ELCO Eleco Public Limited Company

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

·    EBITDA³: £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 EBITDA⁴: £6.1m (2022: £5.4m), an increase of 13%

·    Adjusted profit before tax⁴: £4.2m (2022: £3.6m), an increase of 17%

·    Adjusted profit after tax⁴: £3.3m (2022: £3.0m), an increase of 10%   

·    Adjusted basic earnings per share⁴: 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:

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.

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