Preliminary results

15 May 2013

Eleco plc

(“Eleco” or the “Group”)

The Construction Software and Building Systems Group

Preliminary Results for the Year Ended 31 December 2012

Group Performance

Continuing Operations

·    Revenue of £34.2m (2011*: £38.1m)

·    Operating loss of £0.3m before exceptional items of £1.6m (2011*: profit of £0.2m before exceptional items of £0.1m)

·    Loss before tax of £2.4m (2011*: Loss of £0.3m)

·    Loss per share – basic and diluted of 3.9p (2011*: loss 1.0p)

Discontinued Operations

·    Loss for the financial period £0.4m (2011*: profit £0.4m after taking into account profit of £5.4m from sale of discontinued operations)

 

Group Borrowings

·    Net bank borrowings at 31 December 2012 of £6.5m (2011: £4.1m)

·    Deferred consideration receivable at 31 December 2012 held in Escrow: £0.8m (2011: £1.2m)

 

Segmental Performance

ElecoSoft^®

·    Revenue of £15.8m (2011*: £16.2m)

·    Operating profit of £1.8m before exceptional items (2011*: £1.7m)

·    Profit before interest and tax of £1.6m (2011*: £1.7m)

·    Recurring maintenance revenue of £7.0m (2011*: £7.0m)

ElecoBuild^®

·    Revenue of £18.4m (2011*: £22.9m)

·    Operating loss of £1.2m before exceptional items (2011*: £0.5m)

·    Loss before interest and tax of £2.2m (2011*: £0.4m)

·    Order book at 31 December 2012 improved to £6.3m (2011: £3.6m)

Corporate

·    Corporate costs of £0.9m before exceptional items (2011*: £1.0m)

·    Loss before interest and tax of £1.3m (2011*: £1.2m)

·    Net finance costs £0.5m (2011*: £0.4m)

 

*Prior year comparatives represent 12 months to December 2011.

 

 

Strategy and Outlook

·    Eleco has continued its strategy of seeking to bear down on its exposure to the building products sector while restructuring the management and cost base of its precast concrete interests together with its efforts to reduce its risk profile by continuing to invest in its profitable software interests

·    New bank facilities and a new deficit recovery plan for the Eleco Retirement Benefit Scheme have now been agreed giving scope for the Group’s businesses to exploit their chosen markets in the immediate future and benefit the financial position of the Group in the current period.

 

Key Events

·    During the year under review Eleco restructured the management and cost base of its precast concrete interests while seeking to reduce costs and improve efficiency in our building products business. At the same time we continued to invest in new products and technologies for our profitable software interests and maintained our development in such products at over £2m.

·    Eleco agreed new banking facilities with Lloyds Banking Group on 13 May 2013.

·    On 21 September 2012 Eleco plc discharged an obligation of £595,000 to the Eleco Retirement Benefit Scheme under Section 75 of the Pensions Act and is no longer a Statutory Employer. As a consequence it has been advised that it is no longer legally obligated to the Scheme.

·    A new schedule of contributions and deficit recovery plan for the Eleco Retirement Benefit Scheme was agreed with the Trustees of the Scheme on 10 May 2013.

Executive Chairman, John Ketteley said:

“In the past five years our UK and international software interests have made good progress, have grown substantially in value and have been cash generative, while in the same period, our UK building systems businesses have experienced extraordinarily difficult trading and have consumed substantial cash resources. This has unbalanced the Group and placed it under considerable financial strain.”

 

“However, I believe that the many difficult decisions that your Board has had to take to deal with this situation are now beginning to bear fruit and I am becoming increasingly confident that Eleco will arrive at a position from which, in the absence of unforeseen circumstances, it should be able to make a full recovery.”

 

 

For further information please contact:

Eleco plc	0207 422 0044
John Ketteley, Executive Chairman	eleco.com
Matthew Turner, Group Finance Director
Peckwater PR – Tarquin Edwards	0207 808 7340
Cenkos Securities plc – Adrian Hargrave	0207 397 8900

 

 

Chairman’s Statement

 

I will comment separately on the performance of ElecoBuild^®, ElecoSoft^®, and the Eleco Group. For ease of comparison, the comparative figures shown are those for the 12-month period ended 31 December 2011.

 

ElecoSoft

ElecoSoft maintained its profitability in the year under review, which was a resilient performance given the general weakness in the construction markets. I am also pleased to say that ElecoSoft has begun the current year well.

Turnover of ElecoSoft in the year under review amounted to £15.8m (2011: £16.2m) of which recurring maintenance revenue amounted to £6,972,000 (2011: £7,016,000). The weakness of Sterling against both the Euro and the Swedish Kronor in 2011, when compared with 2012, accounted for the marginal reduction in both turnover and recurring maintenance revenue.

 

EBITDA was higher at £2.2m (2011: £2.0m). Operating profit for the year ended 31 December 2012 amounted to £2.0m (2011: £1.9m) before exceptional costs of £152,000 (2011: £nil) related principally to redundancy costs. The cost of software product development in the year under review was £2.1m of which £2.0m was written off as incurred, the same as last year.

 

Outlook for ElecoSoft

 

ElecoSoft  has made a good start in 2013. It will be launching a number of new software programs during the course of the year, including the launch in Germany of ArconNG, the next generation of its leading Arcon 3D Architectural Software, and an iPAD version of ElecoSoft’s “o2c” 3D compression and visualisation software. ElecoSoft recently acquired the Wagemeyer stair software brand, which will be exhibited with Consultec’s Staircon software at the LIGNA Fair in Hannover. The acquisition of Wagemeyer will strengthen Consultec’s already strong position in the European stair software market.

 

ElecoSoft’s leading brands now include:

Consultec^®, StairCon® BidCon^® StatCon^® ElecoM@trix and SiteCon^®, which are all developed in Sweden;

Esign^®, Arcon®; ArconNG®, Wagemayer®, and o2c^®, all of which are developed in Germany; and

the Asta^® Powerproject project management brand, which is developed in the United Kingdom.

 

Details of these brands are set out in the Operating and Financial Review section of this report. As part of a BIM (Building Information Modelling) initiative, plans are also underway to allow ElecoSoft’s range of construction software products to exchange information with each other and third party products using an industry standard data format.

 

Despite challenging market conditions in 2012, ElecoSoft’s businesses in Germany delivered improved operating profits. In the UK, buyers were cautious, however a significant number of product licences were reactivated by larger clients indicating an increase in their project workload.   In Sweden meanwhile, the demand for ElecoSoft products and services remained positive.

 

In March 2013, ElecoSoft also opened an office in Bangalore, India, in response to the number of enquiries for its software programs that we received from that region.

 

ElecoBuild

The continued contraction of the UK Construction Industry, and in particular that sector of the industry in which ElecoBuild operates, meant that 2012 would inevitably be another difficult year. Poor trading led to further redundancies and downsizing of our precast concrete operations. 

 

Following the major downsizing last year, ElecoBuild’s precast concrete operations now comprise Bell & Webster Concrete, which is based in Grantham, Lincolnshire, and Milbury Systems, based in Lydney, Gloucestershire. Its building products operations now comprise SpeedDeck Building Systems, Downer Cladding, Stramit Panel Products and Prompt Profiles, all of which are based in Yaxley, Suffolk.

 

Turnover of ElecoBuild’s continuing operations in the year under review amounted to £18.4m (2011: £22.9m), and reflects the elimination of our loss making precast custodial contract capacity, the sale of our Hoveringham concrete manufacturing plant, and the sale of our connector plate interests in the UK and South Africa.

 

The loss of ElecoBuild’s continuing operations in the year under review, before exceptional costs, was £1.2m (2011: £0.4m). Exceptional costs amounted to £1.1m (2011: £42,000), principally due to goodwill impairment of £0.6m (2011: £nil) and redundancy costs of £0.4m (2011: £ 42,000) relating to restructuring activities.

 

Outlook for ElecoBuild

The atrocious mix of ice, snow, rain and wind experienced in the first quarter regrettably resulted in a poor start in 2013 for all of ElecoBuild’s operating units, the performance of which were below budget in the first quarter. However, Bell & Webster Concrete’s orders are now significantly higher than they were at this time last year.  Orders for Milbury Systems’ standard concrete products are also higher. However, I regret to say that our Building Products businesses have yet to experience an improvement in trading conditions thus far. 

 

Eleco Group

 

Group Trading Summary

Group Turnover of Continuing Operations for the year under review amounted to £34.2m; (2011: £38.1m) with turnover of ElecoSoft approaching that of ElecoBuild.

Group Operating Losses from continuing operations for the year under review, before exceptional losses of £1.6m amounted to £290,000 (2011: profit £236,000, before exceptional losses of £130,000). 

 

Group continuing operations sustained a loss before tax in the period under review of £2.4m (2011: £0.3m) after Corporate Costs of £0.9m (2011: £1.0m) and exceptional costs of £1.6m (2011: £0.1m). Of the exceptional costs, £0.6m (2011: £0.1m) related mainly to redundancy costs from operational restructuring and £0.4m (2011: £nil) to Pension Scheme restructuring fees and expenses. Most of the remaining exceptional costs relate to goodwill impairment at ElecoBuild, £0.6m (2011: £nil).

 

The Group loss after tax for the year was £2.7m. (2011: £2.1m) which is equivalent to a loss per share of 4.6p (2011: 3.6p loss per share).

 

Finance

The proceeds from the sale of the Hoveringham site together with the deferred consideration received from the sale of our connector plate businesses of £0.7m were allocated to ElecoBuild. However, despite this and £1.3m of additional financial support provided to ElecoBuild, Group bank borrowings at 31 December 2012 of £7.4m were all attributable to activities related to ElecoBuild.   Group net bank borrowings on the same date amounted to £6.5m, after taking account of cash balances of £0.9m attributable to businesses that are part of ElecoSoft. Group net bank borrowings at 28 February 2013 were £6.4m compared with £6.4m at 28 February 2012.

 

£800,000 of the consideration for the sale of Gang-Nail Systems and International Truss Systems will continue to be held in escrow until 16 December 2013.

 

Disposals of assets and businesses, together with a reduction in capital expenditure and with cash generated from the profitable trading of our Software businesses, partially offset the adverse cash impact of the poor performance of our concrete and timber frame businesses.  This outcome enabled the Group to restrict its net bank borrowings at 31 December 2012 to £6.5m (2011: £4.1m), despite having to finance the £595,000 cost of discharging a Section 75 obligation to the Pension Scheme together with £375,000 of related professional costs and was expenditure that was clearly not incurred in the ordinary course of trading.

 

Lloyds Banking Group renewed the Group’s banking facilities with effect from 13 May 2013. The Directors are satisfied that the Group has sufficient working capital for its present requirements and as a consequence shareholders should be aware of the increase in the rates of interest charged by the Bank on our renewed facilities and the extent of the security required by the Bank and arrangement fees charged by the Bank in agreeing to these facilities, details of which are set out in the Operating and Financial Review section of this report.

 

In the light of the continuing trading pressures, which continue to be experienced by its ElecoBuild businesses, Eleco continues to moderate its investment in new capital projects. Capital investment for the year under review was reduced to £503,000 (2011: £1.0m), however I am pleased to report that software product development continued unabated at £2.1m (2011:£2.1m), of which £0.1m (2011: £0.1m) was capitalised.

 

Actions taken by the Board during 2012 to maintain the financial stability of the Group in a very difficult trading and financial climate, inevitably gave rise to a substantial increase in legal, banking and other professional fees, which doubled to £0.6m (2011: £0.3m). This is more than we were able to invest in capital equipment for our businesses. Unfortunately such costs impact both our trading performance and our cash resources. We anticipate that these pressures will ease as the Eleco Group achieves a full recovery.

 

Employees

On behalf of shareholders and the Board, I would like to thank all our employees for their hard work and dedication during the period under review. Implementing the above changes has placed very significant and stressful demands on them and unfortunately, 20 more employees became redundant in the downsizing of our building businesses during the year.

 

Dividends

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

 

Outlook

In the past five years our UK and international software interests have made good progress, have grown substantially in value and have been cash generative, while in the same period, our UK building systems businesses have experienced extraordinarily difficult trading and have consumed substantial amounts of cash. This unbalanced the Group and placed it under considerable financial strain.

 

However, I believe that the many difficult decisions that your Board has had to take to deal with this situation are now beginning to bear fruit and I am becoming increasingly confident that Eleco will arrive at a position from which, in the absence of unforeseen circumstances, it will be able to make a full recovery. I can assure you that I and all my colleagues will continue to do all we can to achieve this objective.

 

 

John Ketteley

Executive Chairman

14 May 2013

 

Operating and Financial Review

 

 

Market Background

 

Eleco’s operations serve the construction market in the UK, Scandinavia, Germany, the rest of Europe and the world with revenue exposure as set out in segmental information.

 

The physical operations of ElecoBuild are based solely in the UK, whereas the major ElecoSoft offices are based in the UK, Sweden, Germany and Belgium.  In the year new distributors were appointed in the USA and Estonia and in March 2013 ElecoSoft established a sales office in India

 

The market for building products produced by the ElecoBuild businesses in UK has continued to be affected by depressed demand.

 

The demand for software across all ElecoSoft markets has also been subdued.

 

Within this market environment the Group has continued to restructure its operations to ensure that they are well placed to profitably exploit markets in the future.

 

Group Strategy and Results

 

Given the continuing challenging market in the period the Group has followed its strategy from the previous reporting period to:

 

•     Reduce operational overhead and stop on-going trading losses;

 

•     Sell excess assets and operations where value can be achieved;

 

•     Limit increase in bank borrowings and enable renewal of working capital facilities for continuing operations;

 

•     Strategically acquire incremental and complementary software activities; and

 

•     Actively manage the legacy pension liability.

 

The 2012 result has been a small operational loss for the continuing businesses before exceptionals of £290,000 for the year ended 31 December 2012 (2011 18 month period: profit £143,000) and a loss for the period, before discontinued activities of £2.3m (2011 18 month period: £1.2m).  The prime driver to this loss has been the major management restructuring of the precast concrete activities of ElecoBuild and the costs incurred on resolving legacy pension matters in the period.

 

Events in the year ended 31 December 2012 and post the balance sheet date have been:

 

•     Renewal of Group working capital bank facilities with Lloyds TSB Bank in May 2013

 

•     Agreement reached in May 2013 to defer all contributions, and scheme expenses payable to the Eleco Retirement Benefit Scheme by the Statutory Employers of the Scheme (Bell & Webster Concrete Limited, SpeedDeck Building Systems Limited, Stramit Panel Products Limited and Eleco (GNS) Limited) until 1 March 2014. These total cash costs were £1.2m per annum.

 

•     Disposal of excess land at Yaxley, Suffolk for £0.4m net of expenses in May 2013.

 

 

•     Acquisition of Wagemeyer GmbH, a CAD/CAM software supplier to stair manufacturers, by Eleco Software GmbH in April 2013.

 

•     Opening of ElecoSoft office in Bangalore, India in March 2013.

 

•     Management re-structure at ElecoSoft’s Asta UK operation in December 2012.

 

•     Winning of Reading student accommodation phase III contract in November 2012.    

 

•     Settlement by Eleco plc of £0.6m obligation to the Eleco Retirement Benefit Scheme under Sections 75 and 75A of the Pension Act 1995 in September 2012.

 

•     Consolidation of ElecoBuild precast concrete management team reducing top grade management from 6 to 2 people in May 2012.

 

•     A 34 employee reduction in the Group from 320 people at 1 January 2012 to 286 people at 31 December 2012.

 

•     Strategic acquisition of Novator Projeckstyrning, the Swedish distributor of Asta Power Project, based in Stockholm, in March 2012.

 

•     Sale of the long leasehold precast site at Hoveringham and associated plant in February 2012.

 

 

The Board continues to monitor the markets and operations of the continuing businesses and will take further corrective action if necessary.

 

An annual impairment review by the Group has resulted in impairment charges against continuing businesses property, plant and equipment and intangible assets totalling £687,000 for the period under review (2011: £22,000).

 

Group Strategy and Results continued

Net interest costs from total operations excluding pension related items was £211,000 (2011: £63,000). Under IAS19, a finance charge of £0.3m (2011: £0.5m) is reported, being the difference between the net investment return on assets of the Eleco Retirement and Benefits Scheme expected at the outset of the year and the unwinding of the discount during the year used to determine the Scheme liabilities at the beginning of the year.

 

Segmental Results for Continuing Operations

 

 

ElecoSoft^®

 

The ElecoSoft performance, using key ElecoSoft trading performance measures is as follows:

							Year ended	18 months ended
							31 December	31 December
							2012	2011
							£’000	£’000
	Revenue						15,821	23,448
	Operating profit before exceptionals						1,793	2,214
	Segment result						1,641	2,203

 

Software comprises three main business areas; Project and Resource Management software operating primarily from the UK; Estimating, Site Control and Timber Engineering software operating from Sweden and Visualisation software operating in Germany.

 

A BIM (Building Information Modelling) software team was established in 2012 to develop a Cloud based data store for holding common information that will be used throughout the lifecycle of a construction project. The aim is that all ElecoSoft products will be able to interact with this data store in order to share data in a common industry standard format with each other and with other third-party applications.

 

 

United Kingdom

Project and Resource Management Software

Based in Thame and Telford, Asta provides market-leading project and resource management tools to an impressive list of construction customers in the UK and in international markets. It accounted for 25% of total software sales in the period under review (2011: 23%). Revenue amounted to £3.9m for the year ended 31 December 2012 (2011 18 months: £5.6m).

 

In 2012 Asta took steps to increase its international distribution with success in Eastern Europe and growing interest from specialist distributors the USA.

 

Asta’s customers include 69 of the UK’s top 75 main contractors [source Building Magazine]. In addition to a very high software maintenance renewal rate a significant number of dormant software licences were reactivated by this group in 2012, a first sign that business may be improving for many of these companies.

 

 

Asta’s international revenue amounted to £0.8m for the year ended 31 December 2012 (2011 18 months: £1.1m). Asta software programs were used in a number of high profile international projects including the strategic planning phase for the London Olympic Games.

 

Sweden

Estimating, Site Control and Timber Engineering Software; Architectural and Engineering Services

Headquartered in Skelleftea, Sweden, Consultec accounted for 55% of total software sales in the period under review (2011: 54%). Revenue amounted to £8.6m for the year ended 31 December 2012 (2011 18 months: £12.3m).

 

The Consultec group of companies provides design, estimation, engineering and planning software and software-related services primarily to the Scandinavian market and increasingly international markets. The professional services branch of Consultec provides architectural, engineering and design services to the construction industry in Sweden. This combination of software and professional services gives Consultec a strong market position, with many of the top construction companies in Scandinavia listed among its clients.

 

In March 2012 Consultec acquired the Swedish distributor of Asta project management software to strengthen its portfolio of products further and bring in-house the distribution of Asta Poweproject from its sister company in the UK.

 

Germany

Visualisation Software, Marketing Software and Project and Resource Management Software

Our Visualisation, Marketing Software and Project and Resource Management Software in Germany accounted for 22% of total software sales in the period under review (2011: 23%). Revenue amounted to £3.4m for the year ended 31 December 2012 (2011 18 months : £5.1m).

 

Visualisation Software

Eleco Software continued to distribute its well-established design and visualisation software, Arcon^®, which is popular with architectural and design firms across Germany. The professional version, supplied directly to businesses, is complimented by a retail version of the product, which is sold through specialist retail partners.

 

Development of a new generation of Arcon^®software made good progress and a retail version of the software will be available in 2013 with a new professional version to follow in 2014. The new version of Arcon^® will include an updated user interface, major improvements to its graphics capabilities and improved data exchange with other CAD and design tools.

 

Marketing and Visualisation Software

Esign^® supplies a range of sophisticated marketing software solutions for flooring manufacturers and retailers. At the heart of Esign’s solution is the Marketing Management System, a reference database bringing together all marketing information relating a customer’s complete product range. By utilising only the highest quality scanning techniques this provides a single-source of information for the production of printed and on-line marketing materials.

 

In addition to counting Europe’s leading flooring companies among its customers the company is now targeting door manufacturers with its products.  In response to positive feedback from customers the Marketing Management System is being enhanced to become a Product Information Manager, which is a complete repository for all product related information.

 

 

Project and Resource Management Software

Asta Development GmbH is the former distributor of Asta products in Germany, Austria and Switzerland, based in Karlsruhe. Revenue of Asta Development GmbH amounted to £0.9m for the year ended 31 December 2012 (2011 18 months: £1.6m) and accounts for 7% of the total Software sales in the period under review.

 

The company remains focussed on retaining the dominant market position of Asta products in the German construction industry and has also had some success at expanding into the machine-building segment.

 

ElecoBuild^®

							Year ended	18 months ended
							31 December	31 December
							2012	2011
							£’000	£’000
	Revenue						18,405	34,865
	Operating loss before exceptionals						(1,152)	(465)
	Segment result						(2,235)	(731)

 

ElecoBuild comprises the building products operations of SpeedDeck^®, Prompt, Stramit^®, and Downer together with the Group’s precast concrete activities of Bell & Webster Concrete and Milbury Systems.

 

The low demand market conditions in the UK construction sector continued to represent a challenging environment for ElecoBuild, especially the precast concrete operations, to return to profit. 

 

As a result of the prolonged down turn in demand in 2012, the precast management team was restructured resulting in six senior positions in Milbury Systems and Bell and Webster Concrete being reduced to two. This inevitably resulted in weaker trading during this necessary restructuring process and hence an increased operating loss before exceptional costs over the period. A significant one off cost of £0.4m occurred in 2012 to achieve this restructuring. Trading at ElecoPrecast is beginning to recover under the new management team and the ElecoPrecast order book at 31 December 2012 was £4.0m, up £1.5m, 38% compared to 31 December 2011.

 

Key Performance Indicators and Business Monitoring

Each business is monitored in detail by the Board using a range of key performance indicators some of which are specific to the particular business.

 

Business performance is monitored by the setting of budgets with each management team, monthly review of delivery to budget with reference to the following measures:

 

•     Order intake, reoccurring revenue and revenue trends

 

•     Project and product profitability;

 

•     Profitability and forecast profitability;

 

•     Historic and forecast cash flow;

 

•     Overhead control; and

 

•     Headcount.

 

Key Risks

The markets in which the Group operates, especially the ElecoBuild markets, continue to be the key risk the Board.  The final return to profit of ElecoBuild by improved sales and profitability is the main remaining element of the Turnaround Plan reported in the 2010 annual review.

 

The continued fragility of the financial markets has a direct impact on the flow of finance to construction projects which can affect the Group’s activities. Supply of finance to construction development can either drive recovery in the sector and hence the Group. However, should finance to such projects be further restricted Group revenue is likely to decline further.

 

Suppliers to the Group’s businesses are influenced by the credit rating agencies views on sectors and operations as they change from time to time. This is managed by maintaining the strong relationships the Group’s companies have developed with their suppliers during the recent challenging trading period. Further, with the current financial environment and the strains put on the Group’s customers, the risk of customer insolvency leading to loss of business and potential bad debts is a concern. Credit insurance is however maintained at all ElecoBuild businesses to mitigate such bad debt events.

 

Sustaining profitable growth in all the Group’s businesses is determined by retaining our existing high quality team and attracting new talent. This will become more challenging as any recovery in the Groups’ markets arises.

 

Capital and Financing

During the year the Group’s capital structure changed specifically in relation to the bank facilities. The term loan that is due to be repaid by July 2016 continued. In March 2012 the Group’s other facilities were changed from a £10m revolving credit facility to a £4.5m overdraft facility. This reduction was achieved with the completion proceeds from the sale of Gang-Nail Systems and International Truss Systems previously reported. 

 

In October 2012 the Group’s bankers provided an increase of £0.75m to the overdraft facility to enable the settlement of the £0.6m demand from Trustees of the Eleco Retirement Benefit Scheme under Sections 75 and 75a of the Pensions Act 1995 and associated professional costs.  

 

Subsequent to the year end, on 13 May 2013 the Group’s bank facilities were restructured with the Groups’ existing bankers Lloyds TSB Bank plc. The new facilities, which replaced the remaining outstanding term loan balance of £2.9m and overdraft facility of £5.25m that existed at 31 December 2012, totalled £8.75m and comprised the following:

 

·      A new £4.0m term loan, with £2.0m amortising over 5 years and a bullet repayment of £2m at the end of year 5, carrying an interest rate of 4% over base; and

·      A new £4.75m overdraft for the period to 30 April 2014, carrying a blended interest rate of 4.8% over base.

 

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

 

·      First legal charge on property freeholds at Grantham, Lydney and Yaxley

·      Pledge on the shares of the software companies

 

The Group is committed to reducing the level of bank borrowing and the bank has committed to release of certain elements of the security provided on this refinance in the event of a material reduction in bank debt.

 

Pension Strategy

 

As reported in the 2012 interim, following the payment by Eleco plc of £0.6m to the Eleco Retirement Benefit Scheme the Group companies who remain the Statutory Employers responsible for the continued funding of the Scheme are Bell & Webster Concrete Limited, SpeedDeck Building Systems Limited, Stramit Panel Products Limited and Eleco (GNS) Limited.

 

As a result of this change and in co-ordination with the latest tri-annual valuation the Trustees of the Scheme commissioned a covenant review of the remaining Statutory Employers to assist in making their proposal for future contributions and deficit recovery payments. 

 

In recognition of the weak trading environment the Trustees proposed, and the Statutory Employers agreed, a contribution and expenses deferral until 1 March 2014, with certain conditions, and a subsequent recovery plan to eliminate the deficit by March 2028 under current actuarial assumptions. The annualised cash cost of contributions and expenses under the previous arrangements was £1.2m.

 

The next tri-annual valuation is due at 31 December 2013.

 

Loss Per Share and Dividend

The loss per share on continuing operations was 3.9p (2011 18 months: loss 2.0p).

 

The loss per share on total operations was 4.6p (2011 18 months: loss 4.6p).

 

Having regard to 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 2012 but will consider a return to recommending dividend payments as and when the Company’s trading position and performance permits.

 

Shareholders’ Equity and Net Assets

At 31 December 2012, shareholders’ equity amounted to £8.9m (2011: £14.2m), after recognising £4.6m (2011: £3.7m), net of the related deferred tax asset, as a retirement benefits liability.

						2012			2011
						£’000	%		£’000	%
	Retirement benefits liability (net of deferred tax)					(4,646)	-52%		(3,670)	-26%
	Other net assets					13,496	152%		17,825	126%
	Total net assets					8,850	100%		14,155	100%

 

 

Summary Group Cash Flow

							Year ended	18 months ended
							31 December	31 December
							2012	2011
							£’000	£’000
	Cash flow from operations						(1,946)	(7,076)
	Net capital expenditure						87	(413)
	Net interest paid						(205)	66
	Tax paid						(396)	(59)
	Free cash flow						(2,460)	(7,482)
	Acquisitions and disposals						208	5,818
	Loan (repayments)/proceeds						(5,900)	925
	Finance lease repayments						(170)	(456)
	Net cash flow						(8,322)	(1,195)
	Exchange difference						(39)	(66)
	Decrease in net cash balances						(8,361)	(1,261)

 

The Group’s cash position reflects trading performance, sale of businesses and excess assets, and resulted in net bank debt at 31 December 2012 of £6.5m (2011: net bank debt £4.1m)  Specifically free cash flow included net cash payments relating to discontinued operations of £0.8m (2011: £1.4m).  There were only significant sales of businesses in 2011. The cash from the sale of these business assets in 2011 was used to repay bank loans in 2012 as set out in the analysis above.

 

Summary

ElecoSoft is experiencing a marginal growth in operating profits, but in a challenging European market.  The profitable recovery of all ElecoBuild businesses is still to be realised due to the continuing weakness of demand in UK construction markets in which ElecoBuild operate.

 

New bank facilities and a new deficit recovery plan for the Eleco Retirement Benefit Scheme have now been agreed giving scope for the Group’s businesses to exploit their chosen markets in the immediate future.

 

Matthew Turner

Group Finance Director

 

14 May 2013

Consolidated Income Statement

for the year ended 31 December 2012

								18 months ended 31 December
						2012		2011
					Note	£’000		£’000
	Continuing operations
	Revenue				1	34,177		56,822
	Cost of sales					(16,053)		(27,220)
	Gross profit					18,124		29,602
	Distribution costs					(1,894)		(4,651)
	Administrative expenses					(16,520)		(24,808)
	Operating (loss)/profit before exceptionals				2	(290)		143
	Exceptional items				3	(1,612)		(365)
	Loss from operations					(1,902)		(222)
	Finance income				4	19		96
	Finance cost				4	(514)		(804)
	Loss before tax					(2,397)		(930)
	Tax					76		(279)
	Loss for the financial period from continuing operations					(2,321)		(1,209)
	Loss for the financial period from discontinued operations				5	(426)		(1,528)
	Loss for the financial period					(2,747)		(2,737)
	Attributable to:
	Equity holders of the parent					(2,747)		(2,737)
	Loss per share – basic and diluted
	Continuing operations					(3.9)	p	(2.0)	p
	Discontinued operations					(0.7)	p	(2.6)	p
	Total operations					(4.6)	p	(4.6)	p

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2012

								18 months ended 31 December
						2012		2011
						£’000		£’000
	Loss for the period					(2,747)		(2,737)
	Other comprehensive income
	Actuarial (loss)/gain on retirement benefit obligation					(2,475)		3,720
	Deferred tax on retirement benefit obligation					99		(1,461)
	Other losses on retirement benefit obligation					(81)		(493)
	Translation differences on foreign operations					(101)		(220)
	Other comprehensive income net of tax					(2,558)		1,546
	Total comprehensive income for the period					(5,305)		(1,191)
	Attributable to:
	Equity holders of the parent					(5,305)		(1,191)

 

 

 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2012

		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
		Share capital	Share premium	Merger reserve	Translation reserve	Other reserve	Retained earnings	Total
		£’000	£’000	£’000	£’000	£’000	£’000	£’000
	At 1 July 2010	6,066	6,396	7,371	107	(358)	(4,236)	15,346
	Transactions with owners	–	–	–	–	–	–	–
	Loss for the period	–	–	–	–	–	(2,737)	(2,737)
	Other comprehensive income:
	Actuarial gain on defined benefit pension scheme net of tax and other scheme losses	–	–	–	–	–	1,766	1,766
	Exchange differences on translation of foreign operations	–	–	–	(220)	–	–	(220)
	Total comprehensive income for the period	–	–	–	(220)	–	(971)	(1,191)
	At 31 December 2011	6,066	6,396	7,371	(113)	(358)	(5,207)	14,155

 

 

Consolidated Balance Sheet

at 31 December 2012

							2012		2011
							£’000		£’000
	Non-current assets
	Goodwill						13,009		13,567
	Other intangible assets						1,904		2,338
	Property, plant and equipment						7,223		7,909
	Deferred tax assets						1,389		1,289
	Other non-current assets						–		800
	Total non-current assets						23,525		25,903
	Current assets
	Inventories						2,144		2,281
	Trade and other receivables						6,905		8,394
	Current tax assets						5		–
	Cash and cash equivalents						888		4,748
	Other current assets						800		400
	Assets of disposal group held for sale						–		440
	Total current assets						10,742		16,263
	Total assets						34,267		42,166
	Current liabilities
	Bank overdraft						(4,501)		–
	Borrowings						(900)		(5,900)
	Obligations under finance leases						(212)		(141)
	Trade and other payables						(4,962)		(6,618)
	Provisions						(256)		(60)
	Current tax liabilities						(56)		(87)
	Accruals and deferred income						(5,819)		(6,355)
	Total current liabilities						(16,706)		(19,161)
	Non-current liabilities
	Borrowings						(2,025)		(2,925)
	Obligations under finance leases						(319)		(359)
	Deferred tax liabilities						(170)		(421)
	Non-current provisions						(77)		(73)
	Other non-current liabilities						(85)		(113)
	Retirement benefit obligation						(6,035)		(4,959)
	Total non-current liabilities						(8,711)		(8,850)
	Total liabilities						(25,417)		(28,011)
	Net assets						8,850		14,155
	Equity
	Share capital						6,066		6,066
	Share premium account						6,396		6,396
	Merger reserve						7,371		7,371
	Translation reserve						(214)		(113)
	Other reserve						(358)		(358)
	Retained earnings						(10,411)		(5,207)
	Equity attributable to shareholders of the parent						8,850		14,155

 

 

 

Consolidated Statement of Cash Flows

for the year ended 31 December 2012

							18 months ended 31 December
					2012		2011
					£’000		£’000
	Cash flows from operating activities
	Loss before tax (including discontinued)				(2,641)		(7,691)
	Net finance costs				480		459
	Depreciation and impairment charge				1,004		3,078
	Amortisation and impairment charge				1,210		926
	Profit on sale of property, plant and equipment				(114)		(345)
	Retirement benefit obligation				(803)		(1,664)
	Increase/(decrease) in provisions				200		(987)
	Cash used in operations before working capital movements				(664)		(6,224)
	Decrease in trade and other receivables				3,438		5,586
	Decrease in inventories and work in progress				134		957
	(Decrease) in trade and other payables				(4,854)		(7,395)
	Cash used in operations				(1,946)		(7,076)
	Interest paid				(239)		(278)
	Interest received				34		344
	Income tax paid				(396)		(59)
	Net cash outflow from operating activities				(2,547)		(7,069)
	Net cash used in investing activities
	Purchase of intangible assets				(149)		(329)
	Purchase of property, plant and equipment				(157)		(992)
	Acquisition of subsidiary undertakings net of cash acquired				(192)		(316)
	Proceeds from sale of property, plant, equipment  and intangible assets				393		908
	Sale of business net of expenses				400		6,134
	Net cash inflow from investing activities				295		5,405
	Net cash used in financing activities
	Proceeds from new bank loan				–		6,600
	Repayment of bank loans				(5,900)		(5,675)
	Repayments of obligations under finance leases				(170)		(456)
	Net cash (outflow)/inflow from financing activities				(6,070)		469
	Net Decrease in cash and cash equivalents				(8,322)		(1,195)
	Cash and cash equivalents at beginning of period				4,748		6,009
	Effects of changes in foreign exchange rates				(39)		(66)
	Cash and cash equivalents at end of period				(3,613)		4,748
	Cash and cash equivalents comprise:
	Cash and short-term deposits				888		4,748
	Bank overdrafts				(4,501)		–
					(3,613)		4,748

 

Notes to the Consolidated Financial Statements

 

1. Revenue

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

							Year ended	18 months ended
							31 December	31 December
							2012	2011
							£’000	£’000
	Sale of goods						20,645	30,583
	Income from services						11,476	15,615
	Long-term contracts						2,056	10,624
	Total revenue						34,177	56,822

 

2. Segment information

Operating segments

For management purposes, the Group is organised into two operating divisions based on the type of products and services supplied by each business unit. The operating divisions are, ElecoSoft and ElecoBuild. 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 principal activities of each segment are as follows:

 

ElecoSoft: Developer and supplier of resource management software, building project software, design and engineering software and 3D design software.

ElecoBuild: Manufacturer and supplier of a range of building products including, metal roofing, cladding systems, acoustic flooring and floor joist webs. Manufacturer and supplier of precast concrete rooms, retaining walls, terracing units and prestressed and precast retaining structures.

 

Head office costs that cannot reasonably be allocated to the operating segments and related assets and liabilities are reported under the Corporate segment.

 

The accounting policies of the reportable segments are the same as described in the Group’s significant accounting policies. Segment revenue represents revenue from external customers arising from the sale of goods and services, plus inter-segment revenue. Inter-segment transactions are priced on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

 

The structure of the reportable operating segments has changed from those reported in the 2010/11 report and accounts as a result of the disposal of various ElecoBuild operations during the 18 months to 31 December 2011. Consequently the prior year comparatives have been restated on the revised basis. 

 

 

	12 months to 31 December 2012
			ElecoSoft		ElecoBuild	Corporate	Elimination	Continuing operations
			£’000		£’000	£’000	£’000	£’000
	Revenue		15,779		18,398	–	–	34,177
	Inter-segment revenue		42		7	–	(49)	–
	Total segment revenue		15,821		18,405	–	(49)	34,177
	Adjusted operating profit/(loss)		4,177		(1,025)	(872)		2,280
	Product development		(2,024)		(16)	–		(2,040)
	Amortisation of intangible assets		(360)		(111)	(59)		(530)
	Operating profit/(loss) before exceptionals		1,793		(1,152)	(931)		(290)
	Impairment charges		–		(687)	–		(687)
	Restructuring costs		(152)		(396)	(377)		(925)
	Segment result		1,641		(2,235)	(1,308)		(1,902)
	Net finance cost							(495)
	Profit/(Loss) before tax		1,641		(2,235)	(1,308)		(2,397)
	Tax							76
	Loss after tax							(2,321)
	Segment assets		16,612		14,239	1,134		31,985
	Unallocated assets							2,282
	Total Group assets							34,267
	Segment liabilities		6,471		3,870	858		11,199
	Unallocated liabilities							14,218
	Total Group liabilities							25,417
	Other segment information
	Capital expenditure:
	Property, plant and equipment		189		146	19		354
	Intangible assets		133		16	–		149
	Goodwill acquired		81		–	–		81
	Depreciation		218		779	–		997

	18 months to 31 December 2011
			ElecoSoft		ElecoBuild	Corporate	Elimination	Continuing operations
			£’000		£’000	£’000	£’000	£’000
	Revenue		23,047		33,775		–	56,822
	Inter-segment revenue		401		1,090		(1,491)	–
	Total segment revenue		23,448		34,865		(1,491)	56,822
	Adjusted operating profit/(loss)		5,993		(288)	(1,606)		4,099
	Product development		(3,027)		(25)	–		(3,052)
	Amortisation of intangible assets		(752)		(152)	–		(904)
	Operating profit/(loss) before exceptionals		2,214		(465)	(1,606)		143
	Impairment charges		(11)		(11)	–		(22)
	Restructuring costs		–		(255)	(88)		(343)
	Segment result		2,203		(731)	(1,694)		(222)
	Net finance cost							(708)
	Profit/(Loss) before tax		2,203		(731)	(1,694)		(930)
	Tax							(279)
	Loss after tax							(1,209)
	Segment assets		16,281		18,154	1,694		36,129
	Unallocated assets							6,037
	Total Group assets							42,166
	Segment liabilities		6,223		5,632	1,364		13,219
	Unallocated liabilities							14,792
	Total Group liabilities							28,011
	Other segment information
	Capital expenditure:
	Property, plant and equipment		656		622	56		1,334
	Intangible assets		271		31	27		329
	Goodwill acquired		574		–	–		574
	Depreciation		320		1,826	–		2,146

The unallocated assets and liabilities represent cash and cash equivalents, borrowings, tax (including deferred tax) and pension scheme obligations. An analysis of the unallocated assets and liabilities are as follows:

Unallocated assets

							2012	2011
							£’000	£’000
	Deferred tax assets						1,389	1,289
	Current tax assets						5	–
	Cash and cash equivalents						888	4,748
							2,282	6,037

Unallocated liabilities

							2012	2011
							£’000	£’000
	Bank overdraft and borrowings						7,426	8,825
	Obligations under finance leases						531	500
	Deferred tax liabilities						170	421
	Current tax liabilities						56	87
	Retirement benefit obligation						6,035	4,959
							14,218	14,792

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:

							Year ended	18 months ended
							31 December	31 December
							2012	2011
							£’000	£’000
	UK						21,829	38,766
	Scandinavia						8,209	11,866
	Rest of Europe						3,888	5,899
	Rest of World						251	291
							34,177	56,822

 

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

 

 

Non-current assets by geographical location:

							2012	2011
							£’000	£’000
	UK						14,491	17,198
	Scandinavia						6,310	6,186
	Rest of Europe						1,335	1,230
							22,136	24,614

 

 

Information about major customers

 

Revenues arising from sales to the Group’s largest customer were below the reporting threshold. (2011: Below reporting threshold)

 

3. Exceptional items

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

							Year ended	18 months ended
							31 December	31 December
							2012	2011
							£’000	£’000
	Impairment of intangible assets						680	11
	Impairment of tangible assets						7	11
	Restructuring costs						550	343
	Pension scheme restructuring costs						375	–
							1,612	365

 

As a result of the annual goodwill impairment review required under IAS 36 Impairment of Assets, an impairment of £510,000 has been recognised in the accounts in respect of goodwill related to Milbury Systems and £130,000 has been recognised in the accounts in respect of goodwill related to Prompt Profiles. In addition, a review of the intangible assets at Milbury Systems identified certain intellectual property that was considered to have no future value to the business. As such, the carrying value of £40,000 was impaired at 31 December 2012.

Restructuring costs comprise cash and non-cash costs associated with the Group restructuring programme, mainly in the UK, and primarily relate to redundancy and business merger costs. Legal and professional fees associated with the discharge of the parent company as a statutory employer of the pension scheme are reported under pension scheme restructuring costs.

 

4. Net finance income/(cost)

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

							Year ended	18 months ended
							31 December	31 December
							2012	2011
							£’000	£’000
	Finance income
	Bank and other interest receivable						19	96
	Finance costs
	Bank overdraft and loan interest						(221)	(250)
	Finance leases and hire purchase contracts						(24)	(32)
	Net return on pension scheme assets and liabilities						(269)	(522)
	Total net finance cost						(495)	(708)

5. Discontinued operations

Business disposal adjustments and costs associated with the sale of the two connector plate businesses and the timber frame business in 2011 that were not accrued are recognised in the consolidated income statement under discontinued operations.

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

		Year ended	18 months ended
		31 December	31 December
		2012	2011
		£’000	£’000
	Revenue	28	27,039
	Cost of sales	(17)	(22,924)
	Gross profit	11	4,115
	Distribution costs	–	(443)
	Administrative expenses	(404)	(8,099)
	Other operating income/(costs)	134	(1,902)
	Loss on re-measurement	–	(681)
	Operating loss	(259)	(7,010)
	Finance income	15	249
	Loss before tax	(244)	(6,761)
	Taxation on discontinued operations	(182)	(207)
	Loss after tax on discontinued operations	(426)	(6,968)
	Profit on business disposals after tax	–	5,440
	Net Loss for the period from discontinued operations	(426)	(1,528)

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

		Year ended	18 months ended
		31 December	31 December
		2012	2011
		£’000	£’000
	Operating activities	(780)	(1,431)
	Investing activities	–	(127)
	Financing activities	–	(18)
	Total cash flows	(780)	(1,576)

The Hoveringham factory classified as held for sale at 31 December 2011 was sold at its carrying value of £440,000 on 3 February 2012. Proceeds received on completion were £290,000 and included in the cash flow statement under proceeds on sale of property, plant and equipment. Deferred consideration of £150,000 is payable monthly over a period of 30 months from completion.

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 18 months to 31 December 2011 have been taken from, but do not constitute, the Company’s statutory financial statements for that financial year.

 

2.   The Board has considered a number of factors in determining the principle of going concern in the preparation of the Report and Accounts for the year to 31 December 2012.

 

One of the key factors was the approval of a new day-to-day working capital facility of £4.75m through the use of an overdraft which was set up on 13 May 2013 for a period of one year. The Directors have no reason to doubt that this facility cannot be renegotiated beyond one year. This facility replaces the previous overdraft facility that recently expired.

 

In addition, the Group has renegotiated its longer term debt financing requirement with a £4.0m, 5 year term loan commencing 10 May 2013 repayable in equal quarterly instalments of £0.1m with a bullet payment of £2.0m at the end of the term. This new facility is secured against the Group’s freehold properties and replaces the previous term loan which was due to expire in July 2016. Further details of the security structure of the new facilities are outlined in the Operating and Financial Review.

 

In setting the financial covenants the Directors have negotiated appropriate headroom based on the Group’s latest forecast to allow a degree of flexibility were there to be a further downturn in economic conditions. The new funding structure outlined above shows sufficient headroom over the period of the overdraft facilities.

 

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 banking facilities agreement and confirm the Group has adequate resources for the Group’s 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 2012, set out in the Company’s Annual Report and Accounts and as previously disclosed in the Company’s Annual Report and Accounts for the 18 months ended 31 December 2011.

 

4.   The calculation of the loss per share is based on the total loss after tax attributable to ordinary equity shareholders of £2,747,000 (2011: £2,737,000) and on 59,761,646 ordinary shares (2011: 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 Brewers’ Hall, Aldermanbury Square, London EC2V 7HR on 25 June 2013 at 12 noon.