management whilst ensuring that our focus remained on our customers. There was an immediate financial impact on training and services which ground to a halt when the countries in which we operate went into lockdown, leading us to furlough a small proportion of staff for Q2. The teams quickly moved to on-line training in small blocks with good uptake but much lower revenues and as the year progressed our team and our customers worked together to embrace changing delivery of training fully to on-line and our furloughed staff were quickly returned to working.

Despite the unprecedented disruption to businesses worldwide, overall revenues were in line with the prior year, recurring revenues were at 56 per cent (2019: 53 per cent) and profit before tax was up 12 per cent on 2019 at £3.9m. We also improved our net cash position from £1.1m as at 31 December 2019 to £6.2m at 31 December 2020, all of which puts the Company in a strong position to drive its growth strategy. Based upon these results, the Board has taken the decisions to repay furlough payments that are possible to be repaid. This is £98,000 furlough repayments of the £150,000 which will be repaid in the coming months.

The Company’s resilience in these challenging times is testament to the dedication and commitment of the whole team at Eleco and I am hugely grateful for their hard work and dedication, especially during these difficult times when they have worked tirelessly to support our customers whilst managing the impact of Covid-19 on them personally. 

Strategy 

Eleco is already a cash generative provider of software solutions with a strong blue-chip customer base across the construction and built environment sectors. However, the pandemic has created new industry drivers and has enhanced the market opportunity for Eleco. Since my appointment in September, the Board has undertaken a full strategic review of both external (product, customer and competitive) trends and internal capabilities, resulting in the development of a clear growth strategy to better capitalise on the opportunities before the Company. 

Construction was disrupted in 2020 as the pandemic shut down sites and staff were furloughed, however the outlook for 2021 and beyond for the sector is one of growth.  Resource shortages, rising material costs and increased regulation are anticipated to squeeze the industry’s margins even further in the months and years ahead. This means that technologies such as ours, which help to improve margins through automation and the provision of data, are becoming more critical to our existing and potential customers than ever before.

Also in our favour is the change in working practices prompted by the pandemic. Covid-19 has changed the way many businesses will work permanently, with increased remote working and adoption of cloud-based tools. Our conversations with existing and prospective customers highlight the accelerated digitalisation anticipated in our core target markets.

With this in mind, our aim is to develop Eleco to become a customer-centric market leader in the provision of software which creates certainty for customers in the construction and built environment sectors, targeting expansion in key growth markets. 

We intend to lead the way by identifying future needs of our core customer base and creating software solutions to enable them to be more efficient, including by leveraging collaborative data exchanges to power better decision making, timely delivery and the reduction of cost in a safe, sustainable way.

In doing this, we intend to build value for shareholders by:

·      Transitioning Eleco from being a product-led company to a customer-centric, nimble matrix organisation built around customer segments for a set of priority geographical locations, supported by a strategic holding group;

·      Aggressively growing a more focused, high-value customer base through product portfolio alignment and clear customer segment strategies;

·     Targeting customer ‘sweet spots’, building on our strengths and developing the capabilities to better serve specific customer segments’ needs with tailored solutions; and

·     Developing next generation solutions that are cloud based and help our customers reimagine their businesses by creating software which enables our customers to better collaborate, get quicker access to data for analytics and ensure interoperability. We will leverage our deep knowledge of our customer base to identify and address future needs and create solutions in-house, through partnership and/or acquisition.

We will focus our sales efforts on our best of breed, highest value suites of products, listed below.  We will organise our solutions into two categories, Building Lifecycle which comprise Project Management, Estimating, Site Management, Maintenance and Property Management solutions and CAD and Visualisation which comprise niche solutions that will be run as individual standalone businesses.

Building Lifecycle 

·      Powerproject 

·      ShireSystem 

·      IconSystem 

·      Bidcon 

·      Memmo 

CAD and Visualisation 

·      ActiveOnline and Esign which are being integrated 

·      Arcon 

·      Staircon 

The market for building lifecycle software is circa £8.0bn and the 8-15 per cent compound annual growth rate (CAGR) provides a compelling rationale for refining our portfolio of core software solutions. We will move from individual companies for each product to a customer centric sales and marketing organisation for each of our core geographies – UK, Nordics and Northern Europe (Germany, Belgium and Netherlands), allowing a greater ability to provide multiple products into each customer segment and streamlining our back-office operations.

Our market leading E-Sign and ActiveOnline businesses are key players in a £450m market. 

We are actively integrating these businesses today having already created a single sales team after the acquisition of ActiveOnline. New systems and processes will enable a more efficient organisation, better able to drive growth and streamlined reporting into the Group. 

In terms of geographic expansion, growth in the Building Lifecycle division will initially be focused in those areas where Eleco currently has a strong presence; the UK, Sweden and to a lesser extent Germany. This provides us with a solid platform from which to drive growth more quickly. For example, we will be introducing the ShireSystem asset management and maintenance software into the German market as well as stepping up our sales and marketing for the strategic customer segments that purchase Powerproject. We see opportunities for the Swedish business to expand into Norway and Denmark. We are testing Bidcon in the UK market and the Government’s recent commitment to infrastructure projects in the UK will further drive new licence sales opportunities. In the USA we will target small and mid-size contractors with a direct sales model whilst continuing to work with resellers on enterprise deals. 

Our Visualisation and Staircon solutions will also be driving their growth internationally. 

Building a Stronger Executive Team 

In September 2020, Jonathan Hunter was appointed interim CEO and I am delighted that we have now made that position permanent. Jonathan has such a wealth of knowledge and understanding about the business, having been both the UK MD and COO, and he has led the development of our new strategy based upon a clear vision for the business.

I am delighted to welcome Robert Tearle to the business as the new Chief Financial Officer from 29 March 2021. Robert’s extensive expertise in financial planning and his previous experience in the SaaS space will be invaluable to Eleco as we focus on the delivery of our new strategic growth initiatives.

I would like to thank Ben Moralee for his hard work and contribution to the success of Eleco over the past three years and wish him all the best in his future endeavours.

I would also like to take this opportunity to highlight and thank another key Executive, Anders Karlsson. Anders, who has been a Board member since March 2017 has been heavily involved in the new strategy formulation and, whilst his core responsibility is for the Nordics, Anders also acted as Interim UK MD ahead of the appointment of Richard Choi on 22 March 2021, as well as owner of a number of the new strategic initiatives. 

In order to be able to achieve our strategy we will be investing in key strategic positions throughout the business. New roles at a leadership level include a Chief Product Officer who will be responsible for delivering real value to customers, a Chief Technology Officer who will be responsible for ensuring we get the most value from our development spend, a Group HR Manager to support the organisational changes and a Group Transformation Director accountable both for initiatives coming out of the strategy as well as M&A; focused not just on the deals but the successful integration the acquired companies to ensure early value capture and synergies. 

The first thing I did when I was appointed Executive Chairman in September was to reach out and have a conversation with all our senior colleagues. It was such a great reminder of the high calibre of people we already have in the organisation. That real passion to provide the best customer solutions and have the best products prevails throughout the organisation and we look forward to bringing in new team members to augment that. 

Corporate Governance

When the position of Executive Chairman was vacated, the Board unanimously asked me to step into that role fulltime to, amongst other things, help coach and mentor the Executives as well as providing my expertise in the development and implementation of the new strategy to transform ourselves for the future. I accepted the appointment to the role of Executive Chairman on 24 September 2020 on the understanding that it would be for a temporary period pending me returning to my previous non-executive capacity as Non-Executive Chairman within a year and therefore, the intention is that I will, at the right time within the next few months, step back into that. Following my appointment as Executive Chairman, the roles and responsibilities of Executive Chairman and CEO have been separately delineated in accordance with the fundamental principles of good corporate governance.

The Board has established a new strategy and business model that promotes long term value for shareholders through its very detailed review of the markets and full understanding of the risks as well as the opportunities in front of us.

In January 2021, we appointed Stella Toresse to the position of full-time Company Secretary replacing the previous limited, part-time external resource. With a background and degree in Law, Stella is a Chartered Company Secretary and Fellow of the CGI (formerly ICSA). Stella has a Masters in Corporate Governance and brings with her a wealth of experience in diverse sectors.

We started to look for another Non-Executive Director to add to the independent non-executive presence on the Board when I took over as Executive Chairman and I am pleased to report that we appointed Paul Boughton into the role on 23 March 2021. Paul’s extensive M&A experience, knowledge of the US, German and Scandinavian markets (as well as the UK) and of transitioning from a perpetual to a SaaS/recurring revenue model will add tremendous value to the Board. Paul will be a member of both the Audit and Remuneration Committees.

Over the course of the next six months, the Board also plans to appoint another Non-Executive Director to further strengthen the board leadership at Eleco.

Proposed Dividend 

In light of Eleco’s resilient trading performance and cash generation in 2020, the Board has decided to recommend a final scrip dividend of 0.40 pence per share, with a cash alternative dividend of 0.40 pence per share.

Payment of the final dividend will follow approval by shareholders at the Annual General Meeting.  The record date is the close of business on 14 May 2021; the ex-dividend date will be 13 May 2021.

Outlook 

The start to trading this year has been strong, with revenues for the two months to February 4 per cent higher than the equivalent, pre-Covid-19 period in 2020. 

We are confident that our business will begin to bear the fruit of its new refined vision and strategy over the next 12 months and beyond. Market trends are in our favour, providing strong tailwinds for our future growth and, as a cash generative, IP backed, award-winning provider of software solutions to the construction and built environment sectors, we have a strong foundation for future growth. We look forward to updating the market in respect to our execution milestones, including progress with R&D, international expansion and extending our management team.

Importantly, the market opportunity for Eleco is compelling; the markets we serve are experiencing an accelerated adoption of technology due to the pandemic, rising material costs and increased regulation. The strong start to trading that we have experienced since the beginning of 2021 attests to this. With a strong customer base and a high level of recurring revenue, we look to 2021 and beyond with confidence and to building further shareholder value.

Serena Lang

Executive Chairman

26 March 2021

Consolidated Income Statement

For the year ended 31 December 2020

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

Consolidated Statement of Changes in Equity

For the year 31 December 2020

Consolidated Balance Sheet

At 31 December 2020

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

Extract from Notes to the Consolidated Financial Statements

1. Revenue

Revenue disclosed in the income statement is analysed as follows:

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:

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

Revenue by product group is as follows:

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

Revenue by sales channel is as follows:

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  from the sale of software licences, software maintenance and support and related services. Consequently, the Executive Directors review the three revenue streams but as the costs and profits are not monitored or recorded in the same way the information is presented as one segment and as such the information is presented in line with management information.

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 2020 are explained in the Financial Review. Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, and adjusted to exclude acquisition expenses.

3. Operating profit

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

4. Employee information

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

Staff costs during the period, including Directors amounted to:

Pension costs relate to contributions to defined contribution pension schemes. Development staff costs are charged to projects and capitalised if those projects meet the criteria for capitalisation.

5. Dividends

No 2019 final dividend was paid during the year.

No 2020 interim dividend was paid during the year.

No cash dividends were paid during the year (2019: £275,000).

No scrip dividends were issued in the year.

The Directors have recommended a final dividend of 0.40 pence (2019: nil pence). The dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

6. Basic and diluted earnings per share

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

7. Post-balance sheet events

The Board has taken the decision to repay furlough payments that are possible to be repaid, given the underlying performance of Eleco for the year as a whole. This is £98,000 furlough repayments of the £150,000 which will be repaid in the coming months.

After the Balance Sheet date, share awards were made under the Company’s Long Term Incentive Plan (LTIP) amounting to 700,000 shares at an exercise price of 100.4 pence per share.

A total of 700,000 share options were granted to the Executive Directors and are exercisable after 3.0 years, subject to EPS for the 12 months ended 31 December 2023 being at least 20 per cent higher than EPS as per the accounts for the year ended 31 December 2020. In the event that the employee leaves within the initial 3.0-year period they may (depending upon the timing and circumstances of their departure) be entitled to retain some of their options but only if certain yearly earnings per share targets have at that time been met. The options are exercisable until 23 February 2031, 10 years after the date of grant.

8. Additional performance measures

The Group uses adjusted figures, which are not defined by generally accepted accounting principles (“GAAP”) such as IFRS. Adjusted figures and underlying growth rates are presented as additional performance measures used by management, as they provide relevant information in assessing the Group’s performance, position and cash flows. We believe that these measures enable investors to track more clearly the core operational performance of the Group, by separating out items of income or expenditure relating to acquisitions, disposals and capital items. Our management uses these financial measures, along with IFRS financial measures, in evaluating the operating performance of the Group.

Notes

1.   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 66 Clifton Street, London, EC2A 4HB and the principal place of business is 66 Clifton Street, London, EC2A 4HB.

Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered in due course. The Company’s auditors RSM UK LLP, have reported on the 2020 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 2019 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.

Whilst the financial information included in this announcement has been prepared in accordance with the recognition and measurement requirements of International Accounting Standards in conformity with the requirements of the Companies Act 2006 this announcement does not itself contain sufficient information to comply with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and does not constitute statutory accounts for the purposes of section 435 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 2020 and are unchanged from those previously disclosed in the Group’s Annual Report and Accounts for the year ended 31 December 2019, with the addition of a Government grants policy and new standards adopted as described below.

New standards that have been adopted in the annual financial statements for the year ended 31 December 2020, but have not had a significant effect on the Group are:

·      Amendments to IAS 1 and IAS 8: Definition of Material

Full financial statements for the year ended 31 December 2020 will be posted and made available to shareholders in due course.

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 Group’s clients include many top contractors in the building and construction sector in the UK, Sweden, Germany, Benelux and the United States with no significant client concentration. The software products and services provided by the Group are reasonably embedded in their client’s core operations and 56% (2019: 53%) of the Group’s revenue is from recurring revenue contracts.

These recurring revenue 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 assets of £1,798,000 at 31 December 2020 (2019 net current liabilities: £187,000) these amounts are after deferred income of £6,393,000 (2019: £5,862,000) relating to annual maintenance contracts which are non-refundable. Historically, there is a low level of contract 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.

 Details of conference call for equity analysts

A webinar for bona-fide equity analysts will be held today at 09:30 a.m. (UK time), hosted by Serena Lang, Executive Chairman, and Jonathan Hunter, CEO. To register you interest in joining the webinar, please contact SEC Newgate by email at Eleco@SECNewgate.co.uk.

Details of webinar for investors

The Company is pleased to announce that Jonathan Hunter and Serena Lang will provide a live presentation relating to Full Year Results via the Investor Meet Company platform on Wednesday 31st March 2021 at 11:00am BST.

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 plc via:

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

The following information is disclosed about Robert Andrew Charles Tearle, age 55, pursuant to Schedule Two paragraph (g) of the AIM Rules for Companies:

Current Directorships / Partnerships:

CFO DRAGON LIMITED

Previous Directorships / Partnerships (held in the past five years)

Global Processing Services Limited

Currency Cloud Limited

Robert Tearle does not currently hold any ordinary shares in the Company.  There are no other disclosures required in relation to Rule 17 or paragraph (g) of Schedule 2 of the AIM Rules for Companies