Preliminary results

4 June 2014

Eleco plc

 

Group Performance

Continuing Operations

·      Revenue of £16.3m (2012: restated £15.8m) of which 45% was from recurring maintenance and support revenue, itself up 8%

·      Adjusted operating profit of £3.6m before product development costs of £2.6m (2012: restated profit of £2.9m before product development costs of £2.0m)

·      Profit before tax of £1.0m (2012: restated £0.5m)

·      Earnings per share – basic and diluted of 1.4p (2012: restated 0.7p)

·      EBITDA of £2.0m (2012: restated £1.3m)

·      EBITDA per share – basic and diluted of 2.4p (2012: restated 1.8p)

 

Group Borrowings

·      Net bank borrowings at 31 December 2013 of £4.3m (31 December 2012: £6.5m)

 

Outlook

·      The board remains optimistic about the prospects for 2014 with a positive start to the first half in most of the core markets in which the Group operate.

 

Executive Chairman, John Ketteley said:

“The Group’s software businesses began the year well particularly in the UK in line with the improved climate in the UK construction sector. Our development teams also developed a number of new state of the art software programs and I am confident that the improvement in Eleco’s financial position will enable it to launch and deliver these to Eleco’s already strong customer base in its established markets and to exploit them in new overseas markets”.

 

“I am confident that the actions taken to restructure the group and to explore opportunities to refinance its operations will together create a positive outlook for the Group.  In short, I am confident that the future for Eleco is bright”.

 

 

 

For further information please contact:
Eleco plc	eleco.com
John Ketteley, Executive Chairman	Tel: 0207 422 0044
Peckwater PR
Tarquin Edwards	Tel: 07879 458 364 / 0207 808 7340
Cenkos Securities plc
Nicholas Wells	Tel: 0207 397 8900

Chairman’s statement 

2013 was the year in which we divested our loss-making UK building systems businesses; the year in which we approached Barclays and began the process of refinancing and re-banking ELECO; a year in which we concentrated on the expansion of our profitable international construction software businesses in the UK, Germany and Sweden. In 2014 we are currently raising new equity capital and have agreed to transfer our Group banking arrangements and relationships from Lloyds Banking Group (“Lloyds”) to Barclays.

 

I am therefore pleased to report that ELECO has now emerged as a profitable, well financed international specialist software group serving the construction industry in its main markets in the UK, Germany, the Benelux and Sweden. Our Asta, Esign, Arcon and Consultec software brands and applications also continued to hold leading positions in the construction sector in their home markets in the year under review.

 

I shall comment on the performance of our software businesses in 2013 and the outlook in the current year. I will also explain the reasons for the Board’s decision to seek to raise new equity capital and to transfer our lead banking relationship to Barclays.

 

 

Performance in the year under review

 

 

As a consequence of the substantial de facto reconstruction of ELECO that has taken place in the past eighteen months, our Software interests in the UK, Germany and Sweden, which are engaged in the sale of software applications for project management, estimation, 3D design, visualisation and Building Information Modelling (“BIM) systems, site management and visual marketing, now constitute the whole of our continuing business.

 

Prior year comparatives have been restated below, where appropriate, in order to reflect the impact of the necessary divestment of the Group’s loss-making ElecoBuild and ElecoPrecast businesses in May 2013 and December 2013 respectively.

 

Revenues of our continuing businesses in the year under review amounted to £16.3m (2012: £15.8m), of which recurring maintenance revenue amounted to £7.3m (2012: £6.8m). 

 

EBITDA in 2013 was higher at £2.0m, (2012: restated £1.3m) and Operating Profit was £1,365,000, including an exceptional profit of £384,000 from a sale of assets (2012 restated: £690,000 after deducting an exceptional expense of £152,000).

 

Software development costs amounted to £2.6m, all of which was written off as incurred. (2012: £2.1m, of which £2.0m was written off as incurred). Costs incurred with third parties in connection with the supervision of our banking facilities with Lloyds bank during the year amounted to £175,000 (2012: Nil).

 

Bank interest paid in the year was £340,000 (2012: £201,000); and banking, pension and other professional fees amounted to £1.0m (2012: £600,000) were incurred partly at the behest of the Bank and partly because of the need to dispose of our Building Systems interests.

 

 

The Group’s net bank debt, which had been £6.5m at 1 January 2013, was reduced at 31 December 2013 to £4.3m. UK borrowings, which had been £7.3m at 1 January 2013 and cash held by our software subsidiaries in Sweden and Germany had totalled £822,000; at 31 December 2013 UK borrowings had been reduced to £5.0m by 31 December 2013 and cash held by our software subsidiaries in Sweden and Germany had totalled £710,000. A reconciliation of the Group’s net bank debt is set out in the Operating and Financial Review.

 

The reduction in our net bank debt during 2013 was achieved despite the increase in software development costs as well as the substantial increase in interest and banking costs, together with other bank related and professional costs, which we had to bear in the period under review.

Software Development

 

The maintenance and improvement of existing products and the development of new products is the very essence of a successful software operation.

 

Therefore, as mentioned above, despite the significant financial constraints placed upon the Group in the year under review, we increased our software development spend from £2.1m in 2012 to £2.6m in 2013. Apart from undertaking their routine maintenance routines and improvements to existing software applications, our development teams also developed a new integrated BIM suite, comprising project management, 3D design compression, cloud storage and data exchange modules. We are confident that this system will enable our customers to participate in and benefit from the increasing trend towards the use of BIM and operate efficiently in the new and exciting BIM environment.

 

I was particularly impressed by the technical excellence and creative flair shown by our development teams across the Group, who collaborated in a truly international team effort to produce the ELECO BIM Suite. I would also like to thank a number of our customers for the constructive contribution that they made to the specification and concept of the system. This support was very much appreciated by the teams who worked on this development.

 

Last year, I reported that as part of our BIM initiative, we planned to enable our range of construction software products to exchange information with each other and with third party products using IFC, an industry standard data format. I am therefore pleased to inform you that at Asta’s 2014 National User Forum, which was held at the British Museum in March this year, my colleagues at Asta, together with colleagues from Consultec in Sweden and ELECO Software in Germany, introduced a number of new software products, and were able to demonstrate the extent to which ELECO’s programs are now able to exchange data with each other by using our new “ELECO BIMCloud^TM” technology. As a consequence, ELECO is now in a position to provide its customers with 5D BIM functionality (3D+time+cost) using programs solely from our own product portfolio.

 

Asta also introduced its new “Site Progress Mobile” a comprehensive mobile application which was also very well received at the National User Forum in London, and also at the recent BIM Show Live in Manchester. Android and Apple iOS versions of “Site Progress Mobile” app were available in April 2014, and a Windows Mobile version will be launched shortly

 

Group Restructuring

 

During extended negotiations for the renewal of our banking facilities in May 2013, our bankers insisted that we accepted a substantial reduction in our banking facilities and much higher interest rates. It was also made clear to the Board that banking facilities would only be granted to ELECO, the parent company, and that no banking facilities would be granted to any of our manufacturing businesses, as had previously been the case.

 

The Board’s decision to divest our building products manufacturing businesses based at Yaxley, was prompted in the first instance by the anticipated financial pressures that would arise as a consequence of the substantial reduction in our available bank facilities as well as by the adverse cash flow effect of the atrocious weather conditions experienced by our manufacturing units in the first four months of 2013. Given the lack of financial resources which would have enabled ELECO to provide temporary financial assistance to these businesses, the Board decided to seek a buyer for them and accordingly, in May 2013, ELECO duly disposed of SpeedDeck, Downer Cladding, Stramit Panel Products and Prompt Profiles.

 

The asset disposal of the ElecoBuild businesses gave rise to a total book loss of £5.3m, which is included in losses of discontinued businesses below. However, ELECO retained the property at Yaxley, and entered into a short term lease of the property to the buyer of the businesses. This lease has now terminated and the property is actively being marketed for disposal.

 

In December 2013, ELECO also disposed of its loss-making precast concrete manufacturing businesses based at Grantham and Lydney, namely Bell & Webster and Milbury Systems.  The decision to dispose of these businesses was prompted in this case by a considerable delay in their anticipated recovery.  It was clear that they would also have required ELECO to provide significant additional financial support, which would have enabled them to continue trading pending the receipt of some significant orders that were under negotiation at the time. However, ELECO was not in a position to provide any financial assistance, temporary or otherwise, to enable our precast concrete manufacturing interests to continue to trade and recover.

 

Accordingly, the Board of ELECO, having concluded that it was not in a position to continue to provide financial support to these businesses, decided to seek a buyer for them.  Milbury Systems was sold on 20 December 2013. However, when it became apparent that a sale of Bell & Webster could not be concluded likewise, the directors of Bell & Webster decided on 20 December 2013 to cease trading and apply to the Court to appoint an Administrator; regrettably, Bell & Webster duly went into administration on 6 January 2014.

 

The disposal of the ElecoPrecast businesses gave rise to a book loss on this asset disposal of £2.6m. The properties, which had been leased by ELECO to these businesses were also sold by ELECO to the buyer of the businesses for £2.2m which gave rise to a loss of £0.6m, net of expenses.

 

The decisions that led to the divestment of the ElecoBuild and ElecoPrecast businesses were each unavoidable in the circumstances, for the reasons stated above.  ELECO was not in a position in either case to provide the necessary financial assistance to these businesses when requested to do so, because of the unrelenting pressure on ELECO’s own finances at the time.

 

The divestment of all our Building Systems businesses and assets in 2013 gave rise to a total loss of £5.3m; and the divestment of our Precast Concrete businesses gave rise to a total loss of £5.5m. The total loss for the period from discontinued operations, including the transaction losses referred to above was £11.1m, equivalent to 18.4p per share, (2012: restated loss £3.1m, equivalent to 5.3p per share).

 

 

Loss of Capital

 

The divestment of the Group’s building systems and precast concrete businesses triggered an impairment to the value of the inter-company investments and loans to the subsidiaries in the accounts of ELECO plc. These adjustments resulted in a significant loss of capital in the Company in the year under review. Accordingly, we will shortly be writing to shareholders to convene the necessary meeting of shareholders, in pursuance of the requirements of Section 656 of the Companies Act 2006.

 

ELECO Retirement and Benefits Scheme

 

Gang-Nail Systems, SpeedDeck Building Systems, Stramit Panel Products and Bell & Webster Concrete had all been Statutory Employers of the ELECO Retirement and Benefits Scheme (“ERBS”) when their respective businesses were sold in the circumstances explained above. The responsibility for the funding of ERBS involved all four companies until December, 2011, when the Gang-Nail Systems business was sold and the funding responsibility was devolved to the remaining three statutory employers. In May 2013, when the businesses of SpeedDeck Building Systems and Stramit Panel Products had to be sold, Bell & Webster Concrete then became solely responsible for funding ERBS; and then in December 2013, when the business and assets of Bell & Webster Concrete had to be sold, I regret to say that an application was made for the Scheme to be taken into the Pensions Protection Fund which is now under consideration by the Pensions Regulator.

 

Employees

 

Implementing the above changes placed significant and stressful demands on our employees, even though in all cases, ELECO sought assurances from the buyers of its building systems businesses that they would fully implement TUPE provisions.

 

It is a matter of regret that the number of our employees in the UK fell by more than two thirds in the year under review, i.e. from 158 at the beginning of 2013 to 45 by the end of the year 

 

We now have 194 employees in the Group of which 53 are based in the UK, 97 in Sweden; 41 in Germany; and 3 in India. I would like to thank them all on your half for their hard work in a difficult and stressful working environment.

 

 

Dividend

 

The Board does not propose to recommend the payment of a dividend in respect of the period under review.

 

 

Refinancing

 

In my Chairman’s Statement last year, I said that over the past five years our UK and international software interests had made good progress, had grown substantially in value and were cash generative while at the same time, our UK building systems businesses had experienced extraordinarily difficult trading conditions and had consumed substantial amounts of cash.

 

As a consequence the ELECO Group had become financially unbalanced and this together with other financial pressures mentioned above had placed it under considerable financial strain. I also said that I believed that despite the many difficult decisions that your Board had had to take to deal with this situation, a number of them were beginning to bear fruit.

 

Lloyds recently informed ELECO that following the divestment of our UK manufacturing interests, it was now essentially an international software business and as such, its profile as a borrower, did not now fit in with Lloyd’s profile as a lender to companies with predominantly UK domestic interests. The Board of ELECO were accordingly requested to seek to re-bank, perhaps with another bank that had a more international lending profile. Fortunately, when Lloyds broached this subject the Board of ELECO had already concluded in December 2013 that it should take steps to refinance and re-bank ELECO and had already made an approach to Barclays.

 

I am pleased to say that we had a very positive response from Barclays to our approach. Barclays proceeded to conduct its normal thorough due diligence on our software businesses, and having completed this process to its satisfaction, agreed in principle to become bankers to ELECO. It subsequently agreed to consider providing a medium term facility of £3.0m and an overdraft facility of £2.0m, on terms to be agreed provided that ELECO raised a minimum amount of £1.5m of new equity capital.

 

Having made appropriate soundings, I am pleased to report that we have received a number of indications of firm intention to subscribe for £2.3m (in aggregate) of new ordinary shares at 24p, which is marginally higher than the current market price of 23.75p. I would like to say how much we appreciate the confidence and support shown by those who have indicated their firm intention to participate in the intended equity raising in such difficult circumstances.

 

The Board also intends, subject to shareholder approval, to raise up to an additional £1.7m by subscription of additional new ordinary shares and shareholders will shortly be sent a circular giving full details of the intended subscription arrangements.

 

My colleagues and I very much welcome and appreciate the constructive approach adopted by Barclays in the negotiation of our new banking arrangements and we look forward to a long and constructive relationship with Barclays in the years ahead. Following the implementation of such proposals, ELECO would be in a position to discharge its indebtedness to Lloyds.

 

 

Outlook

 

ELECO’s software businesses are sound, profitable and cash generative; Asta, Consultec, Arcon and Esign enjoy excellent reputations in the markets in which they operate enjoy excellent relationships with their customers; and our software development teams in the UK, Germany and Sweden are both technically very talented and creative.

 

The strengthening of ELECO’s finances following the successful refinancing and the re-banking exercise currently being put in place in conjunction with Barclays, together with the depth of our software management that we have in those countries in which we currently operate, give me great confidence in the future for ELECO.

 

 

 

 

 

 

Operating & Financial Review

 

Income from licence sales in the year under review was £4.0m up 2% against 2012 and revenue from recurring maintenance and support was £522,000 higher, up 8% compared to the previous year. This increase in recurring maintenance income is principally due to increased customer activity and is expected to continue into 2014.  Operating profit after product development costs and before exceptionals was £981,000, up £139,000, 17% compared to 2012.

 

						2013			2012
						£’000	%		£’000	%
	Licence sales					4,003	25%		3,940	25%
	Recurring maintenance and support revenue					7,319	45%		6,797	43%
	Services income					4,996	30%		5,042	32%
	Total revenue					16,318	100%		15,779	100%

 

Development spend was higher in 2013 at £2.6m (2012: £2.1m) due to a number of strategic initiatives, the most significant of which was the development of ELECO BIMCloud^TM, a cloud hosted database for sharing construction project data in an industry standard format known as IFC. Of the total increase in product development costs, £336,000 was due to the temporary reallocation of internal resources from operations to product development activities. BIM has been mandated for use on UK Government projects by 2016. Most of Scandinavia has already mandated BIM and its use is gathering pace throughout Europe and North America.

 

In addition to the ELECO BIMCloud^TM, new “BIM enabled” versions of ELECO’s products for 3D CAD/design, project management and cost estimation were also developed in the year under review. These products are able to exchange data with each other via the ELECO BIMCloud^TM to facilitate greater collaboration between the different disciplines involved in construction projects. We believe that the development of our new suite of “BIM enabled” software products will in due course significantly increase opportunities for cross-selling our products in all markets

.

							2013	2012
							£’000	£’000
	Adjusted operating profit (note 2)						3,955	3,285
	Product development						(2,598)	(2,024)
	Amortisation of intangible assets						(376)	(419)
	Operating profit before exceptionals						981	842
	Development costs capitalised						–	78

 

ELECO’s software business has three product development areas, namely, in the UK for Project Management; in Sweden for Estimation and Engineering; and in Germany for Visualisation. Customer training and support services are also provided locally by these businesses.

 

 

Project Management

Asta Development in the UK is responsible for producing ELECO’s range of project management tools, which are distributed in Germany and Sweden through its sister companies and in other international markets via distributors. After a significant management restructure at the end of 2012, Asta delivered an excellent result in 2013, increasing revenues by 4% and growing profits by 70% compared with 2012.

 

As part of ELECO’s strategic plan to unite its international product set, Asta made good on the development of Asta Powerproject BIM and connecting it to the new ELECO BIMCloud^TM progress in the year under review. These were successfully demonstrated to customers at our National User Forum held in London in March 2014, where they were very well received. This project will shortly undergo preliminary field trials with some customers and we expect to launch it officially in mid-2014.

 

In response to customer demand in 2013 and in collaboration with them, we also began the development of a new mobile site progress reporting tool, “Asta SiteProgress®”, and also in collaboration with customers, made a number of improvements to our Asta Powerproject multi-user enterprise offering. Both of these projects have now been successfully completed. The improved enterprise offering was available from January 2014; the new mobile progress reporting tool in an Android version was available from April 2014 and iOS and Windows version will be available shortly.

 

Internationally, Asta established a foothold in the US market with the appointment of 3 new resellers. We have also experienced an increasing level of interest from customers in the US after the approval of Asta Powerproject by the US Army Corps of Engineers in 2013 and this market holds great promise for Asta products.

 

Estimation, Engineering and Consultancy

 

The Consultec Group of companies in Sweden is responsible for ELECO’s cost estimation, engineering and stair design software together with architectural and construction services. 2013 saw a marked slowdown in the Swedish economy, which impacted the sale of services throughout the year although, to a lesser extent, product sales and maintenance renewals. The resulting revenues and profits were below those achieved in 2012.

 

However, the economic situation Sweden showed some improvement in the latter part of 2013, and Consultec Arkitekter & Konstrucktörer, our architectural and construction services businesses, opened a new office in Umeå, Sweden to expand its customer base by providing architectural and project management services to the local market. The office opened in January 2014 and new projects have already been secured for the whole of 2014.

 

International sales of stair design and production system, Staircon, were also given a boost after the acquisition of a small but very strategic competitor, namely, Wagemeyer GmbH, in Germany. The acquisition was the result of collaboration between Consultec in Sweden and its sister company ELECO Software GmbH in Germany and was completed in March 2013. This transaction not only removed a competitor, but it also strengthened the route to market for Staircon in Germany and other European countries (50% of Wagemeyer’s customers are outside Germany). Additionally, the UK distribution for Staircon was taken under direct control of Consultec. These changes detracted from normal operations initially and together with the additional overhead costs adversely impacted Consultec System’s profitability during the period. However, we are confident that the acquisition of Wagemayer, with its outstanding reputations and technology in this field, will strengthen Consultec’s position in the engineered stair market.

 

Consultec Byggprogram supplies estimation and project management software services to 17 out of the top 20 construction companies in Sweden. Several strategic initiatives took place in 2014 in response to demand from larger customers. Our development team accelerated their work on a unified cost estimation product for multiple construction disciplines and some of our service personnel with the required expertise were temporarily assigned to product development duties, although this temporarily increased our development costs. However, the end result, namely, a single product capable of producing cost estimations for construction, civil engineering, electrical and plumbing works, will be available to our customers shortly and ventilation estimations will be added to the program in due course. This is an important strategic move, which will assist us in retaining and increasing sales of our estimating offering to larger customers. We also believe that in the long term, our new Bidcon multi-product estimation tool, will be both easier and cheaper to maintain than the current multiple product-set – and importantly in a format that we have developed in collaboration.  The new product was previewed to customers at a major exhibition in Sweden during April 2014, where it was well received. We are aiming for it to be available for release later in the second half of 2014.

 

Following collaboration between Asta Development in the UK, Consultec Byggprogram also developed direct links between its estimation product, Bidcon, and Asta Powerproject.  Consultec has begun marketing Asta Powerproject to its customers in Scandinavia. Importantly, Consultec also produced a new version of its main estimation product, Bidcon BIM, in the year under review, which will link with the ELECO BIMCloud^TM, enabling it to exchange data with other BIM enabled products from ELECO and making it part of ELECO’s BIM suite of products.

 

In the past customers in Sweden had been supplied with Plancon, a third party project management system. Consultec’s aim is now to migrate its Plancon customers to Asta Powerproject, as soon as practicable.

 

Visualisation

 

ELECO’s visualisation software businesses in Germany delivered increased revenues in 2013 offset by increased costs relating to a number of strategic initiatives. Esign delivered increased revenues from its flooring visualisation system. Development efforts were focussed on its Marketing Management system, which will help to make Esign’s product-set a strategic purchase for flooring manufacturers and wholesalers. Its flooring visualisation system was extended from horizontal to vertical surfaces with the introduction of a door visualisation module in order to target a new market segment. The business received its first order from the USA in 2013.

 

ELECO Software Germany released an updated version of its 3D home designer software, Arcon+ 2013. It also completed the development of its first iPhone App and o2c Cloud Player – a technology for displaying animated 3D objects directly from the Internet in a browser window on any device. However the primary development project, which is nearing completion is Arcon NG, the next generation of 3D CAD software. This is expected to be available in the middle of 2014. It will also be “BIM enabled” so that it will be form part of ELECO’s BIM suite of products and will be able to exchange data in the ELECO BIMCloud^TM with ELECO’s project management software from Asta and Estimation software from Consultec.

 

In addition, the stair software business, Wagemeyer GmbH, was acquired in collaboration with sister company Consultec in March 2013. This cemented ELECO Software’s position as a distributor of stair design software in the German market and has created opportunities to upgrade legacy Wagemeyer customers to Staircon.

 

Capital and financing

The existing UK facilities comprise the following:

·      A remaining term loan of £1.3m, with quarterly loan repayments of £100,000 to April 2015 and a bullet repayment of £925,000 on 30 April 2015, carrying a blended interest rate of 5.5% over base rate; and

 

·      A new £4.0m overdraft for the period to 30 April 2015, carrying a blended interest rate of 6.5% over base rate.

Security provided to the bank for the provision of these facilities is:

·    First legal charge on property freeholds at Yaxley;

·    Pledge on the shares of the software companies.

 

Pension overview

 

In December 2013, Bell & Webster Concrete Limited, part of the Group’s Precast interests, went into administration; it was the last remaining trading statutory employer of the ELECO Retirement and Benefits Scheme (“ERBS”).  The Court appointed the administrator on 6 January 2014.

Following the appointment of the Administrator to Bell & Webster earlier this year, the Company are in discussions with the Pension trustees about the transfer of the Pension Scheme to the Pensions Protection Fund.  The table set out below shows the Group net assets at 31 December before the pension scheme liability net of deferred tax.

 

						2013			2012
						£’000	%		£’000	%
	Net assets before pension scheme liability					3,837	n/a		13,496	152%
	Retirement benefits liability (net of deferred tax)					(6,190)	n/a		(4,646)	-52%
	Total net assets					(2,353)	n/a		8,850	100%

 

Shareholders’ equity and net assets

At 31 December 2013, shareholders’ negative equity amounted to £(2.4)m (2012: equity £8.9m), after recognising £6.2m (2012: £4.6m), net of the related deferred tax asset, as a retirement benefits liability.

 

Summary Group cash flow and net bank borrowings

During the year, the Group reduced its net bank borrowings from £6.5m at 31 December 2012 to £4.3m at 31 December 2013. This was largely due to cash generation by the Group’s profitable Software operations together with the disposal of the Group’s ElecoBuild interests and its Precast property assets.   The table below shows an increase in net cash balances of £0.6m and net loan repayments of £1.6m during the year.

								£’000
	Net bank borrowings at 1 January 2013							(6,538)
	Increase in net cash balances							600
	Net loan repayments							1,600
	Net bank borrowings at 31 December 2013							(4,338)

 

 

The balances that comprise the net bank borrowings at 31 December are set out in the table below:

							2013	2012
							£’000	£’000
	Cash and cash equivalents						770	888
	Bank overdraft						(3,783)	(4,501)
	Bank loans						(1,325)	(2,925)
							(4,338)	(6,538)

 

Free cash flow included net cash payments relating to discontinued operations of £1.2m (2012: restated £5.6m). The cash from the sale of the ELECOBuild businesses and Precast property was mainly used to repay the bank loan as set out in the analysis below.

							2013	2012
							£’000	£’000
	Cash flow from operations						373	(1,946)
	Net capital proceeds						2,682	87
	Net interest paid						(295)	(205)
	Tax paid						(464)	(396)
	Free cash flow						2,296	(2,460)
	Acquisitions and disposals						164	208
	Net loan repayments						(1,600)	(5,900)
	Finance lease repayments						(259)	(170)
	Net cash inflow/(outflow)						601	(8,322)
	Exchange difference						(1)	(39)
	Increase/(decrease) in net cash balances						600	(8,361)

 

Earnings/loss per share and dividends

The earnings per share on continuing operations is 1.4p (2012: restated 0.7p).

The loss per share on total operations was 17.1p (2012: 4.6p).

In consideration of the Company’s current financial position and performance, the Board is not in a position to recommend the payment of a dividend in respect of the year ended 31 December 2013, but will consider a return to recommending dividend payments as and when the Company’s trading position and performance improve and the deficit on the profit and loss reserve has been resolved.

 

Summary

The continuing businesses in the Group are currently profit generating and budgeted to grow profit and cash over the next year.  The final stages of the Group’s restructuring are almost complete and the Group’s management are confident that the overall Group will return to consistent profitability by expanding its customer base in its established markets and exploiting its range of products in new overseas markets.

This together with new bank facilities, funding from a share placing and a new management structure create a positive outlook for the Group.

 

Consolidated Income Statement

for the year ended 31 December 2013

							2013		2012
					Notes		£’000		£’000
	Continuing operations								(restated)
	Revenue				1		16,318		15,779
	Cost of sales						(2,189)		(2,084)
	Gross profit						14,129		13,695
	Administrative expenses						(13,148)		(12,853)
	Operating profit before exceptionals				2		981		842
	Exceptional items				3		384		(152)
	Operating profit						1,365		690
	Finance income				4		10		17
	Finance cost				4		(367)		(240)
	Profit before tax						1,008		467
	Tax						(174)		(69)
	Profit for the financial period from continuing operations						834		398
	Loss for the financial period from discontinued operations				5		(11,052)		(3,145)
	Loss for the financial period						(10,218)		(2,747)
	Attributable to:
	Equity holders of the parent						(10,218)		(2,747)
	Earnings/(loss) per share – basic and diluted
	Continuing operations						1.4	p	0.7	p
	Discontinued operations						(18.5)	p	(5.3)	p
	Total operations						(17.1)	p	(4.6)	p

  

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2013

							2013		2012
							£’000		£’000
	Loss for the period						(10,218)		(2,747)
	Other comprehensive income:
	Items that will not be reclassified subsequently to profit or loss:
	Actuarial loss on retirement benefit obligation						(787)		(2,475)
	Deferred tax on retirement benefit obligation						159		99
	Other losses on retirement benefit obligation						(350)		(81)
							(978)		(2,457)
	Items that will be reclassified subsequently to profit or loss:
	Translation differences on foreign operations						(7)		(101)
	Other comprehensive income net of tax						(985)		(2,558)
	Total comprehensive income for the period						(11,203)		(5,305)
	Attributable to:
	Equity holders of the parent						(11,203)		(5,305)

  

 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2013

		Share capital	Share premium	Merger reserve	Translation reserve	Other reserve	Retained earnings	Total
		£’000	£’000	£’000	£’000	£’000	£’000	£’000
	At 1 January 2013	6,066	6,396	7,371	(214)	(358)	(10,411)	8,850
	Reclassification of merger reserve on business disposals	–	–	(3,285)	–	–	3,285	–
	Transactions with owners	–	–	(3,285)	–	–	3,285	–
	Loss for the period	–	–	–	–	–	(10,218)	(10,218)
	Other comprehensive income:
	Actuarial loss on defined benefit pension scheme net of tax and other scheme losses	–	–	–	–	–	(978)	(978)
	Exchange differences on translation of foreign operations	–	–	–	(7)	–	–	(7)
	Total comprehensive income for the period	–	–	–	(7)	–	(11,196)	(11,203)
	At 31 December 2013	6,066	6,396	4,086	(221)	(358)	(18,322)	(2,353)
		Share capital	Share premium	Merger reserve	Translation reserve	Other reserve	Retained earnings	Total
		£’000	£’000	£’000	£’000	£’000	£’000	£’000
	At 1 January 2012	6,066	6,396	7,371	(113)	(358)	(5,207)	14,155
	Transactions with owners	–	–	–	–	–	–	–
	Loss for the period	–	–	–	–	–	(2,747)	(2,747)
	Other comprehensive income:
	Actuarial loss on defined benefit pension scheme net of tax and other scheme losses	–	–	–	–	–	(2,457)	(2,457)
	Exchange differences on translation of foreign operations	–	–	–	(101)	–	–	(101)
	Total comprehensive income for the period	–	–	–	(101)	–	(5,204)	(5,305)
	At 31 December 2012	6,066	6,396	7,371	(214)	(358)	(10,411)	8,850

 

  

Consolidated Balance Sheet

At 31 December 2013

								2013		2012
								£’000		£’000
	Non-current assets
	Goodwill							10,690		13,009
	Other intangible assets							1,462		1,904
	Property, plant and equipment							589		7,223
	Deferred tax assets							1,548		1,389
	Total non-current assets							14,289		23,525
	Current assets
	Inventories							17		2,144
	Trade and other receivables							4,447		6,905
	Current tax assets							281		5
	Cash and cash equivalents							770		888
	Other current assets							474		800
	Assets of disposal group							3,459		–
	Total current assets							9,448		10,742
	Total assets							23,737		34,267
	Current liabilities
	Bank overdraft							(3,783)		(4,501)
	Borrowings							(1,325)		(900)
	Obligations under finance leases							(247)		(212)
	Trade and other payables							(3,214)		(4,962)
	Provisions							(786)		(256)
	Current tax liabilities							(49)		(56)
	Accruals and deferred income							(5,643)		(5,819)
	Liabilities of disposal group							(2,694)		–
	Total current liabilities							(17,741)		(16,706)
	Non-current liabilities
	Borrowings							–		(2,025)
	Obligations under finance leases							(195)		(319)
	Deferred tax liabilities							(149)		(170)
	Non-current provisions							(195)		(77)
	Other non-current liabilities							(72)		(85)
	Retirement benefit obligation							(7,738)		(6,035)
	Total non-current liabilities							(8,349)		(8,711)
	Total liabilities							(26,090)		(25,417)
	Net assets							(2,353)		8,850
	Equity
	Share capital							6,066		6,066
	Share premium account							6,396		6,396
	Merger reserve							4,086		7,371
	Translation reserve							(221)		(214)
	Other reserve							(358)		(358)
	Retained earnings							(18,322)		(10,411)
	Equity attributable to shareholders of the parent							(2,353)		8,850

 

 

Consolidated Statement of Cash Flows

for the year ended 31 December 2013

						2013		2012
						£’000		£’000
	Cash flows from operating activities
	Loss before tax (including discontinued)					(4,751)		(2,641)
	Net finance costs					622		480
	Depreciation and impairment charge					869		1,004
	Amortisation and impairment charge					514		1,210
	Loss/(profit) on sale of property, plant and equipment					210		(114)
	Retirement benefit obligation					–		(803)
	Increase in provisions					648		200
	Cash used in operations before working capital movements					(1,888)		(664)
	Decrease in trade and other receivables					769		3,438
	(Increase)/decrease in inventories and work in progress					(4)		134
	Decrease in trade and other payables					(234)		(4,854)
	Net decrease in discontinued operations working capital					1,730		–
	Cash generated/(used) in operations					373		(1,946)
	Interest paid					(297)		(239)
	Interest received					2		34
	Income tax paid					(464)		(396)
	Net cash outflow from operating activities					(386)		(2,547)
	Net cash used in investing activities
	Purchase of intangible assets					(78)		(149)
	Purchase of property, plant and equipment					(287)		(157)
	Acquisition of subsidiary undertakings net of cash acquired					(110)		(192)
	Proceeds from sale of property, plant, equipment  and intangible assets					3,047		393
	Sale of business net of expenses					274		400
	Net cash inflow from investing activities					2,846		295
	Net cash used in financing activities
	Proceeds from new bank loan					4,000		–
	Repayment of bank loans					(5,600)		(5,900)
	Repayments of obligations under finance leases					(259)		(170)
	Net cash outflow from financing activities					(1,859)		(6,070)
	Net increase/(decrease) in cash and cash equivalents					601		(8,322)
	Cash and cash equivalents at beginning of period					(3,613)		4,748
	Effects of changes in foreign exchange rates					(1)		(39)
	Cash and cash equivalents at end of period					(3,013)		(3,613)
	Cash and cash equivalents comprise:
	Cash and short-term deposits					770		888
	Bank overdrafts					(3,783)		(4,501)
						(3,013)		(3,613)

 

 

 

 

 

 

Notes to the Consolidated Financial Statements

 

1. Revenue

Revenue from continuing operations disclosed in the income statement is analysed as follows:

							2013	2012
							£’000	£’000
	Licence sales						4,003	3,940
	Recurring maintenance and support revenue						7,319	6,797
	Services income						4,996	5,042
	Total revenue						16,318	15,779

 

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 entirely from the sale of software licences, software maintenance and support and related services. Consequently the Executive Directors have determined that the Group comprises of software business activity only and as such the information is presented in line with management information. 

 

The structure of the segment note has changed from that reported in the 2013 interim report as a result of the disposal of the ElecoPrecast operations in December 2013. Consequently the prior year comparatives have been restated on the revised basis.

			2013		2012
			Software		Software
			£’000		£’000
	Revenue		16,318		15,779
	Adjusted operating profit		3,955		3,285
	Product development		(2,598)		(2,024)
	Amortisation of intangible assets		(376)		(419)
	Operating profit before exceptionals		981		842
	Restructuring costs		–		(152)
	Segment result		981		690
	Net finance cost		(357)		(223)
	Segment profit before tax		624		467
	Tax		(174)		(69)
	Segment profit after tax		450		398
	Exceptional profit		384		–
	Continuing operations profit after tax		834		398
	Segment assets		18,730		18,639
	Unallocated assets		5,007		15,628
	Total Group assets		23,737		34,267
	Segment liabilities		15,658		15,512
	Unallocated liabilities		10,432		9,905
	Total Group liabilities		26,090		25,417
	Other segment information
	Capital expenditure:
	Property, plant and equipment		50		208
	Intangible assets		70		133
	Goodwill acquired		30		81
	Intangible assets acquired		30		–
	Depreciation		222		234
	EBITDA		1,963		1,343

The unallocated assets and liabilities represent pension scheme obligations and related deferred tax together with disposal group assets and liabilities and assets and liabilities of discontinued operations.

Unallocated assets

							2013	2012
							£’000	£’000
	Deferred tax assets						1,548	1,389
	Assets of disposal group						3,459	–
	Discontinued operations						–	14,239
							5,007	15,628

Unallocated liabilities

							2013	2012
							£’000	£’000
	Retirement benefit obligation						7,738	6,035
	Liabilities of disposal group						2,694	–
	Discontinued operations						–	3,870
							10,432	9,905

Geographical 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

							2013	2012
							£’000	£’000
	UK						3,598	3,431
	Scandinavia						8,333	8,209
	Germany						2,428	2,181
	Rest of Europe						1,666	1,707
	Rest of World						293	251
							16,318	15,779

 

Non-current assets excluding deferred tax by geographical area represent the carrying amount of assets based in the geographical area in which the assets are located.

 

Non-current assets by geographical location are as follows:

							2013	2012
							£’000	£’000
	UK						5,512	14,491
	Scandinavia						5,787	6,310
	Germany						1,442	1,335
							12,741	22,136

 

 

Information about major customers

 

Revenues arising from sales to the Group’s largest customer were below the reporting threshold (2012: Below reporting threshold).

 

3. Exceptional items

Exceptional items represent income and costs considered necessary to be separately disclosed by virtue of their size or nature:

							2013	2012
							£’000	£’000
	Restructuring costs						–	(152)
	Profit on disposal of land						384	–
							384	(152)

The profit on disposal relates to excess land sold during the year and is not part of discontinued operations. Restructuring costs, mainly in the UK, related to employee redundancy costs.

4. Net finance income/(cost)

Finance income and costs from continuing operations is set out below:

							2013	2012
							£’000	£’000
	Finance income
	Bank and other interest receivable						10	17
	Finance costs
	Bank overdraft and loan interest						(350)	(218)
	Finance leases and hire purchase contracts						(17)	(22)
	Total net finance cost						(357)	(223)

5. Discontinued operations

During the year, the Group disposed of the following business units within its ElecoBuild division and they are no longer part of the Group:

SpeedDeck Building Systems	sold		May 2013
Downer Cladding	sold		May 2013
Prompt Profiles	sold		May 2013
Stramit Panel Products	sold		May 2013
Milbury Systems	sold		December 2013
Bell & Webster Concrete – intention to appoint Administrator			December 2013

All these businesses have been presented as discontinued operations in the income statement and the presentation of information enables the users of the financial statements to understand the financial effects of these operations no longer being part of the Group.

The Directors of Bell & Webster Concrete became aware that the business could not meet its financial obligations and consequently applied to the court on 20 December 2013 and trading ceased on 20 December 2013. The Administrator was appointed to the business on 6 January 2014 and as a result the Directors have concluded that this business was discontinued on 31 December and the business assets and liabilities at 31 December have been presented as assets and liabilities held for sale. The net carrying value of the assets and liabilities of Bell & Webster Concrete reported in the Consolidated Balance Sheet is £nil.

 The results from discontinued operations which have been included in the income statement are set out below:

		2013	2012
		£’000	£’000
	Revenue	16,144	18,398
	Cost of sales	(13,154)	(13,969)
	Gross profit	2,990	4,429
	Distribution costs	(1,211)	(1,894)
	Administrative expenses	(4,524)	(4,060)
	Other operating costs	(1,279)	(1,326)
	Loss on re-measurement	(1,471)	–
	Operating loss	(5,495)	(2,851)
	Finance income	–	17
	Finance cost	(264)	(274)
	Loss before tax	(5,759)	(3,108)
	Taxation on discontinued operations	26	(37)
	Loss after tax on discontinued operations	(5,733)	(3,145)

The net loss from the disposal of the business units listed above and included in the income statement are set out below:

		2013	2012
		£’000	£’000
	Consideration on disposals	2,710	–
	Net assets on disposals	(5,570)	–
	Goodwill on disposal	(2,346)	–
	Other disposal costs	(113)	–
	Loss on business disposals before tax	(5,319)	–
	Tax on disposal of discontinued operations	–	–
	Loss on business disposals after tax	(5,319)	–
	Loss after tax on discontinued operations	(5,733)	(3,145)
	Net Loss for the period from discontinued operations	(11,052)	(3,145)

The consideration on disposals of £2,710,000 comprises £274,000 from the sale of the businesses listed above, £226,000 from the sale of stock at Milbury and £2,210,000 from the disposal of the freehold property at Grantham in Lincolnshire and Lydney in Gloucestershire.

The assets and liabilities classified under disposal group in the balance sheet are set out below:

		at 31 December 2013
		Bell & Webster Concrete	Property	Total
		£’000	£’000	£’000
	Assets classified as disposal group
	Property, plant and equipment	1,391	765	2,156
	Current assets	1,303	–	1,303
	Assets classified as disposal group	2,694	765	3,459
	Liabilities classified as disposal group
	Current liabilities	(2,694)	–	(2,694)
	Liabilities classified as disposal group	(2,694)	–	(2,694)
	Net assets of disposal group	–	765	765

The results from discontinued operations which have been included in the cash flow statement are set out below:

		2013	2012
		£’000	£’000
	Operating activities	(1,620)	(5,646)
	Investing activities	387	41
	Financing activities	(69)	(544)
	Total cash flows	(1,302)	(6,149)

The Yaxley factory in Suffolk is classified as held for sale at 31 December 2013 at its book value of £765,000. The expected sale proceeds are in excess of this value.

 

 

 

 

 

 

 

Notes

1.   The financial information in this announcement, which is audited, does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. Statutory accounts of the Company, on which the Auditors will report, will be delivered to the Registrar of Companies. The comparative figures for the 12 months to 31 December 2012 have been taken from, but do not constitute, the Company’s statutory financial statements for that financial year.

 

2.   The Company recently agreed terms for new banking facilities with Barclays Bank plc comprising a £3.0m, 4 year term loan and a £2.0m overdraft. The drawdown of these new facilities will be used to repay borrowings with the Group’s current UK bankers.

These new facilities are not yet in effect and one of the conditions precedent that needs to be satisfied prior to drawdown is the raising of a minimum of £1.5m of equity finance which the Board are confident will be completed over the next few weeks. Certain existing and potential new shareholders were contacted regarding the raising of the equity finance outlined above and most of them have indicated commitment to support the investment.

In setting the financial covenants under the new facilities with Barclays, the Directors have negotiated appropriate headroom based upon the Group’s latest forecast. The new funding structure outlined above shows sufficient headroom over the period of the overdraft facilities.

Alternatively, if the Board are unable to satisfy the conditions precedent outlined above, the current banking arrangements are in place through to 30 April 2015. These arrangements at 31 December 2013 comprised a £1.3m term loan and a £4.3m overdraft. The covenants associated with these arrangements require the disposal of the Group’s vacant property in Suffolk and the Board are aware this transaction is near to exchange.    

If the Board are unable to deliver the condition precedent or the disposal of the vacant property in the time available the Board will seek further alternative arrangements. The Board are unclear at this time what these alternative arrangements would be as they are optimistic they can secure the new banking arrangements with Barclays.

The Group’s activities, together with the factors likely to affect its future development, performance and position are set out in the Operating and Financial Review.

The Directors have reviewed the Group’s borrowing requirements for the next 12 months and the financial covenant tests set out in the current and new banking facilities agreements and expect that the Group will have adequate resources for the Groups current requirements. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

 

3.   The information herein has been prepared on the basis of the accounting policies adopted for the year ended 31 December 2013, set out in the Company’s Annual Report and Accounts and as previously disclosed in the Company’s Annual Report and Accounts for the year ended 31 December 2012.

 

4.   The calculation of the loss per share is based on the total loss after tax attributable to ordinary equity shareholders of £10,218,000 (2012: £2,747,000) and on 59,761,646 ordinary shares (2012: 59,761,646), being the weighted average number of ordinary shares in issue during the year.

 

5.   The Annual General Meeting of Eleco plc will be held at London Capital Club, 15 Abchurch Lane, London EC4N 7BB on 30 June 2014 at 12 noon.

 

6.   The Annual Report and Accounts for the year ended 31 December 2013 will be available to view on the Company’s website, eleco.com, from Friday 6^th June 2014.