The execution of the Group’s strategy to grow its market share in existing and new markets during the year had a positive impact on the scale and growth rate of the Group’s operations and financial performance. Exchange rate movements in the Group’s core trading currencies during the year had an adverse impact but the Group enjoyed strong underlying sales growth.
Continuing operations revenue for the year increased 1% to £15.3m.This increase was adversely impacted by the strength of Sterling against the Swedish Krona and Euro which account for over 50% of the Group’s sales. On a constant currency basis revenue would have been £16.6m which represents a growth of 9%.
The Group continues to enjoy high levels of recurring revenue from maintenance and support with the balance of the revenue coming from services and licence sales. The level of deferred income at the balance sheet date, which is a measure of future maintenance revenue, increased from £3.4m to £3.7m during the year representing a growth rate of over 7%.
Revenue through resellers grew 44% in the year to £1.0m and is key growth area moving into 2016. The revenue mix has changed since the disposal of the Swedish architectural consultancy business during the year with a reduced contribution from lower margin services income. The mix is now at: Licences 30% (2014: 24%), Maintenance 48% (2014: 45%) and Services 22% (2014: 31%)
The geographic performance of the Group was mixed with strong sales growth in the UK up 13% to £4.9m (2014: £4.3m) and the Rest of World up 100% to £0.8m (2014: £0.4m). These upsides were partly offset by weaker sales across the Rest of Europe due to the currency headwinds referred to above. On a constant currency basis revenue grew in both Scandinavia and Germany by 2% and 4% respectively.
Gross profit is revenue less the direct cost of providing products and services to customers, principally the costs of training and consultancy staff. In 2015 the gross profit margin improved slightly from 88% to 89% due to a changed mix of Licences, Maintenance and Services revenue.
Selling and administrative expenses were broadly flat at £12.4m after amortisation of intangible assets of £0.5m (2014: £0.4m) as the Group continued its tight control on overheads. The average number of employees during the year was 178 (2014: 170).
Software product development expenses amounted to £2.3m for the year (2014: £2.6m) of which £0.7m (2014: £0.6m) was capitalised. The projects which met the requirements of the accounting policy for capitalisation and were therefore capitalised in the year relate to the following products: Arcon Evo, BIM APP v2, BIM APP v3 and Bidcon.net. The carrying value of these software assets together with the carrying value of software assets capitalised in previous periods was reviewed for impairment at the balance sheet date and no impairment was required.
Continuing operations operating profit was £1.1m (2014: £0.9m) a growth of 24% over the prior period. Profit before tax was £1.0m, up £0.3m, over 46% compared to the prior period. Taxation cost was £0.2m in the period (2014: £0.2m) representing 20% of profit before tax. (2014: 25%)
Shareholder’s equity increased to £7.9m, up £1.2m, 17% at 31 December compared to 2014. Net borrowings, including finance leases, were significantly lower at £0.8m compared to £2.0m in the prior period. This improvement was driven by strong free cash flow and business disposal proceeds and resulted in a significant drop in gearing from 30% at 1 January 2015 to 10% at 31 December.
Trade and other receivables decreased to £2.9m (2014: £3.1m) partly due to the business disposal during the year. This represented 48 days sales outstanding compared to 49 for the prior period. Trade and other payables decreased to £1.3m (2014: £1.6m) and accruals were lower at £1.4m (2014: £1.7m).
Cash generated from operations amounted to £1.6m in the year, compared to a cash outflow of £0.4m in the prior period. Free cash flow increased to £0.7m compared to a cash outflow of £0.3m in the prior period.
The table below summarises the cash flow performance in the year.
|Cash generated/(used) in operations||1,640||(353)|
|Net capital (expenditure)/proceeds||(645)||392|
|Net interest paid||(152)||(237)|
|Income tax paid||(127)||(94)|
|Free cash flow||716||(292)|
|Acquisitions and disposals||726||448|
|Finance lease repayments||(251)||(283)|
|Issue of share capital||–||2,948|
|Net cash inflow||100||4,308|
|Net increase in cash and cash equivalents||85||4,211|
The UK banking facilities are with Barclays Bank plc and the Group facilities comprise the following:
a term loan of £3.0m, with 16 quarterly loan repayments of £187,500 commencing from October 2014, carrying an interest rate of 3.25% over base rate; and
a £1.0m overdraft facility, carrying an interest rate of 2.75% over base rate
Security provided to the bank for the provision of these facilities is a cross guarantee and debenture between the parent company and certain UK subsidiary companies and a commitment of the shares of the operating companies.
Covenants have been made to the bank in respect of three elements: EBITA to gross financing costs, net borrowings to EBITDA and cash flow to debt service. These covenants are tested quarterly.
A share capital reduction was completed on 1 July 2015 and consequently the share capital, share premium and other reserve accounts have been adjusted in both the Group and Company Balance Sheets.
The Group disposed of its non-core architectural consultancy business in Sweden in December 2015 for a total consideration of £862,000 (Swedish Krona 11,075,000). The profit before tax on disposal of this business, net of related purchased goodwill, was £468,000. Consequently the trading results of this operation for the period up to the disposal date have been presented under discontinued operations and the prior period has been restated accordingly.
Other discontinued costs comprise staff costs (including redundancy costs) and professional fees which are directly related to the discontinued activities. Also included within discontinued operations is a profit of £91,000 arising from the disposal of a property previously occupied by some of the ElecoBuild businesses.
The basic earnings per share on continuing operations is 1.1p (2014: 0.8p).The basic earnings per share on total operations is 1.6p (2014: loss 0.2p before discontinued exceptional items).
The successful completion of the share capital reduction and improved trading performance during the year will give the Board the opportunity to consider and recommend dividends in the foreseeable future. At present the Board has not recommended the payment of a dividend in respect of the year ended 31 December 2015.
Group Finance Director
15 April 2016
Download the 2015 annual report
The Elecosoft annual accounts for the period ended 31st December 2015 are now available to download.
Shareholders can elect to receive hard copy shareholder documents at any time by informing Capita Asset Services at The Registry, 34 Beckenham, Kent BR3 4TU.