Elecosoft Regulatory News (ELCO)

29 September 2014

ELECO plc

("ELECO" or "the Company")

Results for the six months ended 30 June 2014

"ELECO recovery begins: refinanced, re-banked and back to profit"

Performance from Continuing Operations

· Group turnover from continuing operations up was 4% higher at £8.6m (2013 restated: £8.3m) despite an adverse foreign exchange impact of £497,000 due to the weakness of the Euro and Swedish Krona against Sterling in the period.

· Group operating profit of continuing operations was £676,000 (2013: restated: £399,000), an increase of 69 per cent after development costs expensed of £1.1m (2013: £1.3m); development costs totalling £313,000 were capitalised in the period, pursuant to IAS 38 (2013: Nil).

· Profit before tax of continuing operations for the six month period was substantially higher at £530,000 (2013 restated: £230,000).

· Earnings per share of continuing operations, basic and diluted were 0.7p (2013 restated: 0.3p).

· EBITDA from continuing operations was £1.0m (2013 restated: £0.7m), an increase of 43 per cent.

Refinancing and Re-banking

· 3,028,405 Ordinary Shares of 10p each of ELECO were issued by way of subscription at 20.75p per share in June 2014 and raised £628,394 of equity capital. An additional 11,180,483 Ordinary Shares of 10p each of ELECO were subsequently issued by way of subscription also at 20.75p each and raised £2,319,948 of equity capital. The total number of Ordinary Shares issued by share subscription was 14,208,888 and the total amount raised was £2,948,342, which was used to reduce bank borrowings.

· The refinancing and re-banking of ELECO's UK operations with Barclays Bank was completed in the period under review on significantly more favourable terms than our previous banking arrangements with Lloyds Banking Group and as a consequence, ELECO is already benefiting from substantially reduced financing costs due to its significantly reduced gearing and cost of funds.

· Group net bank borrowings at 30 June 2014 were £3.3m (31 December 2013: £4.3m) and are forecast to reduce to £2.2m on 1 October 2014.

· Proposals for the necessary restructuring of ELECO's balance sheet, which would be an essential pre-requisite to permitting a resumption of dividend payments when appropriate, will shortly be put to shareholders for their approval.

Executive Chairman, John Ketteley commented:

"The pressures of having to deal with the restructuring and refinancing of ELECO are now behind us and ELECO has emerged as a profitable specialist provider of software and technology to the construction industry in the UK, Germany and Sweden, where its development teams and operational centres of excellence are located."

"I am pleased to say that with the support of our shareholders, together with the positive approach of Barclays Bank, we have been able to complete our restructuring and re-banking, which has significantly strengthened our finances. We have also put considerable effort into improving our software offering across the Group. In the UK, we are launching the Asta's new Powerproject BIM programme, which has been very well received in pre-launch demonstrations and trials; in Germany we shall shortly be marketing Arcon® Next Generation, a 3D architectural visualisation software programme, which has a 3D printing capability; and in Sweden, Consultec ByggProgram is nearing completion of a comprehensive overhaul and upgrade of its market leading Bidcon®,estimation software programme. Sentiment in the UK market for our software products continues to improve; and our German and Swedish colleagues have recently reported some improvement in sentiment in their respective markets."

"Despite the difficulties that confronted the Group in the past few years, our software interests have been consistently profitable and following the successful restructuring and refinancing of the Group earlier this year and the positive approach we received from our bankers, Barclays Bank, together with support from our shareholders, customers and employees, I believe that ELECO is now well placed to realise its full potential."

Chairman's statement

Revenue from our software interests amounted to £8.6m in the six months ended 30 June 2014 compared with £8.3m for the comparable period last year, a rise of 4 per cent., despite a significant weakening in the exchange rate of the Swedish Krona and the Euro against Sterling in the period under review. Adjusting for the adverse foreign exchange impact of £497,000, Group revenue at constant exchange rates would have been £9.1m.

Software development costs in the period under review increased to £1.39m, of which £313,000 of costs were capitalised in compliance with International Accounting Standard 38. Of the amount capitalised £252,000 relates to our latest Asta Powerproject BIM software and the balance of £61,000 relates to the Arcon Next Generation architectural 3D visualisation software. The Asta Powerproject BIM software programme has already been extensively demonstrated and reviewed by Asta User Groups across the UK. It has been very well received and will be launched on the market by Asta in the last quarter of 2014. I would like to thank all my colleagues who have been involved in the development of this outstanding programme for their contribution to the project and its development. It is anticipated that Arcon Next Generation architectural 3D visualisation software will be launched later this year and both programmes will be demonstrated at the upcoming Bau Show in Munich.

It was vital that such an important new product would satisfy our customers' requirements and therefore, before starting its development, Asta took extensive soundings from our customers to ascertain exactly what they needed in the new Asta Powerproject BIM programme in the new "BIM Environment". Thus Asta's UK customers and partners played a very important role in the development of Asta Powerproject BIM and I very much hope that Asta will have succeeded in meeting their requirements. I would also like to take this opportunity to thank those customers and partners, who provided Asta with constructive comments, views and support throughout the Asta Powerproject BIM development process, for their invaluable input. Likewise, I would like also to thank our German colleagues and customers for their respective contributions to the development of Arcon Next Generation, the latest version of this market leading 3D architectural visualisation software in Germany, which we shall also be launching in other markets worldwide as well as in its home market.

Profits in our UK software operations in the period under review were higher than those in the comparable period last year, although profits in the period of our Swedish and German-based software businesses were lower partly due to weaker demand in their respective markets, and partly due to the continuing weakness of the Swedish Krona and the Euro against Sterling in the period.

Group operating profit in the period under review amounted to £676,000 (2013: £399,000) after development cost expensed of £1.1m (2013: £1.3m). Pursuant to IAS 38, product development costs of £313,000 in the period were capitalised (2013: nil). Group Operating profit at constant exchange rates would have been £687,000 compared with Group operating profit as reported of £676,000.

Refinancing

I am pleased to report that the UK Group's re-banking with Barclays Bank was successfully completed during the period under review. The new facilities provide ELECO with a platform from which its businesses can grow in line with ELECO's strategy. In addition, the share subscription process was completed in August and raised a total of £2.95m of additional equity funding from the issue of new shares. To date, these funds have been used to reduce the level of the Group's borrowings and its financing costs.

Balance Sheet Reconstruction Proposal

Shareholders will shortly receive a Notice of a General meeting setting out proposals for a Scheme to restructure the Company's Balance Sheet and reserves, for their consideration, and if thought fit, their approval. Subject to approval by the necessary majority of Shareholders in General Meeting, the Scheme will then be submitted to the Court for its approval, which if granted, would permit the resumption of dividends payments, as and when appropriate,

Dividends

As mentioned above, the Board will not be in a position to declare or recommend the payment of dividends until the Balance Sheet Reconstruction Proposals have been approved by Shareholders and approved by the Court. However, on the basis that the proposals are approved and become effective, it would be the Board's intention to resume the payment of dividends when it considers it to be appropriate and prudent to do so. It would be the Board's intention on the resumption of dividend payments to indicate the policy that it intends to adopt regarding the future recommendation or payment of dividends to shareholders.

ELECO Retirement and Benefits Scheme

In the period since my last statement, the Group has de-recognised the pension scheme liability related to the ELECO Retirement and Benefits Scheme ("ERBS") and related deferred tax asset from the Group balance sheet, which has resulted in an increase in the Group net assets of £6.9m compared to 31 December 2013.

The ERBS is currently in an assessment period with the Pension Protection Fund ("PPF") after which, in the absence of unforeseen circumstances, the ERBS would transfer to the PPF and members of the ERBS would be entitled to PPF compensation. The ERBS liability is recognised as a contingent liability as at 30 June 2014, pending confirmation that the ERBS has completed its PPF assessment period and the PPF has assumed liability for paying compensation to the members.

New Director

I would like to take this opportunity to welcome Nick Caw, as our newly appointed Chief Executive Officer, who joins us from Microsoft UK. He previously worked with us at ELECO for a number of years and during that period, he was an important contributor to the formation of our successful software interests. We welcome him back and wish him well in his endeavours.

Outlook

The pressures of having to deal with the restructuring and refinancing are now behind us and ELECO has emerged as a profitable specialist provider of software and technology to the construction industry in the UK, in Germany and in Sweden, where its development teams and operational centres of excellence are located. Sentiment in our market in the UK continues to improve and our German and Swedish colleagues have also recently reported some improvement in sentiment in their respective markets.

Despite the difficulties that confronted the Group in the past few years, our software interests have been consistently profitable and following the successful restructuring and refinancing of the Group earlier this year and the positive response we received from our bankers, Barclays Bank, together with support from our shareholders, customers and employees, I believe that ELECO is now well placed to realise its full potential.

John Ketteley

Executive Chairman

29 September 2014

Condensed Consolidated Income Statement

for the financial period ended 30 June 2014

Condensed Consolidated Statement of Comprehensive Income

for the financial period ended 30 June 2014

Condensed Consolidated Statement of Changes in Equity

for the financial period ended 30 June 2014

Condensed Consolidated Balance Sheet

at 30 June 2014

Condensed Consolidated Statement of Cash Flows

for the financial period ended 30 June 2014

Notes to the Condensed Consolidated Interim Financial Statements

1. General information

The company is a public limited company incorporated and domiciled in the UK. The address of its registered office is 66 Clifton Street, London, EC2A 4HB.

The company is listed on the Alternative Investment Market ("AIM")

The condensed consolidated interim financial information does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The Group's consolidated financial statements for the year ended 31 December 2013 have been filed and the auditors' report was not qualified and did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.

2. Basis of preparation

The condensed consolidated interim financial statements for the six months to 30 June 2014 have been prepared in accordance with the accounting policies which will be applied in the twelve months financial statements to 31 December 2014. These accounting policies are drawn up in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and as adopted for use in the European Union that are effective at 30 June 2014.

The condensed consolidated interim financial statements are unaudited and have not been subject to review. They do not include all the information and disclosures required in the annual financial statements, and therefore should be read in conjunction with the Group's published financial statements as at 31 December 2013.

In accordance with IFRS 5, the prior year comparative figures for the six months to 30 June 2013 and the year ended 31 December 2013 have been restated to reflect discontinued operations reported in the Group's consolidated financial statements for the six months to 30 June 2014. The comparative figures for the year ended 31 December 2013 are not the Company's statutory accounts for that period but have been extracted from these accounts.

The Directors, having considered the Group's current financial resources, have concluded that they are adequate for the Group's present requirements. Thus the condensed consolidated interim financial information has been prepared on the going concern basis.

New accounting standards and interpretations are effective for the first time in the current period but have had no impact on the results or financial position of the Group. Furthermore, new standards, new interpretations and amendments to standards and interpretations that have been issued but are not effective for the current period have not been adopted early.

Estimates

Application of the Group's accounting policies in preparing the condensed consolidated interim financial statements requires management to make judgements and estimates that affect the reported amount of assets and liabilities, revenues and expenses. Actual results may ultimately differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty have changed to those that applied to the consolidated financial statements for the year ended 31 December 2013. This change relates to de-recognition of the retirement benefit obligation and the associated deferred tax asset during the six months to 30 June 2014.

Risks and uncertainties

A summary of the Group's principal risks and uncertainties was provided on page 19 of the 2013 report and accounts. The Board considers these risks and uncertainties are still relevant to the current financial year and the impact of changes in the UK economy is reviewed in the Chairman's Statement contained in this report.

3. Revenue

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

4. Segmental information

Operating segments

The Group comprises of software business activity only and as such the information is presented in line with management information. 

Development project costs are expensed as incurred unless they meet the accounting policy requirements for capitalisation. The projects capitalised in the six months to 30 June 2014 are explained in the Chairman's Statement and the accounting policy requirements are set out on page 34 of the 2013 report and accounts.

Geographical segments

Segment revenue by geographical segment represents revenue from external customers based on the geographical location of the customer.