“The Group has had a successful year with strong trading performances in all areas validating the strategy. The acquisition of Icon in October positions the Group for the future. Exchange rate movements in the Group’s core trading currencies during the year had a positive impact on the results which has accentuated the Group’s strong underlying performance.”
Revenue for continuing operations for the year increased 17 per cent to £17.8m (2015: £15.3m). This growth was accentuated by the weakness of Sterling against the Swedish Krona, the US Dollar and the Euro, which collectively accounted for over 60 per cent of the Group’s sales. The underlying growth at constant exchange rates was 8 per cent (2015: 9 per cent).
The Group continues to drive high levels of recurring revenue from maintenance and support, with the balance of the revenue coming from licence sales and services. The level of deferred income at the balance sheet date, which is a measure of future maintenance revenue, increased from £3.7m to £4.4m during the year representing a positive growth rate of 19 per cent.
Revenue growth was driven by direct sales with an increase of 17 per cent to £16.6m (2015: £14.2m), with the Group committed to growing both, the direct and reseller channels going forward. The mix of sales across licences 28 per cent (2015: 30 per cent), maintenance
48 per cent (2015: 48 per cent) and services 24 per cent (2015: 23 per cent) is balanced and similar to prior years.
The geographic revenue performance of the Group was good on all fronts, with Germany leading the growth at 29 per cent to £3.0m (2015: £2.3m), while the UK and Scandinavia both grew 13 per cent during the year. The strategy to move into new geographic markets continues to provide strong results with the Rest of the World up by 20 per cent to £2.6m (2015: £2.1m).
Gross profit is revenue less the direct cost of providing products and services to customers, principally the costs of training and consultancy staff. In 2016 the gross profit margin fell slightly from 89 per cent to 87 per cent due to the slight changed mix of licences, maintenance and services revenue.
Selling and administrative expenses increased 11 per cent over the prior year to £13.8m (2015: £12.4m). Tight control of overheads is expected to be a feature of the Group while ensuring that development is prioritised. The average number of employees during the year was 190 (2015: 178).
Software product development expenses amounted to £2.6m for the year (2015: £2.3m) of which £0.6m (2015: £0.7m) was capitalised demonstrating the commitment to group-wide development.
The major projects during the year, which met the requirements of the accounting policy for capitalisation, and were therefore capitalised in the year, include the following: Arcon Evo phase 2, Bidcon BIM and Bidcon.net databases. The carrying value of these software assets together with the carrying value of software assets capitalised in previous periods was reviewed for impairment at the balance sheet date
and no impairment was required.
Continuing operations operating profit was £1.6m (2015: £1.1m), a growth of over 40 per cent over the prior period, a reflection of strong revenue performance with overhead control. Adjusted operating profit for the year was £1.915m (2015: £1.137m), an increase of 68 per cent.
Profit before tax was £1.5m, up £0.5m, an increase of 50 per cent compared to the prior period. Taxation amounted to £0.3m in the period (2015: £0.2m).
|Cash generated in operations||2,422||£1,640|
|Net capital expenditure||(1,103)||(645)|
|Net interest paid||(82)||(152)|
|Income tax paid||(17)||(127)|
|Free cash flow||1,220||716|
|Acquisitions and disposals||(1,700)||726|
|Finance lease repayments||(153)||(251)|
|Equity dividends paid||(111)||–|
|Net cash inflow||694||100|
|Net increase in cash and cash equivalents||954||85|
Shareholder’s equity increased to £9.7m, up £1.8m, 23 per cent at 31 December compared to 2015.
Net borrowings, including finance leases, increased by £0.5m to £1.3m (2015: £0.8m) as a result of additional borrowings of £1.8m to complete the Icon acquisition.
Trade and other receivables increased to £3.7m (2015: £2.9m) as anticipated and in line with the growth of the Group. This represented 54 days sales outstanding compared to 48 for the prior period. Trade and other payables increased to £1.5m (2015: £1.3m) and accruals
were slightly higher at £1.6m (2015: £1.4m) in line with Group activities.
Cash generated from operations amounted to £2.4m in the year up from £1.6m in 2015. Free cash flow increased to £1.2m compared to £0.7m in 2015, a continuing upward trend reflective of the Group performance overall.
The UK banking facilities are with Barclays Bank plc and the Group facilities comprise the following:
the previous loan was repaid and a new term loan of £3.16m, with 16 quarterly loan repayments of £197,500 commencing from October 2016, was agreed to help fund the acquisition of Icon, carrying an interest rate of 2.75 per cent over base rate, a reduction of 0.5 per cent on the previous facility; and
a £1.0m overdraft facility, carrying an interest rate of 2.75 per cent 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.
There were no disposals in the period.
The basic earnings per share on continuing operations is 1.7 pence (2015: 1.1 pence). The basic earnings per share on total operations is 1.7 pence (2015: 1.6 pence).
The Board has recommended the payment of a final dividend in respect of the year ended 31 December 2016 of 0.25 pence per share, with a scrip alternative to be made available.
Group Finance Director
24 March 2017
Download the 2016 annual report
The Elecosoft annual accounts for the period ended 31st December 2016 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.