Eleco plc | Annual Report and Accounts 2012 Building on Technology ®
Eleco plc (AIM: ELCO) is a UK AIM-listed company, which is committed to the key components of modern construction projects. These include software development and services for the architectural, engineering and construction industries and sustainable building systems that deliver sustainable performance.
“ElecoSoft® maintained its profitability in the year under review, a resilient performance given the general weakness in the construction markets that it serves. I am pleased to say that ElecoSoft® has begun the current year well.” John Ketteley – Executive Chairman
For additional information visit www.eleco.com
Front cover image – The Reichstag Dome, Berlin Inside cover – The Shard, London
www.eleco.com
1
Highlights
Continuing Operations Revenue Operating (loss)/profit before exceptionals EBITDA Loss before interest and tax Loss for the period Loss per share Product development Total Operations Capital expenditure Net borrowings ElecoSoft Revenue Operating profit before exceptionals ElecoBuild Revenue Operating loss before exceptionals
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
34,177
56,822
(290)
143
312
3,101
(1,902)
(222)
(2,321)
(1,209)
(3.9)p
(2.0)p
2,118
3,186
503
1,663
(7,069)
(4,577)
15,821
23,448
1,793
2,214
18,405
34,865
(1,152)
(465)
Contents Overview 1 2 4 6 8
Highlights Group Operations Our Year At a Glance Our Marketplace Chairman’s Statement
10
Operating and Financial Review
Financials
Business Review
Governance 16 17
Board of Directors and Company Advisors Directors’ Report
Overview
22 23 24 25 26 27 28 34 58 59 60 61 66 67 IBC
Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Balance Sheet Consolidated Statement of Cash Flows Significant Accounting Policies Notes to the Consolidated Financial Statements Independent Auditors’ Report Company Balance Sheet Statement of Company Accounting Policies Notes to the Company Financial Statements Five Year Summary Notice of Meeting Group Directory
Business Review
Governance
Financials
Eleco plc | Annual Report and Accounts 2012
2
Group Operations Eleco comprises ElecoSoft® and ElecoBuild®
Our international software interests based principally in Sweden, Germany and the UK develop and deliver great ideas and outstanding software and services with cutting-edge technology to the project management, construction, pharmaceutical, timber engineering and design, 3D visualisation, data compression, site control, stair design, flooring and marketing sectors of the construction industry. In particular, our “Asta Powerproject” project management software was used during the strategic planning phase for the London 2012 Olympics. 2012
46%
2011
2010
41%
29%
Share of Group revenue
Our Services and Operations Project Management
Design and Engineering
Estimation
CAD and 3D
Visualisation
Asta Development plc
Consultec System AB
Consultec ByggProgram AB
Eleco Software GmbH
Esign Software GmbH
Asta Development GmbH
Consultec Arkitekter & Konstruktörer AB
Eleco Software Ltd
Consultec UK
Revenues £’000
Gross Margin % 16,158 15,821
Recurring Maintenance Revenue £’000
EBITDA £’000 70
71
72
7,016
2,219 2,045
14,503
6,972
6,365
1,573
* 2010 and 2011 restated 12 months to 31 December.
2012
2011*
2010*
2012
2011*
£6,972
2010*
2012
2011*
£2,219
2010*
2012
2011*
72%
2010*
£15,821
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3
Our UK building systems interests design, manufacture and supply precast concrete and metal roofing and cladding off-site building systems which enhance materials’ efficiency and improve construction speed. In addition, we manufacture building products including standard precast concrete units, acoustic flooring and internal partitioning panels.
2012
54%
2011
2010
59%
71%
Share of Group revenue
Our Services and Areas of Operation Precast Concrete
Metal Roofing And Cladding
Partition Walls
Bell & Webster Concrete Ltd
Downer Cladding Systems Ltd
Stramit Panel Products Ltd
Milbury Systems Ltd
Prompt Profiles Ltd
SpeedDeck Building Systems Ltd
Gross Margin %
EBITDA £’000
28,641
Order Book £’000 754
27
2011*
22,943 18,405
£18,405
8,848
2010*
25 23
27%
2012
Revenues £’000
£(658)
(658)
6,277
£6,277
3,621
Overview
Business Review
Governance
Financials
2012
2011
2010
2012
2011*
2010
2012
2011*
2010*
(2,089)
Eleco plc | Annual Report and Accounts 2012
4
Our Year At a Glance January
February
rESIGN GmbH launched their Marketing Manager software at Bau Munich.
r(PWFSONFOU#*.BEWJTPST1BVM.PSSFMMBOE%BWJEø1IJMJQQSFTFOUFEUPBQBDLFE audience of Asta customers at the Powerproject National User Forum.
rAsta Development announced the release of Asta Powerproject version 12. rEleco Software GmbH signed a collaboration partnership with ARGE Neue Medien, a consortium of over 100 leading manufacturers in the plumbing, heating and air conditioning industries providing a large database of over 45,000 products to ArCon architectural users. rConsultec System developed Joma Hangers and Eurocode fire design in StatCon. t"TUB%FWFMPQNFOUT Delay and Disruption courses entered their second year and are becoming very popular. As part of the course, delegates have to present their case to a Chartered Arbitrator. r3FTUBVSBOU#SZHHBSHBUBOJO4LFMMFGUFÇPQFOFEGPSøCVTJOFTT EFTJHOFECZ Consultec Arkitekter & Konstruktörer, the building was nominated for the Swedish Association of Architects northern Sweden architecture award 2012.
r5IFQBSUOFSTIJQXJUI#VJME*U POFPG6,TMPOHFTUSVOOJOHTFMGCVJMEBOEIPNF improvement magazines, continued in which ArCon is used to redraw their readers’ home plans to appear in their printed publication and online each month. rStramit Panel Products commenced the delivery of ElecoFloor® to the 8FTUø1BSL%FWFMPQNFOU .BODIFTUFS5IFBDPVTUJDáPPSTZTUFNTBWFETJHOJàDBOU installation time on site while meeting Part E of Building Regulations. r)308&/BOOPVODFEUIFSFPQFOJOHPGJUTNBJO'FSSBSJTIPXSPPNPO 0MEø#SPNQUPO3PBE 4PVUI,FOTJOHUPODowner Cladding supplied the grey metallic aluminium composite cassette panels to uplift the face of this prestigious refurbishment project.
March rConsultec Arkitekter & Konstruktörer produced the total architectural EFTJHOBOEESBXJOHTGPSUIF5FLOPMPHFOIVT/ 4LFMMFGUFÇ BQSFTUJHJPVT TJYøTUPSFZPGàDFCVJMEJOHCZUIF4LFMMFGUFÇ3JWFS tConsultec ByggProgram AB enhanced its range of project planning software through the acquisition of Novator Projektstyrning AB. r5IFMBUFTUArCon ProfessionalSBOHFXBTEFNPOTUSBUFEBUUIF6,/BUJPOBM Homebuilding & Renovating Show and remains the tool of choice for many TFMGCVJMEFSTSFOPWBUPSTUPQSPEVDFRVJDLQMBOOJOHQSFTFOUBUJPOTBOE visualisations with professional results.
May tBell & Webster Concrete received two medals from British Precast, at the biggest precast event of 2012, in recognition for their contribution to the London 2012 Olympics. r&MFDPGPSNFEElecoPrecast®UPDPNCJOFBOEøDPPSEJOBUFUIFNBOVGBDUVSJOHBOE sales operations of Bell & Webster Concrete and Milbury Systems. tConsultec System delivered the StairCon solution to a respected new customer in Austria, Weitzer Parkett, who commissioned a significant software development project. tBell & Webster ConcreteNBEFUIFàOBMEFMJWFSZUPDPNQMFUFUIFSPPNT for Hampton by Hilton, Luton. r4(*OEVTUSJBM3PPàOH-UETBWFEUISFFXFFLTPOøTJUFCZVTJOHUIFSpeedDeck roofing system to install 925m2 of top sheet per day.
tConsultec System commenced the developed StairCon Showroom, a new web stair catalogue. rSpeedDeck commenced deliveries of 7,000m2 of Structural Deck for $BSEJGGø(BUFXBZUPUIF7BMMFZOFXTDIPPMQSPKFDU5IFøQSPKFDUSFQSFTFOUT one of the largest single investments in a shared community and education building in Wales. r5IFElecoSoft® and ElecoBuild® brands were formed to define Eleco’s software and building systems interest.
April rConsultec System signed a new StairCon Distributor for the Baltic countries. rDowner Cladding provided both a rainscreen support system and intricate DVSWFE"MVNJOJVN$PNQPTJUFGBÉBEFQBOFMMJOHBUUIFOFXNVMUJNJMMJPOQPVOE International Headquarters extension for the Pharmaceutical services provider, Ashfield In2Focus. rSpeedDeck completed their first SpeedZip® Green roof system for Sheringham Shoal off shore wind farm. r5IF$VUUZ4BSLPQFOFEUPUIFQVCMJD OFBSMZàWFZFBSTBGUFSDMPTJOHEVFUPàSF Asta Powerproject was used on the £50 million restoration project.
June rEsign introduced its new concept, Marketing Manager – Product *OGPSNBUJPO.BOBHFS ..1*.
UPDVTUPNFS,SPO4XJTT rElecoSoftware UK and Consultec UK moved into Lower Barn offices, Hampshire, providing improved training facilities for clients. r$POTUSVDUJPOXPSLDPNNFODFEPOUIFbNJMMJPOøQIBTFPOFPGUIF BSDIJUFDUVSBMMZTUVOOJOH$BNCSJEHF6OJWFSTJUZ4QPSUT$FOUSF SpeedDeckTVQQMJFE N2 of standing seam roof. rAsta Powerproject was chosen by the Banora Point Upgrade Alliance who is responsible for upgrading the Pacific Highway near the New South Wales and Queensland border in Australia. tBell & Webster delivered the final load to complete 122 rooms for the Express by Holiday Inn in Harlow. r-POEPOT&NJSBUFT"JS-JOFXBTPGàDJBMMZPQFOFECZ#PSJT+PIOTPO SpeedDeck Building Systems supplied the metallic silver structural roofing tray for the cable car terminals.
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July
5
August rConsultec System commenced a StatCon development project for the Swedish Glulam Association in conjunction XJUIø-VMFÇ5FDIOPMPHZ6OJWFSTJUZ -56 "TBSFTVMUBøOFX NPEVMFøOBNFE5JNCFS+PJOUTXJMMCFBEEFEUP4UBU$POJO r3FUBJMTPGUXBSFEJTUSJCVUPS%4(SFWJFXFEPVSøSFUBJM$"%TVJUF and continued to offer Grand Designs 3D on the shelves of PC World as one of the main home design software packages in store. r+%1JFSDFQMBDFEBOPSEFSGPSSpeedDeck standing seam system for Stirling Burghmuir which is set to become one of Stirlings’ prestigious shopping destinations.
rDowner Cladding Systems supplied rainscreen façade and framing system to the Genesis )PVTJOH"TTPDJBUJPOEFWFMPQNFOU DVSSFOUMZUIFUBMMFTUCVJMEJOHJO4USBUGPSE MPDBUFEBUUIF approach to the London 2012 Olympic village. rEsign started its first “door project” for Westag. Westag were so impressed, they plan UPøEFNPOTUSBUFUIFøEPPSDPOàHVSBUPSBUøUIF#BV.VOJDIFYIJCJUJPOJO tLondon 2012 Olympics successfully took place. Many Asta Powerproject clients, including the Olympic Delivery Authority, were involved with the strategic planning and construction. r5IFUBMMFTUCVJMEJOHJO8FTUFSO&VSPQF 5IF4IBSE XBTPGàDJBMMZJOBVHVSBUFE Asta Powerproject was used by Mace Ltd, for the project management of the building programme.
October rConsultec ByggProgram AB completed the development PGøBO*'$ 0QFO#*.GPSNBU FYQPSUGSPN*71%FTJHOFS( for IV Produkter AB, a supplier of ventilation materials and machinery. r:*5 POFPG&VSPQFTMBSHFTUDPOTUSVDUJPOBOEøCVJMEJOHTZTUFNT providers, chose Consultec BidCon for the installation estimation of electrical, plumbing and ventilation services. rSpeedDeck Building Systems made the final delivery UPøDPNQMFUFUIF N2TUBOEJOHTFBNSPPGPO5IFø-FJDFTUFS City College, Specialist Business Enterprise Centre.
September t Asta Development signed an agreement with a new US distributor to support the growing demand for Powerproject in the US. rConsultec ByggProgram AB supported the -VMFÇø5FDIOPMPHZ6OWFSTJUZ -56 JO4XFEFO who are using BidCon and PlanCon to educate students in virtual design and construction (BIM). rSpeedDeck Building Systems received the order for 21,000m2 of standing seam roof TZTUFNGPSUIFTUBUFPGUIFBSU5ISFF#SJEHFT Network Rail project which will become the nerve centre of railway operations in Sussex.
November tOver 70% of Gold and Silver Construction Manager of the Year Award 2012 winners are Asta Powerproject customers. tEleco Software UKTVDDFTTGVMMZQBSUOFSFEXJUIBOVNCFSPGQPQVMBSTFMGCVJME and home improvement consumer magazines offering trial versions of ArCon and Grand Designs Software through major retail outlets. rMilbury Systems completed their largest 4m Rocket Wall project to date BUø(SBOHFNPVUI &EJOCVSHI EFMJWFSZJOFYDFTTPGVOJUT r"OPUIFSQIBTFPGUIF$BNCSJEHF#BCSBIBN3FTFBSDIDBNQVT POFPGUIFMFBEJOH DFOUSFTøGPSCJPTDJFODFJOOPWBUJPOJOUIF6, DPNNFODFEVTJOHøSpeedDeck Building Systems’ Vitesse insulated wall panels. tBell & Webster Concrete won the order for 457 student accommodation rooms at Reading University from Brookfield Multiplex Construction Europe Limited.
December tAsta Powerproject XBTVTFEPOUIFbNJMMJPO&BTUFSO(PPET:BSEQSPKFDU BUø,JOHT$SPTT -POEPO5IFQSPKFDUDPOTJTUTPGUIF6OJWFSTJUZPG"SUTGPSXIJDI BAM Construction Ltd won many awards, including the Major Building Project of the Year at the British Construction Industry Awards. r0OTJUFSPMMJOHPGVQUPNSPPGTIFFUTDPNNFODFEPOBMBSHFSFUBJMEFWFMPQNFOUJO Sydenham. SpeedDeckTVQQMJFEB N2 roof area encompassing a B&Q Store. r5IF$ISJTUDIVSDI /FX;FBMBOE SFCVJMEQSPHSBNNF NBOBHFEVTJOHAsta Powerproject, ran throughout the year.
Overview
Business Review
Governance
Financials
Eleco plc | Annual Report and Accounts 2012
6
Our Marketplace
ElecoSoft’s® Global Marketplace Building Information Modelling (BIM) products and service solutions will rise from about $1.8 billion in 2012 to nearly $6.5 billion in 2020. The market for BIM software and services is still emerging but evolving rapidly. The Architecture, Engineering and Construction (AEC) industry is coming to the realisation that its tools and processes are antiquated and inefficient when compared to other global industries such as manufacturing. BIM software and processes are evolving to allow new ways of collaboration, work sharing and virtual design capabilities that serve to reduce costs for building owners and add visibility to the overall design and construction process. With this added visibility and upfront understanding of a project’s detailed characteristics, building owners and operators are realising that the lifecycle costs of a building can be significantly reduced. Source: Pike Research
ElecoBuild’s® Role in the UK Construction Sector Despite an unpredictable and declining economic environment, Eleco remains well placed to take advantage of improvements in the markets it serves. Highlights during the year include: B Residential – a 6% rise in the number of contracts awarded in 2012 over 2011. A raft of measures promised by Government to include relaxing of planning laws and first-time buyer help are hoped to continue expansion in 2013. B Industrial – overall a 17% decrease from 2011, however there was an encouraging close to 2012, with the level of contracts awarded up 42% in the final quarter compared to the previous quarter. The continued push towards internet shopping offers further opportunities in this sector as demand for distribution warehouses continues. B Hotel, Leisure & Sport – a somewhat unexpected bonus for the sector following the Olympic hotel rush saw levels of contracts awarded up a massive 26% in quarter 4 2012 from the previous quarter and 29% up on the same quarter for 2011. B Commercial and Retail – major office development in the City of London and the continued expansion of the major food retailers contributed to a 45% increase on the number of contracts awarded in 2012 versus 2011. B Education – expected cuts in public spending along with the abolition of the previous Government’s Building Schools for the Future scheme meant a difficult year in 2012. However growth is anticipated in early 2013 with the launch of the Priority School Building Programme (PSBP) to renew, repair and refurbish some of the county’s most out-of-date schools. Universities and private schools are both expected to spend considerably on expansion in the next year. B Civils – continued expansion in the rail sector, including Crossrail and High Speed Two (HS2), the move to renewable alongside the green deal and the long awaited PFI scheme all lead hope for strong performance for 2013. Source: Barbour ABI
Supported Professional Software Users
50,000 Supported Business Software Customers
14,200 ElecoPrecast® Units Manufactured
26,871 2011: 28,547
SpeedDeck® Aluminium and Steel Manufactured
289,514m2 2011: 272,212m2
www.eleco.com
7
Map Key
Eleco Head Office
2012 Geographical Revenue
Case Study: The Shard, London
ElecoBuild® Office
ElecoSoft® Office
Distributor
Case Study: On Site Manufacturing
£34.2m l 64% UK l 24% Scandinavia l 12% Rest of World
2011 Geographical Revenue
£56.8m l 68% UK l 21% Scandinavia l 11% Rest of World
The Shard, the tallest building in Western Europe was officially inaugurated; Asta Powerproject was used by Mace Ltd for the project management of the building programme. To read more visit page 11
Overview
S & G Industrial Roofing Ltd saved three weeks on site by using the SpeedDeck roofing system to install 925m2 of top sheet per day.
To read more visit page 14
Business Review
Governance
Financials
Eleco plc | Annual Report and Accounts 2012
8
Chairman’s Statement
“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.”
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: B Consultec®, StairCon® BidCon® StatCon® ElecoM@trix® and SiteCon®, which are all developed in Sweden; B Esign®, ArCon®; ArConNG®, Wagemayer®, and o2c®, all of which are developed in Germany; and B 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®.
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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.
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
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.
Overview
Business Review
9
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
Governance
Financials
Eleco plc | Annual Report and Accounts 2012
10
Operating and Financial Review
“Sustaining profitable growth in all the Group’s businesses is determined by retaining our existing high quality team and attracting new talent.”
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 the 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: B Reduce operational overhead and stop on-going trading losses; B Sell excess assets and operations where value can be achieved; B Limit increase in bank borrowings and enable renewal of working capital facilities for continuing operations; B Strategically acquire incremental and complementary software activities; and B 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 months: profit £143,000) and a loss for the period
before discontinued activities of £2.3m (2011 18 months: £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. Key events in the year ended 31 December 2012 and post the balance sheet date have been: B Renewal of Group working capital bank facilities with Lloyds TSB Bank in April 2013. B Agreement reached in March 2013 to defer all fixed monthly 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. B Disposal of excess land at Yaxley, Suffolk for £0.4m net of expenses in May 2013. B Acquisition of Wagemeyer GmbH, a CAD/ CAM software supplier to stair manufacturers, by Eleco Software GmbH in April 2013. B Opening of ElecoSoft® office in Bangalore, India in March 2013. B Management re-structure at ElecoSoft®’s Asta UK operation in December 2012.
B Strategic acquisition of Novator Projeckstyrning, the Swedish distributor of Asta Powerproject, based in Stockholm, in March 2012. B 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 (2011: £22,000). Net interest cost from total operations excluding pension related items was £211,000 (2011: £63,000). Under IAS 19, 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 The ElecoSoft® performance, using key ElecoSoft® trading performance measures, is as follows:
B Winning of Reading student accommodation phase III contract in November 2012. B 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. B Consolidation of ElecoBuild® precast management reducing top grade management from six to two people in May 2012. B A 34 employee reduction in the Group from 320 people at 1 January 2012 to 286 people at 31 December 2012.
Revenue Operating profit before exceptionals Segment result
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
15,821
23,448
1,793 1,641
2,203
2,214
www.eleco.com
11
Mace uses Asta Powerproject for the construction of The Shard “Using Asta Powerproject not only made the job of scheduling a much easier process but also meant we could consult more easily with the local council and communicate our plans to all stakeholders. It has a powerful “what-if” functionality which allows us to be innovative and overcome technical challenges, even when a technique has not been used before. Everything can be risk assessed.” Rob Owen, Mace Director For more information about ElecoSoft ® go to www.elecosoft.com
Recently opening to the public on 1 February 2013, the 310m Shard is already one of the UK’s most recognisable structures. Western Europe’s tallest building, designed by Master Architect Renzo Piano, has already redefined London’s skyline and offers what its creators proudly call Europe’s first “vertical city”. A genuinely mixed-use scheme, The Shard’s 95 storeys offer world-class offices, luxury residences, a hotel, restaurants and a public viewing gallery. Acting as principal contractor on the development, Mace saw the complex construction programme through from conception to completion. To help meet the challenge, Mace required a programme and project management tool that could handle the significant technical challenges yet be flexible and robust enough to take on such a huge construction project. As well as Mace’s expertise from large scale global projects, they chose Asta Powerproject to help them drive the innovative solutions required. Demolition and subsequent works were carefully planned and innovative methods were adopted to find the fastest way of delivering the project.
Overview
Business Review
Top-down construction allowed the sub and super-structure to be worked on simultaneously, saving time on the programme. The result was that Mace implemented a “jump start” of the core, even though the technique had not been used before on a building of this scale, which meant that work on the core and steelwork above ground could go ahead while the core continued to be built downwards into the basement. Mace also introduced the “jumplift strategy”, a self-climbing elevator system that provided an alternative to exterior hoists which improved the efficiency of the construction allowing operatives and materials to be efficiently and safely distributed around the project. This had not been done before in Europe. The project itself provided several logistical challenges. One of the biggest was the concrete pour into The Shard’s base which required 700 truckloads over 36 hours with trucks arriving on site at two minute intervals. In a busy part of London, surrounded by narrow access roads and with thousands of commuters entering the train station, nearby bus station and hospital, safe planning was essential to safely move materials to and from site.
Governance
Financials
Eleco plc | Annual Report and Accounts 2012
12
Operating and Financial Review continued
Segmental results for continuing operations continued continued 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 Building Information Modelling (BIM) 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 distribution in 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 programmes were used in a number of high profile international projects including the strategic planning phase for the London 2012 Olympics.
Sweden Estimating, site control and timber engineering software; architectural and engineering services Headquartered in Skellefteå, 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 Powerproject 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.
www.eleco.com
Key risks Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
18,405
34,865
Revenue Operating loss before exceptionals Segment result
(1,152)
(465)
(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 & 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: B Order intake, reoccurring revenue and revenue trends; B Project and product profitability; B Profitability and forecast profitability; B Historic and forecast cash flow; B Overhead control; and B Headcount. Key performance indicator data is included on page 3 of this report.
The markets in which the Group operates, especially the ElecoBuild® markets, continue to be the key risk to 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 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 existing Group banker Lloyds TSB Bank plc. Overview
Business Review
13
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: B A new £4.0m term loan, with £2.0m amortising over five years and a bullet repayment of £2.0m at the end of year 5, carrying an interest rate of 4% over base; and B 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: B First legal charge on property freeholds at Grantham, Lydney, Yaxley; B 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 the release of certain elements of the security provided on this refinance in the event of a material reduction in bank debt. The Group’s bank debt facilities are further described in Note 21.
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 in 2012 was £1.2m. The next tri-annual valuation is due at 31 December 2013. Further detail on the Eleco Retirement Benefit Scheme is set out in Note 24.
Governance
Financials
Eleco plc | Annual Report and Accounts 2012
14
Operating and Financial Review continued
Record-breaking installation of SpeedDeck’s “Secret Fix” standing seam roofing “We would recommend SpeedDeck again to our customers; it is a very good system with uncomplicated and quick installation bundled with the support that makes for a smoother running project. We support SpeedDeck because they can offer us a full envelope solution including green roofing, structural decking and refurbishment solutions. We now will actively promote utilising their systems in upcoming projects.” Sean Partridge, Senior Director of S & G Industrial Roofing
For more information about ElecoBuild® go to www.elecobuild.com
SpeedDeck Building Systems Limited supplied S & G Industrial Roofing with their SpeedDeck standing seam “Secret Fix” roofing system to cover a roof area of 5,555m2. The SpeedDeck roof profile was manufactured on-site at the eaves of the building within three days and installed a following six days later, demonstrating the speediness of SpeedDeck. SpeedDeck Building Systems Limited manufacture three different types of “Zip Up” and “Secret Fix” standing seam roof profiles in both aluminium and steel, providing customers with a real choice in roofing solutions. The SpeedDeck standing seam system has double interlocking ribs and clips ensuring strength, watertight integrity and a fast installation process. This is the reason why more and more customers are choosing SpeedDeck over other standing seam systems. Sean Partridge, Senior Director of S & G Industrial Roofing, believes that if SpeedDeck was not available and a “Zip Up” standing
seam roof profile had been chosen instead, a further three weeks of installation would have been required, meaning the plant would have had to remain on-site for longer, further increasing costs. When comparing the two different types of systems, the benefits of the SpeedDeck “Secret Fix” system to “Zip Up” standing seam systems include less setting out, less perimeter components and less time installing the product. With SpeedDeck, there is also no time-consuming zipping of the seams, so once the sheet is landed, it is just locked into position. With other systems that require zipping, installers have to wait for the zipping machine to travel up and over the seam and then back; this in turn incurs downtime on labour and results in a slower installation. Mr Partridge also found other significant benefits from on-site rolling as there were less transportation costs for materials on-site compared to other systems that would require approximately eight lorry loads of materials under police escort due to the
length of material. Had S & G been hoisting materials from the floor, i.e. 51m long sheets, on two of the days of on-site rolling, they would not have been able to crane lift the sheets due to adverse wind conditions, thus incurring extra costs for crane hire and down time; this also bodes well for the architect’s BREEAM credits. S & G Industrial Roofing were not only pleased with the overall outcome but were also pleased with the excellent customer service; from the sales team that were of great help and support from the time of enquiry to the delivery of materials on-site, to the technical support team who aided with their in-depth knowledge by answering any queries. SpeedDeck has over 30 years’ extensive experience in the UK construction industry and has earned the reputation as the original “Secret Fix” roofing company, providing metal roofing systems for the new build and refurbishment sectors.
www.eleco.com
15
Shareholders’ equity and net assets
Loss per share and dividend
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.
The loss per share on continuing operations was 3.9p (2011 18 months: loss 2.0p).
2012 £’000
Retirement benefits liability (net of deferred tax) Other net assets Total net assets
2011 %
£’000
%
(4,646) 13,496
-52% 152%
(3,670) 17,825
-26% 126%
8,850
100%
14,155
100%
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
Summary Group cash flow
Cash flow from operations Net capital expenditure
(1,946) 87
(7,076) (413)
Net interest paid
(205)
66
Tax paid
(396)
(59)
(2,460)
(7,482)
208
5,818
(5,900)
925
Free cash flow Acquisitions and disposals Loan (repayments)/proceeds Finance lease repayments Net cash flow Exchange difference Decrease in net cash balances
(170)
(456)
(8,322)
(1,195)
(39)
(66)
(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.
Overview
Business Review
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.
Summary ElecoSoft® is experiencing marginal growth, 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
Governance
Financials
Eleco plc | Annual Report and Accounts 2012
16
Board of Directors and Company Advisors
John Ketteley FCA
Matthew Turner FCA CF
Michael McCullen BSc MBA
Executive Chairman
Group Finance Director
Chief Executive – Software
Appointed Executive Chairman in 1997, John Ketteley has an investment banking background. He was formerly Non-Executive Chairman of BTP plc, Country Casuals plc and Prolific Income plc.
Appointed a Director in January 2011. Matthew Turner, formerly a partner in Grant Thornton UK LLP, is currently a partner in Shore Mountain LLP. He is Chairman of the Bishop Stopford School Academy Trust.
Michael McCullen was founder member of Asta Development and Managing Director from 2000 to 2009 leading the company up to its acquisition by Eleco plc in 2006. He joined the Board in 2007.
Jonathan Cohen TD MA FCA*
Jonathan Edwards LLB ACA*
Chairman of the Remuneration Committee
Chairman of the Audit Committee
* Member of the Audit, Remuneration and Nominations Committees.
Appointed a Non-executive Director in November 2002. Jonathan Cohen was previously Chief Executive of County NatWest Limited and Vice Chairman of Charterhouse Bank Limited. He is currently Senior Executive Director of Savile Group plc and Chairman of Clearwater Hampers Limited.
A Chartered Accountant and Barrister, Jonathan Edwards is a Director of Harpenden Sports Group Limited.
Secretary Ivor A Barton ACIS
Auditors Grant Thornton UK LLP
Registered office 66 Clifton Street London EC2A 4HB Tel: +44 (0) 20 7422 0044 E-mail:
[email protected] Website: www.eleco.com
Bankers Lloyds TSB Bank plc
Registered number 354915
Nominated Advisor and Broker Cenkos Securities plc Solicitors Berwin Leighton Paisner LLP Reynolds Porter Chamberlain LLP
Registrars and transfer office Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: +44 (0) 871 664 0300 E-mail: shareholder.services@ capitaregistrars.com
www.eleco.com
17
Directors’ Report
The Directors present their report and the audited financial statements for the year ended 31 December 2012.
Review of the business The Group’s principal activities include the manufacture and supply of building systems and products and the design and supply of software systems. A list of the principal operating subsidiary companies is set out in Note 6 to the Company financial statements. The accompanying Chairman’s Statement and Operating Financial Review provide a more detailed description of activities during the year, including comments on sales, sales volumes and margins and future prospects. The principal risks and uncertainties in the business are the underlying levels of activity in the markets in which they operate and the related impact on customer demand, significant movements in raw material costs, which might impact on the products supplied and unforeseen delay in the implementation of software development projects.
Results for the year ended 31 December 2012 The Group loss on ordinary activities of continuing operations before taxation was £2,397,000 (2011 18 months: £930,000). The detailed financial statements of the Group are set out on pages 23 to 57.
Risks and uncertainties There are a number of potential risks and uncertainties which could have a material impact on the Group’s long term performance and which could cause actual results to differ from those expected. Those considered by the Directors to be the principal risks facing the Group are set out in the Operating and Financial Review on pages 10 to 15. Financial risk management objectives and policies, together with an indication of market risk and liquidity risk, are set out in Note 28 of the Notes to the consolidated financial statements.
Dividends No interim dividend was paid during the year (2011 18 months: nil). The Directors do not intend to recommend a final dividend for the year ended 31 December 2012 (2011 18 months: nil).
Share capital Details of the share capital and share options scheme are shown in Notes 25 and 26 to the consolidated financial statements.
Share price The middle market price of the Company’s ordinary shares on 31 December 2012 was 7.75p and the range during the year was 6.50p to 11.00p.
Disposal of manufacturing facility On 3 February 2012, the Group disposed of its manufacturing facility at Hoveringham, Nottinghamshire.
Acquisition of Swedish software business On 14 March 2012, the Group acquired the business of Novator Projeckstyrning AB, of Sweden, enhancing its range of project planning software.
Directors The current composition of the Board of Directors is shown on page 16 and all the Directors held office throughout the period. John H B Ketteley and Jonathan Cohen retire by rotation at the forthcoming Annual General Meeting and, being eligible, will offer themselves for re-election.
Directors’ remuneration The emoluments of the Directors for the year ended 31 December 2012, excluding pension entitlements, share options and bonuses under long-term incentive plans, were:
Basic salary £’000
Fees £’000
Benefits £’000
Year to 31 December 2012 Total £’000
18 months period to 31 December 2011 Total £’000
Executive J H B Ketteley
285
3
41
3291
402
M L Turner
111
3
—
1142
127
M B McCullen
160
3
15
178
267
— —
29 27
— —
29 27
42
Non-executive J Cohen J B Edwards 1
John H B Ketteley waived £10,000 of salary and benefits during the period.
2
Paid to Shore Mountain LLP, of which Matthew L Turner is a Director.
Overview
Business Review
Governance
Financials
44
Eleco plc | Annual Report and Accounts 2012
18
Directors’ Report continued
Directors’ remuneration continued John H B Ketteley received a cash supplement from the Company, in lieu of pension, amounting to £68,650. Contributions were made by the Company to the personal pension plan of Michael B McCullen of £16,000. Outstanding performance share options granted to the Executive Directors under the Company’s Long Term Incentive Plan are as follows:
J H B Ketteley
Award
At 31 December 2011
Vested during year
2007
200,000
—
Lapsed during year
Granted during year
At 31 December 2012
Vesting date
—
—
1 January 2010 to 31 October 2012
(200,000)
Directors’ shareholdings The interests, beneficial unless otherwise indicated, in the ordinary shares of 10p each in the Company of the Directors who held office at 31 December 2012 were as follows:
J H B Ketteley M L Turner M B McCullen J Cohen J B Edwards
At 31 December 2012
At 31 December 2011
7,423,255 59,574 652,944 65,708 50,000
7,423,255 — 652,944 65,708 50,000
There have been no changes in the Directors’ interests since 31 December 2012.
Substantial interests As at the date of this report, the Company has been notified of the following interests in the issued share capital of the Company: Shareholder
J H B Ketteley Delta Lloyd NV H A Allen Lowland Investment Company PLC Rights & Issues Investment Trust PLC P R & M J Ketteley
Number of shares
Percentage
7,423,255 6,360,277 5,643,170 3,153,443 3,075,000 2,520,000
12.24 10.49 9.30 5.20 5.07 4.15
Policy on remuneration of Executive Directors and senior executives The Remuneration Committee aims to ensure that the remuneration packages offered encourage and reward performance in a manner which is consistent with the long-term interests of shareholders. The remuneration of the Executive Directors comprises four elements: i) a basic salary together with benefits-in-kind (such as company car, private petrol and medical insurance); ii) a non-pensionable performance related annual bonus based on the Group’s performance and individual contribution to that performance. The Executive Directors are contractually entitled to a bonus scheme, but the amount to be paid is determined by the Remuneration Committee; iii) pension benefits based solely on basic salary; and iv) performance related share awards and non-pensionable bonuses under the Company’s Long Term Incentive Plan.
www.eleco.com
19
Executive Directors’ contracts The Executive Directors have service agreements, which provide for a notice period as stated hereunder. In the event that employment with the Company is terminated without notice, the contracts do not provide for payment of a specific sum for compensation. Commencement dates and notice periods of contracts (as amended) are as follows: B John H B Ketteley (3 July 1997: twelve months); B Matthew L Turner (27 January 2011: one month); and B Michael B McCullen (1 March 2007: twelve months).
Interest in contracts There are no contracts of significance between the Company or its subsidiary companies and any of the Directors. During the year, for expenses or services provided in the normal course of business, the Group paid £5,000 (2011 18 months: £7,500) to J H B Ketteley & Co Limited of which John H B Ketteley is a Director and in which he has an interest. An amount of £25,000 (2011 18 months: £37,500) was paid to J H B Ketteley & Co Limited under a lease for occupation by the Company of 66 Clifton Street, London EC2A 4HB.
Corporate governance Although companies listed on AIM are not required to comply with the UK Corporate Governance Code, the Board is committed to ensuring that high standards of corporate governance are followed as appropriate to the Company’s size and activity. The Board of Directors, which consisted during the whole year of the Executive Chairman, Group Finance Director, one other Executive Director and two independent Non-Executive Directors, meets at least ten times throughout the year. John H B Ketteley acts in the capacity of both Chairman and Chief Executive and it is considered that it is appropriate to merge these two roles, given the overall size of the Eleco group. Jonathan Cohen is the Senior Independent Director. The Directors have access to independent professional advice in executing their duties on behalf of the Company. The Board has established the following committees: Audit Committee The Audit Committee, which consists of the two Non-Executive Directors, and is chaired by Jonathan B Edwards, has specific terms of reference and meets with the auditors at least twice a year. The Committee reviews the financial statements prior to their recommendation to the Board for approval and assists the Board in ensuring that appropriate accounting policies, internal financial controls and compliance procedures are in place. Remuneration Committee The Remuneration Committee, which consists of the two Non-Executive Directors and is chaired by Jonathan Cohen, is responsible for determining the remuneration arrangements of the Executive Directors and for advising the Board on the Company’s remuneration policy for senior executives. Nominations Committee The Nominations Committee consists of the Non-Executive Directors and chaired by the Executive Chairman, is responsible for reviewing the structure, size and composition of the Board and its Committees and evaluating potential candidates for nomination when and if it is deemed necessary to appoint a new Director to the Board. The Committee makes its recommendations to the full Board for its consideration and approval.
Control environment The Board acknowledges its responsibility for the Group’s systems of internal financial and other control. These are designed to give reasonable, though not absolute, assurance as to the reliability of information, the maintenance of adequate accounting records, the safeguarding of assets against unauthorised use or disposition and that the Group’s businesses are being operated with appropriate awareness of the operational risks to which they are exposed. The Directors have established an organisational structure with clear lines of responsibility and delegated authority. The systems include: B the appropriate delegation of responsibility to operational management; B financial reporting, within a comprehensive financial planning and accounting framework, including the approval by the Board of the detailed annual budget and the regular consideration by the Board of actual results compared with budgets and forecasts; B clearly defined capital expenditure and investment control guidelines and procedures; and B monitoring of business risks, with key risks identified and reported to the Board.
Overview
Business Review
Governance
Financials
Eleco plc | Annual Report and Accounts 2012
20
Directors’ Report continued
Directors’ responsibilities in relation to the financial statements The Directors are responsible for preparing the report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to: B select suitable accounting policies and then apply them consistently; B make judgements and accounting estimates that are reasonable and prudent; and B state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the financial statements. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as each of the Directors is aware: B there is no relevant audit information of which the Company’s auditors are unaware; and B the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ statement as to disclosure of information to auditors The Directors who were members of the Board at the time of approving the Directors’ Report are listed on page 16. Having made enquiries of fellow Directors and of the Company’s auditors, each of these Directors confirms that to the best of each Director‘s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s auditors are unaware and each Director has taken all steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s auditors are aware of that information.
Going concern A statement regarding the going concern of the business is set out in Significant Accounting Policies on page 29.
Research and development Product innovation and development is a continuous process. The Group commits resources to the development of new products and quality improvements to existing products and processes in all its business segments.
Employee involvement The Group is committed to a policy of involvement by keeping its employees fully informed regarding its performance and prospects. Employees are encouraged to present their suggestions and views.
Employment of disabled persons The Company’s policy is to provide equality of opportunity for all employees without discrimination and continues to encourage the employment, training and advancement of disabled persons in accordance with their abilities and aptitudes, provided that they can be employed in a safe working environment. Suitable employment would, if possible, be found for any employee who becomes disabled during the course of their employment with the Group.
Policy regarding the payment of suppliers The Company’s policy is to agree terms of payment with suppliers at the commencement of the trading or contractual relationship and to operate within such terms subject to satisfactory completion of the suppliers’ obligations. At 31 December 2012, the Group’s average creditor payment period was 48 days.
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Heading Underhead
Charitable contributions During the financial year no donations to charities and good causes were made. The Group does not make any political donations.
Directors’ indemnities Qualifying third party indemnity provisions (as defined in Section 234(2) of the Companies Act 2006) are in force for the benefit of the Directors.
Annual General Meeting Your attention is drawn to the Notice of Meeting on pages 67 and 68 of this report convening the Annual General Meeting of the Company at 12.00 noon on 25 June 2013 at the Brewers’ Hall, Aldermanbury Square, London EC2V 7HR. The Notice sets out and explains the special and ordinary business to be conducted at the meeting.
Auditors The Board and Audit Committee have approved an extension to the engagement term of the Senior Statutory Auditor responsible for the audit opinion in relation to Eleco plc for the year ended 31 December 2012. The term was extended from five to six years. The Audit Committee believes that in the current circumstances of the Group continuity is important to the quality of the Group’s audit and is satisfied that the safeguards proposed by the auditor mean that the extension will not threaten the objectivity and independence of the audit. Grant Thornton UK LLP have indicated their willingness to continue in office and a resolution will be proposed at the Annual General Meeting to re-appoint them as auditors and to determine their remuneration. By Order of the Board
Ivor A Barton Secretary Eleco plc 66 Clifton Street London EC2A 4HB 14 May 2013
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Independent Auditors’ Report To the members of Eleco plc
We have audited the Group financial statements of Eleco plc for the period ended 31 December 2012 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union. This report is made solely to the Company’s members, as a body, in accordance with chapter 3 of part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 20, the Directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements In our opinion the Group financial statements: B give a true and fair view of the state of the Group’s affairs as at 31 December 2012 and of its loss for the year then ended; B have been properly prepared in accordance with IFRS as adopted by the European Union; and B have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: B certain disclosures of Directors’ remuneration specified by law are not made; or B we have not received all the information and explanations we require for our audit.
Other matter We have reported separately on the parent Company financial statements of Eleco plc for the year ended 31 December 2012.
John Corbishley Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Cambridge 14 May 2013
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Consolidated Income Statement For the year ended 31 December 2012
Notes
2012 £’000
18 months ended 31 December 2011 £’000
Continuing operations Revenue
34,177
56,822
Cost of sales
1
(16,053)
(27,220)
Gross profit
18,124
29,602
Distribution costs Administrative expenses
(1,894)
(4,651)
(16,520)
(24,808)
Operating (loss)/profit before exceptionals
2
(290)
143
Exceptional items
3
(1,612)
(365)
Loss from operations
4
(1,902)
(222)
Finance income
6
19
96
Finance cost
6
(514)
(804)
(2,397)
(930)
76
(279)
(2,321)
(1,209)
(426)
(1,528)
(2,747)
(2,737)
(2,747)
(2,737)
Loss before tax Tax
7
Loss for the financial period from continuing operations Loss for the financial period from discontinued operations
8
Loss for the financial period Attributable to: Equity holders of the parent Loss per share – basic and diluted Continuing operations
10
(3.9)p
(2.0)p
Discontinued operations
10
(0.7)p
(2.6)p
(4.6)p
(4.6)p
Total operations
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Consolidated Statement of Comprehensive Income For the year ended 31 December 2012
Notes
Loss for the period
2012 £’000
18 months ended 31 December 2011 £’000
(2,747)
(2,737)
(2,475)
3,720
Other comprehensive income Actuarial (loss)/gain on retirement benefit obligation
24
Deferred tax on retirement benefit obligation
23
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)
(5,305)
(1,191)
Attributable to: Equity holders of the parent
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Consolidated Statement of Changes in Equity For the year ended 31 December 2012
Share capital £’000
Share premium £’000
Merger reserve £’000
6,066
6,396
7,371
(113)
(358)
(5,207)
14,155
Transactions with owners
—
—
—
—
—
—
—
Loss for the period
—
—
—
—
—
(2,747)
(2,747)
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)
6,066
6,396
7,371
(214)
(358)
(10,411)
8,850
Share capital £’000
Share premium £’000
Merger reserve £’000
Translation reserve £’000
6,066
6,396
7,371
Transactions with owners
—
—
Loss for the period
—
Actuarial gain on defined benefit pension scheme net of tax and other scheme losses
At 1 January 2012
Translation reserve £’000
Other reserve £’000
Retained earnings £’000
Total £’000
Other comprehensive income:
At 31 December 2012
Other reserve £’000
Retained earnings £’000
107
(358)
(4,236)
15,346
—
—
—
—
—
—
—
—
—
(2,737)
(2,737)
—
—
—
—
—
1,766
1,766
Exchange differences on translation of foreign operations
—
—
—
(220)
—
—
(220)
Total comprehensive income for the period
—
—
—
(220)
—
(971)
(1,191)
6,066
6,396
7,371
(113)
(358)
(5,207)
14,155
At 1 July 2010
Total £’000
Other comprehensive income:
At 31 December 2011
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Consolidated Balance Sheet At 31 December 2012
Notes
2012 £’000
2011 £’000
Goodwill
11
13,009
13,567
Other intangible assets
12
1,904
Property, plant and equipment Deferred tax assets
13 23
7,223 1,389
2,338 7,909
Other non-current assets
14
—
1,289 800
23,525
25,903
17
2,144
19
6,905 5
2,281 8,394
Non-current assets
Total non-current assets Current assets Inventories Trade and other receivables Current tax assets Cash and cash equivalents
—
888
4,748
14
800
400
8
—
440
Total current assets
10,742
16,263
Total assets
34,267
42,166
Other current assets Assets of disposal group held for sale
Current liabilities Bank overdraft
21
(4,501)
—
Borrowings
21
(900)
(5,900)
Obligations under finance leases
21
(212)
(141)
Trade and other payables
20
(4,962)
(6,618)
Provisions
22
(256)
(60)
Current tax liabilities Accruals and deferred income Total current liabilities
(56)
(87)
(5,819)
(6,355)
(16,706)
(19,161)
Non-current liabilities Borrowings
21
(2,025)
(2,925)
Obligations under finance leases
21
(319)
Deferred tax liabilities Non-current provisions Other non-current liabilities
23 22
(170) (77) (85)
(359) (421) (73)
Retirement benefit obligation
24
(6,035)
Total non-current liabilities Total liabilities Net assets Equity Share capital
25
(113) (4,959)
(8,711)
(8,850)
(25,417)
(28,011)
8,850
14,155
6,066
6,066
Share premium account
6,396
6,396
Merger reserve
7,371
7,371 (113)
Translation reserve Other reserve
(214) (358)
Retained earnings
(10,411)
(5,207)
8,850
14,155
Equity attributable to shareholders of the parent
(358)
The financial statements of Eleco plc, registered number 00354915, on pages 23 to 57 were approved by the Board of Directors on 14 May 2013 and signed on its behalf by:
John Ketteley Executive Chairman
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Consolidated Statement of Cash Flows For the year ended 31 December 2012
Notes
2012 £’000
18 months ended 31 December 2011 £’000
Cash flows from operating activities Loss before tax (including discontinued)
(2,641)
(7,691)
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)
3,438
5,586
Net finance costs
Decrease in trade and other receivables 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)
(239)
(278)
Interest received
34
344
Income tax paid
(396)
(59)
(2,547)
(7,069)
(149)
(329)
(157)
(992)
(192)
(316)
393
908
400
6,134
295
5,405
—
6,600
(5,900)
(5,675)
(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
(39)
(66)
(3,613)
4,748
888
4,748
(4,501)
—
(3,613)
4,748
Interest paid
Net cash outflow from operating activities Net cash used in investing activities Purchase of intangible assets Purchase of property, plant and equipment Acquisition of subsidiary undertakings net of cash acquired
27
Proceeds from sale of property, plant, equipment and intangible assets Sale of business net of expenses
14
Net cash inflow from investing activities Net cash used in financing activities Proceeds from new bank loan Repayment of bank loans Repayments of obligations under finance leases
Effects of changes in foreign exchange rates Cash and cash equivalents at end of period Cash and cash equivalents comprise: Cash and short-term deposits Bank overdrafts
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Significant Accounting Policies
Eleco plc is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act 2006. The consolidated financial statements for the year ended 31 December 2012 comprise the Company and its subsidiaries (together referred to as the “Group”) The consolidated and parent company financial statements were authorised for issuance on 14 May 2013. The address of the registered office is given on page 16. The nature of the Group’s operations and its principal activities are set out in the Chairman’s Statement on pages 8 to 9, Operating and Financial Review on pages 10 to 15, Directors’ Report on page 17 and Note 2 on pages 34 to 37. These financial statements are presented in Pounds Sterling which is the currency of the primary economic environment within which the Group operates. Foreign operations are included in accordance with the accounting policies set out below.
A. Statement of compliance The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (“IFRS”) adopted for use by the European Union and the Companies Act 2006 applicable for Companies reporting under IFRS. On publishing the Company financial statements together with the Group financial statements the Company has taken advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form part of the approved financial statements.
B. Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except assets classified as held for sale and all financial information has been rounded to the nearest thousand. These consolidated financial statements have been prepared in accordance with the accounting policies, which follow IFRS in issue, adopted by the EU and effective at 31 December 2012. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. Significant accounting judgements and estimates Application of the Group’s accounting policies in conformity with generally accepted accounting principles requires judgements and estimates that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements. These judgements and estimates may be affected by subsequent events or actions such that actual results may ultimately differ from the estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below. Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Further details are given in Note 11. Retirement benefit costs The Group operates a defined benefit scheme that provides benefits to a number of current and former employees and closed to future accrual on 31 December 2010. The value of the scheme deficit is sensitive to the market value of the scheme’s assets, the discount rates and actuarial assumptions related to mortality and other factors. Further details are given in Note 24. Taxation Taxation legislation is highly complex. In preparing the financial statements the taxation liability is estimated taking appropriate professional advice. However, determination of the agreed liabilities may take some time and the eventual amounts paid may differ from the liabilities recorded in the financial statements. Similarly, judgement is required in relation to the recognition of assets and liabilities in relation to deferred taxation, in particular the extent to which assets should be recognised. Revenue recognition on long-term contracts Revenue and profit is recognised based upon the extent of completion and expected outcomes of profit, once these can be estimated with reasonable reliability. However, unforeseen events may adversely impact on the accuracy of the estimates. Where the outcome of a long-term contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Provisions and contingent liabilities In accordance with the accounting policy outlined below, judgement is made of the likely outcome of any disputes. Where it is judged to be probable that an outflow of resources will be required to settle the obligation, an estimate will be made of the provision where it can be reliably made. Discontinued operations and assets held for sale Costs associated with the connector plate businesses in the UK and South Africa and the timber frame business sold in 2011 that were excluded or under estimated at 31 December 2011 have been recognised in the consolidated income statement under discontinued operations. Assets and businesses are classified as held for sale, and stated at the lower of carrying amount and fair value less costs to sell, if their carrying amount will be recovered or settled principally through a sale transaction rather than through continuing use. A discontinued operation is a component of the Group’s business that represents a separate major line of business that has been disposed of, has been abandoned or meets the criteria to be classified as held for sale and where its operations and cash flows can be clearly identified.
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B. Basis of preparation continued Adoption of new and revised standards New accounting standards and interpretations are effective for the first time in the current period but have had no impact on the results or the 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.
C. Going concern 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 13 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.
D. Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings for the year ended 31 December 2012 and the comparative 18 months ended 31 December 2011. Subsidiaries are entities controlled by the Group and their results have been adjusted, where necessary, to ensure accounting policies are consistent with those of the Group. Control exists where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. All intercompany balances and transactions, including unrealised profits and losses arising from intra-Group transactions, are eliminated in full. The results of subsidiaries acquired or sold in the year are included in the consolidated income statement from or up to the date control passes until control ceases. Business combinations The acquisition of subsidiaries is dealt with using the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities at the acquisition date, including contingent liabilities of the subsidiary regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. Acquisition costs are expensed as incurred. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the consideration transferred over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.
E. Revenue Revenue from the sale of goods represents the fair value of consideration received or receivable in respect of goods supplied to third parties in the period, excluding value added tax and trade discounts, and is recognised when goods are delivered. Service revenue from software maintenance and support contracts is treated as deferred income and taken to revenue in the Income Statement on a straight line basis in line with the service and obligations over the term of the contract. Revenue is recognised on contract work in progress at an amount appropriate to the stage of completion as measured by work performed. The amount of profit attributable to the stage of completion of a contract is recognised when the outcome of the contract can be estimated with reasonable reliability. Provision is made for foreseen losses as soon as there is an indication that a loss is apparent. Amounts due from customers under long-term contracts are included within trade and other receivables and amounts recoverable on contracts. Amounts recoverable on contracts represent revenue recognised in excess of invoiced amounts. Variations in contract work are included to the extent that they can be measured reliably and have been agreed with the customer.
F. Finance income and costs Financing costs comprise interest payable on borrowings calculated on an effective interest basis. Interest income and cost is recognised in the income statement as it accrues. The net finance cost in respect of pensions includes interest cost on scheme liabilities and expected return on scheme assets.
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Significant Accounting Policies continued
G. Taxation Current tax is the tax payable based on taxable profit for the year, calculated using tax rates that have been enacted, or substantially enacted, by the balance sheet date. Deferred tax is calculated using the liability method on temporary differences and provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill nor on the initial recognition of an asset or liability, unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided the expected tax rates are enacted or substantively enacted at the balance sheet date and charged or credited to the income statement or statement of comprehensive income. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
H. Intangible assets Goodwill arising on consolidation represents the excess of the consideration transferred, excluding expenses, over the Group’s interest in the fair value of the identifiable net assets acquired. The carrying value of goodwill is recognised as an asset and reviewed for impairment at least annually and any impairment is recognised immediately in the income statement. On disposal, the attributable amount of goodwill is included in the determination of profit or loss on disposal. Other intangible assets acquired separately are capitalised at cost and on a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, an intangible asset is held at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets excluding goodwill are amortised on a straight line basis over their useful economic lives and charged to administration expenses in the income statement. The useful economic life of each class of intangible asset is as follows: Customer relationships
– up to twelve years
Intellectual property
– up to five years
The Group owns intellectual property both in its software tools and software products. Intellectual property purchased is capitalised at cost and is amortised on a straight-line basis over its expected useful life. Research expenditure is written off as incurred. Development expenditure on a project is written off as incurred unless it can be demonstrated that the following conditions for capitalisation, in accordance with IAS 38 “Intangible Assets”, are met: B the intention to complete the development of the intangible asset and use or sell it; B the development costs are separately identifiable and can be measured reliably; B management are satisfied as to the ultimate technical and commercial viability of the project, so that it will be available for use or sale; B management are satisfied with the availability of technical, financial and other resources to complete the development and to use or sell the intangible asset; and B it is probable that the asset will generate future economic benefit. Any subsequent development costs are capitalised and are amortised from the date the product or process is available for use, on a straight-line basis over its estimated useful life. The carrying amounts of intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable and in the case of capitalised development expenditure reviewed for impairment annually while the asset is not yet in use.
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I. Property, plant and equipment Property, plant and equipment is stated at purchase cost, together with any directly attributable costs of acquisition. The carrying amount and useful lives of property, plant and equipment with material residual values are reviewed at each balance sheet date. Depreciation is provided on all property, plant and equipment, except land, on a straight-line basis to write down the assets to their estimated residual value over the useful economic life of the asset as follows: Freehold buildings
– 50 years
Long leasehold buildings
– 50 years or term of the lease, if shorter
Short leasehold property
– over the term of the lease
Plant, equipment and vehicles
– two to ten years
When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment.
J. Impairment of assets Goodwill The carrying amounts of the Group’s goodwill assets are assessed annually as to whether an impairment adjustment may be required. When annual impairment testing for assets is required, the assets under review are grouped under the appropriate cash-generating unit for which there are separately identifiable cash flows. Goodwill is held at CGU level and allocated directly to the CGU under review. The Group makes an estimate of the asset’s recoverable amount, based on the higher of the asset’s value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows of the CGU are discounted to their present value using an appropriate discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment charge is initially made against goodwill of the CGU and thereafter against other assets. Any impairment is charged to the income statement under the relevant expense heading. Property, plant and equipment and intangible assets excluding goodwill At each balance sheet date the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of any impairment loss. The recoverable amount is the higher of the asset’s value in use and its fair value less costs to sell. Value in use is calculated using cash flow projections for the asset discounted at the Group’s cost of capital. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense in the income statement. A previously recognised impairment loss, other than goodwill, is reversed only if there has been a change in the previous indicator used to determine the assets recoverable amount since the last impairment loss was recognised. The reinstated carrying amount cannot exceed the carrying amount that would have been determined, net of amortisation, had no impairment loss been recognised for the asset in prior years.
K. Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. The cost of manufactured inventories and work in progress includes related production overheads based on normal operating activity and is calculated using the first in first out method. Net realisable value is based on estimated selling price less further costs expected to be incurred to completion and marketing, selling and distribution.
L. Leases Finance leases, which transfer to the Group substantially all of the benefits and risks of ownership of an asset, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated life of the asset or the lease term. Leases, where the lessor retains substantially all the risks and benefits of ownership of the asset, are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the term of the lease.
M. Provisions and contingent liabilities A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value on money and, where appropriate, the risks specific to the liability. Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or present obligations where the outflow of resources is uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial statements but are disclosed unless they are remote.
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Significant Accounting Policies continued
N. Employee benefits Pension schemes The Group operates a defined benefit pension scheme, which provides benefits based on final pensionable pay. The scheme closed to future accrual on 31 December 2009. The defined benefit scheme is valued every three years by a professionally qualified independent actuary, the rates of contribution payable being determined by the actuary. The service cost of providing retirement benefits to employees during the year is charged to the income statement in the year. The full cost of providing amendments to benefits in respect of past service, where amendments to benefits vest immediately, is also charged to the income statement in the year. The expected return on the assets of the scheme during the year, based on the market value of scheme assets at the start of the financial year, is included within finance income/charge. This also includes a charge representing the expected increase in liabilities of the scheme during the year, arising from the liabilities of the scheme being one year closer to payment. The resulting net finance amount is reported in the income statement. Differences between actual and expected returns on assets during the year are recognised in the statement of other comprehensive income in the year, together with differences from actual experience and from changes in actuarial assumptions. The net deficit on the defined benefit pension scheme, representing the difference between the present value of the defined benefit obligation and the fair value of scheme assets (based upon market price information and in the case of quoted securities the published bid price), is reported on the balance sheet. Contributions to defined contribution pension schemes and multi-employer schemes are charged to the income statement as they become payable. Share-based payments The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees is unconditionally entitled to the award. The fair value of the employee’s services is determined by reference to the fair value of instruments granted using an appropriate pricing model. In valuing equity-settled transactions, account is taken of the probabilities of performance achievement and other conditions linked to the price of the shares of the Company (market conditions). No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity. The estimate of the number of options that are expected to vest at each balance sheet date are reviewed annually at the balance sheet date. Shares, the subject of share awards granted under the Long Term Incentive Plan, may be allotted to the employee share ownership trust at any time from the date of grant. The shares held by the trust do not qualify for dividends and are deducted from equity attributable to shareholders of the parent through other reserves. The shares allotted to the trust are accounted for at the mid market price on the date of transaction.
O. Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each Group company are expressed in UK Pounds Sterling, which is the functional currency of the Company and the presentational currency for the consolidated financial statements. Transactions in foreign currencies are translated at the exchange rate ruling at the date of transaction. Foreign exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the income statement in the period in which they arise. Assets and liabilities of subsidiaries denominated in a different functional currency to that of the Group’s presentational currency are translated into Pounds Sterling at the rate of exchange ruling at the balance sheet date and results are translated at the average rate of exchange for the year. The use of an average exchange rate for the year rather than actual exchange rates at the dates of transactions is considered to approximate to actual rates for the translation of the results of foreign subsidiaries. Differences on exchange, arising from the retranslation of the opening net investment in subsidiary companies which have functional currencies that differ to Pound Sterling, and from the translation of the results of those companies at an average rate, are taken to reserves and reported in the statement of comprehensive income. Exchange differences arising on the retranslation of non-trading inter-group balances reported in foreign subsidiaries are regarded as part of the net investment in the subsidiary and treated as a movement in the translation reserve on consolidation. When an operation is sold, amounts recognised in reserves on the translation of foreign operations are recycled through the income statement.
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P. Financial instruments Financial assets Financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument and arise principally through the provision of goods and services to customers (trade and other receivables) but also include other types of contractual monetary assets. Trade and other receivables are initially recorded at fair value and subsequently carried at amortised cost using the effective interest method. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for de-recognition. Trade receivables Trade receivables do not carry any interest and are initially stated at their fair value. Subsequent measurement is at amortised cost as reduced by appropriate allowances for estimated irrecoverable amounts. Allowances for irrecoverable amounts are made when there is evidence that the Group may not be able to collect the amount due. The impairment recorded is the difference between the carrying value of the receivables and the estimated future cash flows. Any impairment required is recorded in the income statement in administrative expenses. Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents are net of outstanding bank overdrafts. Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. Trade payables and other short-term monetary liabilities are initially recorded at fair value and subsequently carried at amortised cost using the effective interest rate method. Bank borrowings are initially recognised at the fair value on initial recognition date, which in the case of an arm’s length transaction is the amount advanced, exclusive of any transaction costs directly attributable to the issue of the instrument and subsequently carried at amortised cost. A financial liability is derecognised when the obligation is discharged, cancelled or expires.
Q. Equity The balances classified as share capital and share premium represent the proceeds of the nominal value and premium value respectively on the issue of the Company’s equity share capital net of issue costs (see page 65). The merger reserve is an un-distributable reserve and represents the premium not recognised on the issues of shares pursuant to s131 of the Companies Act 1985 on acquisition of subsidiary companies. The translation reserve is used to record exchange differences arising from the retranslation of the opening net investment and income statement of foreign subsidiaries. Shares in the Company held by the ESOT are reported in the other reserves.
R. New standards and interpretations not applied At the date of authorisation of these financial statements, the following new standards and interpretations have been published but are not yet effective for accounting periods commencing on 1 January 2012: Effective date
International Accounting Standards (IAS/IFRS) IFRS 9 “Financial Instruments” IFRS 10 “Consolidated Financial Statements” IFRS 11 “Joint Arrangements” IFRS 12 “Disclosure of Interests in Other Entities” IFRS 13 “Fair Value Measurement”
1 January 2015 1 January 2013 1 January 2013 1 January 2013 1 January 2013
IAS 19 “Employee Benefits” (revised June 2011) IAS 27 (revised) “Separate Financial Statements” IAS 28 (revised) “Investments in Associates and Joint Ventures” IAS 1 (amendments) – Presentation of items of other comprehensive income IFRS 7 (amendments) – Disclosures, offsetting financial assets and liabilities IAS 32 (amendments) – Offsetting financial assets and liabilities IFRS 9 and IFRS 7 (amendments) – Mandatory effective date and transition disclosures International Financial Reporting Interpretation Committee (IFRIC) IFRIC 20 – Stripping costs in the production phase of a surface mine
1 January 2013 1 January 2013 1 January 2013 1 July 2012 1 January 2013 1 January 2014 1 January 2015 1 January 2013
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group except for additional disclosures when the relevant standard comes into effect.
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Notes to the Consolidated Financial Statements
1. Revenue Revenue from continuing operations disclosed in the income statement is analysed as follows: Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
Sale of goods
20,645
30,583
Income from services Long-term contracts
11,476 2,056
10,624
Total revenue
34,177
56,822
15,615
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 pre-stressed 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.
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2. Segment information continued Operating segments continued Twelve months to 31 December 2012
Revenue
ElecoSoft® £’000
ElecoBuild® £’000
Corporate £’000
Elimination £’000
Continuing operations £’000
34,177
15,779
18,398
—
—
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)
1,793
(1,152)
(931)
(290)
Impairment charges
—
(687)
—
(687)
Restructuring costs
(152)
(396)
(377)
(925)
1,641
(2,235)
(1,308)
(1,902)
1,641
(2,235)
(1,308)
(2,397)
Operating profit/(loss) before exceptionals
Segment result Net finance cost
(495)
Profit/(loss) before tax Tax
76
Loss after tax
(2,321)
Segment assets Unallocated assets
16,612
14,239
31,985
1,134
2,282
Total Group assets
34,267
Segment liabilities Unallocated liabilities
6,471
3,870
11,199
858
14,218
Total Group liabilities
25,417
Other segment information Capital expenditure: Property, plant and equipment Intangible assets
189 133
146 16
19 —
Goodwill acquired Depreciation
81 218
— 779
— —
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354 149 81 997
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Notes to the Consolidated Financial Statements Continued
2. Segment information continued Operating segments continued 18 months to 31 December 2011
Revenue
ElecoSoft® £’000
ElecoBuild® £’000
Corporate £’000
Elimination £’000
Continuing operations £’000
56,822
23,047
33,775
—
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)
2,214
(465)
(1,606)
143
Impairment charges
(11)
(11)
—
(22)
Restructuring costs
—
(255)
(88)
(343)
2,203
(731)
(1,694)
(222)
2,203
(731)
(1,694)
Operating profit/(loss) before exceptionals
Segment result Net finance cost Profit/(loss) before tax
(708) (930)
Tax
(279)
Loss after tax Segment assets Unallocated assets
(1,209) 16,281
18,154
36,129
1,694
6,037
Total Group assets Segment liabilities Unallocated liabilities
42,166 6,223
5,632
13,219
1,364
14,792
Total Group liabilities
28,011
Other segment information Capital expenditure: Property, plant and equipment Intangible assets
656 271
622 31
56 27
Goodwill acquired Depreciation
574 320
— 1,826
— —
1,334 329 574 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
Deferred tax assets Current tax assets Cash and cash equivalents
2012 £’000
2011 £’000
1,389 5 888
1,289 —
2,282
6,037
4,748
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2. Segment information continued Unallocated liabilities
Bank overdraft and borrowings Obligations under finance leases Deferred tax liabilities Current tax liabilities Retirement benefit obligation
2012 £’000
2011 £’000
7,426
8,825
531
500
170 56 6,035
421 87 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:
UK Scandinavia Rest of Europe Rest of World
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
21,829 8,209 3,888 251
38,766 11,866 5,899 291
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:
UK Scandinavia Rest of Europe
2012 £’000
2011 £’000
14,491 6,310 1,335
17,198 6,186 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:
Impairment of intangible assets Impairment of property, plant and equipment Restructuring costs Pension scheme restructuring costs
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
680 7 550 375
11 11 343
1,612
365
—
As a result of the annual goodwill impairment review required under IAS 36 “Impairment of Assets”, see Note 11, 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.
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Notes to the Consolidated Financial Statements Continued
4. Operating loss The continuing operations operating loss for the period is stated after charging/(crediting) the following items: Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
Raw materials and consumables
9,663
18,282
Research and development Depreciation of property, plant and equipment Amortisation of intangible assets Profit on disposal of property, plant and equipment Foreign exchange losses Fees payable to the Company’s auditors for: The audit of the Company’s annual accounts The audit of the Company’s subsidiaries Other services
2,040 997 530 (114) 26
3,052 2,146 904 (345) 59
49 102 19
48 108 48
67 353
257
Year ended 31 December 2012 number
18 months ended 31 December 2011 £’000
174 127 10
168 200
311
381
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
10,971 1,958 670
20,265 3,386
13,599
24,688
Operating lease rentals: Plant, equipment and vehicles Other assets
435
5. Employee information The average number of employees during the period, including Directors, in continuing operations was made up as follows:
ElecoSoft® ElecoBuild® Corporate
13
Staff costs during the period, including Directors, in continuing operations amounted to:
Wages and salaries Social security Pension costs
Pension costs relate to contributions to defined contribution pension schemes.
1,037
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5. Employee information continued The remuneration of the Directors, who are the key management personnel of the Group, is set out below:
Short-term employee benefits Post-employment benefits Termination benefits Executive Directors Fees – Non-Executive Directors
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
621
1,127
85 —
296
706 56
1,569
762
1,655
146 86
The emoluments of the highest paid Director were £329,000 (2011: £402,000). In addition, a supplementary cash payment, in lieu of pension, in respect of this Director was £69,000 (2011: £107,000). Employers’ NIC payments in respect of the Directors remuneration was £81,000 (2011: £135,000). The remuneration of the Non-Executive Directors is determined by the Board. The Non-Executive Directors do not have service contracts but are appointed for an initial term of three years, which may thereafter be renewed from year to year. They do not participate in any of the Group’s share-based incentive or pension schemes.
6. Net finance income/(cost) Finance income and costs from continuing operations is set out below:
Finance income Bank and other interest receivable
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
19
96
Finance costs Bank overdraft and loan interest Finance leases and hire purchase contracts Net return on pension scheme assets and liabilities
(221) (24) (269)
(250) (32)
Total net finance cost
(495)
(708)
(522)
7. Taxation (a) Tax on profit on ordinary activities The tax charge/(credit) in the income statement from continuing operations is as follows:
Current tax: UK corporation tax on profits of the year Tax adjustments in respect of previous years
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
— 3
16
—
3
16
Foreign tax
171
321
Total current tax
174
337
Deferred tax: Origination and reversal of temporary differences
(262)
(113)
12
55
Tax adjustments in respect of previous years Total deferred tax Tax (credit)/charge in the income statement
(250)
(58)
(76)
279
Income tax for the UK has been calculated at the standard rate of UK corporation tax of 24% effective from 1 April 2012 (2011: 26%) on the estimated assessable profit for the period. Taxation for foreign companies is calculated at the rates prevailing in the relevant jurisdictions.
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Notes to the Consolidated Financial Statements Continued
7. Taxation continued (b) Reconciliation of total operations tax charge The tax assessed on total operations accounting profit before income tax for the year is higher than the standard rate of UK corporation tax of 24.5% for the period under review. The differences are explained below: Year ended 31 December 2012 £’000
Loss on ordinary activities before tax (including discontinued) Tax calculated at the average standard rate of UK corporation tax of 24.5% (2011: 27%) applied to profits before tax Effects of: Expenses not deductible for tax purposes Impairment of intangible assets not deductible for tax purposes Deferred tax not recognised Profit on non-qualifying assets Share option deduction
18 months ended 31 December 2011 £’000
(2,641)
(2,251)
(647)
(608)
63
682 4
159 114
1,969
—
(1,666)
43
72
Prior year adjustments Tax rate differences Prior year adjustments – discontinued operations
15 149 227
71 63
Other differences
(17)
(101)
Total tax charge for the year (including discontinued)
106
486
—
(c) Unrecognised tax losses The Group has tax losses of £995,000 (2011: £1,094,000) arising overseas for which no deferred tax asset has been recognised and tax losses of £15,721,000 (2011: £12,466,000) arising in the UK. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries.
8. 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 31 December 2012 £’000
18 months ended 31 December 2011 £’000
Revenue Cost of sales
28 (17)
(22,924)
Gross profit
11
4,115
Distribution costs
—
(443)
Administrative expenses
(404)
(8,099)
Other operating income/(costs)
134 —
(1,902) (681) (7,010)
Loss on re-measurement
27,039
Operating loss
(259)
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 Net loss for the period from discontinued operations
—
5,440
(426)
(1,528)
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8. Discontinued operations continued The results from discontinued operations which have been included in the cash flow statement are set out below: Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
Operating activities
(780)
(1,431)
Investing activities Financing activities
— —
(127)
(780)
(1,576)
Total cash flows
(18)
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.
9. Dividends paid and proposed
Ordinary shares
Declared and paid during the year Interim – current year Final – previous year
2012 per share
2011 per share
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
— —
— —
— —
— —
—
—
—
—
The Directors recommend that no final dividend be paid and a resolution to this effect will be proposed at the Annual General Meeting to be held on 25 June 2013. Therefore the total dividend for the year amounts to £nil (2011: £nil).
10. Loss per share The calculations of the loss per share are based on the total loss after tax attributable to ordinary equity shareholders of the Company and the weighted average number of shares in issue for the reporting period. Year ended 31 December 2012
18 months ended 31 December 2011
Loss after taxation
£(2,747,000)
£(2,737,000)
Weighted average number of shares in issue in the period Dilutive effect of share options
59,761,646 —
59,761,646
Number of shares for diluted earnings per share
59,761,646
59,761,646
—
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
The diluted loss per share is the same as the basic loss per share for the current year and preceding period.
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Notes to the Consolidated Financial Statements Continued
11. Goodwill 2012 £’000
2011 £’000
15,067 81
14,450 574
Cost: B/f Acquisition of businesses Exchange Impairment: B/f Impairment charge
1
43
15,149
15,067
1,500
1,500
640
—
2,140
1,500
13,009
13,567
2012 £’000
2011 £’000
Milbury Systems Downer Cladding Prompt Profiles ElecoSoft®
1,942 258 146
2,452 258 276
Asta Development UK Asta Development Germany Consultec Sweden Eleco Software Germany Esign Software Germany
4,804 219 4,934 336 370
4,804 226 4,845 336
13,009
13,567
Net book value Goodwill acquired through acquisitions net of impairments is set out below:
ElecoBuild®
370
The Group considers each of the operating businesses listed above, which are those units for which a separate cash flow is computed, to be a cash-generating unit (CGU) and each CGU is reviewed annually for impairment. For each CGU the Group has determined its recoverable amount based on value in use calculations. The value in use was derived from discounted management cash flow forecasts for the businesses, using the budgets and strategic plans based on past performance and expectations for the market development of the CGU incorporating an appropriate business risk. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period based on industry sector forecasts. These budgets and strategic plans cover a five year period. The growth rate used to extrapolate the cash flows beyond this period is 2.25% which is in line with the long-term GDP forecasts. In addition, a business risk factor of 1% is applied to ElecoBuild® CGU cash flows and 2% to ElecoSoft® CGU cash flows to reflect the different business risks associated with the ElecoBuild® and ElecoSoft® operating segments. Sensitivity analysis is carried out on all budgets and strategic plans used in the calculations. The discount rates used for all CGUs is 10.60% (2011: 10.20%) based on the Group’s weighted average cost of capital. The value in use calculations identified a shortfall in the Milbury Systems value in use compared to the CGU asset carrying value and resulted in an impairment charge of £510,000. Cash flows from this CGU are generated from the sale of pre-stressed and precast retaining structures. A shortfall in the value in use calculations compared to the CGU asset carrying value of Prompt Profiles resulted in an impairment charge of £130,000. Cash flows from this CGU are generated from the sale of profiled metal products for the roofing systems industry. The market in the UK continues to be weak and the Group has revised its expectations about the level of activity in these markets in the short and medium term. Future projections used in the calculation allow for a modest recovery over this period.
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11. Goodwill continued The key sensitivities in assessing the value in use of goodwill are forecast cash flows and the discount rate applied. The value in use headroom/ (deficit) for the CGUs with a significant amount of goodwill together with the results of the sensitivities are shown below: Base scenario £’000
Milbury Systems Asta Development UK Consultec Sweden
Sensitivity 1% increase in discount rate pa £’000
Sensitivity 1% reduction in growth rate pa £’000
(509)
(597)
(925)
5,520 7,018
4,403 5,471
4,172 5,414
The cumulative impairment charge recognised to date was £2,140,000 (2011: £1,500,000). The cumulative impairment charge relating to Milbury Systems was £2,010,000 and Prompt Profiles £130,000.
12. Other intangible assets Customer relationships £’000
Intellectual property £’000
Total £’000
3,228
2,254
5,482
— — — —
(80) 71 78 (4)
(80) 71 78 (4)
Cost: At 1 January 2012 Prior year restatement Additions Additions – internal development Disposals Exchange
—
(5)
(5)
At 31 December 2012
3,228
2,314
5,542
Accumulated amortisation and impairment: At 1 January 2012
1,367
1,777
3,144
—
(80)
(80)
269
261
— —
40 4
530 40
At 31 December 2012
1,636
2,002
3,638
Net book value at 31 December 2012
1,592
312
1,904
Prior year restatement Amortisation charge for the year Impairment charge for the year Exchange
4
The values attributed to the customer relationships represent the fair value of acquired customer contracts and relationships held by the acquired company at the date of acquisition. Similarly, values attributed to intellectual property represent the fair value of acquired intellectual property. The prior year restatement represents fully amortised intangible assets that were part of the disposal of the timber frame operation in 2011. Additions in the year represent purchased intangible assets of £71,000 (2011: £195,000) and internal development costs capitalised of £78,000 (2011: £134,000). An impairment charge of £40,000 was recognised against the carrying value of certain intellectual property at Milbury Systems that was considered to have no future value to the business. In 2011, the impairment charge of £11,000 was recognised against the carrying value of certain other Precast Concrete licence agreements following a decision to discontinue the sale of these products. Amortisation charges are included within administrative expenses and impairment charges are recorded within exceptional items.
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Eleco plc | Annual Report and Accounts 2012
44
Notes to the Consolidated Financial Statements Continued
12. Other intangible assets continued Customer relationships £’000
Intellectual property £’000
Total £’000
3,228 —
3,056 195
6,284 195
— — —
134
134
(1,135) 4
(1,135) 4
Cost: At 1 July 2010 Additions Additions – internal development Disposal of businesses Exchange
3,228
2,254
5,482
Accumulated amortisation and impairment: At 1 July 2010
At 31 December 2011
964
2,393
3,357
Amortisation charge for the period
403
512
915
— — —
11 (1,135) (4)
11 (1,135)
At 31 December 2011
1,367
1,777
3,144
Net book value at 31 December 2011
1,861
477
2,338
Leasehold buildings £’000
Plant, equipment and vehicles £’000
Total £’000
Impairment charge for the period Disposal of businesses Exchange
(4)
13. Property, plant and equipment Freehold land and buildings £’000
Cost: At 1 January 2012 Prior year restatement Additions
5,233 — —
452 (144) 13
14,854 (234) 341
20,539 (378) 354
— — —
— — —
2 (672) 1
2 (672)
At 31 December 2012
5,233
321
14,292
19,846
Accumulated depreciation and impairment: At 1 January 2012
Acquisition of businesses Disposals Exchange
1
1,510
250
10,870
12,630
Prior year restatement
—
(144)
(234)
(378)
Depreciation charge for the year
91
35
871
997
Impairment charge for the year
—
—
7
Disposals Exchange
— —
— —
(632) (1)
7 (632)
At 31 December 2012
1,601
141
10,881
12,623
Net book value at 31 December 2012
3,632
180
3,411
7,223
(1)
The net book value of plant, equipment and vehicles includes an amount of £557,000 (2011: £495,000) in respect of assets held under finance leases and hire purchase agreements. Freehold land of £724,000 (2011: £724,000) is not depreciated.
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13. Property, plant and equipment continued Freehold land and buildings £’000
Leasehold land and buildings £’000
Plant, equipment and vehicles £’000
Total £’000
Cost: 5,588
1,172
18,263
25,023
Additions
At 1 July 2010
21
52
1,261
1,334
Acquisition of businesses
—
—
21
21
(376) — —
— (244) (528)
(1,096) (2,858) (816)
(1,472) (3,102)
—
—
79
79
5,233
452
14,854
20,539
1,402
637
11,642
136 —
74 69
2,304 495
13,681 2,514
(28)
—
(881)
(909)
Disposals Disposal of businesses Transfer to assets held for sale Exchange At 31 December 2011
(1,344)
Accumulated depreciation and impairment: At 1 July 2010 Depreciation charge for the period Impairment charge for the period Disposals
564
Disposal of businesses
—
(236)
(2,401)
(2,637)
Transfer to assets held for sale
—
(294)
(352)
(646)
Exchange
—
—
63
63
At 31 December 2011
1,510
250
10,870
12,630
Net book value at 31 December 2011
3,723
202
3,984
7,909
2012 £’000
2011 £’000
— 800
800
800
1,200
14. Deferred consideration receivable Non-current deferred consideration receivable Current deferred consideration receivable
400
The disposal of the Group’s connector plate operations in December 2011 included deferred consideration of £1,200,000. An amount of £400,000 was received in December 2012 and the remaining £800,000 is receivable in December 2013. No conditions are attached to the deferred consideration receivable.
15. Operating lease commitments Future minimum rentals payable under non-cancellable operating leases are as follows:
Within one year Between two and five years After five years
Property 2012 £’000
Other 2012 £’000
Property 2011 £’000
Other 2011 £’000
356 405 —
22 22 —
335 513 690
18 19
761
44
1,538
37
Operating lease payments represent rentals payable by the Group for certain of its properties and other assets. The property leases are subject to periodic rent reviews.
16. Capital commitments Capital expenditure commitments of £20,000 (2011: £nil) have been placed with suppliers at 31 December 2012.
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—
Eleco plc | Annual Report and Accounts 2012
46
Notes to the Consolidated Financial Statements Continued
17. Inventories 2012 £’000
2011 £’000
Raw materials and components
1,075
1,023
Finished goods
1,069
1,258
2,144
2,281
At 31 December 2012 the Group’s inventory provisions were £109,000 (2011: £137,000). The amount written off to the income statement in respect of written down inventories was £60,000 (2011: £58,000). There is no material difference between the book value and the replacement cost of the inventories shown.
18. Construction contracts Contracts in progress at the balance sheet date were as follows: 2012 £’000
2011 £’000
Amounts due from contract customers included in trade and other receivables Amounts due to contract customers included in trade and other payables
9 (59)
97
(50)
(286)
Contract costs incurred plus recognised profits less recognised losses to date
3,086
9,930
Less: progress invoicing
(3,136)
(10,216)
(50)
(286)
(383)
Retentions held by customers for construction contracts at 31 December 2012 were £214,000 (2011: £388,000).
19. Trade and other receivables 2012 £’000
2011 £’000
Gross trade receivables Impairment
6,178 (453)
7,277
Net trade receivables
5,725
6,995
(282)
Amounts recoverable on contracts
9
97
Other receivables Prepayments and accrued income
320 851
374 928
6,905
8,394
The Group offers credit terms to customers depending on the credit status of the customer. The Group makes provision against trade receivables when it considers them to be impaired and takes into account the specific circumstances of the receivable and the Group’s relationship with the customer. The average credit period taken on the sales of goods and services is 55 days (2011: 58 days). No interest is charged on past due trade receivables (2011: £nil). The carrying amounts of trade and other receivables are denominated in the following currencies:
Sterling Euro Swedish Krona South African Rand Other
2012 £’000
2011 £’000
4,024 597 2,220 — 64
5,908 353 2,092 13
6,905
8,394
28
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19. Trade and other receivables continued Movement in the provision for doubtful debts in respect of trade receivables during the period was as follows: 2012 £’000
2011 £’000
B/f
(282)
(246)
Restatement in respect of previous year
(262)
—
Written off as uncollectable Recovered during the period Provided against during the period Exchange
195 33 (136) (1)
324 80 (437)
(453)
(282)
(3)
Provision amounts associated with fully provided doubtful debts were excluded from the opening balance at 1 January 2012 and are shown as a restatement adjustment. The ageing of trade receivables at the balance sheet date that are past due but against which no provision has been made is as follows:
Not more than three months More than three months but less than six months More than six months but less than one year More than one year
2012 £’000
2011 £’000
431 73
370
1
133
94
—
—
505
597
Credit insurance is purchased by the ElecoBuild® division to mitigate exposure to credit risk. The main factors used in assessing the impairment of trade receivables are the age of the balance and the circumstances of the individual customer. Management has no indication that unimpaired amounts will be irrecoverable.
20. Trade and other payables Trade payables Payments received on account Other taxation and social security Deferred consideration payable Other liabilities
2012 £’000
2011 £’000
3,589 59
3,756
856
1,595
66
146
383
392
738
4,962
6,618
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 48 days (2011: 45 days). The Directors consider that the carrying amount of trade payables approximates to their fair value.
21. Borrowings Current liabilities: Bank loans and overdrafts Obligations under finance leases and hire purchase contracts Non-current liabilities: Bank loans Obligations under finance leases and hire purchase contracts Total loans and borrowings
2012 £’000
2011 £’000
5,401
5,900
212
141
5,613
6,041
2,025
2,925
319
359
2,344
3,284
7,957
9,325
The Group’s facilities with Lloyds Banking Group are explained on page 13 of the Operating and Financial Review.
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Notes to the Consolidated Financial Statements Continued
21. Borrowings continued The bank loans and overdrafts are repayable as follows:
In one year or less
2012 £’000
2011 £’000
5,401
5,900
Between one and two years
900
900
Between two and five years More than five years
1,125 —
2,025 —
7,426
8,825
2012 £’000
2011 £’000
212 229 90
141 173
531
500
Present lease value £’000
Interest £’000
Minimum lease payments £’000
In one year or less Between one and two years
212 229
21 11
Between two and five years
90
3
93
At 31 December 2012
531
35
566
In one year or less
141
19
Between one and two years Between two and five years
173 186
13 5
160 186
At 31 December 2011
500
37
537
Insurance premium provision £’000
Total £’000
The principal commitments of the Group under finance leases are repayable as follows:
Plant, equipment and vehicles: In one year or less Between one and two years Between two and five years
186
The minimum lease payments of the Group under finance leases are as follows:
233 240
191
22. Provisions Onerous contract provision £’000
Property dilapidation provision £’000
Restructuring provision £’000
At 1 January 2012 Charge to the income statement Utilised in the year
— 173 —
— 65 —
— — —
133 — (38)
133 238
At 31 December 2012
173
65
—
95
333
Current liabilities
173
65
—
18
256
—
—
—
77
77
173
65
—
95
333
Non-current liabilities
(38)
Contract provisions are made based upon management’s best estimate, where the expected economic benefits from specific contracts are less than those costs of meeting those contract obligations, and principally relate to ongoing contract disputes. The period over which these are expected to unwind is in the year to 31 December 2013. The property dilapidation provision relates to various properties where notice has been given to terminate the lease arrangement. The insurance premium provision represents the expected cost of the professional indemnity run off insurance premiums following the sale of the timber frame manufacturing business and the two connector plate businesses in 2011.
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22. Provisions continued Onerous contract provision £’000
Property dilapidation provision £’000
Restructuring provision £’000
268
87
—
—
(268)
At 31 December 2011 Current liabilities Non-current liabilities
At 1 July 2010 Charge to the income statement Utilised in the period
Insurance premium provision £’000
Total £’000
765
—
1,120
—
133
133
(87)
(765)
—
(1,120)
—
—
—
133
133
—
—
—
60
60
—
—
—
73
73
—
—
—
133
133
Other £’000
Total £’000
23. Deferred tax The movement in the deferred tax liabilities analysed by category is shown below: Temporary differences Nondeductible intangible assets £’000
Accelerated capital allowances £’000
At 1 January 2012 (Credit)/charge to the income statement Exchange
544 (146) —
(40) (134) —
At 31 December 2012
398
At 1 July 2010
737
(Credit)/charge to the income statement
(46) 46 —
(37) (16) (1)
421 (250) (1)
(174)
—
(54)
170
(211)
(132)
(91)
303
(193)
171
86
43
107
—
—
—
11
11
544
(40)
(46)
(37)
421
2012 £’000
2011 £’000
Exchange At 31 December 2011
Share-based payments £’000
Deferred tax on temporary differences has been calculated at the rate of 23.0% (2011: 26.0%). The movement in the retirement benefit obligation deferred tax asset is shown below:
B/f (Credit)/charge to the statement of comprehensive income
1,289 100
(1,461)
1,389
1,289
Deferred tax assets, excluding deferred tax relating to the retirement benefit obligation, and liabilities are presented as non-current in the consolidated balance sheet. Deferred tax unprovided in respect of investments in subsidiaries is £4,492,000 (2011: £4,131,000) due to the unpredictability of future profit streams against which these losses may be offset. These losses may be carried forward indefinitely.
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2,750
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50
Notes to the Consolidated Financial Statements Continued
24. Retirement benefit obligations Eleco plc operates one defined benefit scheme in the UK, the Eleco Retirement and Benefits Scheme (ERBS). The ERBS provides benefits on two scales based on final pensionable pay. The assets of the ERBS are held in a separate trustee administered fund and contributions into the ERBS are determined by a qualified actuary on the basis of triennial valuations. The valuation used for disclosures has been based on the most recent full actuarial valuation as at 30 June 2008 updated at 31 December 2012 by an independent qualified actuary under an appropriate method given the ERBS is closed to new members. Company contributions totalled £1,668,000 (2011: £1,205,000) and the scheme closed to future accrual on 31 December 2010. The estimated amount of contributions expected to be paid to the scheme during 2013 is £1,078,000. Consultec Group AB and subsidiaries contribute to a defined benefits scheme under the ITP pension arrangement operated by Alecta, a Swedish insurance company. Contributions to the scheme totalling £243,000 (2011: £362,000) were made during the period. This is a multi-employer scheme and accordingly the Group is unable to identify its share of the surplus in the scheme on a reasonable and consistent basis. Consequently, the scheme has been accounted for as a defined contribution scheme. Contributions are paid into the fund operated by Alecta pension insurance in respect of each employee at rates defined by Alecta each year, having taken account of the solvency margin of the scheme. The solvency margin, which Alecta is required to maintain below 155%, represents the extent to which the market value of the assets of the fund, calculated by Alecta, exceeds its pension commitments. At 31 December 2012, the fund had a solvency margin of 144.0% (2011: 126.0%). The principal assumptions used by the actuary for the ERBS were (in nominal terms):
Rate of increase in salaries Rate of increase in pension payment: – Pre-1997 increases – 1997 to 2005 increases – Post-2005 increases Discount rate Price inflation
At 31 December 2012
At 31 December 2011
At 30 June 2010
At 30 June 2009
At 30 June 2008
n/a
n/a
3.70%
4.35%
3.65%
2.10% 2.75% 1.85% 4.35% 2.87%
2.15% 2.85% 1.90% 4.90% 3.00%
3.00% 3.10% 2.50% 5.40% 3.20%
3.00% 3.10% 2.50% 6.40% 3.20%
3.00% 3.95% 2.50% 6.50% 4.10%
The cash commutation used was 100% tax free cash on retirement (2011: 100%). The mortality rate used is PA92 medium cohort with 1% floor, rated up one year advised by the Institute of Actuaries. The assumed life expectations are as follows:
Future expected lifetime of current pensioner at age 65: – Male aged 65 – Female aged 65 Future expected lifetime of future pensioner at age 65: – Male aged 65 – Female aged 65
2012 Years
2011 Years
22.0 25.3
22.0 25.3
24.0 27.4
27.4
Value at 31 December 2011 £’000
24.0
The assets in the scheme and the expected rate of return were: Long-term rate of return expected at 31 December 2012
Value at 31 December 2012 £’000
Long-term rate of return expected at 31 December 2011
Equities Fixed interest bonds Hedge fund Insurance annuity contracts Cash
6.10% 3.05% 6.10% 4.05% 2.30%
2,842 5,325 11,166 253 625
6.80% 3.85% — 4.90% 3.00%
Total market value of assets
5.15%
20,211
4.66%
Present value of scheme obligations Liability in the scheme
6,128 8,241 — 225 3,937 18,531
(26,246)
(23,490)
(6,035)
(4,959)
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24. Retirement benefit obligations continued Analysis of the amounts charged to administrative expenses in the income statement: Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
Past service cost
—
(459)
Total operating credit
—
(459)
Analysis of the amount (charged)/credited to financial income in the income statement: Year ended 31 December 2012 £’000
Expected return on pension scheme assets Interest on pension scheme liabilities Net finance cost
18 months ended 31 December 2011 £’000
859 (1,128)
(1,964)
1,442
(269)
(522)
The analysis of actual return on plan assets is as follows: Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
Expected return on pension scheme assets Gain on pension scheme assets
859 106
1,442
Actual return on plan assets
965
3,426
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
1,984
Analysis of the amount recognised in the statement of comprehensive income is as follows:
Actual return less expected return on pension scheme assets Changes in assumptions underlying the present value of the liabilities
106 (2,581)
1,984 1,736
Actuarial (loss)/gain
(2,475)
3,720
The cumulative amount recognised in the other comprehensive income statement since the date of transition is a gain of £7,369,000 (2011: £9,844,000). The movement in the fair value of plan assets during the year is as follows: 2012 £’000
B/f Expected return on scheme assets Surplus in actual return on scheme assets Contributions Section 75 contribution Benefits paid
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2011 £’000
18,531 859 106 1,073 595 (953)
15,405 1,442 1,984 1,205 —
20,211
18,531
Financials
(1,505)
Eleco plc | Annual Report and Accounts 2012
52
Notes to the Consolidated Financial Statements Continued
24. Retirement benefit obligations continued The movement in the defined benefit obligation during the year is as follows:
B/f
2012 £’000
2011 £’000
23,490
25,226
Interest cost
1,128
1,964
Past service cost Actuarial losses/(gains) Benefits paid
— 2,581 (953)
(459) (1,736)
26,246
23,490
At 30 June 2009 £’000
At 30 June 2008 £’000
(1,505)
The five year history of experience adjustments is as follows: At 31 December 2012 £’000
Present value of defined benefit obligations Fair value of scheme assets
At 31 December 2011 £’000
At 30 June 2010 £’000
(26,246) 20,211
(23,490) 18,531
(25,226) 15,405
(22,530) 12,931
(22,669)
(6,035)
(4,959)
(9,821)
(9,599)
(7,961)
Experience adjustments on scheme assets: Amount
106
2,047
1,679
(2,760)
(2,745)
Percentage of scheme assets
1%
11%
11%
-21%
-19%
Deficit in the scheme
14,708
Experience (losses)/gains on scheme liabilities: Amount
(472)
81
(251)
(391)
624
Percentage of scheme liabilities
-2%
0%
-1%
-2%
3%
2012 Nominal value £’000
2011 Nominal value £’000
Authorised: 85,000,000 (2011: 85,000,000) ordinary shares of 10p each
8,500
8,500
Allotted, called up and fully paid: 60,658,239 (2011: 60,658,239) ordinary shares of 10p each
6,066
6,066
25. Called up share capital
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26. Share-based payments The Company operates one share scheme and all outstanding options over ordinary shares granted under this scheme had lapsed at 31 December 2012. Details of the number of options over ordinary shares outstanding during the year are as follows: At 31 December 2012
Number
Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed during the year
At 31 December 2011
Weighted average fair value per share
Number
Weighted average fair value per share
210,000 — — (210,000)
79.4 — — 79.4
540,000 — — (330,000)
79.5 — — 79.6
Outstanding at the end of the year
—
—
210,000
79.4
Exercisable at the end of the year
—
—
210,000
—
The options outstanding at 31 December 2012 were nil and no options were exercised in the period (2011: nil). The expense recognised by the Group for share-based payments under the Long Term Incentive Plan in respect of employee services during the year ended 31 December 2012 was £nil (2011: £nil). The Employee Share Ownership Trust held 896,593 shares at 31 December 2012 with a market value of £69,000 (2011: £87,000) and has waived its entitlement to dividends on ordinary shares held by it until such time as they are vested in employees.
27. Acquisitions On 14 March 2012 the Group acquired the business and certain assets of Novator Projekstyrning AB, of Sweden, enhancing its range of product planning software for a total consideration of £83,000. The consideration comprised the payment of £46,000 in cash from the Group’s existing resources and deferred consideration of £37,000. In addition to the cash consideration paid for Novator in the year, £117,000 of deferred consideration was paid for Lubekonsult AB, acquired in 2010, and £29,000 of deferred consideration was paid for Nilsson & Sahilin Arkitekter AB, acquired in 2011. An analysis of the provisional fair value of the Novator net assets acquired and the fair value of the consideration paid is set out below: Book value £’000
Fair value adjustments £’000
Provisional fair value £’000
2
—
2
2
—
2
—
—
—
—
—
—
2
—
Goodwill
2 81
Total consideration
83
Property, plant and equipment Deferred income Net assets
Satisfied by: Cash
46 37
Deferred purchase consideration
83 In the period since acquisition, Novator contributed £44,000 to the Group’s operating profit. It utilised £nil for purchase of property plant and equipment and £nil for financing activities. Included in the £81,000 of goodwill recognised above are certain intangible assets that cannot be individually, separately and reliably measured from the acquiree due to their nature. These items include the value of the management and workforce together with synergies that are expected to be gained from being part of the Group. If the acquisition had been completed at the beginning of the reporting period, turnover from continuing operations would have been £193,000 higher, and loss from continuing operations of £44,000 lower.
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Eleco plc | Annual Report and Accounts 2012
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Notes to the Consolidated Financial Statements Continued
28. Financial instruments (a) Financial assets and liabilities The carrying amount and fair value of financial assets and liabilities at the period end are set out below: 2012 £’000
2011 £’000
Cash and cash equivalents
888
4,748
Trade and other receivables
6,054
7,466
Financial assets:
Deferred consideration
800
1,200
Loans and other receivables
7,742
13,414
Financial liabilities: Trade and other payables
4,106
5,023
Bank loans and overdrafts
7,426
8,825
531
500
Obligations under finance leases Non-current liabilities Financial liabilities held at amortised cost
85
113
12,148
14,461
The carrying value of the Group’s financial assets and liabilities are considered to approximate their respective fair values. (b) Interest rate and currency profile of financial assets and liabilities The interest rate and currency profiles of the Group’s financial assets and liabilities are set out below: Financial liabilities Floating rate £’000
Sterling Euro Swedish Krona South African Rand Other
Financial assets Net financial (assets)/ liabilities £’000
Total £’000
Floating rate £’000
Total £’000
10,902 102 1,141 3 —
10,902 102 1,141 3 —
4,194 953 2,465 64 66
4,194 953 2,465 64 66
6,708 (851) (1,324) (61)
At 31 December 2012
12,148
12,148
7,742
7,742
4,406
Sterling
13,117
13,111
9,197
9,197
3,920
49
49
810
810
(761)
1,288
1,288
2,569
2,569
(1,281) (768)
Euro Swedish Krona South African Rand Other At 31 December 2011
(66)
7
7
775
775
—
—
63
63
(63)
14,461
14,461
13,414
13,414
1,047
There are no fixed rate financial assets. The interest rate risk profile of the Group’s finance leases at the period end was: Weighted average period
Sterling Euro Swedish Krona
Weighted average interest rate
2012 Years
2011 Years
2012 %
2011 %
1.9 n/a 1.8
1.5 0.1 2.8
7.01 n/a 5.37
6.77 4.20 7.51
The Group finances its operations through a mixture of retained profits, a term loan and a bank overdraft. The interest rate on the term loan and overdraft facility is linked to the Bank of England base rate. These facilities are not secured against any assets of the Group at 31 December 2012.
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28. Financial instruments continued (c) Currency profile of net foreign currency monetary assets and liabilities The table below shows the net un-hedged monetary assets/(liabilities) of the Group that are not denominated in the functional currency of the operating unit and which therefore give rise to exchange gains and losses in the income statement: Sterling £’000
Euro £’000
Swedish Krona £’000
US Dollar £’000
South African Rand £’000
Other £’000
Total £’000
Euro Swedish Krona
— — —
19 — 13
— — —
14 — 2
— — —
24 — 26
57 —
At 31 December 2012
—
32
—
16
—
50
98
Sterling
—
59
—
3
—
—
62
Euro
—
—
—
—
—
—
—
Swedish Krona
1
13
—
1
—
59
74
At 31 December 2011
1
72
—
4
—
59
136
Functional currency of Group operation
Sterling
41
(d) Market risk: objectives, policies and strategies The Group’s interest rate risks, liquidity risks and currency risks are managed centrally within policies approved by the Board. The net interest payable for the year, before interest on pension scheme assets and liabilities, was £211,000 compared to £63,000 receivable last year. No speculative transactions are undertaken. At present there is no policy to hedge the Group’s currency exposures arising from the profit translation or the effect of exchange rate movements on the Group’s overseas net assets. (e) Market risk: sensitivities A sensitivity analysis for financial assets and liabilities affected by market risk is set out below. Each risk is analysed separately and shows the sensitivity of financial assets and liabilities when a certain parameter is changed. The sensitivity analysis has been performed on period end balances each year and therefore is not representative of transactions throughout the year. The rates used are based on historical trends and, where relevant, projected forecasts. (i) Currencies The Group is exposed to currency risk in relation to the value of its financial assets and liabilities that are denominated in currencies other than Sterling (see Note 28c above), arising from fluctuations in exchange rates. The table below shows the impact on the value of the Group’s reported net financial assets at 31 December of exchange rates either strengthening or weakening by 10%. against Sterling and the impact this would have on the reported profit or loss and equity. The Group’s reported equity would be £301,000 lower if Sterling strengthen by 10%. and £219,000 higher if Sterling weakened by 10%. Effect of Sterling strengthening by 10%
Net financial (assets)/liabilities
2012 As reported £’000
Rate +10% £’000
Profit/(loss) £’000
Effect of Sterling weakening by 10% Equity £’000
Rate -10% £’000
Profit/(loss) £’000
Equity £’000
Denominated in Sterling Not denominated in Sterling
6,764 (2,358)
— 219
— (114)
— (301)
— (267)
— 140
219
Total net financial liabilities
4,406
219
(114)
(301)
(267)
140
219
2011 As reported £’000
Rate +10% £’000
Profit/(loss) £’000
Effect of Sterling strengthening by 10%
Net financial (assets)/liabilities
—
Effect of Sterling weakening by 10% Equity £’000
Rate -10% £’000
Profit/(loss) £’000
Equity £’000
Denominated in Sterling Not denominated in Sterling
3,920 (2,873)
— 267
— (187)
— (321)
— (335)
— 229
573
Total net financial liabilities
1,047
267
(187)
(321)
(335)
229
573
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—
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56
Notes to the Consolidated Financial Statements Continued
28. Financial instruments continued (e) Market risk: sensitivities continued (ii) Interest rates Changes in market interest rates expose the Group to the risk of fluctuations in the cash flow relating to its financial assets and liabilities some of which attract interest at floating rates (see Note 28b above). Based upon the interest rate profile of the Group’s financial assets and liabilities as at 31 December, the table below shows the impact of a one percentage point change in the market interest rates on the Group’s profit and equity: Effect of increase in interest rates of 1%
Continuing operations
Net finance cost
2012 As reported £’000
(226)
Rate +1% £’000
(68)
Profit/(loss) £’000
(68)
Effect of decrease in interest rates of 1% Equity £’000
(68)
Effect of increase in interest rates of 1%
Continuing operations
Net finance cost
2011 As reported £’000
(186)
Rate +1% £’000
(159)
Profit/(loss) £’000
(159)
Rate -1% £’000
Profit/(loss) £’000
Equity £’000
53
53
53
Effect of decrease in interest rates of 1% Equity £’000
(159)
Rate -1% £’000
Profit/(loss) £’000
Equity £’000
145
145
145
The finance cost for the year is before interest on pension scheme assets and liabilities. (f) Liquidity risk The Group monitors its liquidity to maintain a sufficient level of undrawn committed debt facilities together with central management of the Group’s cash resources to minimise liquidity risk. The contractual maturities of financial liabilities is as follows:
Trade and other payables Bank loans and overdraft Obligations under finance leases Non-current liabilities At 31 December 2012
Carrying amount £’000
3 months or less £’000
3 to 6 months £’000
6 to 12 months £’000
Between 1 and 2 years £’000
Between 2 and 4 years £’000
3,589 7,550 564 85
3,454 4,786 58 —
106 234 58 —
29 469 114 —
— 924 241 28
— 1,137 93 57 1,287
11,788
8,298
398
612
1,193
Trade and other payables
5,023
4,968
20
35
—
—
Bank loans
8,986
257
5,257
475
937
2,060
Obligations under finance leases
538
40
40
80
186
192
Non-current liabilities
113
—
—
—
28
85
14,660
5,265
5,317
590
1,151
2,337
At 31 December 2011
The bank loans and overdraft and obligations under finance leases carrying amounts are inclusive of interest payable in the period. At 31 December, the Group had available to it the following committed borrowing facilities expiring in the periods shown:
Expiring in one year or less Expiring between one and two years Expiring between two and five years
2012 £’000
2011 £’000
6,150 900 1,125
10,900 900
8,175
13,825
2,025
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28. Financial instruments continued (g) Credit risk Group policies are aimed at minimising losses due to customer payment default. Deferred payment terms are only granted to those customers who satisfy creditworthiness criteria and individual exposures to customers are monitored. Credit insurance is purchased for businesses in the ElecoBuild® division where cost is not excessive compared to the exposure being covered. The maximum exposure to credit risk for uninsured trade receivables only at the reporting date by geographic region is as follows:
UK Scandinavia Rest of Europe Rest of World
2012 £’000
2011 £’000
699 1,959 662 40
1,393 1,826 260
3,360
3,491
12
Deferred consideration of £800,000 receivable in December 2013 is held in Escrow. (h) Capital risk The Group’s objective is to minimise its cost of capital by optimising the efficiency of its capital structure, being the balance between equity and debt. The objective is subject always to an overriding principle that capital must be managed to ensure the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The Group uses a range of financial metrics to monitor the efficiency of its capital structure, including its weighted average cost of capital and net debt to EBITDA and ensures that its capital structure provides sufficient financial strength to allow it to secure access to debt finance at reasonable cost. At 31 December 2012, the Group’s EBITDA for the year was £52,000 (2011: £2,212,000) and net bank borrowings were £6,538,000 (2011: £4,077,000). (i) Hedging instruments There were no hedging instruments outstanding at 31 December 2012 (2011: nil).
29. Contingent liabilities The Group routinely enters into a range of contractual arrangements in the ordinary course of events which can give rise to claims or potential litigation against Group companies. It is the Group’s policy to make specific provisions at the balance sheet date for all liabilities which, in the opinion of the Directors, represent a present obligation and outflow of resources to be probable at the balance sheet date. The Directors have reviewed the open claims and any pending litigation against the Group at 31 December 2012 and concluded that no material unprovided loss is likely to accrue from any such unprovided claims.
30. Related party transactions Transactions between Group undertakings, which are related parties, have been eliminated on consolidation and are not disclosed in this note. With the exception of Matthew L Turner, the Directors of the Company had no material transactions with the Company during the year, other than a result of service agreements. An amount of £109,000 (2011: £123,000) was paid to Shoremountain LLP of which Matthew L Turner is a Director. This was paid under the terms of a consultancy arrangement by the Group. An amount of £25,000 (2011: £37,500) was paid to J H B Ketteley & Co Limited under a lease for occupation by the Group of 66 Clifton Street, London EC2A 4HB.
31. Post-balance sheet events On 17 April 2013 the Group acquired the business and assets of Wagemeyer, of Germany, enhancing the Group’s customer base for its stair design and engineering software for an initial consideration of £42,000 settled by cash from the Group’s existing resources and deferred consideration amounting to a fixed percentage of turnover over three years from the date of completion. On 10 May 2013 the Group sold its excess land in Yaxley, Suffolk for a total consideration of £450,000 less expenses received on completion.
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Independent Auditors’ Report To the members of Eleco plc
We have audited the parent company financial statements of Eleco plc for the period ended 31 December 2012 which comprise the Company balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company’s members, as a body, in accordance with chapter 3 of part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 20, the Directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements In our opinion the parent company financial statements: B give a true and fair view of the state of the Company’s affairs as at 31 December 2012; B have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and B have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: B adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or B the parent company financial statements are not in agreement with the accounting records and returns; or B certain disclosures of Directors’ remuneration specified by law are not made; or B we have not received all the information and explanations we require for our audit.
Other matter We have reported separately on the Group financial statements of Eleco plc for the year ended 31 December 2012.
John Corbishley Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditors, Chartered Accountants Cambridge 14 May 2013
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59
Company Balance Sheet At 31 December 2012
Notes
2012 £’000
2011 £’000
4
13
22
Fixed assets Intangible assets Tangible assets
5
3,659
3,747
Investments
6
27,593
27,504
Debtor due after more than one year
7
—
800
31,265
32,073
Current assets Stocks
8
2
4
Debtors
9
13,641
14,051
—
1,547
Cash at bank and in hand
Creditors: amounts falling due within one year
10
Net current liabilities
13,643
15,602
(19,448)
(22,150)
(5,805)
(6,548)
25,460
25,525
Creditors: amounts falling due after more than one year
11
(2,025)
(2,925)
Provisions for liabilities
12
(462)
(367)
22,973
22,233
Total assets less current liabilities
Net assets Capital and reserves Called up share capital
13
6,066
6,066
Share premium account
14
6,396
6,396
Other reserve
14
6,779
6,757
Profit and loss account
14
3,732
3,014
22,973
22,233
Shareholders’ equity
The financial statements of Eleco plc, registered number 00354915, on pages 59 to 65 were approved by the Board of Directors on 14 May 2013 and signed on its behalf by:
John Ketteley Executive Chairman
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Statement of Company Accounting Policies
The financial statements have been prepared under UK GAAP. A summary of the more important Company accounting policies, which have been applied consistently, is set out below:
Basis of accounting The financial statements are prepared in accordance with the historical cost convention.
Intangible and tangible fixed assets Tangible fixed assets are stated at their purchase cost, together with any incidental costs of acquisition, net of depreciation and provision for impairment. The Company owns intellectual property both in its software tools and software products. Intellectual property acquired is capitalised at cost and is amortised on a straight-line basis over its expected useful life not exceeding 20 years. The current intellectual property assets held by the Company were attributed a useful life of five years and this amortisation period has been used in the accounts. Depreciation is provided on all tangible fixed assets, except freehold and leasehold land, at annual rates calculated to write off the cost, less the estimated residual value of each asset, over its expected useful life as follows: Freehold and long leasehold buildings
– 50 years
Plant, equipment and vehicles
– two to ten years
Investments and loans in subsidiaries Fixed asset investments are shown at cost, together with any incidental costs of acquisition, less any provision for impairment. Provisions are reviewed and adjusted annually to reflect any changes in the carrying value of the underlying subsidiary investments.
Finance and operating leases The capital element of finance lease commitments is shown as obligations under finance leases. The capital element of finance lease rentals is applied to reduce the outstanding obligations under finance leases. The interest element of the rental obligations is charged to the profit and loss account over the period of the lease in proportion to the reducing capital balance outstanding. Amounts payable under operating leases are recognised in the profit and loss account on a straight line basis over the term of the lease.
Share-based payments The cost of equity-settled transactions with employees is measured by reference to the fair value at that date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees is unconditionally entitled to the award. The fair value of the employees services is determined by reference to the fair value of instruments granted using an appropriate pricing model. In valuing equity-settled transactions, account is taken of the probabilities of performance achievement and other conditions linked to the price of the shares of the Company (market conditions). No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity. Shares, the subject of share awards granted under the Long Term Incentive Plan, may be allotted to the employee share ownership trust at any time from the date of grant. The shares held by the trust do not qualify for dividends and are deducted from equity attributable to shareholders of the parent through other reserves.
Foreign exchange Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain/loss in the profit and loss account.
Taxation Current UK corporation tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at the date will result in an obligation to pay more tax or a right to pay less or to receive more tax, with the following exceptions: B provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiary undertakings only to the extent that, at the balance sheet date, dividends have been accrued as receivable; and B deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
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Notes to the Company Financial Statements
1. Profit for the year As permitted by Section 408 of the Companies Act 2006, the parent company’s profit and loss account has not been included in these financial statements. The parent company’s profit for the financial year was £718,000 (2011: loss £2,885,000).
2. Employees The aggregate remuneration of the Directors is shown in the employee note on page 39. The average number of employees during the year including Directors by function was as follows:
Management Administration
2012 Number
2011 Number
5 5
5
10
13
8
Certain employees considered to be in Group roles were transferred to the parent company at the beginning of the period from other Group companies. Their aggregate remuneration comprised:
Wages and salaries Social security costs Pension costs Share-based payments
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
812 113
1,259
67 —
153 —
992
1,585
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
173
3. Dividends paid and proposed 2012 per share
Ordinary shares
2011 per share
Declared and paid during the year Interim – current year
—
—
—
—
Final – previous year
—
—
—
—
—
—
—
—
The Directors recommend that no final dividend be paid. The total dividend for the year amounts to £nil (2011: £nil).
4. Intangible fixed assets Intellectual property £’000
Cost: At 1 January 2012
1,476
Additions
50
At 31 December 2012
1,526
Accumulated amortisation and impairment: At 1 January 2012
1,454
Amortisation charge for the year
59
At 31 December 2012
1,513
Net book value at 31 December 2012
13
Net book value at 31 December 2011
22
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Notes to the Company Financial Statements Continued
5. Tangible fixed assets Freehold land and buildings £’000
Leasehold land and buildings £’000
Plant, equipment and vehicles £’000
Total £’000
5,232
19
212
5,463
—
—
19
19
At 31 December 2012
5,232
19
231
5,482
Accumulated depreciation: At 1 January 2012
1,510
19
187
1,716
90
—
17
107
At 31 December 2012
1,600
19
204
1,823
Net book value at 31 December 2012
3,632
0
27
3,659
Net book value at 31 December 2011
3,722
0
25
3,747
Cost: At 1 January 2012 Additions
Depreciation charge for the period
The net book value of plant equipment and vehicles includes an amount of £nil (2011: £nil) in respect of assets held under finance leases and hire purchase agreements. Freehold land of £724,000 (2011: £724,000) is not depreciated.
6. Investments in subsidiaries Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. Shares at cost £’000
Loans £’000
Total £’000
Cost: At 1 January 2012 Additions Disposal
21,076 — —
64,275 1,233 (1,144)
85,351 1,233 (1,144)
At 31 December 2012
21,076
64,364
85,440
Accumulated provision: At 1 January 2012
13,339
44,508
—
—
57,847 —
Charge to profit and loss account
13,339
44,508
57,847
Net book value at 31 December 2012
At 31 December 2012
7,737
19,856
27,593
Net book value at 31 December 2011
7,737
19,767
27,504
The Company reviewed the carrying value of its loans and investments in subsidiaries based on value in use calculations performed on the cash flow projections of this business. These cash flow projections were based on the business unit budgets and strategic plans discounted by the Group’s WACC outlined in Note 11 on page 42. The calculations did not identify a shortfall in the value in use of the loans and investments compared to their carrying amount (2011: £6,218,000). The principal subsidiary undertakings are unlisted and wholly owned. They are registered in England and Wales, where their operations are located in the United Kingdom. Overseas subsidiary undertakings are incorporated in their country of operations.
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6. Investments in subsidiaries continued Company
Country of operations
ElecoSoft® Asta Development plc
UK
Eleco Software Limited Consultec Group AB
UK Sweden
Consultec ByggProgram AB Consultec System AB Consultec Arkitekter & Konstruktörer AB Asta Development GmbH Eleco Software GmbH Esign Software GmbH ElecoBuild®
Sweden Sweden Sweden Germany Germany Germany
Bell & Webster Concrete Limited Milbury Systems Limited SpeedDeck Building Systems Limited Downer Cladding Systems Limited Prompt Profiles Limited Stramit Panel Products Limited
UK UK UK UK UK UK
The ordinary shares in the above companies are held through intermediate holding companies except Esign Software GmbH.
7. Debtors due after more than one year Deferred consideration receivable after more than one year
2012 £’000
2011 £’000
—
800
—
800
2012 £’000
2011 £’000
2
4
2012 £’000
2011 £’000
4 121 333 800 — 48 12,335
5 122 347 400 3 94 13,080
13,641
14,051
8. Stock Finished goods
9. Debtors Trade debtors Other debtors Prepayments and accrued income Deferred consideration Corporation tax Deferred tax Amounts due from subsidiary undertakings
The disposal of the Group’s connector plate businesses in December 2011 included deferred consideration of £1,200,000. An amount of £400,000 was received in December 2012 and the remaining £800,000 is receivable in December 2013. No conditions are attached to the deferred consideration receivable.
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Notes to the Company Financial Statements Continued
10. Creditors: amounts falling due within one year Bank loans and overdrafts Trade creditors Other creditors Accruals and deferred income Other taxation and social security Amounts due to subsidiary undertakings
2012 £’000
2011 £’000
6,176
5,900
513 87
226 388
434 74 12,164
727 2 14,907
19,448
22,150
2012 £’000
2011 £’000
2,025
2,925
2,025
2,925
2012 £’000
2011 £’000
6,176 900 1,125 —
5,900 900 2,025
8,201
8,825
Insurance premium provision £’000
Total £’000
11. Creditors: amounts falling due after more than one year Bank loans
Bank loans and overdrafts are repayable as follows:
In one year or less Between one and two years Between two and five years More than five years
—
12. Provisions Provisions for losses in subsidiaries £’000
At 1 January 2012 Reclassification Utilised in the year
367 — —
— 133 (38)
367 133
At 31 December 2012
367
95
462
At 31 December 2011
367
—
367
(38)
The insurance premium provision represents the expected cost of the professional indemnity run off insurance premiums following the sale of the timber frame manufacturing business and the two connector plate business in 2011.
13. Called up share capital 2012 Nominal value £’000
2011 Nominal value £’000
Authorised: 85,000,000 (2011: 85,000,000) ordinary shares of 10p each
8,500
8,500
Allotted, called up and fully paid: 60,658,239 (2011: 60,658,239) ordinary shares of 10p each
6,066
6,066
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14. Share-based payments The Company operates one share scheme and all outstanding options over ordinary shares granted under this scheme had lapsed at 31 December 2012. Details of the number of options over ordinary shares outstanding during the year are as follows: At 31 December 2012
Number
Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed during the year
At 31 December 2011
Weighted average fair value per share
Number
Weighted average fair value per share
210,000 — — (210,000)
79.4 — — 79.4
540,000 — — (330,000)
79.5 — — 79.6
Outstanding at the end of the year
—
—
210,000
79.4
Exercisable at the end of the year
—
—
210,000
—
The options outstanding at 31 December 2012 were nil and no options were exercised in the period (2011: nil). The expense recognised in respect of services of employees of the Company for share-based payments under the Long Term Incentive Plan during the year ended 31 December 2012 was £nil (2011: £nil).
15. Reserves Share premium £’000
Other reserve £’000
Profit and loss account £’000
At 1 January 2012 Profit for the year Other movements
6,396 — —
6,757 — 22
3,014 718
At 31 December 2012
6,396
6,779
3,732
Property 2012 £’000
Property 2011 £’000
35 35 —
25 25
70
50
—
The other reserve carried forward includes the shares in the Company held by the Employee Share Ownership Trust.
16. Operating lease commitments Annual commitments under operating leases are as follows:
Leases expiring: Within one year Between two and five years After five years
—
17. Related party transactions The Company has taken advantage of the exemption granted by paragraph 3(c) of amended FRS 8 not to disclose transactions with other Group companies as all subsidiaries are wholly owned. The Directors of Eleco plc had no material transactions with the Company during the year, other than as a result of service agreements or as disclosed in the Directors’ Report. Details of the Directors’ remuneration are disclosed in the Directors’ Report on page 17.
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Five Year Summary
Year ended 31 December 2012 £’000
18 months ended 31 December 2011 £’000
Year ended 30 June 2010 £’000
Year ended 30 June 2009 £’000
Year ended 30 June 2008 £’000
ElecoSoft®
15,821
23,448
13,661
ElecoBuild®
18,405
13,395
13,734
34,865
33,161
57,369
72,001
(49)
(1,491)
(914)
(209)
(826)
Revenue
Intercompany elimination
(restated)*
34,177
56,822
45,908
70,555
84,909
—
27,039
12,603
—
—
ElecoSoft®
1,793
2,214
290
(148)
945
ElecoBuild®
(1,152)
(465)
(3,577)
641
7,396
Corporate
(931)
(1,606)
n/a
n/a
n/a
Continuing operations
(290)
143
(3,287)
493
8,341
Exceptionals
(1,612)
(365)
606
(1,643)
(319)
Profit/(loss) from operations
(1,902)
(222)
(2,681)
(1,150)
8,022
Finance income/(expense)
(495)
(708)
(554)
(280)
202
Profit/(loss) before taxation
(2,397)
(930)
(3,235)
(1,430)
8,224
76
(279)
350
(39)
(2,091)
(2,321)
(1,209)
(2,885)
(1,469)
6,133
8,850
14,155
15,346
21,566
25,887
Continuing operations Discontinued operations Profit/(loss) from operations before exceptionals
Taxation Profit/(loss) after taxation Total operations Shareholders’ equity Earnings/(loss) per share (basic)
(4.6)p
(4.6)p
(9.1)p
(2.5)p
10.6p
Dividend per share
0.00p
0.00p
0.00p
2.40p
2.80p
* Restated following disposal of connector plate and timber frame operations in 2011.
Interim results September 2013
Annual General Meeting 25 June 2013 – 12 noon at the Brewers’ Hall, Aldermanbury Square, London EC2V 7HR
Capital Gains Tax The price of one ordinary share of 10p on 31 March 1982 was 70.5p
www.eleco.com
67
Notice of Meeting
NOTICE is hereby given that the 73rd Annual General Meeting of Eleco plc (the “Company”) will be held at the Brewers’ Hall, Aldermanbury Square, London EC2V 7HR on 25 June 2013 at 12.00 noon for the purpose of considering and, if thought fit, passing the following resolutions. Resolutions numbered 1 to 5 will be proposed as Ordinary Resolutions and Resolutions numbered 6 and 7 will be proposed as Special Resolutions.
Ordinary business 1. To receive the financial statements for the year ended 31 December 2012, together with the reports of the Directors and Auditors. 2. To re-elect John H B Ketteley, who retires by rotation, as a Director of the Company. 3. To re-elect Jonathan Cohen, who retires by rotation, as a Director of the Company. 4. To re-appoint Grant Thornton UK LLP as auditors of the Company and to authorise the Directors to determine their remuneration.
Special business 5. Authority to allot shares That the Directors be generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (the “Act”) to allot: (a) shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £2,021,941; and in addition (b) equity securities of the Company (within the meaning of Section 560 of the Act) in connection with an offer of such securities by way of a rights issue (as defined below) up to an aggregate nominal amount of £2,021,941, provided that this authority shall expire on the conclusion of the next Annual General Meeting of the Company but so that the Company may, before such expiry, make an offer or agreement which would or might require shares to be allotted or rights to subscribe for or convert securities into shares to be granted after such expiry and the Directors may allot shares or grant rights to subscribe for or convert securities into shares pursuant to such an offer or agreement as if this authority had not expired. “Rights issue” means an offer of equity securities to holders of ordinary shares in the capital of the Company on the register on a record date fixed by the Directors in proportion as nearly as may be to the respective numbers of ordinary shares held by them, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with any treasury shares, fractional entitlements or legal or practical issues arising under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory or any other matter. 6. Disapplication of pre-emption rights That subject to and conditional on the passing of Resolution 5, the Directors be empowered, pursuant to Section 570 of the Act, to allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the authority conferred by Resolution 5 and as if Section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities: (a) in connection with an offer of such securities by way of a rights issue (as defined above); and (b) otherwise than pursuant to paragraph 6(a) above up to an aggregate nominal amount of £303,291 and shall expire at the conclusion of the next Annual General Meeting of the Company, save that the Company may, before such expiry, make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement as if this power had not expired. This power applies in relation to a sale of treasury shares as if all references in this resolution to an allotment included any such sale and in the first paragraph of this resolution the words “pursuant to the authority conferred by Resolutions” were omitted in relation to such sale. 7. Purchase of the Company’s own shares That subject to and in accordance with the Company’s Articles of Association, the Company be and is hereby generally and unconditionally authorised for the purposes of Section 701 of the Act to make market purchases (within the meaning of Section 693(4) of the Act) of equity securities of the Company up to an aggregate nominal amount of £606,582 at a price per share (exclusive of expenses) of not less than 10p and not more than 105% of the average of the middle market quotations for such equity securities as derived from the London Stock Exchange Daily Official List for the five dealing days immediately preceding the date on which the equity securities are contracted to be purchased, provided that this authority shall expire at the conclusion of the next Annual General Meeting provided that the Company may purchase, before such expiry, make a contract to purchase its own shares which would or might be executed wholly or partly after such expiry and the Company may make a purchase of its own shares in pursuance of such contract as if the authority hereby conferred had not expired. By order of the Board
Ivor A Barton Group Company Secretary 23 May 2013
Registered Office: Eleco plc 66 Clifton Street London EC2A 4HB
Overview
Business Review
Governance
Financials
Eleco plc | Annual Report and Accounts 2012
68
Notice of Meeting continued
Notes: 1. A member entitled to attend, speak and vote at the Annual General Meeting (AGM) may appoint one or more proxies (who need not be members of the Company) to exercise these rights instead of him. A proxy form is enclosed. A member may appoint more than one proxy, provided that each proxy is appointed to exercise the rights attached to different shares. To be effective, an instrument appointing a proxy must be returned so as to reach the Company’s registrars, Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 12.00 noon on 21 June 2013. The appointment of a proxy will not preclude a member from attending and/or voting at the meeting should he subsequently decide to do so. 2. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, entitlement to attend and vote at the meeting and the number of votes which may be cast thereat will be determined by reference to the Register of Members of the Company at 6.00pm on the day which is two working days before the day of the meeting or adjourned meeting. Changes to entries on the Register of Members after that time shall be disregarded in determining the rights of any person to attend and vote at the meeting. 3. To appoint one or more proxies or to give an instruction to a proxy (whether previously appointed or otherwise) via the CREST system, CREST messages must be received by the issuer’s agent (ID number RA10) no later than 12.00 noon on 21 June 2013. For this purpose, the time of receipt will be taken to be the same (as determined by the timestamp generated by the CREST system) from which the issuer’s agent is able to retrieve the message. The Company may treat as valid a proxy appointment sent by CREST in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 4. To be effective, all proxies must be lodged no later than 12.00 noon on 21 June 2013 at the Company’s registrars at: Capital Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU. 5. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. 6. Copies of contracts of service and letters of appointment between the Directors and the Company will be available for inspection at the Registered Office of the Company during normal business hours until the conclusion of the Annual General Meeting and at the place of the meeting for at least 15 minutes prior to the Annual General Meeting until its conclusion.
Group Directory
ElecoSoft®
ElecoBuild®
Asta Development plc Thame, Oxfordshire Tel: +44 (0) 1844 261700 E-mail:
[email protected] Website: www.asta.eleco.com Developer and supplier of project and resource management software.
Bell & Webster Concrete Limited Grantham, Lincolnshire Tel: +44 (0) 1476 562277 E-mail:
[email protected] Website: www.bellandwebster.eleco.com Manufacturer and supplier of precast concrete RoomSolutions™, StadiaSolutions™, RetainingSolutions™ and other concrete products.
Asta Development GmbH Karlsruhe, Germany Tel: +49 (0) 721 95 250 E-mail:
[email protected] Website: www.astagmbh.eleco.com Supplier of project and resource management software. Consultec Arkitekter & Konstruktörer AB Skellefteå, Sweden Tel: +46 (0) 910 87800 E-mail:
[email protected] Website: www.consultecak.eleco.com Architectural consultancy and software reseller. Consultec Bygg Program AB Skellefteå, Sweden Tel: +46 (0) 910 87898 E-mail:
[email protected] Website: www.consultecbp.eleco.com Developer and supplier of building project software. Consultec System AB Skellefteå, Sweden Tel: +46 (0) 910 87891 E-mail:
[email protected] Website: www.consultecsystem.eleco.com Developer and supplier of design and engineering software. Eleco Software Limited Aldershot, Hampshire Tel: +44 (0) 1252 267788 E-mail:
[email protected] Website: www.softwareuk.eleco.com Developer and supplier of 3D design software. Eleco Software GmbH Hameln, Germany Tel: +49 (0) 5151 822 390 E-mail:
[email protected] Website: www.softwaregmbh.eleco.com Developer and supplier of 3D design software. Esign Software GmbH Hanover, Germany Tel: +49 (0) 511 856 14340 E-mail:
[email protected] Website: www.esign.eleco.com Developer and supplier of software solutions for the floor coverings industry.
Downer Cladding Systems Limited Yaxley, Suffolk Tel: +44 (0) 1379 787215 E-mail:
[email protected] Website: www.downercladding.eleco.com Supplier and manufacturer of fixing solutions for man-made and natural rainscreen façade materials. Milbury Systems Limited Lydney, Gloucestershire Tel: +44 (0) 1594 847500 E-mail:
[email protected] Website: www.milbury.eleco.com Manufacturer and supplier of pre-stressed and precast retaining solutions. Prompt Profiles Limited Yaxley, Suffolk Tel: +44 (0) 1379 787211 E-mail: promptprofi
[email protected] Website: www.promptprofiles.eleco.com Manufacturer and supplier of profiled metal products for the roofing and cladding industry. SpeedDeck Building Systems Limited Yaxley, Suffolk Tel: +44 (0) 1379 788166 E-mail:
[email protected] Website: www.speeddeck.eleco.com Manufacturer and supplier of Secret Fix and standing seam metal roofing and Vitesse® wall and rainscreen cladding systems. Stramit Panel Products Limited Yaxley, Suffolk Tel: +44 (0) 1379 783465 E-mail:
[email protected] Website: www.stramit.eleco.com Manufacturer and supplier of ElecoFloor® acoustic flooring products, ConCor® and CanBerra® partitioning panels.
Eleco plc 66 Clifton Street London EC2A 4HB Tel: +44 (0)20 7422 0044 E-mail:
[email protected] Website: www.eleco.com
