(ELCO) Eleco

                                                            ELECO PLC

("Eleco" or the "Group")

The Construction Software and Building Systems Group

Second Interim Results for the 12 Months Ended 30 June 2011

"Our strategic emphasis is now firmly set on the growth of our profitable software interests"

John Ketteley, Executive Chairman

Group Financial Performance - Continuing Operations 

·     Turnover : £47.9m (2010: £53.0m restated)

·     Group operating loss before exceptional items : £0.4m (2010: loss £3.4m restated)

·     Loss before tax :£1.2m (2010: loss £3.8m restated)

·     Loss per share :2.2p (2010: loss 5.6p restated)

·     Net bank debt at 30 June 2011 :£8.6m (2010:  £1.9m)

Group Operational Performance

·     Software delivered strong growth in the 12 months ended 30 June 2011, with turnover and profit both at record levels; turnover and profits of our Software activities now account for 32% of Group turnover. Lubekonsult AB acquired earlier in year performing ahead of targets.

·     Improved operational performance of remaining Building Systems activities, before exceptional items, due to better margin performance and reduced fixed costs.

·     Steps are being taken to improve trading in precast concrete which has been adversely impacted by margin pressure and poor operational performance.

·     Significant progress made with our strategy of closing or disposing of loss making Building Systems and precast concrete operations, including the exit from timber frame and custodial precast concrete loss making activities.

Strategy and Outlook

·           Strategic direction to concentrate on expansion of Software activities reducing historic emphasis on Building Products and Precast Concrete

·           Current trading in line with management's expectations

Change of Accounting Reference Date

·     The preliminary results for the 18 months ended 31 December 2011, the new Accounting Reference Date will be released no later than 31 March 2012.

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Chairman's Statement

In the second six months of this extended accounting period, we have sought to reduce costs, increase our sales, enhance our margins, improve our finances and begin to implement our corporate strategy of de-risking the Eleco Group by concentrating on the expansion of our construction software interests and reducing the emphasis that we had previously placed on our Precast Concrete and Building Products interests.

Group Performance

Continuing Operations

Group turnover for the 12 months ended 30 June 2011 was £47.9m (2010: £53.0m restated), down 10% compared to the same period last year. However, it should be noted that turnover for the six month period to 30 June 2011 was £24.5m, up 12% compared with the same six month period last year. 

Group turnover in the 12 months to 30 June 2011 was adversely impacted, primarily by lower turnover of our Precast Concrete interests, down £9.8m compared with the same period last year, due to a reduced level of student accommodation and hotel contracts. On the other hand, turnover in Building Products was up 17% and turnover of our Software interests was up 16% compared with the same period last year.

The improvement in gross profit margin was partly due to the change in revenue mix between Building Systems and Software but also a modest increase in margins at both Precast Concrete and Building Products divisions. Software increased its share of Group turnover to 32% from 25% before discontinued operations.

Adjusted Group operating profit before amortisation of intangible assets and restructuring costs amounted to £126,000 compared with an adjusted Group operating loss of £2.9m for the same period last year.

Loss before tax from continuing operations of £1.2m is reached after amortisation charges of £0.5m (2010: £0.5m) and restructuring costs of £0.4m (2010: £1.1m) and net financing expenditure of £0.4m (2010: £0.5m).

Net bank debt at 30 June 2011 increased to £8.6m (2010: £1.9m). Of this £6.7m increase, £4.4m relates to the financing of losses at our timber frame operations and precast concrete custodial activities. The remaining increase is due to higher working capital at Precast Concrete and Building Products divisions. The Group continues to focus on managing its debt and working capital to maximize cash inflows and minimise its exposure to bad debts.

Discontinued Operations

The Precast Concrete factory at Hoveringham, Nottinghamshire used to manufacture and supply the loss making precast concrete custodial contracts was closed in May and the site is being marketed for sale. As recently announced, the Group has divested itself of its loss making timber frame manufacturing business based in Speke, Liverpool. Both these operations have been classified as discontinued operations in the 12 month period to 30 June 2011.

Dividend

As the Group has not yet returned to profit the Board has decided not to pay an interim dividend.

Divisional Performance

Software

Software delivered strong growth in the 12 months ended 30 June 2011, with turnover and profit both at record levels.  

Turnover increased 16% to £15.8m compared to  £13.7m in the same period last year.

Adjusted operating profit was £1.6m before amortisation of intangible assets and restructuring costs for the 12 months compared to £0.6m last year.

Consultec Sweden acquired the business of Lubekonsult AB ("Lube") on 1 September 2010. Lube, provides cost estimation services and software to the Swedish ventilation market and is already exceeding our expectations in terms of turnover and profit.

The significant profit growth in these businesses in the past three years, including loss reduction and elimination, has taken place despite the unprecedented economic difficulties. This continued growth was largely driven by increased turnover of software and services in the UK, Sweden and Germany, together with the acquisition of Lubekonsult in Sweden, which has proved successful in delivering the anticipated benefits. Software continues to explore opportunities in other overseas markets with a view to expand its profitable reseller and distributor network.

Building Systems

Our continuing Precast Concrete and Building Products operations each showed significant improvement in their trading profit in the 12 months to 30 June 2011 compared with the same period last year. Adjusted operating profit before amortisation of intangible assets and restructuring costs was up £2.1m of which £1.5m was at Building Products and £0.6m at Precast Concrete.

Building Products

Turnover was £17.5m in the 12 months, up 17% compared to the same period last year. Turnover in the six months to 30 June 2011 was £8.9m, up 18% against the same period last year.

Adjusted operating profit before amortisation and restructuring costs was £0.7m for the 12 months to 30 June 2011 compared to an adjusted operating loss of £0.7m for the same period last year.

The improvement is due to better trading performance at the roofing, cladding and nail plate businesses in the UK and South Africa. In addition, the elimination of trading losses at the German nail plate business which was sold on 30 June 2010 has benefited the current year performance.

Building Products has successfully reduced its cost base and has started to reinvest again in its sales resources with a renewed effort to profitably grow its market share.

Precast Concrete

Turnover in the 12 months ended 30 June 2011 was £14.9m compared with £24.7m achieved in the same period last year. In contrast, the turnover in the six months to 30 June 2011 of £7.3m was the same as the six month period to 30 June 2010.

Adjusted operating loss before intangible asset amortisation and restructuring costs for the 12 months was £2.2m compared with a loss of £2.8m in the same period last year.

The adverse profit performance of precast concrete was largely due to low contract margins and poor operational performance in connection with certain hotel and student accommodation contracts that were manufactured during the period. We were also unable to recover variation costs incurred during manufacturing and installation from some clients. These operational issues have been addressed internally and the design, manufacturing and erection process of all contracts now have to comply with a much more rigorous evaluation and control process.  

Financial Review

Despite the Group's significant progress in reducing its fixed costs and restructuring certain businesses the overall financial performance was behind the Board's expectations for the 12 months ended 30 June 2011. This result partially reflects the time lag between the implementation of the restructuring plan and the realisation of its benefits.

The Group's cash position was particularly impacted by the adverse performance of the custodial contracts at Precast Concrete and the timber frame operation at Building Products. In addition, increased retentions and the failure of some major customers of our  Building Systems businesses also put a further strain on the Group's financial resources, although some of these amounts will be recoverable under the Group's credit insurance policy. Increased restructuring spend, mainly redundancy costs and closure expenses related to the rationalisation of the Group's properties, together with reduced profitability, accounted for cash used in operations during the period.  

The Group continues to closely monitor its cash flow and working capital and efforts are being made to recover overdue debt and retentions as speedily as possible.

Pension Strategy

As stated in the annual report, the Group has been working with the Trustees to reduce investment risk and manage the deficit of the pension plan, which was closed to future accrual in December 2009.

Revisions to the investment strategy have now been agreed, detailed aspects of the transition are being implemented with a view to full implementation in the coming weeks.

In parallel, certain liability reduction measures have now been agreed and others are in discussion with the Trustees. These are expected to lead in certain cases to increased choices for the members and reduced liabilities and exposure for the fund.

Implementation of some of these measures is dependent upon final agreement between the Trustees and the Group and the overall financial impact of the measures cannot therefore be disclosed at this time.

The Group intends to disclose further details of the above once confirmed. In the meantime the deficit shown in the accounts at 30 June 2011 has reduced by £1.9m from £9.8m to £7.9m.

Change of Accounting Reference Date

As announced on 1 March 2011, the Board decided, for operational reasons, to change the accounting reference date of Eleco plc to 31 December. Accordingly, the next audited report and accounts will be for the 18 month period ending 31 December 2011. The preliminary announcement of results for the 18 month period ending 31 December 2011 will be made no later than 31 March 2012 and the audited accounts will be published shortly thereafter.

We believe this change will give operational advantages in dealing with year end procedures at our overseas businesses, particularly Sweden and Germany.

Outlook

Three quarters of our software profits were made outside the UK and we believe that Eleco now has the management and technology to take advantage of opportunities from further profitable expansion in its software interests in the UK, Germany and Sweden as they arise. We are encouraged by the progress made by Eleco's manufacturing operations in the six months ended 30 June 2011, despite the tough economic climate. However, these interests are almost all located in the UK and in common with the UK manufacturing and construction industry generally they will continue to be affected by the severe economic downturn in these sectors.  

Corporate Strategy

The Board of Eleco is determined to reduce the operational and financial risk profile of the Group. Our strategy for achieving this objective will be to continue our efforts to expand our successful and profitable international software interests in the UK, Germany, Sweden and other markets. Our existing software interests have produced record turnover and profit in the period under review. We shall also work towards reducing Group risk profile by returning our existing Building Products and Precast Concrete interests to a satisfactory level of profit or eliminating or disposing of loss making businesses.

I am confident that this strategy will enable Eleco to achieve its objective of reducing the Group's risk profile to an appropriate degree in the current economic climate, of placing our Building Systems and Precast Concrete businesses back onto a sound financial and operational footing, enabling Eleco to concentrate on the expansion of its successful international software interests.

John Ketteley

Executive Chairman

19 September 2011

Condensed Consolidated Income Statement

For the period ended 30 June 2011

Condensed Consolidated Statement of Comprehensive Income

For the period ended 30 June 2011

Condensed Consolidated Statement of Changes in Equity

For the period ended 30 June 2011

Condensed Consolidated Balance Sheet

Condensed Consolidated Statement of Cash Flows

For the period ended 30 June 2011