Elecosoft Regulatory News (ELCO)

9 Oct 2009 07:00



ELECO PLC

("Eleco" or the "Group")

The Building Systems and Software Group

Preliminary Results for the Year Ended 30 June 2009

Group Highlights

Turnover declined by 16.9% to £70.6m (2008: £84.9m) 

Group trading profit declined to £119,000 (2008: £8.02m) 

Loss before tax of £1.43m (2008: profit £8.22m) 

Loss after tax of £1.47m (2008: profit £6.13m)

Proposed final dividend 0.40p per share making total for year of 0.80p per share (2008: 3.00p)

Building Systems

Turnover declined to £57.4m (2008: £72.0m)

Operating profit before impairment charges fell to £0.3m (2008: £7.4m)

Sector downturn demanded rigorous action to cut workforce while maintaining technical edge

Client funding difficulties delayed orders

Software

Turnover marginally decreased to £13.4m (2008: £13.7m)

Operating loss before impairment charges of £0.2m (2008: profit of £0.9m) 

John Ketteley, Executive Chairman of Eleco plc, commented:

"We have prospects in the pipeline. We are leaner and fitter as a Group and can look forward to the full benefit of the cost reductions achieved in the previous year. We have maintained our relatively strong financial position in difficult conditions. Accordingly, Eleco is well placed to take full advantage of any upturn when it comes." 

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  Chairman's Statement

In my statement for the year ended 30 June 2008, I reported continuing progress due to a strong performance from our expanded precast concrete interests. Unfortunately, this year I have to report that our results for the year to 30 June 2009 were adversely affected by a significant setback for our precast concrete interests, because of a major decline in hotel and student accommodation projects. We also experienced difficult trading conditions generally in the remainder of our businesses, although our construction software businesses performed in line with management expectations following the supply chain issues reported in the first half of the year.

The unprecedentedly difficult trading conditions of the past eighteen months have necessitated an increasingly rigorous application by management of sound financial and strategic policies to mitigate the effect of the economic circumstances. This has involved a major downsizing of our workforce in the UK in the face of falling demand, while continuing to invest in certain strategic capital and product development projects. As a consequence, despite the significant downturn in demand, experienced in particular by our UK Building Systems businesses, the Group has succeeded in maintaining a relatively strong financial position. 

Group Performance Summary

Group turnover for the year declined by 16.9% to £70.6m (2008: £84.9m).

Group trading profit, after deducting intangible asset amortisation costs for the year of £712,000 (2008: £531,000), was sharply lower at £119,000 (2008: £8.02m).

After impairment charges of £1.27m (2008: Nil), the Group made a loss on ordinary activities before tax of £1.43m (2008: profit £8.22m), after net finance charges of £280,000 (2008: net finance income £202,000).

Group loss for the year after tax was £1.47m (2008 Group Profit after Tax: £6.13m) equivalent to a loss per share of 2.5p (2008: 10.6p earnings per share). Reflecting the reduction in activity experienced in the year, operating cash flows were sharply lower but nevertheless the Group ended the year with net cash balances of £1.59m. 

We continued to invest in new capital projects and product development in the period, although the amount of spend was lower at £2.94m (2008: £4.02m. In the current economic climate, we anticipate a lower rate of spend this year.

Dividends

The Board considers that it would be justified in recommending a modest final dividend and has accordingly decided to propose a final dividend for the year ended 30 June 2009 of 0.40p per share although total dividends paid and proposed, amounting to 0.80p per share for the year (2008: 3.00p) will be uncovered by earnings. 

The proposed final dividend will, subject to approval by shareholders, will be paid on 20 November 2009 to shareholders on the Register on 23 October 2009.

Directors

Following the closer integration of the activities of the Building Components operations with others within the Building Systems Division, Paul Taylor left the Board on 8 October 2009. He joined the Board in July 2000 and has been tireless in his efforts on behalf of the Company and in dealing with some of the more difficult challenges. 

I would like to thank him on your behalf for his contribution to the Group's affairs and wish him well.

Fred Newby has been appointed Deputy Chairman. He has also been appointed Divisional Chief Executive of the UK Building Systems Division. Michael McCullen has been appointed Divisional Chief Executive of the Software Division.

Business Activity Review - Building Systems

All our building systems products are incorporated in the structure or the envelope of new buildings. Accordingly, the major down turn in new build starts in the year under review quickly affected demand for our products. As a consequence, turnover of our Building Systems operations decreased by 20% to £57.4m (2008: £72.0m) and operating profit before impairment charges reduced to £0.3m (2008: £7.4m)

In normal market circumstances, our products are applied to projects using 'Modern Methods of Construction' techniques because such products deliver to our customers the advantages of speed and efficiency. However in current conditions cost and slower cash flow profiles have become a primary driver and the use of traditional "in situ build" techniques, even though this less efficient build method has in some instances emerged as a threat, even though the overall economic benefit of using these products outweighs the perceived cost benefit. However, we are confident that this is a temporary situation and that speed and efficiency will again become the primary drivers as the market recovers.

Precast Concrete

Turnover of our Precast Concrete operations reduced by 16% to £31.8m (2008: £37.9m) and operating profit before impairment charges decreased to £0.4m (2008: £4.1m). 

A major cost reduction program has been on going through out the year against a backdrop of greater competition and margin erosion. Nevertheless, our ongoing commitment to improvement was evidenced by Bell & Webster Concrete and Milbury Systems completing the necessary environmental enhancement work on their respective sites to gain full certification under ISO 14001. Bell & Webster also gained OHSAS 18001:2007 accreditation.

Bell & Webster Concrete started the year with a reduced forward order book from the previous year, but with a very promising prospects list. However, our clients experienced great difficulty in the first half year in gaining funding for their projects, although in the second half of the year a number of projects did gain funding and are now in manufacture. Unfortunately, in a number of instances clients have still not been able to obtain funding for their projects and as a consequence a number of these projects have still not progressed to order stage. Nevertheless, Bell & Webster Concrete started the current year with a forward order book higher than last year.

Bell & Webster Concrete launched a new long span slab during the year which is manufactured at the new plant at Hoveringham. This slab has already been incorporated as part of the flooring for a number of student accommodation projects and has enabled Bell & Webster Concrete to compete for school, hostel, care/nursing home, key worker accommodation and custodial structures. We have recently won our first orders for the new product for a school and a hostel. We are also continuing to make progress in gaining acceptance for Bell & Webster Concrete products in the custodial accommodation market.

Bell & Webster Concrete also re-established itself as a supplier in the terracing market and finished the year back in manufacture of stadia units.

Demand for retaining walls held up during the year. The whole of Bell & Webster Concrete's range of retaining walls, have been updated to comply with the new design codes which are to come into force in March 2010. The opportunity has also been taken to rationalise our retaining wall sizes as part of our investment in new moulds. Milbury Systems previously outsourced their retaining wall requirement externally however, they are now supplied by Bell & Webster Concrete. 

Milbury Systems had a very difficult trading year, with an ever decreasing order intake from the Irish market and the industrial sector, which, after housing, suffered the greatest percentage reduction of new orders in the construction industry. However, sales into the agricultural market were maintained. Milbury's response has been to reduced its cost base and improve its facilities and product quality. It has also invested in people to broaden its market sectors and market penetration. 

Roofing and Cladding, Timber Frame and Timber Engineering Systems

Revenues were down 25% at £25.6m (2008: £34.1m). Operating loss was £0.1m (2008: profit £3.3m) which reflected difficult trading conditions across each segment, reflecting increased competition, timing delays and cancellation of projects.

Roofing and Cladding

Market conditions for the roofing and cladding companies continue to be most difficult and our forward order book decreased in the second half of the year. Competition increased and trading margins continued to be eroded. A program to reduce operating costs has been undertaken which has taken into account the need to retain core skills and knowledge so that we can respond positively and take advantage of any upturn in the general market conditions. SpeedDeck substantially reduced its cash usage by strategic stock reduction. Downer Cladding continued to make a positive contribution in the year and performed well in the conditions. 

Timber Frame

The difficulties that have faced the housing sector during the course of the last 18 months are well documented with the lowest house starts since 1947. Although ETF had initially been a supplier to the private housing market, 80 per cent of its forward order book at the end of the financial year was for Social Housing projects. While continuing to refocus into the Social Housing sector, ETF also carried out its first hotel project during the year. The company has streamlined its internal processes to enable it to more easily respond to increasingly successful lead generation.

Timber Engineering Systems

The UK business is predominately a timber engineering system provider to roof truss fabricators which supply the UK and Irish house building markets and were therefore greatly affected by the very significant drop in housing starts during the year. Owing to our product mix revenues in the first half did not reduce as drastically as the reported overall market. However, in the second half our inter Group revenue was lower. Gang-Nail Systems has taken the opportunity in this period of lower output to give our plant an extensive overhaul. It is also continuing to invest in improvements for our existing software and is also working towards a suite of new generation software incorporating the latest technologies.

In Germany, Eleco Bauprodukte has benefited from its strong relationships in the supermarket sector and performed above previous years levels. However, some operational issues relating to the businesses software rights is likely to have an adverse impact on performance going forward. 

In South Africa, International Truss Systems has been affected by the adverse change in local economic conditions and its market has also been impacted by a new entrant to that market. Nevertheless, it has performed generally in line with expectations.

Business Activity Review - Software

Eleco's software businesses are organised into two divisions: Construction and Visualisation. Turnover of our Software operations decreased by 2% to £13.4m (2008: £13.7m). Our Software operations made an operating profit of £343,000 (2008: £1,368,000). After amortisation of intangible assets of £491,000, impairment charges of £269,000 and restructuring costs of £44,000 the Software operation made a net loss of £461,000 (2008: Net profit of £945,000, after total acquisition accounting adjustments and amortisation of intangible assets of £423,000). Fully expensed development costs were £2.3m (2008: £2.3m). 

The Consultec businesses in Sweden performed very well, maintaining a strong position in their markets and achieving record results.

Consultec Byggprogram successfully launched the next generation of its estimating software, Bidcon® and established a distribution channel in Australia for its site management software, Sitecontrol. Consultec System completed a new CAM (Computer Aided Manufacturing) product to enable its staircase design software Staircon® to reliably control CNC machines for the production of stairs. The new product will be launched in the autumn.

Consultec Arkitekter & Konstruktorer is a service business offering architectural and consultancy services. By focusing on offering a high level of customer service, it was able to successfully retain its larger clients in a more competitive market.

Asta Development experienced a slow down in the UK for its project management software Asta Powerproject® due to the reduced number of project starts in the construction industry. It responded by reducing costs in order to successfully protect margins. The take-up and renewal of annual software maintenance contracts remained high throughout the period. In addition, Asta expanded overseas, establishing a new Eleco subsidiary in Germany to market its products in German speaking territories. Asta Development GmbH made a useful contribution to profits in the period.

Eleco Software GmbH performed well and delivered very positive margins from the sale of its 3D design tool Arcon in Germany and from the sale of a retail version of the product both locally and internationally.

ESIGN Software GmbH met with a difficult market for the sales of its software and service offering to flooring manufacturers throughout Europe, resulting in a break-even position for the business.

There had been high expectations for Eleco Software in the UK for the sale of the retail version of our 3D design tool Arcon under the Grand Designs brand name. However distribution problems during the peak Christmas sales period together with a decline in retail sales generally resulted in disappointing sales and a loss for the business. 

The market for our professional construction software products appears to have stabilised and some improvement is expected next year. Healthy maintenance revenues and a steady level of new sales indicate that customers still desire the products and services marketed by Eleco. Internationally diverse markets will continue to be a strength with some territories such as Sweden being less badly affected by the global economic slowdown than the UK. There are likely to be opportunities for growth in the UK as the economy improves and overseas by strengthening our distribution channels.

All of Eleco's software interests now fall within the same strong management discipline. This restructuring exercise will result in further cost reductions at Eleco Software in the UK. 

The Software division will have a unified vision as the provider of a suite of software tools to help manage each stage of the construction project lifecycle from project visualisation, through design, cost estimation and project management to site management.

Outlook 

We reported on 13 August 2009 that the uplift in activity in the fourth quarter of the financial year had not materialised to the degree anticipated. 

At this stage in the current year, I have to report that while we have experienced more confidence in some of the sectors in which we operate, this improvement in business sentiment has not yet produced a tangible change to our key Precast Concrete businesses. Nevertheless I am confident that, in time, our recovery will be driven by increasing use of modern methods of construction, which are inherent in our Building Systems' product offering; by the increasing requirement for efficiency in the build process, delivered by the application of our resource management software; and by our ongoing commitment to the ethos of sustainable construction. 

We have prospects in the pipeline. We are leaner and fitter as a Group and can look forward to the full benefit of the cost reductions achieved in the previous year. We have maintained our relatively strong financial position in difficult conditions. Accordingly, Eleco is well placed to take full advantage of any upturn when it comes. 

John Ketteley

Executive Chairman

9 October 2009

  Consolidated Income Statement

for the year ended 30 June 2009

  Consolidated Statement of Recognised Income and Expense 

for the year ended 30 June 2009

  Consolidated Balance Sheet

at 30 June 2009

  Consolidated Cash Flow Statement 

for the year ended 30 June 2009

  Eleco Group PLC 

Primary Reporting Segments

Business segment analysis 2009

  Eleco Group PLC 

Primary Reporting Segments

Business segment analysis 2008

  Notes