Elecosoft Regulatory News (ELCO)

Eleco plc

("Eleco" or the "Group")

The Construction Software and Building Systems Group

Preliminary Results for the 18 Month Period Ended 31 December 2011

Financial Performance - Continuing Operations 

·; Turnover £56.8m for 18 months to December 2011 (2010 12 months: £45.9m restated)

·; Operating profit before exceptionals £143,000 for 18 months to December 2011 (2010 12 months loss £3.3m restated)

·; Exceptional costs £365,000 for 18 months to December 2011 (2010 12 months £2.8m)

·; Profit from operations for the six months to December 2011 £334,000

·; Loss before tax of £930,000 for 18 months to December 2011 (2010 12 months loss £3.2m restated)

·; Loss per share of 2.0p for the 18 months to December 2011 (2010 12 months: loss 4.8p restated)

·; Net bank debt at 31 December 2011 £4.1m (2010: £1.9m)

·; Deferred consideration receivable at 31 December 2011 held in escrow £1.2m

Software (ElecoSoft®)

·; Turnover £23.0m (2010 12 months £13.4m)

·; Operating profit before exceptionals £1.6m (2010 12 months £290,000)

Building Systems (ElecoBuild®) - Continuing Operations

·; Turnover £33.8m (2010 12 months: £32.5m)

·; Operating loss before exceptionals £1.4m (2010 12 months: £3.6m)

Strategy and Outlook

·; Eleco's strategy of reducing its risk profile, strengthening its financial position and rebalancing its operations towards its profitable Software interests has resulted in Eleco's continuing operations returning to operating profit in the six months ended 31 December 2011.

·; Eleco is currently tracking in line with its financial plan for the 12 month period to December 2012 and Software has again made an excellent start to the year.

Executive Chairman, John Ketteley said

"Eleco's continuing businesses made a welcome return to operating profit before exceptional items in the six months ended 31 December 2011, after successfully weathering extraordinarily difficult economic and financial conditions in the first twelve months of the period under review and in the year before.

In the past eighteen months, we have strengthened Eleco's financial position, restructured and reduced the risk profile of ElecoBuild®, our UK building systems interests, and expanded Elecosoft®, our international software interests, both organically and by acquisition. Accordingly, I consider that Eleco is now well placed to take advantage of any improvement in any of the markets it serves."

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Chairman's Statement

In the last six months of the eighteen month period ended 31 December 2011, we continued to implement our strategy of restructuring and rebalancing our Building Systems and Software operations with a view to reducing the Group's risk profile and strengthening its financial position. Our operating performance also improved and in the six month period ended 31 December 2011, our continuing operations produced operating profits of £334,000 compared with operating losses of £556,000 in the twelve months ended 30 June 2011. This has resulted in an operating loss for continuing operations of £222,000 after exceptional costs of £365,000, mainly relating to restructuring costs, in the period under review. Operating profit before exceptional costs amount to £143,000 compared to a loss of £3.3m for the 12 months ended 30 June 2010.

In the interim statement for the 12 months ended 30 June 2011, I referred to the profits from our software interests being more than offset by significantly increased losses of our precast concrete custodial accommodation and timber frame businesses because of a significant reduction in sales and lower margins. We have since disposed of Bell & Webster's precast concrete custodial products business based at Hoveringham; we have also disposed of the timber frame operations based at Speke; finally, in December 2011, we disposed of our remaining timber engineering businesses, namely Gang-Nail Systems in the United Kingdom and International Truss Systems in South Africa.

The purpose and effect of these transactions was to reduce the risk profile of our Building Systems interests and to enable us to refinance a substantial portion of the trading and exceptional losses incurred by Bell & Webster Concrete's custodial accommodation contracts business and by the timber frame manufacturing business.

Eleco is now made up of ElecoSoft® and ElecoBuild®

ElecoSoft®comprises all our software interests based in Sweden, Germany and the United Kingdom. These include the Consultec® software brand originating in Sweden, the Esign® and Arcon® software brands originating in Germany, and the Asta software brand originating in the United Kingdom.

ElecoBuild®comprises our roofing, cladding and partitioning interests, all of which are now based in the United Kingdom and include SpeedDeck® Building Systems, Stramit® Panel Products and Downer Cladding Systems; together with our remaining Precast Concrete interests, namely Bell & Webster Concrete and Milbury Systems.

Details of these interests and their respective brands are set out in the Operating and Financial Review section of this report.

Continuing Operations Performance Summary

Please bear in mind when reviewing the information contained in this statement, that the comparative figures shown are in respect of a twelve month period ended 30 June 2010, whereas the figures for the period under review are in respect of the eighteen month period ended 31 December 2011.

Turnover of Continuing Operations for the period under review amounted to £56.8m; Turnover for the year to 30 June 2010 amounted to £45.9m.

Operating profit from continuing operations for the period under review before exceptional losses amounted to £143,000 (2010 12 months: loss before exceptional losses £3.3m) and the reported loss from operations for the period under review was £222,000 (2010 12 months: £2.7m). The exceptional costs of £365,000 for the period under review mainly relate to redundancy costs from business restructuring (2010: £2.8m). The Group's continuing operations sustained a loss before tax in the period under review of £930,000 (2010 12 months: £3.2m)

Total Group operating loss for the eighteen month period under review of £2.7m (2010 12 months: £5.5m), is equivalent to a loss per share of 4.6p (2010: 9.1p loss per share).

The total reported Group loss includes losses of £4.0m of non-cash items including depreciation, amortisation and impairment of assets; it also includes the benefit of a net gain on disposal of the connector plate and timber frame businesses of £5.4m. As a consequence total cash outflow overall was limited to £2.2m in the eighteen month period under review. It should be noted that £1.2m in connection with the sale of our remaining timber engineering businesses was also placed in escrow in the period under review.

In the light of the sharp reduction that has occurred for ElecoBuild's Precast Concrete and Building Products interests, Eleco has moderated its investment in new capital projects for these businesses. Capital investment for the period under review was £1.3m (2010 12 months: £1.2m) and we anticipate that this lower level of capital investment in our ElecoBuild® interests to continue in the current year. However, we expect the development of software programs by our ElecoSoft® interests to continue as before.

The actions that the Board undertook during the eighteen month period under review to maintain the financial stability of the Group in a very difficult trading and financial climate gave rise to significant additional and unavoidable advisory, legal, banking and other professional fees, compared with equivalent costs incurred in the year ended 30 June 2011. These costs impacted significantly both our trading performance and our cash resources.

Operational Overview

ElecoSoft®

Our Software businesses performed well and made a positive contribution in turnover and profits to the Group in the period under review. Turnover amounted to £23.4m in the period under review (2010 12 months: £13.7m), and the adjusted operating profit amounted to £2.3m (2010 12 months: £0.6m). ElecoSoft® has started the current year well.

ElecoBuild®

Building Products

Our Building Products businesses turnover in the period under review amounted to £14.7m (2010 12 months: £8.5m) and the adjusted operating profit was £817,000 (2010 12 months: loss £597,000).

On 19 December 2011 we announced the disposal of the business and assets of these businesses to Illinois Toolworks Inc. ("ITW") for a total consideration of £8.0m, of which £1.2m is currently held in escrow. These activities made a profit before tax of £42,000 in the period under review and their net assets at the date of disposal amounted to £1.7m. I would like on your behalf to express our thanks to our former colleagues for their efforts and positive contribution to Eleco over the years and to wish them well in future as part of ITW.

ElecoBuild's Building Products businesses have experienced an improving order intake since the beginning of the year, albeit from a low base. Improvements in marketing techniques and product initiatives are also making a positive impact.

Precast Concrete

Turnover for the period under review was lower at £20.2m (2010: £24.7m) and the adjusted operating loss for the period amounted to £2.1m (2010 -12 months : £2.8m).

Bell & Webster Concrete closed down its custodial contracts operations in the period under review and has since disposed of its Hoveringham facility; its hotel and student accommodation activities also contracted in the period under review due to lower demand. However, in the past few weeks it has received an increasing number of project enquires, which may be an early indication of a potential upturn in demand for its products. That said, management are very conscious of the need to contain costs and in the absence of firm orders for its RoomSolutions TM products at acceptable margins, to have in place contingency plans to reduce still further its manufacturing capacity.

Milbury has experienced a reasonable level of orders for its retaining walls since the beginning of the year; Bell & Webser Concrete less so. Both appear to be benefitting from the withdrawal of a number of direct competitors from their market, although the market itself remains subdued.

Finance

Disposals of assets and businesses, together with a reduction in capital expenditure and cash generated from the profitable trading of our Software businesses have partially offset the adverse cash impact of the poor performance of our concrete and timber frame businesses in a very difficult market environment.

As a consequence, the Group was able to restrict its net bank borrowings at 31 December 2011 to £4.1m (2010: £1.9m) and as noted above, £1.2m of the consideration for the sale of Gang-Nail Systems and International Truss Systems is also held in escrow. It should also be noted that Group net bank borrowings as at 29 February 2012 had reduced further to £3.7m (28 February 2011: £9.3m)

I am pleased to say that our UK bankers, Lloyds Banking Group has renewed the Group's banking facilities with effect from 30 March 2012 for one year and the Directors are satisfied that the Group has sufficient working capital for its present requirements. We very much appreciate Lloyds Banking Group's continued working relationship with us in such a difficult trading climate.

Dividends

The Board do not propose to recommend the payment of a dividend in respect of the period under review. However, the Board has noted the improvement in the Company's financial position and also in the recent performance of its continuing businesses. It will in due course consider recommending to its shareholders a return to dividend payments as and when the Company's trading position and performance permits.

Employees

Implementing the changes noted above in current markets has placed very significant and stressful demands on our employees, 100 of whom unfortunately became redundant in the period under review because of the need to restructure and down size some of our Building Systems businesses. Therefore, 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.

Outlook

ElecoSoft®, continues to perform well and behind its outstanding portfolio of construction software, is a highly talented, creative and motivated team of software professionals who are engaged on a number of exciting opportunities for expansion in the construction software space. The challenge for our colleagues in ElecoSoft® in the year ahead is to streamline our software businesses, to enhance its internal and external initiatives and software development collaboration, to bear down on its cost base - and to deliver the promise.

Our colleagues involved in our ElecoBuild® businesses, have begun to apply improved marketing techniques to good effect, which has enabled them to recover sales and to put in place a number of interesting and creative business initiatives which have already resulted in improved performance. ElecoBuild® will continue to bear down on costs in the year ahead and may need to consider further rationalisation to remain competitive. However, even though demand remains weak in certain sectors and the UK economy continues to be fragile, I am confident that our colleagues in ElecoBuild® will deal positively with any new challenges faced by their businesses as they arise.

Eleco has come through an extraordinarily difficult period this past eighteen months. However, I am satisfied, that as a consequence of the judgements we made and the actions we took to tackle the problems we faced, Eleco is now a much better balanced and financed Group.

I am confident that Eleco is now well placed to take advantage of any improvement in the markets we serve in the year ahead.

John Ketteley

Executive Chairman

2 April 2012

Operating and Financial Review

Market Background

Eleco activities are focussed on the construction market with operations in UK, Sweden, Germany and Belgium. These operations address their local markets, with the Software businesses also addressing markets in other countries by direct-to-market activity and via distributors.

All markets served by the Group were challenging in the period under review with depressed demand stemming from the direct impact of a lack of financial confidence and economic growth.

However, this backdrop has served the Group well to restructure its activities to provide a lower cost base from which to exploit its various markets in the future.

Group Strategy and Results

In the period the Group has followed a five point strategy to:

·; Reduce operational overhead and stop trading losses

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

·; Where possible reduce bank borrowings and renew working capital facilities

·; Strategically acquire incremental and complementary software activities

·; Actively manage the legacy pension liability

The result has been a small operational profit for the continuing businesses before exceptionals of £143,000 for the 18 months ended 31 December 2011 (2010: loss £3.3m) and a loss for the period, including all discontinued activities of £2.7m (2010: £5.5m).

Key events in the 18 months to 31 December 2011 and post the balance sheet date have been:

·; Renewal of Group working capital bank facilities with Lloyds TSB Bank in March 2012

·; Acquisition of Novator Projektstyming in March 2012

·; Sale of the long leasehold precast site at Hoveringham and associated plant in February 2012

·; Disposal of the assets and undertaking of Gang-Nail and International Truss Systems' in December 2011

·; Disposal of the assets and undertaking of Eleco Timber Frame's activities in Speke together with extraction from the leasehold property in August 2011

·; Acquisition of Nilsson & Sahlin Arkitekter in August 2011

·; Acquisition of Lubekonsolt in September 2010

·; Cessation of custodial precast contract work, together with agreeing the final account on all past contracts

·; A 100 employee reduction in the continuing Building Systems businesses from 238 people at 1 July 2010 to 138 people at 31 December 2011.

·; Implementation of a Group-led pension strategy including the completion of a new investment strategy and the first liability management programme, Pension Increase Exchange.

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 £22,000 for the period (2010: £726,000)

Net interest receivable from total operations excluding pension related items was £63,000 (2010: £41,000). Under IAS19, a finance charge of £0.5m (2010: £0.6m) 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

Software

Software comprises three main businesses; Project and Resource Management software primarily in the UK, Estimating, Site Control and Timber Engineering software in Sweden and Visualisation software in Germany. Each of these businesses grew revenue this year as their business models benefit from stable recurring maintenance revenues.

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 22% of total software sales in the period under review. Revenue amounted to £5.2m for the eighteen months ended 31 December 2011 (2010: £3.3m).

Asta has a strong level of recurring income from a dedicated customer base and is committed to a continuous programme of development of its core product in consultation with customer user groups as well as providing a high quality of customer service and training.

Asta's international revenue amounted to £1.1 m for the eighteen months ended 31 December 2011 (2010: £0.7m). Asta software programs were used in a number of high profile international projects including the re-development of Christchurch in New Zealand, following the earthquake there, the Dubai Metro in the Emirates and in the original 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 53% of total software sales in the period under review. Revenue amounted to £12.3m for the eighteen months ended 31 December 2011 (2010: £6.3m.

Consultec provides estimation software and services to an impressive customer list in the construction, manufacturing, electrical and plumbing industries mainly in Sweden, but also increasingly in international markets. In September 2010 it extended this offering to the ventilation market with the acquisition of LUBEkonsult AB and earlier this month acquired the Swedish distributor of Asta project management software.

Consultec also lists project management and site control software within its product portfolio and has strengthened the links between these products and its estimation tools to produce a broader offering for larger clients. Its timber engineering products include software for stair design and manufacture and structural analysis software for load-bearing beams.

Consultec is also engaged in the provision of architectural and engineering services. In 2011, it expanded these activities with the acquisition of Nilsson and Sahlin, a leading firm of architects and engineers to further strengthen its position in these markets in the North of Sweden and to bring in new skills for the design of large timber buildings.

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 23% of total software sales in the period under review. Revenue amounted to £3.7m for the eighteen months ended 31 December 2011 (2010: £2.4m).

Visualisation Software

Eleco Software continued to distribute Arcon®, the well established design and visualisation software popular with architectural and design firms across Germany. Development of the next generation of Arcon® our 3D visualisation software, is now well under way and made good progress in the period. This new version of Arcon® will include advances in the user interface design as well as major improvements in its graphics and rendering capabilities.

Marketing and Visualisation Software

Our colleagues at Esign® have again created major new features for it visualisation programs for manufacturers, retailers and their customers. It has continued to add leading brands and companies to its customer base. It now includes many leading flooring companies in its customer base. It also experienced a particularly successful Domotex Exhibition in Hannover this year and as a direct consequence is now engaged in discussions with a leading Chinese Flooring distributor. It launched its latest software program, Marketing Management System, at Domotex which was well received and will more tightly integrate the software with existing business systems.

Project and Resource Management Software

In 2010, we acquired the German distributor of Asta products, which is based in Karlsruhe. Revenue of Asta Development GmbH amounted to £1.6m for the eighteen months ended 31 December 2011 2010: £1.0m).

On 18 December 2011, we learnt of the untimely death of our colleague Stefan Wolf Managing Director of Asta Development GmbH. He made an outstanding contribution to our business and we wish to record our sadness at the loss of such a valued friend and colleague.

Building Systems

Building Products

Building Products comprises the SpeedDeck®, Stramit® and Prompt roofing and partitioning businesses and the Downer cladding business. Despite the challenging market, the management of these businesses now operating from one main manufacturing location, together with some rationalisation, has enabled a return to operating profit.

Precast Concrete

Bell & Webster Concrete continues to operate in the contractual supply chain of the UK construction industry targeting new build hotels and student accommodation. All contracts to supply and erect in the more technically demanding market of custodial projects have been successfully concluded. The number of projects coming to the physical delivery phase in the UK from our core hotel and student accommodation markets has resulted in a substantial downsizing of the activities of Bell & Webster. The market conditions continue to represent a challenging environment for Bell & Webster to return to profit.

Milbury Systems supplies pre cast concrete products to the agricultural, waste recycling, flood defence and construction markets. Milbury Systems also suffered losses on some contractual supply work in the period, but such work has been discontinued with appropriate reductions in overheads.

Bell & Webster Concrete has generated significant profits and cash for the group in the past but, as with Milbury Systems, return to making a positive contribution to the Group is significantly influenced by recovery and growth in the UK construction, specifically precast concrete industry.

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:

·; Sales and order intake

·; Project and product profitability

·; Profitability and forecast profitability

·; Historic and forecast cash flow

·; Overhead control

·; Headcount

Key Risks

The markets in which the Group operates, especially the UK building systems market, continues to be the key risk the Board considers to be the main restriction to allowing the Group to achieve improved sales and profitability, hence;

·; The turnaround Plan reported in the last annual review, while in part complete, has remaining tasks to deliver all parts of the Group to profitability, specifically the Precast operations.

·; Whilst both public and private sector finance remains restricted and uncertain, the inherent uncertainty in the Group's markets will continue. Macro economic events that effect the flow of finance to construction projects in a positive or negative way will impact on the Group's results.

·; 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 Precast Concrete and Building Products businesses to mitigate such bad debt events.

·; 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 past challenging trading period.

·; 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

The Group's capital structure has changed during the period. Specifically in relation to the bank facilities enjoyed by the Group, while the term loan that is due to be repaid by July 2016 continues, the £10m revolving credit facility used to fund working capital and previously reported as due for renewal by July 2012 was replaced by a £4.5m overdraft facility in March 2012.

Pension Strategy

In the period under review the following has been implemented:

·; Revised investment strategy that aims to significantly lower the investment risk but maintain a return at or in excess of the valuation assumptions;

·; Execution of a Pension Increase Exchange programme.

Further Implementation of other deficit reduction measures in respect of which the Company, the Trustee Company and beneficiary interests are aligned are being explored but remain dependent upon final agreement in detail between the Trustee Company and the Group. The financial impact cannot therefore be disclosed at this time

Loss Per Share and Dividend

The loss per share on continuing operations was 2.0 pence (2010: loss 4.8 pence).

The loss per share on total operations activities was 4.6 pence (2010: loss 9.1 pence).

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 18 months ended 31 December 2011 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 2011, shareholders' equity amounted to £14.2m (2010: £15.3m), after recognising £3.7m (2010: £7.1m), net of the related deferred tax asset, as a retirement benefits liability.

At 31 December 2011, net tangible assets, after taking account of the retirement benefits liability accounted for under IAS19, represent 14% (2010: 43%) of total net assets.

Summary Group Cash Flow

The Group's cash position reflects trading performance, sale of businesses and excess assets, and was in net debt at 31 December 2011 of £4.1m (2010: net debt £1.9m).

Of all the strategic transactions in the period under review the sale of the connector plate activities of Gang-Nail and International Truss Systems' for £8.0m in December 2011, of which £6.8m was paid in cash at completion was the most significant reduction in the accumulated debt of the Group.

Summary

The recovery of the Building Systems businesses under the Plan reported in the last annual review was less readily achievable than envisaged in the Plan due to the continuing weakness of demand in the Building Systems markets. However, much progress had been made, despite the market conditions and the continuing operations are well placed to exploit their chosen markets.

Matthew Turner

Group Finance Director

2 April 2012

Consolidated Income Statement

for the financial period ended 31 December 2011

Consolidated Statement of Comprehensive Income

for the financial period ended 31 December 2011

Consolidated Statement of Changes in Equity

For the financial period ended 31 December 2011

Consolidated Balance Sheet

At 31 December 2011

Consolidated Statement of Cash Flows

for the financial period ended 31 December 2011

Segment Information

for 18 months to 31 December 2011

Segment Information

for 12 months to 30 June 2010 (restated)