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Eleco House 15 Gentlemen’s Field Westmill Road, Ware Herts SG12 0EF Tel: +44 (0)1920 443830 Fax: +44 (0)1920 469681 E-mail: info@eleco.com Website: www.eleco.com

Eleco plc  Annual Report 2010

Building on

technology

Eleco plc Annual Report 2010


Corporate Synopsis

Eleco is focused on key components of a modern construction project. Building Systems used in the fabric of the building, Software tools used to manage the construction project and Sustainable Construction to enhance environmental performance.

ESign Software

Eleco Software Eleco Software provides software applications to help construction businesses manage each stage of the project life cycle, satisfying their drive for greater efficiency through improved management of projects.

Consultec Sweden

Eleco Building Systems Eleco Building Systems focuses on modern methods of construction to provide materials efficiency and construction speed in precast concrete, timber and metal.

SpeedDeck Building Systems/Prompt Profiles

Sustainable Construction Eleco is a group focused on sustainable construction improving environmental performance through material efficiency, faster construction times and efficient management of projects.

Asta Development

1 3

4

2

Front cover image reference 1 Consultec Arkitekter & Konstruktรถrer AB 2 Eleco Timber Frame 3 Bell & Webster Concrete/Downer Cladding Systems 4 Gang-Nail Systems


Overview

Financial Highlights 2010 £’000

2009 £’000

58,009

70,555

Operating (loss)/profit before exceptionals

(5,481)

493

Loss from operations

(5,355)

(1,150)

Loss for the year

(5,456)

(1,469)

Revenue

Loss per share Dividends per share   Interim   Proposed final Dividend cover Capital expenditure Net (Borrowings)/Funds

(9.1)p

(2.5)p

– – –

0.4p 0.4p 0.8p

1,227

2,941

(2,284)

908

Contents Overview

Financial Highlights Group Overview

Accounts

01 02

Business Review

Chairman’s Statement Operating and Financial Review

04 06

Governance

Board of Directors and Company Advisers Directors’ Report

10 11

Independent Auditor’s 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

15 16 17 18 19 20 21 26

Independent Auditor’s Report Company Balance Sheet Statement of Company Accounting Policies Notes to the Company Financial Statements Five Year Summary Financial Calendar Capital Gains Tax Notice of Meeting Group Directory

Eleco plc /Annual Report 2010

49 50 51 52 57 57 57 58 60

01


Group Overview

Bell & Webster Concrete

Mission and Vision “Building on technology” defines Eleco which applies the latest technologies to drive improved Modern Methods of Construction, Improved Management and Execution of Projects and continuing improvement in Sustainable Construction methods.

Eleco people and companies aspire to deliver value to Eleco customers, employees, shareholders and their communities by providing them with economical and environmentally sound construction methodologies first class service and technical support.

Modern Methods of Construction (MMC) Eleco applied the principles of modern methods of construction (“MMC”) prior to 1997, the year when Sir John Egan highlighted the benefits to be gained from the application of MMC to the build process. MMC is now increasingly regarded as a key aid to improving quality, reducing time spent on site, improving on-site safety and overcoming skills shortages.

Improved Project Management and Execution Construction companies and their clients are increasingly turning to software in pursuit of greater efficiency. Eleco anticipated this demand and began investing in software technology in 2000.

Sustainable Construction “Meeting the needs of the present without compromising the ability of future generations to meet their own needs”. Eleco recognises that sustainability is about environmental performance of the product throughout its lifespan. Eleco is focused on achieving materials efficiency, faster construction times and efficient resource management.

02

Eleco plc /Annual Report 2010

Eleco software now has a suite of software tools to manage each stage of the construction project life cycle from project visualisation, through design, cost estimation and project management to site management.


Overview

SpeedDeck Building Systems/Downer Cladding Systems

Business Model

Building on Technology

Modern Methods of Construction Improved Management and Execution of Projects

Sustainable Construction

Group Operations

Eleco plc

Building Systems

Precast Concrete

Software

Building Products

Metal Roofing & Cladding

Timber Engineering

Bell & Webster Concrete Ltd

SpeedDeck Building Systems Ltd

Eleco Timber Frame Ltd

Milbury Systems Ltd

Prompt Profiles Ltd

Gang-Nail Systems Ltd

Downer Cladding Systems Ltd

International Truss Systems (Pty) Ltd

Partition Walls

Project Management

Design & Engineering

Estimation

CAD and 3D Visualisation

Visualisation

ASTA Development Ltd

Consultec System AB

Consultec Byggprogram AB

Eleco Software Ltd

Esign GmbH

ASTA Development GmbH

Consultec A&K AB

Eleco Software GmbH

Stramit Panel Products

Eleco plc /Annual Report 2010

03


Chairman’s Statement In the light of the sharp reduction in volumes in the Group’s concrete and building products interests and the short-term prospects for certain of these businesses, the Group has moderated its investment in new capital projects and product development. Capital investment for the year was significantly lower at £1.2m (2009: £2.9m) and we expect this lower level of investment to continue in the current year.

John Ketteley Executive Chairman

During the second half of the year we have taken fundamental steps to restructure our businesses and strengthen the Group in these unprecedented market conditions. As indicated in the trading update released on 28 July 2010, an improvement in profits from our software interests was more than offset by significantly greater losses from our concrete and timber frame businesses, which increased in the second half year as a result of further volume reductions and lower margins. The Group also initiated a turnaround plan (the “Plan”) during the second half of the financial year, which resulted in significant additional restructuring and other one-off costs of £2.3m. However, more than £4.0m of annualised overhead costs have already been eliminated and I am pleased to be able to report that the Plan is currently on track. The Plan, which was described in detail within the trading update, involves taking fundamental steps to restructure our Building Systems businesses, reducing costs and capacity to suit the economic environment, increasing sales resources and changing processes and structures to meet market demands. The purpose of the Plan, together with the continuing anticipated growth of our Software businesses is to put the Group back onto a firm and profitable footing. Further details are given in the Operating and Financial Review section of this report.

Group Performance Summary Group turnover for the year declined by 18% to £58.0m (2009: £70.6m). The whole of this decline was attributable to the decline in the turnover of our Building Systems businesses. Group operating loss before exceptionals amounted to £5.5m (2009: profit £0.5m) and the reported loss from operations was £5.4m (2009: loss £1.2m). The Group reported a loss before tax of £5.9m (2009: loss £1.4m) and a loss for the year of £5.5m (2009: loss £1.5m), equivalent to a loss per share of 9.1p (2009: 2.5p loss per share). The reported loss includes £3.5m of non-cash items arising through depreciation, amortisation and impairment of assets and the cash benefit of the gain on disposal of a business of £2.8m. Total cash outflow was limited to £3.5m. However, an increase in provisions to £1.1m will also convert into an equivalent cash outflow in the current year.

04

Eleco plc /Annual Report 2010

The Group will continue to seek opportunities for strategic disposals of non-core businesses and surplus operating assets.

Operational Overview Software Our Software businesses performed well and contributed positively to the Group. Revenues grew by 2% to £13.7m (2009: £13.4m). The Adjusted operating profit was £0.8m (2009: £0.3m) and the Segment result overall was positive £0.3m (2009: negative £0.5m). I expect to see continued improvement in these businesses during the current year. Building Systems Our Concrete businesses experienced difficulties in the markets they operate in and revenues fell by 16% to £26.8m (2009: £31.8m). The Adjusted operating loss was £3.9m (2009: profit £0.8m) and the Segment result overall was a loss of £5.8m (2009: loss £0.6m) as the Group’s exceptional items were largely incurred in these businesses at the commencement of the Plan to recover the businesses’ performance. Our Building Products businesses suffered in the economic circumstances and revenues fell to 31% to £17.8m (2009: £25.6m). The Adjusted operating loss was £1.8m (2009: £0.0m) and the Segment result was positive £0.2m (2009: negative £0.1m) as the businesses benefited from the net effect of the gain on disposal of our German Connector Plate business and the exceptional items incurred in these businesses at the commencement of the Plan to recover the businesses’ performance.

Disposal of Eleco Bauprodukte GmbH On 30 June 2010, the Group announced the legal completion of the disposal of Eleco Bauprodukte GmbH (“EBP”), its German Connector Plate business, to Mitek Industries Inc. (“Mitek”) for a total consideration of £3.9m. The date of disposal of the EBP was 24 April 2010. EBP made a loss of £0.5m in the year ended 30 June 2010 and the net assets at the date of disposal were £0.1m.

Financing The disposal of EBP, the significant reduction in capital expenditure and the cash contribution from the profitable trading of our software businesses have partially offset the adverse cash impact of the performance of our concrete and timber frame businesses most badly affected by difficult trading conditions. Accordingly, the Group remains in a robust financial position with net bank borrowings of £1.9m (2009: net bank funds £1.6m).


Business Review

Jonathan Edwards was appointed to the Board as a NonExecutive Director on 1 April 2010. He is also Chairman of the Audit Committee. Tom Quinn also retired from the Board on 30 June 2010, after nine years service as a Non-Executive Director and I would like to thank him on behalf of the Board for his excellent counsel in that time. David Dannhauser resigned on 15 July 2010 after more than 15 years in his role as Finance Director and I would like to thank him for his undoubted contribution to the Group over that period.

Eleco Software

Our total banking facilities of £14.5m from Lloyds Banking Group consist of an unsecured revolving credit facility of £10.0m, which is due for renewal during July 2012, and an unsecured term loan of £4.5m repayable in 20 quarterly instalments commencing during April 2011.

Dividends

Tim Sykes of Penta Financial Direction Limited is currently acting in an interim capacity following David Dannhauser’s resignation as Financial Director and, as previously announced, we shall be appointing a full time Finance Director in due course. I would therefore like to take this opportunity to thank Tim Sykes and wish him well on your behalf for his assistance and hard work in implementing our Building Systems turnaround plan and in the preparation of these accounts. Fred Newby, Deputy Chairman and Divisional Chief Executive, Building Systems, gave notice in March 2010 of his intention to retire in June 2011. However, he resigned from the Board on 30 September 2010 but will continue to support our work at Bell and Webster designed to return that business to profitability. I would like to thank Fred for his significant contribution to the Group over the last 18 years.

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 30 June 2010 but will consider a return to recommending dividend payments as and when the Company’s trading position and performance permits.

Outlook

Employees

The Building Systems businesses have been through a restructuring process that was initiated as part of the comprehensive turnaround Plan designed to deliver a much improved performance in the current year. Demand in some markets in which our Building Systems businesses operate remains low and the pipeline is still weak in comparison to prior years. However, we have taken significant steps to reduce costs and capacity in response to these market conditions and will react promptly and with vigour to any further weakening in demand. Thus far in the current year, we have been encouraged by the level of progress against the turnaround Plan.

Implementing the changes noted above in current markets has placed significant demands on all our employees and, on behalf of the Board, I wish to thank them for their hard work and dedication during the year.

Directors There have been significant changes to the composition of the Board in the past year. Paul Taylor, Chief Executive of our Roofing, Cladding and Timber frame businesses, resigned from the Board on 8 October 2009 after nine years with the Group. Craig Slater was appointed to the Board as Chief Operating Officer on 7 December 2009. He has been primarily responsible for the formulation and implementation of the Plan for the Group’s Building Systems businesses and for the operations of the Group as a whole. Following the resignation of Fred Newby from the Board each of our Building Systems businesses will report directly to him.

The Software businesses are performing well with further improvement against that already achieved in the year to 30 June 2010. I expect the momentum in these businesses to continue.

I am confident that Eleco has the management at all levels to deal with significant challenges as they arise and to take advantage of any upturn in the markets that the Group serves. I am also confident that Eleco is sufficiently well financed to enable it to deliver further growth in its Software businesses and to deliver against the Plan for the turnaround of its Building Systems businesses. John Ketteley Executive Chairman 30 September 2010

Eleco plc /Annual Report 2010

05


Operating and Financial Review Market Background Eleco serves a number of different construction markets in the UK, parts of Europe and South Africa. During the year under review the markets served by the Group’s Building Systems businesses continued to decline with the exception of house-building with both volumes and prices under increasing pressure as finance for projects of all types has become scarcer. Latterly, the threat of further significant cutbacks in Government spending in the UK has added to these pressures and Group strategy has been developed against this background. As the markets in which the Group operates remain fragmented, the Group’s strategy is to focus on capturing market share and delivering resultant work profitably. Through its Software businesses, Eleco serves the above markets but to a much broader extent, along with related timber engineering, IT and retail markets. The Software businesses have more repeat income, less reliance on individual customers or projects and they benefit from their broader market presence.

Group Results and Turnaround Plan Group revenues fell by 18% to £58.0m (2009: £70.6m). The operating loss before exceptionals was £5.5m (2009: profit £0.5m) and the reported loss from operations was £5.4m (2009: loss £1.2m). In the second half of the financial year, a comprehensive review of the Group was undertaken and a turnaround plan formed (the “Plan”). This Plan comprises six elements, as follows: • Individual plans for the then loss-making businesses in the Building Systems operation, with the aim of returning them to profitability; • Elimination of remaining losses in the Visualisation software business; • Sale of surplus freehold property and cessation of surplus property leases; • A significant reduction in central costs; • Conclusion of the legal action in progress and disposal of EBP; and • Creation of a Company-led pension strategy focused on deficit reduction, investment strategy and management of the ongoing cash contributions.

Bell & Webster Concrete

06

Eleco plc /Annual Report 2010

Accordingly, the Group has restructured a number of its operations in the second half of the year to reduce costs, increase sales and marketing efforts and focus on those businesses capable of making sustainable and acceptable returns. As a result, it has necessarily incurred restructuring costs of £1.2m for the year (2009: £0.4m), largely reflecting the cost of headcount reduction programmes in the businesses where volumes have suffered most acutely and also at the corporate level. The impact of these actions is now being reflected in improved management figures so far this financial year and is being monitored by the Board in detail, with further corrective actions being taken where appropriate. The most immediate impact has been felt through the reduction of overhead, amounting to more than £4.0m year on year, with the impact of work on sales following closely. Gross margins are proving more difficult to affect in the short-term, with most of the desired improvement in this area still to be achieved. The Group has also taken further impairment charges against its tangible and intangible assets totalling £1.2m for the year (2009: £1.3m). The Board’s annual impairment review identified further risk to forward profitability and cash generation of the Cash Generating Unit at Milbury Systems and a goodwill impairment charge of £0.5m has been taken, in the main generated by the adoption of a more cautious discount rate. An impairment charge of £0.3m has been taken against the carrying value of long leasehold buildings at one of our main operating sites as the long-term visibility of cash generation from that site has reduced. These exceptional items have been more than offset by the gain on the disposal of EBP, realising gross proceeds of £3.9m and a profit of £2.5m after legal and other costs. Net interest receivable excluding pension related items was £41,000 (2009: £46,000). The reduction was due to the reduction in net cash balances during the year and the continued low interest rates. Under IAS19, a finance charge of £0.6m (2009: £0.3m) 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.

Gang-Nail Systems


Business Review

Segmental Results Software 2010 £’000

Revenue Adjusted operating profit Segment result

13,661 769 311

2009 £’000

13,395 343 (461)

Software comprises three main businesses; Project and Resource Management software primarily in the UK, Estimating, Site Control and Timber Engineering software primarily in Sweden and Visualisation software in Germany. Each of these businesses grew revenue this year as their business models benefit from stable recurring maintenance revenues. Losses sustained in our Visualisation software business through its development years have now been eliminated. Project and Resource Management software Construction software reported revenue growth. ASTA Powerproject, with an impressive customer base, provides customers with market leading project and resource management tools and has a strong level of recurring income that allows it to develop further its service offerings and its core software. This business gained market share and is now offered directly and through partners in approximately 20 countries. ASTA produced a good, consistent result in the year in spite of the difficulties experienced in its dominant market, construction. These defensive qualities are believed to be due to the software’s ability to enhance efficiency and to enable the more efficient use of resources. It therefore remains a compelling purchase in tough conditions as in more benign conditions. Estimating, Site Control and Timber Engineering software CONSULTEC, again with an impressive customer base, offers estimation and site control software for a number of specialised vertical markets, mainly in construction. The software suites enable companies to produce reliable estimates efficiently and effectively, to proactively monitor and manage sites and to design and manufacture a number of engineered timber products. CONSULTEC grew both sales and profits in the year, notably in estimation software and services, and is well placed to repeat that performance in the current financial year.

Eleco Timber Frame

We added complementary capability to our offer during September 2010 with the acquisition of LUBEkonsult AB, a specialist in ventilation estimating in Sweden. This is expected to add expertise in a specialist sector along with a complementary customer base. Visualisation software This business was restructured during the year and the resultant reduction in overhead and reformed development activity has enabled it to eliminate losses on a month on month basis by the end of the financial year. Shortly after the year end, further IP and development resource was added in Germany that will enable the delivery of next generation professional design software. Building Systems Precast Concrete 2010 £’000

Revenue Adjusted operating (loss)/profit Segment result

26,838 (3,898) (5,839)

2009 £’000

31,769 843 (599)

Bell & Webster Concrete targets new build hotel and student accommodation and has recently moved into the more technically demanding adjacent market of custodial projects. The number of projects coming to market in the UK from our core hotel and student accommodation markets has decreased significantly due to the fact that some clients continue to experience difficulty and delays in funding projects. This has suppressed demand which has led to intense competition and difficult pricing levels. The more technically demanding level of product in the two custodial projects that contributed to the result during the year has proved challenging to execute. The pricing and technical aspects of the custodial projects have adversely affected gross margins. We have implemented extensive steps to take direct and indirect costs out of the business to match the reduced levels of demand and the effectiveness of these measures is being closely monitored. Milbury Systems targets the agricultural, waste recycling, flood defence and construction markets and it has continued to concentrate its efforts on higher margin business in its core markets. Following relocation onto a single site in the second half of the year and a significant sales effort, Milbury Systems is performing profitably in the current financial year.

Milbury Systems

Eleco plc /Annual Report 2010

07


Operating and Financial Review (continued) Bell & Webster Concrete is an important constituent of the Group and its recovery is paramount. Significant attention and time is therefore being spent on this business, expanding its sales resource and returning profitability to its project delivery. Milbury has a single site and reduced cost base and is now focused on achieving a more regular and higher level of profitable order intake and profit. Building Products 2010 £’000

Revenue Adjusted operating (loss)/profit Segmental result

17,759 (1,794) 173

2009 £’000

25,600 19 (90)

Building Systems – Building Products comprises the SpeedDeck, Stramit and Prompt roofing and partitioning businesses, the Downer cladding business and the timber engineering businesses. SpeedDeck, Stramit and Prompt suffered from the difficult and highly competitive market conditions although performance improved towards the end of the financial year and in the current year to date. These businesses now all operate from one site. Timber engineering comprised the UK, German and South African connector plate businesses and the UK timber frame business. We disposed of our German connector plate business, EBP, following the loss of almost all of its business to a competitor and realised gross proceeds through its disposal of £3.9m.

KPIs and Monitoring The Plan is monitored in detail by the Board and is specific to each business. There are more than 100 specific actions and the affect of each action is reviewed regularly with appropriate adjustments being undertaken as required. Business performance is monitored against the following measures: • Sales and order intake • Project and product profitability • Profitability and forecast profitability • Historic and forecast cash flow monitored weekly and monthly • Headcount

Key Risks The Board considers that the key risks to the Group are the conditions of the various markets in which the Group operates, the effectiveness of the Plan and attracting and retaining high quality staff to achieve and then deliver sales and profitability. • In common with many others, our markets are expected to be inherently uncertain for the foreseeable future. They depend upon a reasonable level of Government and private sector capital and infrastructure spend and the availability of finance to initiate projects; • The turnaround plan is extensive and will necessarily require amendment and refinement during its delivery. Whilst monitored closely there is inherent risk to its successful implementation; and

08

Eleco plc /Annual Report 2010

• The success of the Group depends upon attracting and retaining high quality staff. Cost cutting and reorganisation form one part of the turnaround plan, but the improvement of sales and delivery is equally important and the latter can be adversely impacted by the former.

Pension Strategy Having closed the pension scheme to future accrual in December 2009, the Group is now taking an increasingly active role in discussions with the fund Trustee Company. The following actions have been agreed in principle with the Trustee Company: • Revised investment strategy that aims to significantly lower the investment risk but maintain a return at or in excess of the valuation assumptions; • Implementation of a number of deficit reduction measures in respect of which the Company, the Trustee Company and beneficiary interests are aligned; and • Examination of the potential impact of Government-led changes on the deficit. Implementation of these measures is dependent upon final agreement in detail between the Trustee Company and the Group and the financial impact cannot therefore be disclosed at this time.

Loss Per Share and Dividend The loss per share was 9.1p (2009: loss 2.5p). 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 30 June 2010 but will consider a return to recommending dividend payments as and when the Company’s trading position and performance permits.

Shareholders’ Equity and Net Assets At 30 June 2010, shareholders’ equity amounted to £15.3m (2009: £21.6m), after recognising £7.1m (2009: £6.9m), net of the related deferred tax asset, as a retirement benefits liability. Reflecting the impact of the triennial valuation and updating of the actuarial assumptions to 30 June 2010, £0.6m (2009: £1.2m) of actuarial losses net of deferred tax were recognised directly to shareholders’ equity. The Group’s overall deficit, before related deferred tax, in the Eleco Retirement and Benefits Scheme (the “Scheme”) increased to £9.8m (2009: £9.6m). During the year £0.7m (2009: £0.5m) of deficit recovery contributions were made and, following the latest triennial valuation, these have been agreed at £0.8m per year. In view of the high and increasing cost of the ongoing defined benefits provided under the Scheme and the necessity of giving priority to reducing, over the years ahead, the deficit position of the Scheme, consultations were completed during December 2009 with existing members of the Scheme to close the Scheme to new members and to future accrual. At 30 June 2010, net tangible assets, after taking account of the retirement benefits liability now accounted for under IAS19, represent 43% (2009: 53%) of total net assets.


Business Review

2010

2009

£’000

%

£’000

%

Intangible assets Retirement benefits liability (net of deferred tax) Net tangible assets

15,877

103%

16,958

79%

(7,071) 6,540

(46%) 43%

(6,912) 11,520

(32%) 53%

Total net assets

15,346

100%

21,566

100%

2010 £’000

2009 £’000

Case Study

Summary Group Cash Flow Cash flow from operations Net capital expenditure Net finance income Taxation Free cash flow Acquisitions and disposals Loan to Employee Share Ownership Trust Repayment of principal under finance leases Equity dividends paid Net cash flow Exchange adjustment Decrease in net cash balances

(4,456) (1,094) 73 (362) (5,839) 2,761 –

1,529 (2,870) 9 (1,949) (3,281) (205) (62)

Project: Bell & Webster/Downer Cladding Systems – University of Essex Southend Campus

(388) (239) (3,705) 223 (3,482)

(397) (1,423) (5,368) 151 (5,217)

Building Systems companies Bell & Webster and Downer Cladding Systems have collaborated to provide new student accommodation at the University of Essex. Bell & Webster have supplied a structural precast concrete rooms system to developer Hollybrook Limited and Downer have supplied the façades support system.

The Group’s cash position reflects trading performance and was in net debt at 30 June 2010 of £1.9m (2009: net cash £1.6m). The net cash outflow from operations was £4.5m (2009: inflow £1.5m). The cash flow for the second half of the year was positive at £0.2m, benefiting from the receipt of the net proceeds from the disposal of EBP of £2.8m, with a £3.7m outflow in the first half. The Group has moderated its investment programme with capital expenditure of £1.1m (2009: £2.9m) reducing down to a maintenance level in its Building Systems businesses. Strategic investment will continue where appropriate in the Software businesses, and we have made a small acquisition of a complementary ventilation estimating business, LUBEKonsult, during September 2010.

Capital and Financing The Group’s capital structure has changed during the year such that it is now in a net debt position. The Group’s bank debt facilities are described in Note 2.

Summary Eleco owns a number of building systems and software brands and businesses that offer great customer service. The Group is now adjusting to a different level of demand and competition in many of its markets. The Software businesses have eliminated losses and are now steadily developing for growth. The Building Systems businesses are now recovering following the changes that have already been made and aim, during this financial year, to return to profitable trading. Craig Slater Chief Operating Officer 30 September 2010

Eleco companies combine to deliver value

The project, comprising 561 student bedrooms required a total of 2,251 factory engineered concrete units and has been constructed to create a strong, robust structure that can be installed and fixed far quicker than most alternative building systems for this scale of building. The offsite engineered wall units were manufactured by Bell & Webster Concrete Ltd and installed by their specialist installation teams, helping to speed up the overall construction and finishing processes. Site costs were kept to a minimum by ensuring that the initial construction phase including the installation of bathroom pods would be completed on time, making way for following trades to install the crucial services needed to run the building itself. Good project planning between B&W and Hollybrook kept project costs down by using just one installation team rather than two as originally planned at the design stage. In-house knowledge of the B&W pre-cast walls allowed Downer to rapidly engineer and detail, with the specialist cladding contractor, the fixing solution for the complex and colourful façade design. All the building works were completed on time, in spite of the harsh winter weather conditions that were experienced on site with no adverse effect to the overall project timeline. “Hollybrook’s selection of the Bell & Webster system was based on extensive research, visiting similar contracts and visiting the factory to see their design and manufacturing processes” explained Andy Suttle, Construction Director for Hollybrook Limited. “The system is suited to the University scheme because it offers offsite modular benefits combined with speed of erection onsite.” Close liaison between Eleco Group companies at design stage and through the construction process, delivers cost and time saving solutions for our clients, and competitive advantage for Eleco.

Eleco plc /Annual Report 2010

09


Board of Directors and Company Advisers John Ketteley FCA Executive Chairman 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. Age 71.

Craig Slater Chief Operations Officer Appointed COO in December 2009. He is currently Non-Executive Chairman of CORGI Group Limited. Age 47.

Secretary Ivor A Barton ACIS Registered office Eleco House 15 Gentlemen’s Field Westmill Road Ware Hertfordshire SG12 0EF Tel: +44 (0) 1920 443830 Fax: +44 (0) 1920 469681 E-mail: info@eleco.com Website: http://www.eleco.com Registered number 354915 Auditors Grant Thornton UK LLP

Michael McCullen Divisional Chief Executive – Software Michael joined the Board of Eleco plc in March 2007 and is Chief Executive of Eleco Software. Age 48.

Bankers Lloyds TSB Bank Plc Nominated Adviser & Broker Collins Stewart Europe Limited Financial Advisers Hawkpoint Partners

Jonathan Cohen TD MA FCA* Chairman of the Remuneration Committee 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 Chairman of Savile Group plc, a Non-Executive Director of The Rose Partnership LLP and a Director of Clearwater Hampers Limited. Age 66. Jonathan Edwards* Chairman of the Audit Committee A Chartered Accountant and Barrister, Jonathan is a Director of Guildhall Asset Management (Guernsey) Limited and Guildhall Research & Management Limited. Age 55.

*Member of the Audit, Remuneration and Nomination Committees.

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Eleco plc /Annual Report 2010

Solicitors Berwin Leighton Paisner Reynolds Porter Chamberlain Registrars and transfer office Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Tel: +44 (0) 870 162 3100


Governance

Directors’ Report The Directors present their report and the audited financial statements for the year ended 30 June 2010. 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 The Group loss on ordinary activities before taxation was £5,875,000 (2009: loss £1,430,000). The detailed financial statements of the Group are set out on pages 16 to 49. 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 6 to 9. 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 (2009: 0.40p). The Directors do not intend to recommend a final dividend for the year ended 30 June 2010 (2009: 0.40p).

Share capital Details of the share capital and share options scheme are shown in notes 26 and 27 to the Consolidated Financial Statements. Share price The middle market price of the Company’s ordinary shares on 30 June 2010 was 21p and the range during the year was 21p to 42.5p. Disposal of Eleco Bauproducte GmbH On 30 June 2010 the Group sold the entire issued share capital of Eleco Bauprodukte GmbH for a total consideration of £3.9m. Acquisition of Lubekonsult AB On 1 September 2010 the Group acquired the assets of Lubekonsult AB, which provides cost estimation services and software to the Swedish ventilation market. The consideration was £160,000, paid on completion, with a deferred element of up to a maximum of approximately £220,000 depending on profit performance over each of the next two years. Directors The current composition of the Board of Directors is shown on page 10 and all the Directors, except R C A Slater and J B Edwards, held office throughout the year. P J Taylor resigned as a Director on 8 October 2009 and T Quinn retired on 30 June 2010. R C A Slater was appointed Chief Operating Officer on 7 December 2009 and J B Edwards was appointed a Non-Executive Director on 1 April 2010. Since the year end D S Dannhauser resigned as a Director on 15 July 2010 and F E Newby resigned on 30 June 2010. J H B Ketteley retires by rotation at the forthcoming Annual General Meeting and, being eligible, will offer himself for re-election. R C A Slater and J B Edwards will retire at the Annual General Meeting in accordance with the Company’s Articles of Association and, being eligible, will offer themselves for election. Directors’ remuneration and interests The emoluments of the Directors for the year ended 30 June 2010, excluding pension entitlements, share options and bonuses under long-term incentive plans, were: Basic salary

Fees

Benefits

Total

Total 2009

Executive J H B Ketteley R C A Slater F E Newby D S Dannhauser M B McCullen P J Taylor

295 86 192* 158 160 47**

5 3 5 5 5 2

35 12 18 6 15 4

335 101 215 169 180 53

351 – 180 185 158 155

Non-Executive J Cohen J B Edwards T Quinn

– – –

32 8 42

– – –

32 8 42

32 – 43

* Of this amount £54,000 was paid as a non-pensionable, guaranteed annual bonus. ** Of this amount £10,000 was paid in respect of bonus.

Eleco plc /Annual Report 2010

11


Directors Report (continued) J H B Ketteley received a cash supplement from the Company, in lieu of pension, amounting to £91,500. Contributions were made by the Company to personal pension plans of F E Newby of £56,000, D S Dannhauser of £39,000, P J Taylor of £5,000 and M B McCullen of £16,000. Additionally, £151,000 was paid to P J Taylor, related to his termination of employment. Directors’ options Outstanding Performance Share Options granted to the Executive Directors under the Company’s Long Term Incentive Plan are as follows: J H B Ketteley F E Newby D S Dannhauser

Award

At 30 June 2009

Vested during year

Lapsed during year

Granted during year

At 30 June 2010

Vesting Date

2007 2007 2007

200,000 75,000 125,000

– – –

– – –

– – –

200,000 75,000 125,000

1 January 2010 to 31 October 2012 1 January 2010 to 31 October 2012 1 January 2010 to 31 October 2012

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 30 June 2010, were as follows: J H B Ketteley D S Dannhauser M B McCullen F E Newby R C A Slater J Cohen J B Edwards There were no changes in the Directors’ interests since 30 June 2010. 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; iv) performance-related share awards and non-pensionable bonuses under the Company’s Long Term Incentive Plan. Executive Directors’ contracts The Executive Directors have service agreements, which provide for a notice period for termination of up to 12 months.

12

Eleco plc /Annual Report 2010

At 30 June 2010

At 30 June 2009

7,569,255 1,086,759 652,944 180,279 – 39,708 50,000

7,569,255 1,086,759 652,944 180,279 – 39,708 –

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 for contracts (as amended) were as follows: J H B Ketteley (3 July 1997); F E Newby (4 April 2005); M B McCullen (1 March 2007). R C A Slater (7 December 2009) 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 £nil (2009: £5,000) to J H B Ketteley & Co Limited of, which J H B Ketteley is a director and in which he has an interest and £18,000 to Deshurst Limited, of which D S Dannhauser is a director and in which he has an interest. An amount of £25,000 (2008: £28,000) 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 Combined Code on Corporate governance, the Board is committed to ensuring that high standards of corporate governance are followed as appropriate to the Company’s size and activity.


Governance

The Board of Directors, which consisted during the year of the Executive Chairman, Chief Operating Officer, Deputy Chairman, Group Finance Director, one other Executive Director and two independent Non-Executive Directors, meets at least ten times throughout the year. On 1 April 2010 J Cohen was designated the Senior Independent Non-Executive 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 J 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 NonExecutive Directors and is chaired by J 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 the reliability of information, the maintenance of proper 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: • the appropriate delegation of responsibility to operational management; • 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;

• clearly defined capital expenditure and investment control guidelines and procedures; and • monitoring of business risks, with key risks identified and reported to the Board. Directors’ responsibilities in relation to the financial statements The Directors are responsible for preparing the annual 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 consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs), as adopted by the EU and parent company financial statements in accordance with UK Accounting Standards and applicable law (UK GAAP). The financial statements are required by law to give a true and fair view of the state of affairs of the Group and parent company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • ensure IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; • state that the parent company financial statements comply with UKGAAP, subject to any material departures disclosed; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Group and Company 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 hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the Directors are aware: • there is no relevant audit information of which the Group’s auditors are unaware; and • 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.

Eleco plc /Annual Report 2010

13


Directors’ Report (continued) 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 10. 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 21. 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 30 June 2010, the Group’s average creditor payment period was 64 days. 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.

14

Eleco plc /Annual Report 2010

Annual General Meeting Your attention is drawn to the Notice of Meeting on pages 58 and 59 of this report convening the Annual General Meeting of the Company at 12:00 noon on 11 November 2010 at the Brewers’ Hall, Aldermanbury Square, London EC2V 7HR. The Notice of Meeting sets out and explains the special and ordinary business to be conducted at the meeting. Auditors Messrs. 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 I A Barton Secretary Eleco House 15 Gentlemen’s Field Westmill Road Ware Hertfordshire SG12 0EF 30 September 2010


Accounts

Independent Auditor’s Report to the Members of Eleco plc We have audited the Group financial statements of Eleco plc for the year ended 30 June 2010 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 Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Other matter We have reported separately on the parent Company financial statements of Eleco plc for the year ended 30 June 2010.

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.

30 September 2010

John Corbishley Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Cambridge

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 14, 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 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/UKNP. Opinion on financial statements In our opinion the Group financial statements: • give a true and fair view of the state of the Group’s affairs as at 30 June 2010 and of its loss for the year then ended; • have been properly prepared in accordance with IFRS as adopted by the European Union; and • 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: • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit.

Eleco plc /Annual Report 2010

15


Consolidated Income Statement for the year ended 30 June 2010

Notes

Revenue Cost of sales

1

Gross profit Distribution costs Administrative expenses Operating (loss)/profit before exceptionals

2010 £’000

2009 £’000

58,009 (36,556)

70,555 (40,601)

21,453 (4,128) (22,806)

29,954 (3,503) (25,958)

(5,481)

493

Exceptional items Gain on disposal of business

3 4

(2,334) 2,460

(1,643) –

Loss from operations

5

(5,355)

(1,150)

Finance income Finance cost

7 7

155 (675)

216 (496)

Loss before tax Tax

2 8

(5,875) 419

(1,430) (39)

Loss for the year

(5,456)

(1,469)

Attributable to: Equity holders of the parent

(5,456)

(1,469)

Total and continuing loss per share (EPS) – basic and diluted

16

Eleco plc /Annual Report 2010

10

(9.1)p

(2.5)p


Accounts

Consolidated Statement of Comprehensive Income for the year ended 30 June 2010

Notes

2010 £’000

2009 £’000

(5,456)

(1,469)

(625) 63 (44)

(1,705) 458 362

(606)

(885)

Total comprehensive income for the period

(6,062)

(2,354)

Attributable to: Equity holders of the parent

(6,062)

(2,354)

Loss for the period Other comprehensive income Actuarial Loss on retirement benefit obligation Deferred tax on retirement benefit obligation Translation differences on foreign currency net investments Other comprehensive income net of tax

25 23

Eleco plc /Annual Report 2010

17


Consolidated Statement of Changes in Equity for the year ended 30 June 2010

Share capital £’000

Share premium £’000

Merger reserve £’000

Translation reserve £’000

6,066

6,396

7,371

151

Dividends Share-based payments Other

– – –

– – –

– – –

Transactions with owners

Loss for the period Other comprehensive income: Actuarial loss on defined benefit pension scheme net of tax Exchange differences on translation of net investments in foreign operations

Total comprehensive income for the period

Other reserve £’000

Retained earnings £’000

Total £’000

(383)

1,965

21,566

– – –

– – 25

(239) 56 –

(239) 56 25

25

(183)

(158)

(5,456)

(5,456)

(562)

(562)

(44)

(44)

(44)

(6,018)

(6,062)

At 30 June 2010

6,066

6,396

7,371

107

(358)

(4,236)

15,346

At 1 July 2008

5,995

6,224

7,371

(211)

(321)

6,162

25,220

Dividends Issue of shares Share-based payments Other

– 71 – –

– 172 – –

– – – –

– – – –

– – – (62)

(1,423) (243) 185 –

(1,423) – 185 (62)

Transactions with owners

71

172

(62)

(1,481)

(1,300)

(1,469)

(1,469)

At 1 July 2009

Loss for the period Other comprehensive income: Actuarial loss on defined benefit pension scheme net of tax Exchange differences on translation of net investments in foreign operations

(1,247)

(1,247)

362

362

Total comprehensive income for the period

362

(2,716)

(2,354)

6,066

6,396

7,371

151

(383)

1,965

21,566

At 30 June 2009

18

Eleco plc /Annual Report 2010


Accounts

Consolidated Balance Sheet at 30 June 2010

Notes

2010 £’000

2009 £’000

11 12 13 23

12,950 2,927 11,342 2,750

13,473 3,485 12,552 2,687

29,969

32,197

3,977 11,639 325 6,009

3,687 12,985 242 6,091

Total current assets

21,950

23,005

Total assets

51,919

55,202

(225) (293) (10,177) (1,120) (96) (6,763)

– (365) (11,424) – (347) (6,158)

(18,674)

(18,294)

(7,675) (100) (303) – (9,821)

(4,500) (318) (804) (121) (9,599)

Total non-current liabilities

(17,899)

(15,342)

Total liabilities

(36,573)

(33,636)

15,346

21,566

6,066 6,396 7,371 107 (358) (4,236)

6,066 6,396 7,371 151 (383) 1,965

15,346

21,566

Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Current tax assets Cash and cash equivalents

Current liabilities Borrowings Obligations under finance leases Trade and other payables Provisions Current tax liabilities Accruals and deferred income

16 18 19

21 21 20 23

Total current liabilities Non-current liabilities Borrowings Obligations under finance leases Deferred tax liabilities Other non current liabilities Retirement benefit obligation

21 21 23 24 25

Net assets Equity Share capital Share premium account Merger reserve Translation reserve Other reserve Retained earnings Equity attributable to shareholders of the parent

26

The financial statements of Eleco plc, registered number 00354915, on pages 16 to 48 were approved by the Board of Directors on 30 September 2010 and signed on its behalf by: John Ketteley Executive Chairman

Eleco plc /Annual Report 2010

19


Consolidated Statement of Cash Flows for the year ended 30 June 2010

2010 £’000

2009 £’000

Cash flows from operating activities Loss before interest and tax Depreciation and impairment charge Amortisation and impairment charge Loss/(profit) on sale of property, plant and equipment Profit on sale of business Share-based payment charge Retirement benefit obligation Increase in provisions

(5,355) 2,254 1,284 16 (2,460) 82 (964) 892

(1,150) 1,869 1,981 (6) – 185 (403) –

Cash (used)/generated from operations before working capital movements Decrease in trade and other receivables (Increase)/decrease in inventories and work in progress Decrease in trade and other payables

(4,251) 1,332 (248) (1,289)

2,476 4,023 993 (5,963)

Cash (used)/generated from operations Interest paid Interest received Income tax paid

(4,456) (112) 185 (362)

1,529 (177) 186 (1,949)

Net cash outflow from operating activities

(4,745)

(411)

Net cash used in investing activities Purchase of intangible assets Purchase of property, plant and equipment Acquisition of subsidiary undertakings net of cash acquired Proceeds from sale of property, plant, equipment and intangible assets Sale of business net of expenses

(178) (1,049) – 133 2,761

(626) (2,315) (205) 71 –

Net cash outflow from investing activities

1,667

(3,075)

7,200 (3,800) (388) (239) –

11,100 (6,600) (397) (1,423) (62)

2,773

2,618

(305)

(868)

Cash and cash equivalents at beginning of period Effects of changes in foreign exchange rates

6,091 223

6,808 151

Cash and cash equivalents at end of period

6,009

6,091

Net cash used in financing activities Proceeds from new bank loan Repayment of bank loans Repayments of obligations under finance leases Equity dividends paid Own shares purchased by ESOT Net cash inflow/(outflow) from financing activities Net decrease in cash and cash equivalents

20

Eleco plc /Annual Report 2010


Accounts

Significant Accounting Policies The significant accounting policies adopted in the preparation of the Group’s consolidated financial statements are prepared following International Financial Reporting Standards (“IFRS”), as adopted by the European Union, are set out below: A. Basis of preparation The consolidated financial statements have been prepared on the historical cost basis. The consolidated financial statements have been prepared in Sterling 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 and effective at 30 June 2010. Changes in accounting policy In the current financial year, the Group has adopted International Financial Reporting Standard 8 “Operating Segments” and International Accounting Standard 1 “Presentation of Financial Statements” (revised). 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. This standard replaces IAS 14 “segment reporting” that required the Group to identify two sets of segments (business and geographical), using a risks and rewards approach, with the Group’s internal management reporting to key management personnel serving only as a guide to the identification of such segments. Following the adoption of IFRS 8, there is no change in the disclosure of the reportable segments as these meet the criteria set out in IFRS 8. IAS 1 (revised) requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result, a consolidated statement of changes in equity is included within the financial statements rather than the notes to the financial statements. In addition, the revised standard requires the presentation of a third balance sheet in respect of changes in accounting policies which are applied retrospectively on adoption of new policies which require retrospective changes. The presentation of a third balance sheet is deemed unnecessary by the Directors because 2008 numbers are unchanged from those previously presented. IFRS 3 (revised) Business combinations and IAS 27 (revised) Consolidated and separate financial statements apply in the current year. The main impact of IFRS 3 (revised) is the requirement that all acquisition related costs are to be expensed rather than treated as a cost of investment. In addition, changes to contingent consideration after initial recognition at fair value will generally be recognised through the income statement rather than as an adjustment to goodwill. Adoption has had no impact on the figures reported in these financial statements but may impact the accounting for future transactions and arrangements. Other amendments and interpretations are also effective for the first time in the current period but have had no impact on the results or financial position of the Group.

B. Going concern 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 on pages 6 to 9. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described there also. In addition, note 27 to the financial statements includes the Group’s objectives, policies and processes for managing capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. As highlighted in the Operating and Financial Review the Group meets its day-to-day working capital requirements through the use of a Revolving Credit Facility of £10.0m that is due for renewal during July 2012. Further, it has a longer term debt financing requirement which it funds through a Term Loan of £4.5m repayable in 20 quarterly instalments commencing in April 2011. The current economic conditions create uncertainty particularly over the level of demand for an element of the Group’s products and over the availability of bank finance which the Directors are mindful of. In addition, the Group has incurred significant losses during the last 18–24 months of which a substantial element is in cash. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance and the implementation of the Group’s own turnaround plan show that the Group should operate within the level of its current facilities. The Group intends to open renewal negotiations with its bankers in due course and has recently confirmed that its current facilities remain in place. The Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. C. Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings for the year ended 30 June 2010 and the comparative year ended 30 June 2009. 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. 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. 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. All intercompany balances and transactions, including unrealised profits and losses arising from intra-Group transactions, are eliminated in full. Eleco plc /Annual Report 2010

21


Significant Accounting Policies (continued) D. Business disposal During the year, the Group sold its shareholding in Eleco Bauprodukte GmbH, its German connector plate subsidiary. Control of the German subsidiary ceased on 24 April 2010. Consequently the results of the subsidiary have been consolidated into the Group’s trading results up to this date. E. 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. On the disposal of Eleco Bauprodukte GmbH, the Directors considered that the proceeds from the disposal of the business should follow the description afforded within the legal documentation. Explicitly, the value of the business was £3.9m and there was a financing cost to MiTek between the date that control passed, 24 April 2010, and the date that legal control transferred, 30 June 2010. For this reason £0.1m of finance income has been recognised in the consolidated income statement. It was also judged by the Directors that Eleco Bauprodukte GmbH did not satisfy the definition of an operation under International Financial Reporting Standards. Accordingly, the operating results of the discontinued business and the net proceeds from the disposal of the business are reported within the operating results of the Group. 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 adjustments 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. 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 25. 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. 22

Eleco plc /Annual Report 2010

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. Further details are given in note 17. F. 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. 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. G. Intangible assets Goodwill arising on consolidation represents the excess of the cost of the acquisition, including 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. 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. On disposal, the attributable amount of goodwill is included in the determination of profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Intangible assets 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:


Accounts

Customer relationships Intellectual property

– up to 12 years – up to 5 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: • the intention to complete the development of the intangible asset and use or sell it; • the development costs are separately identifiable and can be measured reliably; • management are satisfied as to the ultimate technical and commercial viability of the project; so that it will be available for use or sale; • 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 • 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. H. 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 and assets in the course of construction, 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 Long leasehold buildings

– 50 years – 50 years or term of the lease, if shorter Short leasehold property – over the term of the lease Plant, equipment and vehicles – 2 to 10 years I. 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 assets 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 cash generating unit 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 cash generating unit and thereafter against other assets. Any impairment is charged to the income statement under the relevant expense heading. Tangible and intangible assets excluding goodwill At each balance sheet date the Group reviews the carrying amounts of its tangible 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 assets 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. J. 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 FIFO method. Net realisable value is based on estimated selling price less further costs expected to be incurred to completion and disposal. K. Trade receivables Trade receivables do not carry any interest and stated at their fair value 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. L. 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.

Eleco plc /Annual Report 2010

23


Significant Accounting Policies (continued) M. 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. N. Provisions 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. O. Pensions The Group operates a defined benefit pension scheme, which provides benefits based on final pensionable pay. 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.

24

Eleco plc /Annual Report 2010

P. 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. The shares allotted to the trust are accounted for at the mid market price on the date of transaction. Q. Foreign currencies The functional currency of the Company and the presentational currency of the Group is UK Pounds Sterling. 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 for 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 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 appropriate for the translation of the results of foreign subsidiaries. Differences on exchange, arising from the retranslation of the opening net investment in subsidiary companies 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


Accounts

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. R. Financial assets and liabilities 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 derecognition. 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 arms 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. S. 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.

The merger reserve is an undistributable 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. U. 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 and in some cases have not yet been adopted by the EU: Effective date

International Accounting Standards (IAS/IFRS) IAS 24 (revised 2009) “Related party disclosures” IAS 32 (amendment) classification of rights issues IFRS 1 (amendment) Additional exemptions for first time adopters IFRS 2 (amendment) Group cash-settled share-based payment transactions IFRS 9 “Financial instruments” Improvements to IFRS’s 2009 Improvements to IFRS issued May 2010 International Financial Reporting Interpretation Committee (IFRIC) IFRIC 14 “Prepayments of a minimum funding requirement” IFRIC 19 “Extinguishing financial liabilities with equity instruments”

1 January 2011 1 February 2010 1 January 2010 1 January 2010 1 January 2013 various various

1 January 2011 1 July 2010

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.

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. Current and 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. T. 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 18).

Eleco plc /Annual Report 2010

25


Notes to the Consolidated Financial Statements 1. Revenue Revenue from total operations disclosed in the income statement is analysed as follows: 2010 £’000

2009 £’000

Sale of goods Income from services Long-term contracts

29,744 9,805 18,460

40,416 9,107 21,032

Total revenue

58,009

70,555

2. Segment information Operating segments For management purposes, the Group is organised into three operating divisions, Precast concrete, Building products and Software. These divisions are the basis on which the Group reports its segment information. The principal activities of each segment are as follows: Precast Concrete: Manufacturer and supplier of precast concrete rooms, retaining walls, terracing units and prestressed and precast retaining structures. Building Products: Manufacturer and supplier of a range of building products including, metal roofing, cladding systems, timber frames, floor joists, acoustic flooring, roof truss connector plates, floor joist webs and associated design and engineering software. Software: Developer and supplier of resource management software, building project software, design and engineering software and 3D design software. 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. Intersegment 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.

26

Eleco plc /Annual Report 2010


Accounts

2. Segment information (continued) Operating segment analysis 2010 Building Systems Precast Concrete £’000

Building Products £’000

Revenue Inter-segment revenue

26,838 –

17,759 –

13,412 249

– (249)

58,009 –

Total segment revenue

26,838

17,759

13,661

(249)

58,009

Adjusted operating profit Amortisation of intangible assets Gain on sale of business Impairment charges Restructuring costs

(3,898) (185) – (1,151) (605)

(1,794) (16) 2,460 – (477)

769 (357) – – (101)

(4,923) (558) 2,460 (1,151) (1,183)

Segment result Net finance cost

(5,839)

173

311

(5,355) (520)

Software Elimination £’000 £’000

Total Group £’000

Loss before tax Tax

(5,875) 419

Loss after tax

(5,456)

Segment assets Unallocated assets

17,667

10,130

14,715

Total Group assets Segment liabilities Unallocated liabilities

51,919 8,024

4,474

5,060

Total Group liabilities Other segment information Capital expenditure:   Property, plant and equipment   Intangible assets Depreciation

42,512 9,407

17,558 19,015 36,573

831 49 968

314 7 614

115 171 247

Eleco plc /Annual Report 2010

1,260 227 1,829

27


Notes to the Consolidated Financial Statements (continued) 2. Segment information (continued) Operating segment analysis 2009 Building Systems Precast Concrete £’000

Building Products £’000

Software £’000

Revenue Inter-segment revenue

31,769 –

25,600 –

13,186 209

– (209)

70,555 –

Total segment revenue

31,769

25,600

13,395

(209)

70,555

Adjusted operating profit Amortisation of intangible assets Impairment charges Restructuring costs

843 (185) (1,000) (257)

19 (36) – (73)

343 (491) (269) (44)

1,205 (712) (1,269) (374)

(599)

(90)

(461)

(1,150) (280)

Segment result Net finance cost

Elimination £’000

Group £’000

Loss before tax Tax

(1,430) (39)

Loss after tax

(1,469)

Segment assets Unallocated assets

19,480

11,401

15,241

46,122 9,080

Total Group assets Segment liabilities Unallocated liabilities

55,202 8,179

4,125

5,096

17,400 16,236

Total Group liabilities Other segment information Capital expenditure:   Property, plant and equipment   Intangible assets Goodwill acquired Depreciation

33,636

1,526 – – 809

519 – – 756

268 626 310 304

2,313 626 310 1,869

The unallocated assets and liabilities represent corporate assets and liabilities, 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 Corporate assets

28

Eleco plc /Annual Report 2010

2010 £’000

2009 £’000

2,750 325 6,009 323

2,687 242 6,091 60

9,407

9,080


Accounts

2. Segment information (continued) Unallocated liabilities Borrowings Obligations under finance leases Deferred tax liabilities Current tax liabilities Retirement benefit obligation Corporate liabilities

2010 £’000

2009 £’000

7,900 393 282 96 9,821 523

4,500 683 804 347 9,599 303

19,015

16,236

Geographical segments Segment revenue by geographical segment represents revenue from external customers based upon the geographical location of the customer. Revenue by geographical destination: UK Rest of Europe Rest of World

2010 £’000

2009 £’000

45,279 10,071 2,659

53,283 14,313 2,959

58,009

70,555

Non-current assets excluding deferred tax by geographical segment represent the carrying amount of the assets based on the geographical area in which the assets are located. Non-current assets by geographical location UK Rest of Europe Rest of World

2010 £’000

2009 £’000

21,863 5,206 150

24,115 5,206 189

27,219

29,510

2010 £’000

2009 £’000

726 425 1,183

1,269 – 374

2,334

1,643

Information about major customers Revenues arising in the precast division include £5.9m (2009: £1.1m) from sales to the Group’s largest customer. 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 tangible assets Restructuring costs

As a result of the annual goodwill impairment review required under IAS 36 Impairment of Assets, see note 11, an impairment of £500,000 has been recognised in the accounts in respect of goodwill related to Milbury Systems. In addition, a review of the intangible assets at Milbury Systems identified certain licence agreements that were considered to have no future value to the business. As such, the carrying value of £226,000 was impaired at 30 June 2010. Factory buildings of £280,000 and precast moulds of £145,000 relating to discontinued products, were impaired in the year. A review of the Group’s operating costs was carried out in response to the downturn in the construction sector, primarily in the UK, and resulted in restructuring of certain operations with associated reductions in employee numbers.

Eleco plc /Annual Report 2010

29


Notes to the Consolidated Financial Statements (continued) 4. Gain on disposal of business The Group disposed of Eleco Bauprodukte GmbH during the year. The date of disposal was 24 April 2010 and legal completion took place on 30 June 2010. Gain on disposal

2010 £’000

2009 £’000

2,460

The gain on disposal is reported net of legal fees of £1,020,000 of which £918,000 was incurred during the legal dispute over the ownership and rights of software used in the German connector plate business and £102,000 on the disposal of the business to Mitek Industries Inc. 5. Operating loss The operating loss for the year is stated after charging/(crediting) the following items: 2010 £’000

Raw materials and consumables Research and development Depreciation of property, plant and equipment Amortisation of intangible assets Loss/(profit) on disposal of property, plant and equipment Foreign exchange gains Fees payable to the Company’s auditor for:   The audit of the Company’s annual accounts   The audit of the Company’s subsidiaries   Other services Operating lease rentals:   Plant, equipment and vehicles   Other assets

2009 £’000

15,277 2,538 1,829 558 16 (12)

18,039 2,896 1,869 712 (6) (302)

47 120 25

46 110 18

134 748

106 786

2010 number

2009 number

211 165 163 9

212 212 171 10

548

605

2010 £’000

2009 £’000

17,956 2,537

19,189 2,665

124 714 82

226 588 185

21,413

22,853

6. Employee information The average number of employees during the year, including Directors, was made up as follows: Building Systems – Precast Concrete Building Systems – Building Products Software Corporate

Staff costs during the year, including Directors, amounted to: Wages and salaries Social security Pension costs   Defined benefit schemes   Defined contribution schemes Share-based payments

30

Eleco plc /Annual Report 2010


Accounts

6. Employee information (continued) The remuneration of the Directors, who are the key management personnel of the Group, is set out below: 2010 £’000

2009 £’000

Short-term employee benefits Post employment benefits Termination benefits Share-based payments

1,053 208 151 64

1,026 176 – 161

Executive Directors Fees – Non-Executive Directors

1,476 82

1,363 75

1,558

1,438

The emoluments of the highest paid Director were £335,000 (2009: £351,000). In addition, Company contributions to defined contribution schemes in respect of this Director were £92,000 (2009: £91,000). At 30 June 2010 retirement benefits were accruing under defined contribution schemes in respect of one Director (2009: one) F E Newby is a member of the Eleco Retirements and Benefits scheme, which provides pensions and other benefits within HMRC limits determined by reference to basic salary. 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. 7. Net finance income/(cost) 2010 £’000

2009 £’000

Finance income   Bank and other interest receivable   Loan note interest receivable Finance costs   Bank overdraft and loan interest   Finance leases and hire purchase contracts   Net return on pension scheme assets and liabilities

55 100

216 –

(81) (33) (561)

(117) (53) (326)

Total net finance (cost)/income

(520)

(280)

2010 £’000

2009 £’000

8. Taxation (a) Tax on profit on ordinary activities The tax charged in the income statement is as follows: Current tax:   UK corporation tax on profits of the year   Tax adjustments in respect of previous years

– (12)

(222) (108)

(12) 104

(330) 661

92

331

Deferred tax:   Origination and reversal of temporary differences   Tax adjustments in respect of previous years

(507) (4)

(322) 30

Total deferred tax

(511)

(292)

Tax charge in the income statement

(419)

39

Foreign tax Total current tax

Income tax for the UK has been calculated at the standard rate of UK corporation tax of 28% (2009: 28%) on the estimated assessable profit for the year. Taxation for foreign companies is calculated at the rates prevailing in the relevant jurisdictions. Eleco plc /Annual Report 2010

31


Notes to the Consolidated Financial Statements (continued) 8. Taxation (continued) (b) Reconciliation of the total tax charge The tax assessed on the accounting profit before income tax for the year is higher than the standard rate of UK corporation tax of 28%. The differences are explained below: 2010 £’000

2009 £’000

Loss on ordinary activities before tax

(5,875)

(1,430)

Tax calculated at the standard rate of UK corporation tax of 28% (2009: 28%) applied to profits before tax

(1,645)

(400)

317 203 (988) 1,736 5 (16) (2) – (29)

98 280 – – 26 (78) (10) 190 (67)

(419)

39

Effects of: Expenses not deductible for tax purposes Impairment of intangible assets not deductible for tax purposes Non taxable capital gain Deferred tax not recognised Share option deduction Prior year adjustments Tax rate differences Secondary tax on overseas dividends Other differences Total tax (credit)/charge for the year

(c) Unrecognised tax losses The Group has tax losses of £1,284,000 (2009: £1,521,000) arising overseas for which no deferred tax asset has been recognised and tax losses of £6,217,000 (2009: £987,000) arising in the UK. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries. 9. Dividends paid and proposed Ordinary shares

Declared and paid during the year Interim – current year Final – previous year

2010 per share

2009 per share

2010 £’000

2009 £’000

– 0.40p

0.40p 2.00p

– 239

239 1,184

0.40p

2.40p

239

1,423

The Directors recommend that no final dividend be paid. Therefore the total dividend for the year amounts to £nil (2009: £478,000). 10. Earnings 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. 2010

Loss after taxation Weighted average number of shares in issue in the period Dilutive effect of share options Number of shares for diluted earnings per share Basic loss per share Diluted earnings per share

2009

£(5,456,000) 59,713,514 –

£(1,469,000) 59,351,220 –

59,713,514

59,351,220

(9.1)p (9.1)p

There is no dilution in the loss per share calculation at 30 June 2010 due to non-achievement of the share option performance requirements. The diluted loss per share is the same as the basic loss per share for the current year.

32

Eleco plc /Annual Report 2010

(2.5)p (2.5)p


Accounts

11. Goodwill 2010 £’000

2009 £’000

Cost: At 1 July Acquisition of subsidiaries Exchange

14,473 – (23)

14,174 310 (11)

At 30 June

14,450

14,473

Impairment: At 1 July Impairment charge

1,000 500

– 1,000

At 30 June

1,500

1,000

12,950

13,473

2010 £’000

2009 £’000

Building Systems – Precast Concrete – Milbury Systems

2,452

2,952

Building Systems – Building Products – Downer Cladding – Prompt Profiles

258 276

258 276

4,804 221 3,752 481 336 370

4,804 260 3,736 481 336 370

12,950

13,473

Net book value at 30 June Goodwill acquired through acquisitions net of impairments is set out below:

Software – Asta Development UK – Asta Development Germany – Consultec Sweden – Eleco Software UK – Eleco Software Germany – Esign Software Germany

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 three year period. The growth rate used to extrapolate the cash flows beyond this period is as follows, UK 2.74%, Sweden 3.05% and Germany 1.67%, which is in line with the medium-term GDP forecasts. Sensitivity analysis is carried out on all budgets and strategic plans used in the calculations. The discount rates used for all CGU’s is 8.48% for years 1 and 2 increasing to 10.20% from year 3 (2009: 9.74%) 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 amounts compared to the CGU asset carrying value and resulted in an impairment charge of £500,000. Cash flows from this CGU are generated from the sale of pre-stressed and precast retaining structures. 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.

Eleco plc /Annual Report 2010

33


Notes to the Consolidated Financial Statements (continued) 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 CGU’s 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

(477) 348 4,780

Sensitivity 1% reduction in growth rate pa £’000

(606) 95 4,416

Sensitivity 1% increase in discount rate pa £’000

(1,216) (520) 3,678

The impairment charged to administrative expenses in the year was £500,000 (2009: £1,000,000) and the cumulative impairment charge recognised to date was £1,500,000 (2009: £1,000,000). In 2009, the total impairment related to Milbury Systems. 12. Other intangible assets Customer Intellectual relationships property £’000 £’000

Total £’000

Cost: At 1 July 2009 Additions Exchange

3,228 – –

2,827 227 2

6,055 227 2

At 30 June 2010

3,228

3,056

6,284

Accumulated amortisation and impairment: At 1 July 2009 Amortisation for the year Impairment for the year Exchange

695 269 – –

1,875 289 226 3

2,570 558 226 3

At 30 June 2010

964

2,393

3,357

2,264

663

2,927

Net book value at 30 June 2010

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. Additions in the year represent purchased intangible assets of £202,000 (2009: £626,000) and internal development costs capitalised of £25,000 (2009: £nil). An impairment charge of £226,000 was recognised against the carrying value of certain of the Group’s licence agreements due to these products being discontinued from the Group’s product range in the next financial year. In 2009, the impairment charge of £269,000 was recognised against the carrying value of the Group’s software rights. Amortisation and impairment charges are included within administrative expenses.

34

Eleco plc /Annual Report 2010


Accounts

12. Other intangible assets (continued) Customer relationships £’000

Intellectual property £’000

Total £’000

Cost: At 1 July 2008 Reclassification Additions Exchange differences

3,228 – – –

2,031 164 626 6

5,259 164 626 6

At 30 June 2009

3,228

2,827

6,055

Accumulated amortisation and impairment: At 1 July 2008 Reclassification Amortisation for the year Impairment for the year Exchange differences

426 – 269 – –

1,006 148 443 269 9

1,432 148 712 269 9

At 30 June 2009

695

1,875

2,570

2,533

952

3,485

Leasehold land and buildings £’000

Plant, equipment and vehicles £’000

Total £’000

Net book value at 30 June 2009 13. Property, plant and equipment Freehold land and buildings £’000

Cost: At 1 July 2009 Additions Sale of business Disposals Exchange

5,588 – – – –

1,142 32 – (2) –

18,424 1,228 (233) (1,294) 138

25,154 1,260 (233) (1,296) 138

At 30 June 2010

5,588

1,172

18,263

25,023

Accumulated depreciation: At 1 July 2009 Depreciation charge for the year Impairment charge for the year Sale of business Disposals Exchange

1,308 94 – – – –

298 61 280 – (2) –

10,996 1,674 145 (116) (1,146) 89

12,602 1,829 425 (116) (1,148) 89

At 30 June 2010

1,402

637

11,642

13,681

Net book value at 30 June 2010

4,186

535

6,621

11,342

The net book value of plant, equipment and vehicles includes an amount of £393,000 (2009: £734,000) in respect of assets held under finance leases and hire purchase agreements. Assets in the course of construction were £nil (2009: £48,000). Freehold land of £883,000 (2009: £883,000) and leasehold land of £234,000 (2009: £234,000) are not depreciated.

Eleco plc /Annual Report 2010

35


Notes to the Consolidated Financial Statements (continued) 13. Property, plant and equipment (continued) Plant, equipment and vehicles £’000

Freehold land and buildings £’000

Leasehold land and buildings £’000

Cost: At 1 July 2008 Reclassification Additions Disposal Exchange differences

5,588 – – – –

956 – 186 – –

17,458 (164) 2,127 (1,027) 30

24,002 (164) 2,313 (1,027) 30

At 30 June 2009

5,588

1,142

18,424

25,154

Accumulated depreciation: At 1 July 2008 Reclassification Depreciation charge for the year Disposals Exchange differences

1,214 – 94 – –

239 – 59 – –

10,374 (148) 1,716 (962) 16

11,827 (148) 1,869 (962) 16

At 30 June 2009

1,308

298

10,996

12,602

Net book value at 30 June 2009

4,280

844

7,428

12,552

Property 2010 £’000

Other 2010 £’000

Property 2009 £’000

Other 2009 £’000

565 956 732

52 15 –

729 1,263 1,080

81 67 –

2,253

67

3,072

148

Total £’000

14. 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

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. The Group has a long leasehold property in Nottinghamshire for 49 years. The Group has annual rent income in respect of property sub-leases. Future minimum rentals receivable under non-cancellable operating leases are as follows:

Within one year Between two and five years After five years

15. Capital commitments Capital expenditure contracts of £64,000 (2009: £12,000) have been placed with suppliers at 30 June 2010.

36

Eleco plc /Annual Report 2010

Property 2010 £’000

Property 2009 £’000

– – –

76 – –

76


Accounts

16. Inventories Raw materials and components Finished goods

2010 £’000

2009 £’000

1,489 2,488

1,432 2,255

3,977

3,687

At 30 June 2010 the Group’s inventory provisions were £58,000 (2009: £53,000). The amount written off to the income statement in respect of written down inventories was £48,000 (2009: £53,000) 17. Construction contracts Contracts in progress at the balance sheet date were as follows: Amounts due from contract customers included in trade and other receivables Amounts due to contract customers included in trade and other payables

Contract costs incurred plus recognised profits less recognised losses to date Less: progress invoicing

2010 £’000

2009 £’000

498 (882)

940 (165)

(384)

775

4,182 (4,566)

10,163 (9,388)

(384)

775

Retentions held by customers for construction contracts in progress were £397,000 (2009: £53,000). No amounts receivable from customers arising from construction contracts are due for settlement after more than 12 months. 18. Trade and other receivables 2010 £’000

2009 £’000

Gross trade receivables Impairment

9,766 (246)

10,878 (191)

Net trade receivables Amounts recoverable on contracts Other receivables Prepayments and accrued income

9,520 498 384 1,237

10,687 940 325 1,033

11,639

12,985

The Group has a variety of credit terms depending on 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 carrying amounts of trade and other receivables are denominated in the following currencies: Sterling Euro Swedish Krona South African Rand Other

2010 £’000

2009 £’000

9,778 468 851 540 2

10,807 915 624 558 81

11,639

12,985

Eleco plc /Annual Report 2010

37


Notes to the Consolidated Financial Statements (continued) 18. Trade and other receivables (continued) Movement in the provision for doubtful debts in respect of trade receivables during the year was as follows: 2010 £’000

2009 £’000

At 1 July Written off as uncollectable Recovered during the year Provided against during the year Exchange

(191) 132 36 (210) (13)

(249) 129 97 (164) (4)

At 30 June

(246)

(191)

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 not more than six months More than six months but not more than one year More than one year

2010 £’000

2009 £’000

649 311 94 –

572 33 6 –

1,054

611

Credit insurance is purchased by the precast and building product divisions to mitigate exposure to credit risk. Management has no indication that unimpaired amounts will be irrecoverable. 19. Cash and cash equivalents Cash and cash equivalents include the following for the purposes of the cash flow statement: Cash and cash equivalents Restricted cash

2010 £’000

2009 £’000

2,009 4,000

6,091 –

6,009

6,091

Disposal proceeds on the disposal of Eleco Bauprodukte GmbH of £4,000,000 including interest receivable of £100,000 were in escrow at 30 June 2010 and cleared the Group’s bank account on 2 July 2010. The carrying amount of these assets approximates to their fair value. 20. Trade and other payables Trade payables Payments received on account Other taxation and social security Other liabilities

38

Eleco plc /Annual Report 2010

2010 £’000

2009 £’000

7,413 882 1,416 466

8,905 165 1,672 682

10,177

11,424


Accounts

21. Borrowings 2010 £’000

2009 £’000

225 293

– 365

518

365

7,675 100

4,500 318

7,775

4,818

2010 £’000

2009 £’000

225 4,300 2,700 675

– 225 2,700 1,575

7,900

4,500

Plant, equipment and vehicles 2010 £’000

Plant, equipment and vehicles 2009 £’000

293 68 32

365 265 53

393

683

Present lease value £’000

Interest £’000

Minimum lease payments £’000

In one year or less Between one and two years Between two and five years

293 68 32

13 4 6

306 72 38

At 30 June 2010

393

23

416

In one year or less Between one and two years Between two and five years

365 265 53

30 12 1

395 277 54

At 30 June 2009

683

43

726

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

The 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

The principal commitments of the Group under finance leases are repayable as follows:

In one year or less Between one and two years Between two and five years

The minimum lease payments of the Group under finance leases are as follows:

Eleco plc /Annual Report 2010

39


Notes to the Consolidated Financial Statements (continued) 22. Provisions Onerous contract provision £’000

Property dilapidation Restructuring provision provision £’000 £’000

Total £’000

At 1 July 2009 Charge to the income statement Utilised in the year Exchange

– 268 – –

– 87 – –

– 765 – –

– 1,120 – –

At 30 June 2010

268

87

765

1,120

Current liabilities

268

87

765

1,120

268

87

765

1,120

At 30 June 2009

Contract provisions are made based upon managements best estimate, where the expected economic benefits from certain specific contracts are less than those costs of meeting those contract obligations. The period over which these are expected to unwind is in the year to 30 June 2011. The property dilapidation provision relates to various Group properties that have been vacated during the year or properties where notice has been given to terminate the lease arrangement. Restructuring provisions of £765,000 (2009: nil) relate to the estimated costs of restructuring certain of the Group’s activities of which £765,000 is expected to be incurred in the year to 30 June 2011. 23. Deferred Tax The movement in the deferred tax liabilities analysed by category is shown below: Nondeductible intangible assets £’000

Temporary differences Accelerated capital allowances £’000

Sharebased payments £’000

Other £’000

Total £’000

At 1 July 2009 Reclassification (Credit)/charge to the income statement Exchange

927 – (190) –

264 – (475) –

(138) – 6 –

(249) 12 148 (2)

804 12 (511) (2)

At 30 June 2010

737

(211)

(132)

(91)

303

1,054 (127) –

249 15 –

(164) 26 –

(29) (206) (14)

1,110 (292) (14)

927

264

(138)

(249)

804

2010 £’000

2009 £’000

At 1 July Credit to the statement of comprehensive income

2,687 63

2,229 458

At 30 June

2,750

2,687

At 1 July 2008 (Credit)/charge to the income statement Exchange At 30 June 2009

The movement in the retirement benefit obligation deferred tax asset is shown below:

Deferred tax assets and liabilities are presented as non-current in the consolidated balance sheet. Deferred tax un-provided in respect of investments in subsidiaries is £2,162,000 (2009: £426,000) due to the unpredictability of future profit streams against which these losses may be offset. These losses may be carried forward indefinitely.

40

Eleco plc /Annual Report 2010


Accounts

24. Other non-current liabilities Amounts payable on contracts Restructuring provision

2010 £’000

2009 £’000

– –

121 –

121

25. 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 30 June 2010 by an independent qualified actuary under an appropriate method given the ERBS is closed to new members. Company contributions totalled £845,000 (2009: £619,000). The scheme closed to future accrual on 31 December 2010 and Company contribution rates for the six months to 31 December 2010 were 12.2% of pensionable salaries for 1/80th accrual members and 14.9% of pensionable salaries for 1/60th accrual members plus £225,000. Thereafter, the Company contribution to 30 June 2010 was £402,000. The estimated amount of contributions expected to be paid to the scheme during 2011 is £803,000. 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 £181,000 (2009: £140,000) were made during the year. 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 not to maintain above 155%, represents the extent to which the market value of the assets of the fund, calculated by Alecta, exceeds its pension commitments. At 30 June 2010, the fund had a solvency margin of 152.0% (2009: 156.0%). 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 30 June 2010

At 30 June 2009

At 30 June 2008

At 30 June 2007

At 30 June 2006

n/a

3.70%

4.35%

3.65%

3.25%

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%

2.65% 3.15% 2.00% 5.75% 3.40%

2.25% 2.75% 2.00% 5.25% 3.00%

The cash commutation used was 25% tax free cash on retirement (2009: no allowance) 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 – Male aged 65 – Female aged 65 Future expected lifetime of future pensioner – Male aged 65 – Female aged 65

At 30 June 2010 Years

At 30 June 2009 Years

21.9 25.1

21.8 25.0

23.8 27.2

23.7 27.1

Eleco plc /Annual Report 2010

41


Notes to the Consolidated Financial Statements (continued) 25. Retirement benefit obligations (continued) The assets in the scheme and the expected rate of return were: Longterm rate of return expected at 30 June 2010

Equities Fixed interest bonds Property Insurance annuity contracts Total market value of assets Present value of scheme obligations Liability in the scheme

Value at 30 June 2010 £’000

Longterm rate of return expected at 30 June 2009

Value at 30 June 2009 £’000

6.90% 4.90% 6.90% 5.40%

10,546 4,595 13 251

7.10% 5.60% 7.10% 6.40%

8,582 4,089 17 243

6.30%

15,405 (25,226)

6.60%

12,931 (22,530) (9,599)

(9,821)

Analysis of the amounts charged to administrative expenses in the income statement: 2010 £’000

2009 £’000

Current service cost Past service cost Gain on curtailment

124 – (243)

226 – –

Total operating (credit)/charge

(119)

226

Analysis of the amount (charged)/credited to financial income in the income statement: 2010 £’000

2009 £’000

852 (1,413)

1,068 (1,394)

(561)

(326)

2010 £’000

2009 £’000

Expected return on pension scheme assets Gain/(loss) on pension scheme assets

852 1,679

1,068 (2,760)

Actual return on plan assets

2,531

(1,692)

Expected return on pension scheme assets Interest on pension scheme liabilities Net finance cost The analysis of actual return on plan assets is as follows:

Analysis of the amount recognised in the statement of comprehensive income: 2010 £’000

Actual return less expected return on pension scheme assets Experience losses arising on the scheme liabilities Changes in assumptions underlying the present value of the liabilities Actuarial (losses)

1,679 (251) (2,053)

(2,760) (391) 1,446

(625)

(1,705)

The total amount of actuarial loss charged to the statement of comprehensive income since the date of transition is £5,895,000 (2009: £5,270,000).

42

Eleco plc /Annual Report 2010

2009 £’000


Accounts

25. Retirement benefit obligations (continued) The movement in the fair value of plan assets during the year is as follows: 2010 £’000

2009 £’000

At 1 July Expected return on scheme assets Surplus/(shortfall) in actual return on scheme assets Contributions Benefits paid

12,931 852 1,679 845 (902)

14,708 1,068 (2,760) 619 (704)

At 30 June

15,405

12,931

2010 £’000

2009 £’000

The movement in the defined benefit obligation during the year is as follows: At 1 July Current service cost Interest cost Actuarial losses/(gains) Gain on curtailment Benefits paid

22,530 124 1,413 2,304 (243) (902)

21,742 226 1,394 (128) – (704)

At 30 June

25,226

22,530

2007 £’000

2006 £’000

The five-year history of experience adjustments is as follows: 2010 £’000

Present value of defined benefit obligations Fair value of scheme assets

2009 £’000

2008 £’000

(25,226) 15,405

(22,530) 12,931

(22,669) 14,708

(19,834) 16,320

(19,398) 14,340

(9,821)

(9,599)

(7,961)

(3,514)

(5,058)

1,679

(2,760)

(2,745)

972

1,010

Percentage of scheme assets

11%

–21%

–19%

6%

7%

Experience (losses)/gains on scheme liabilities: Amount

(251)

(391)

624

(76)

161

Percentage of scheme liabilities

–1%

–2%

3%

0%

1%

2010 Nominal value £’000

2009 Nominal value £’000

Authorised: 85,000,000 (2009: 85,000,000) ordinary shares of 10p each

8,500

8,500

Allotted, called up and fully paid: 60,658,239 (2009: 60,658,239) ordinary shares of 10p each

6,066

6,066

Deficit in the scheme Experience adjustments on scheme assets: Amount

26. Called up share capital

Eleco plc /Annual Report 2010

43


Notes to the Consolidated Financial Statements (continued) 27. Share-based payments The Company operates one share scheme and options outstanding at 30 June 2010 over ordinary shares granted under this scheme were as follows:

Date awarded

Number of ordinary shares

Earliest

Latest

Weighted average remaining contractual life (months)

25 January 2006 12 January 2007

60,000 480,000

1 January 2009 1 January 2010

31 October 2011 31 October 2012

16 28

Vesting dates

540,000

27

All the options have a £nil exercise price. Certain of the options are subject to performance requirements and options may be capable of exercise in certain circumstances earlier than the dates given. Details of the number of options over ordinary shares outstanding during the year are as follows: 2010

Number

2009 Weighted average fair value per share

Number

Weighted average fair value per share

Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed during the year

765,000 – (60,000) (165,000)

77.5 1,540,000 – – 83.0 (705,000) 69.5 (70,000)

55.0 – 33.0 20.5

Outstanding at the end of the year

540,000

79.5

765,000

77.5

Exercisable at the end of the year

540,000

115,000

The options outstanding at 30 June 2010 had a weighted average exercise price of £nil, (2009: £nil) and remaining contractual life of 27 months (2009: 38 months). 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 30 June 2010 was £82,000 (2009: £185,000). The weighted average share price at the date of exercise was 28.5p per share (2009: 27.9p). An appropriate financial model is used to value the share options and the key assumptions used for the outstanding awards are shown below: 2006

Share price at grant date Fair value per share % expected to vest (at date of grant) Expected life (years) Dividend yield Fair value

2007(A)

47.5p 89.0p 41.0p 80.8p 25% 90% 3 3 2.95% 2.36% £6,000 £348,000

The Employee Share Ownership Trust held 896,593 shares at 30 June 2010 with a market value of £201,000 (2009: £383,000) and has waived its entitlement to dividends on ordinary shares held by it until such time as they are vested in employees.

44

Eleco plc /Annual Report 2010


Accounts

28. Financial instruments a) The carrying amount and fair value of financial assets and liabilities at 30 June 2010 £’000

2009 £’000

Financial assets: Trade and other receivables

16,411

18,043

Financial liabilities: Held at amortised cost

16,661

14,252

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

Financial assets

Net financial (assets)/ liabilities

Floating rate £’000

Total £’000

Floating rate £’000

Total £’000

Sterling Euro Swedish Krona South African Rand Other

16,177 128 155 201 –

16,177 128 155 201 –

13,084 858 1,126 1,318 25

13,084 858 1,126 1,318 25

3,093 (730) (971) (1,117) (25)

At 30 June 2010

16,661

16,661

16,411

16,411

250

Sterling Euro Swedish Krona South African Rand Other

13,702 259 136 148 7

13,702 259 136 148 7

14,136 1,811 894 1,148 54

14,136 1,811 894 1,148 54

(434) (1,552) (758) (1,000) (47)

At 30 June 2009

14,252

14,252

18,043

18,043

(3,791)

There are no fixed rate financial assets. The interest rate risk profile of the Group’s finance leases at 30 June was: Weighted average period

Sterling Euro Swedish Krona

Weighted average interest rate

2010 Years

2009 Years

2010 %

2009 %

1.7 1.9 1.0

1.6 2.8 2.2

5.41 6.09 5.82

5.42 6.09 5.78

The Group finances its operations through a mixture of retained profits, a bank overdraft, a term loan and a revolving credit facility. The interest rate on the term loan and revolving credit facility is linked to the Bank of England base rate at base +1.0%. These facilities are not secured against any assets of the Group.

Eleco plc /Annual Report 2010

45


Notes to the Consolidated Financial Statements (continued) 28. Financial instruments (continued) c) Currency profile of net foreign currency monetary assets and liabilities The table below shows the net unhedged 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. US Dollar £’000

South African Rand £’000

Other £’000

Total £’000

Sterling £’000

Euro £’000

Swedish Krona £’000

Sterling Euro Swedish Krona South African Rand

– – – –

102 – 13 –

– – – –

4 – 1 –

– – – –

– – 21 –

106 – 35 –

At 30 June 2010

115

5

21

141

Sterling Euro Swedish Krona South African Rand

– 78 1,374 20

390 – 109 –

– – – –

3 – 3 –

9 – – –

1 – 46 –

403 78 1,532 20

At 30 June 2009

1,472

499

6

9

47

2,033

Functional currency of Group operation

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. Interest rate risks are moderated by the use of a mixture of fixed and floating rate borrowings. The net interest receivable for the year was £41,000 compared to £46,000 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 balances at 30 June 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 28(c) 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 30 June 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 profit is not impacted by the effect of changes in exchange rates on the value of its net financial liabilities, but equity would be £199,000 lower if Sterling strengthened by 10% and £243,000 higher if Sterling weakened by 10%.

Net financial (assets)/liabilities:

Denominated in Sterling Not denominated in Sterling Total net financial liabilities

2010 As reported £’000

Effect of Sterling strengthening by 10% Rate +10% £’000

Profit/ (loss) £’000

Effect of Sterling weakening by 10% Equity £’000

Rate –10% £’000

Profit/ (loss) £’000

Equity £’000

3,094 (2,844)

– 259

– (10)

– (199)

– (316)

– 13

– 243

250

259

(10)

(199)

(316)

13

243

Effect of Sterling strengthening by 10%

Effect of Sterling weakening by 10%

Net financial (assets)/liabilities:

2009 As reported £’000

Denominated in Sterling Not denominated in Sterling

(434) (3,357)

– 406

– (127)

– (205)

– (497)

– 155

– 251

Total net financial assets

(3,791)

406

(127)

(205)

(497)

155

251

46

Eleco plc /Annual Report 2010

Rate +10% £’000

Profit/ (loss) £’000

Equity £’000

Rate –10% £’000

Profit/ (loss) £’000

Equity £’000


Accounts

28. Financial instruments (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 28(b) above). Based upon the interest rate profile of the Group’s financial assets and liabilities as at 30 June, the table below shows the impact of a one percentage point change in the market interest rates on the Group’s profit and equity. 2010 As reported £’000

Net finance income

Net finance income

41

Effect of increase in interest rates of 1% Rate +1% £’000

(21)

Profit/ (loss) £’000

(21)

Effect of decrease in interest rates of 1% Equity £’000

(21)

Effect of increase in interest rates of 1%

Rate –1% £’000

Profit/ (loss) £’000

Equity £’000

38

38

38

Effect of decrease in interest rates of 1%

2009 As reported £’000

Rate +1% £’000

Profit/ (loss) £’000

Equity £’000

46

52

52

52

Rate –1% £’000

(64)

Profit/ (loss) £’000

(64)

Equity £’000

(64)

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 Obligations under finance leases At 30 June 2010 Trade and other payables Bank loans Obligations under finance leases At 30 June 2009

Carrying amount £’000

3 months or less £’000

3 to 6 months £’000

6 to 12 months £’000

Between 1 and 2 years £’000

8,761 8,120 415

8,627 17 101

111 17 93

23 259 111

– 4,357 73

– 2,791 37

– 679 –

17,296

8,745

221

393

4,430

2,828

679

9,752 4,787 726

9,540 17 99

60 17 99

31 34 197

121 291 277

– 2,832 54

– 1,596 –

15,265

9,656

176

262

689

2,886

1,596

2010 £’000

2009 £’000

1,125 900 12,700 675

900 – 12,925 1,575

15,400

15,400

Between 2 and 4 years Over 5 years £’000 £’000

At 30 June, 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 Expiring after more than five years

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. Where the cost is not excessive when compared to the exposure being covered, some operations purchase credit insurance.

Eleco plc /Annual Report 2010

47


Notes to the Consolidated Financial Statements (continued) 28. Financial instruments (continued) The maximum exposure to credit risk for uninsured trade receivables at the reporting date by geographic region is as follows:

UK Rest of Europe Rest of World

2010 £’000

2009 £’000

1,717 1,045 131

2,236 1,247 185

2,893

3,668

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 30 June 2010, the Group’s EBITDA for the year was loss £1,817,000 (2009: profit £2,700,000) and net bank borrowings were £1,891,000 (2009: net cash funds £1,591,000). i) Hedging instruments There were no hedging instruments outstanding at 30 June 2010 or 30 June 2009. 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 pending litigation against the Group at 30 June 2010 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. The Directors of the Company had no material transactions with the Company during the year, other than a result of service agreements. During the year, for expenses or services provided in the normal course of business, the Group paid £nil (2009: £5,000) to J H B Ketteley & Co Limited of which J H B Ketteley is a director and in which he has an interest and £18,000 to Deshurst Limited, of which D S Dannhauser is a director and in which he has an interest. Additionally, an amount of £25,000 (2009: £28,000) 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 1 September 2010 The Group acquired the assets of Lubekonsult AB, which provides cost estimation services and software to the Swedish ventilation market. The consideration was £160,000, paid on completion, with a deferred element of up to a maximum of approximately £220,000 depending on the profit performance over each of the next two years.

48

Eleco plc /Annual Report 2010


Accounts

Independent Auditors’ Report to the members of Eleco plc We have audited the parent Company financial statements of Eleco plc for the year ended 30 June 2010 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 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.

Other matter We have reported separately on the Group financial statements of Eleco plc for the year ended 30 June 2010. John Corbishley Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Cambridge 30 September 2010

Respective responsibilities of Directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 13, 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 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/ UKNP. Opinion on financial statements In our opinion the parent Company financial statements: • give a true and fair view of the state of the Company’s affairs as at 30 June 2010; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • 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: • 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 • the parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit.

Eleco plc /Annual Report 2010

49


Company Balance Sheet at 30 June 2010

Notes

2010 £’000

2009 £’000

4 5 6

93 4,432 32,658

140 4,838 53,961

37,183

58,939

15 9,117 6,508

69 5,606 1,444

15,640

7,119

(19,182)

(18,525)

Net current liabilities

(3,542)

(11,406)

Total assets less current liabilities

33,641

47,533

(7,675) (848)

(4,621) –

25,118

42,912

6,066 6,396 16,714 (4,058)

6,066 6,396 16,603 13,847

25,118

42,912

Fixed assets Intangible assets Tangible assets Investments

Current assets Stocks Debtors Cash at bank and in hand

Creditors: amounts falling due within one year

Creditors: amounts falling due after more than one year Provisions for liabilities

7 8

9

10 11

Net assets Capital and reserves Called up share capital Share premium account Other reserve Profit and loss account Shareholders’ equity

12 14 14 14

The financial statements of Eleco plc, registered number 00354915, on pages 50 to 56 were approved by the Board of Directors on 30 September 2010 and signed on its behalf by: John Ketteley Executive Chairman

50

Eleco plc /Annual Report 2010


Accounts

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 Plant, equipment and vehicles

– 50 years – 2 to 10 years

Investments Fixed asset investments are shown at cost, together with any incidental costs of acquisition, less any provision for impairment. 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 employee 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: • provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets, and gains on disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold; • 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 • 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.

Eleco plc /Annual Report 2010

51


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 loss for the financial year was £17,622,000 (2009: profit £3,456,000). 2. Employees The aggregate remuneration of the Directors is shown in the employee note on pages 30 to 31. The average number of employees during the year including Directors by function was as follows: Management Administration

2010 Number

2009 Number

6 3

6 4

9

10

2010 £’000

2009 £’000

1,014 157 121 60

1,194 198 86 140

1,352

1,618

Their aggregate remuneration comprised: Wages and salaries Social security costs Pension costs Share-based payments

3. Dividends paid and proposed Ordinary shares

Declared and paid during the year Interim – current year Final – previous year

2010 per share

2009 per share

2010 £’000

2009 £’000

– 0.40p

0.40p 2.00p

– 239

239 1,184

0.40p

2.40p

239

1,423

The Directors recommend that no final dividend be paid. Therefore the total dividend for the year amounts to £nil (2009: £478,000) 4. Intangible assets Intellectual property £’000

Cost: At 1 July 2009 Additions

1,428 21

At 30 June 2010

1,449

Accumulated amortisation and impairment: At 1 July 2009 Amortisation charge for the year

1,288 68

At 30 June 2010

1,356

Net book value at 30 June 2010 Net book value at 30 June 2009

52

Eleco plc /Annual Report 2010

93 140


Accounts

5. Tangible fixed assets Plant, equipment and vehicles £’000

Freehold land and buildings £’000

Leasehold land and buildings £’000

Cost: At 1 July 2009 Additions Disposals

5,588 – –

547 – –

162 6 (34)

6,297 6 (34)

At 30 June 2010

5,588

547

134

6,269

Accumulated depreciation: At 1 July 2009 Depreciation charge for the year Impairment charge for the year Disposals

1,308 94 – –

28 5 280 –

123 14 – (15)

1,459 113 280 (15)

At 30 June 2010

1,402

313

122

1,837

Net book value at 30 June 2010

4,186

234

12

4,432

Net book value at 30 June 2009

4,280

519

39

4,838

Total £’000

The net book value of plant equipment and vehicles includes an amount of £nil (2009: £nil) in respect of assets held under finance leases and hire purchase agreements. Freehold land of £883,000 (2009: £883,000) and leasehold land of £234,000 (2009: £234,000) are 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 July 2009 Disposals

21,076 –

64,139 (4,607)

85,215 (4,607)

At 30 June 2010

21,076

59,532

80,608

Accumulated provision: At 1 July 2009 Charge to profit and loss account

9,173 487

22,081 16,209

31,254 16,696

At 30 June 2010

9,660

38,290

47,950

Net book value at 30 June 2010

11,416

21,242

32,658

Net book value at 30 June 2009

11,903

42,058

53,961

The poor financial performance of the Building Systems businesses during the year triggered a review of the Company investments in subsidiaries. Value in use calculations were performed on the cash flow projections of the precast and building product divisions. 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 33. The calculations identified a shortfall in the value in use of some of the loans and investments compared to their carrying amount which resulted in a provision for impairment for the year of £16,696,000.

Eleco plc /Annual Report 2010

53


Notes to the Company Financial Statements (continued) 6. Investments in subsidiaries (continued) 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. Company

Country of Operations

Precast Concrete Bell & Webster Concrete Limited Milbury Systems Limited

UK UK

Building Products SpeedDeck Building Systems Limited Downer Cladding Systems Limited Prompt Profiles Limited Eleco Timber Frame Limited Gang-Nail Systems Limited International Truss Systems (Pty) Limited

UK UK UK UK UK South Africa

Software Asta Development PLC Eleco Software Limited Consultec Group AB Consultec Byggprogram AB Consultec System AB Consultec Arkitekter & Konstruktorer AB Asta Development GmbH Eleco Software GmbH Esign Software GmbH

UK UK Sweden Sweden Sweden Sweden Germany Germany Germany

The ordinary shares in the above companies are held through intermediate holding companies except Esign Software GmbH. 7. Stock Finished goods

2010 £’000

2009 £’000

15

69

2010 £’000

2009 £’000

36 191 36 3 138 8,713

51 36 75 – 183 5,261

9,117

5,606

2010 £’000

2009 £’000

225 164 774 107 17,912

– 824 336 121 17,244

19,182

18,525

8. Debtors Trade debtors Other debtors Prepayments and accrued income Corporation tax Deferred tax Amounts due from subsidiary undertakings

9. Creditors: amounts falling due within one year Bank loans and overdrafts Other creditors Accruals and deferred income Other taxation and social security Amounts due to subsidiary undertakings

54

Eleco plc /Annual Report 2010


Accounts

10. Creditors: amounts falling due after more than one year 2010 £’000

2009 £’000

7,675 –

4,500 121

7,675

4,621

2010 £’000

2009 £’000

225 4,300 2,700 675

– 225 2,700 1,575

7,900

4,500

Property dilapidation Restructuring provision provision £’000 £’000

Total £’000

Bank loans Amounts payable on contracts

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

11. Provisions Provisions for losses in subsidiaries £’000

At 1 July 2009 Charge to profit and loss account

– 367

– 5

– 476

– 848

At 30 June 2010

367

5

476

848

At 30 June 2009

Restructuring provisions of £476,000 (2009: £nil) largely relate to the estimated costs of reorganisation of the head office and closure of the Munich office in Germany. Dilapidation costs of £5,000 and restructuring costs of £476,000 are expected to be incurred in the year ended 30 June 2011. 12. Called up share capital 2010 Nominal value £’000

2009 Nominal value £’000

Authorised: 85,000,000 (2009: 85,000,000) ordinary shares of 10p each

8,500

8,500

Allotted, called up and fully paid: 60,658,239 (2009: 60,658,239) ordinary shares of 10p each

6,066

6,066

13. Share-based payments The Company operates one share scheme and options outstanding at 30 June 2010 over ordinary shares granted under this scheme to employees of the Company were as follows:

Date awarded

Number of ordinary shares

Earliest

Latest

Weighted average remaining contractual life (months)

12 January 2007

335,000

1 January 2010

31 October 2012

16

Vesting dates

All the options have a £nil exercise price. Certain of the options are subject to performance requirements described in the Directors Report on page 11. Options may be capable of exercise in certain circumstances earlier than the dates given.

Eleco plc /Annual Report 2010

55


Notes to the Company Financial Statements (continued) 13. Share-based payments (continued) Details of the number of options over ordinary shares outstanding during the year are as follows: 2010

Number

2009 Weighted average fair value per share

Number

Weighted average fair value per share

Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed during the year

485,000 – – (150,000)

77.1 1,010,000 – – – (455,000) 68.2 (70,000)

57.7 – 39.8 20.5

Outstanding at the end of the year

335,000

80.3

485,000

77.1

Exercisable at the end of the year

335,000

70,000

The options outstanding at 30 June 2010 had a weighted average exercise price of £nil, (2009: £nil) and remaining contractual life of 16 months (2009: 39 months). 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 30 June 2010 was £60,000 (2009: £140,000). An appropriate financial model is used to value the share options and the key assumptions used for the outstanding awards are shown below: 2007(A)

Share price at grant date Fair value per share % expected to vest Expected life (years) Dividend yield Fair value

89.0p 80.3p 99% 3 2.36% £267,000

14. Reserves The other reserve includes the shares in the Company held by the Employee Share Ownership Trust and the unrealised profit on the intragroup transfer of investments. Share premium £’000

Other reserve £’000

Profit and loss account £’000

At 1 July 2009 Loss for the year Dividends Share-based payments Other movements

6,396 – – – –

16,603 – – 84 27

13,847 (17,622) (239) (24) –

At 30 June 2010

6,396

16,714

(4,038)

Other movements during the year reflects the impact of transfers of own shares, held by the Employee Share Ownership Trust, to employees under the LTIP scheme. 15. Operating lease commitments Annual commitments under operating leases are as follows:

Within one year Between two and five years After five years

Property 2010 £’000

Property 2009 £’000

31 – –

8 – –

31

8

16. 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 12. 56

Eleco plc /Annual Report 2010


Accounts

Five Year Summary IFRS

Revenue   Continuing operations Profit/(loss) from operations Finance income/(expense) Profit before taxation Taxation Profit after taxation Shareholders equity Earnings per share (basic) Dividend per share

2010 £’000

2009 £’000

58,009 (5,355) (520) (5,875) 419 (5,456) 15,346 (9.1)p 0.00p

70,555 (1,150) (280) (1,430) (39) (1,469) 21,566 (2.5)p 2.40p

2008 £’000

84,909 8,022 202 8,224 (2,091) 6,133 25,887 10.6p 2.80p

2007 £’000

61,923 5,821 59 5,880 (942) 4,938 20,941 9.3p 2.20p

UK GAAP 2006 £’000

55,197 4,592 (156) 4,436 (1,103) 3,333 12,185 6.8p 1.60p

Financial Calendar Ordinary Shares Ex-dividend Date – 20 October 2010 Record Date – 22 October 2010 Interim results – March 2011 Annual General Meeting 11 November 2010 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.

Eleco plc /Annual Report 2010

57


Notice of Meeting NOTICE is hereby given that the seventy-first Annual General Meeting of Eleco plc (the “Company”) will be held at the Brewers’ Hall, Aldermanbury Square, London EC2V 7HR on 11 November 2010 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 30 June 2010, together with the Reports of the Directors and Auditors. 2. To re-elect J H B Ketteley, who retires by rotation, as a Director of the Company. 3. To elect R C A Slater, who retires in accordance with the Company’s Articles of Association, as a Director of the Company. 4. To elect J B Edwards, who retires in accordance with the Company’s Articles of Association, as a Director of the Company. 5. To re-appoint Grant Thornton UK LLP as Auditors and to authorise the Directors to determine their remuneration. Special Business 6. Disapplication of pre-emption rights That the Directors be empowered, pursuant to section 570 of the Companies Act 2006 (the “Act”), to allot equity securities (within the meaning of section 560 of the Act) for cash 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 below); and (b) otherwise than pursuant to paragraph 6(a) above up to an aggregate nominal amount of £303,291,

58

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.

Eleco plc /Annual Report 2010

“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 maybe 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.

7. Purchase of the Company’s own shares That the Company be and is hereby generally and unconditionally authorised 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 10 pence 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 on the earlier of the conclusion of the next annual general meeting and 11 February 2012, save that the Company may purchase equity securities pursuant to this authority at any later date where such purchase is made pursuant to any contract concluded by the Company before the expiry of this authority and which will or may be excluded wholly or partly after such expiry. By order of the Board I A Barton Secretary 30 September 2010 Registered Office: Eleco House 15 Gentlemen’s Field Westmill Road Ware Hertfordshire SG12 0EF


Accounts

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 at least 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. 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. Shares held in uncertified form (i.e. in CREST) may be voted through the CREST Proxy Voting Service in accordance with the procedures set out in the CREST manual. 3. 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. 4. 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 AGM, and at the place of the meeting for at least 15 minutes prior to the AGM until its conclusion.

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Group Directory Building Systems Bell & Webster Concrete Limited Grantham, Lincolnshire Tel: +44 (0) 1476 562277 Fax: +44 (0) 1476 562944 E-mail: bellandwebster@eleco.com Website: www.eleco.com/bellandwebster Manufacturer and supplier of FastBuild™ precast concrete rooms, retaining walls, terracing units and other concrete products.

Software Asta Development plc Thame, Oxfordshire Tel: +44 (0) 1844 261700 Fax: +44 (0) 1844 261314 E-mail: support@astadev.com Website: www.astadev.com Developer and supplier of project and resource management software.

Milbury Systems Limited Lydney, Gloucestershire Tel: +44 (0) 1275 857799 Fax: +44 (0) 1275 853123 E-mail: sales@milbury.com Website: www.milbury.com Manufacturer and supplier of prestressed and precast retaining structures.

Asta Development GmbH Karlsruhe, Germany Tel: +49 (0) 721 95 250 Fax: +49 (0) 721 95 25100 Email: info@astadev.de Website: www.astadev.de Supplier of project and resource management software.

Gang-Nail Systems Limited Aldershot, Hampshire Tel: +44 (0) 1252 334691 Fax: +44 (0) 1252 334562 E-mail: gangnail@eleco.com Website: www.eleco.com/gangnail Manufacturer and supplier of roof truss connector plates, EcoJoist® floor joist webs and associated design and engineering software. International Truss Systems (Pty) Limited Johannesburg, South Africa Tel: +27 (0) 11 397 4441 Fax: +27 (0) 11 397 4929 E-mail: its@eleco.com Website: www.eleco.com/its Supplier of roof truss connector plates and associated design and engineering software. SpeedDeck Building Systems Limited Yaxley, Suffolk Tel: +44 (0) 1379 788166 Fax: +44 (0) 1379 788161 E-mail: speeddeck@eleco.com Website: www.eleco.com/speeddeck Manufacturer and supplier of secret-fix and standing seam metal roofing and Vitesse® wall and rainscreen cladding systems. Downer Cladding Systems Limited Yaxley, Suffolk Tel: +44 (0) 1379 787215 Fax: +44 (0) 1379 788161 E-mail: downer@eleco.com Website: www.eleco.com/downer Supplier of fixing and support systems for rainscreen cladding. Prompt Profiles Limited Norwich, Norfolk Tel: +44 (0) 1603 720090 Fax: +44 (0) 1603 720202 E-mail: promptprofiles@eleco.com Website: www.eleco.com/promptprofiles Manufacturer and supplier of profiled metal products for the roofing systems industry. Eleco Timber Frame Limited Yaxley, Suffolk Liverpool, Merseyside Tel: +44 (0) 1379 783465 Tel: +44 (0) 151 448 0066 Fax: +44 (0) 1379 783659 Fax: +44 (0) 151 448 0066 Website: www.eleco.com/elecotimberframe Manufacturer and supplier of ElecoFrame® timber frame, EcoJoist® floor joist and ElecoFloor® acoustic flooring products. 60

Eleco plc /Annual Report 2010

Consultec Byggprogram AB Skellefteå, Sweden Tel: +46 (0) 910 87878 Fax: +46 (0) 910 87809 E-mail: info@consultec.se Website: www.consultec.se Developer and supplier of building project software. Consultec System AB Skellefteå, Sweden Tel: +46 (0) 910 87800 Fax: +46 (0) 910 87849 E-mail: info@consultec.se Website: www.consultec.se Developer and supplier of design and engineering software. Consultec Arkitekter & Konstruktorer AB Skellefteå, Sweden Tel: +46 (0) 910 87800 Fax: +46 (0) 910 87809 E-mail: info@consultec.se Website: www.consultec.se Architectural consultancy and software reseller. Eleco Software Limited Aldershot, Hampshire Tel: +44 (0) 1252 339148 Fax: +44 (0) 1252 332287 E-mail: admin@3darchitect.co.uk Website: www.3darchitect.co.uk Developer and supplier of 3D design software. Eleco Software GmbH Hameln, Germany Tel: +49 (0) 5151 787 9928 Fax: +49 (0) 5151 787 9929 E-mail: info@eleco-software.de Website: www.elecosoftware.de Developer and supplier of 3D design software. Esign Software GmbH Hanover, Germany Tel: +49 (0) 511 856 14340 Fax: +49 (0) 511 856 14343 E-mail: info@e-sign.com Website: www.e-sign.com Developer and supplier of software solutions for the floor coverings industry.


Corporate Synopsis

Eleco is focused on key components of a modern construction project. Building Systems used in the fabric of the building, Software tools used to manage the construction project and Sustainable Construction to enhance environmental performance.

ESign Software

Eleco Software Eleco Software provides software applications to help construction businesses manage each stage of the project life cycle, satisfying their drive for greater efficiency through improved management of projects.

Consultec Sweden

Eleco Building Systems Eleco Building Systems focuses on modern methods of construction to provide materials efficiency and construction speed in precast concrete, timber and metal.

SpeedDeck Building Systems/Prompt Profiles

Sustainable Construction Eleco is a group focused on sustainable construction improving environmental performance through material efficiency, faster construction times and efficient management of projects.

Asta Development

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Front cover image reference 1 Consultec Arkitekter & Konstruktรถrer AB 2 Eleco Timber Frame 3 Bell & Webster Concrete/Downer Cladding Systems 4 Gang-Nail Systems


Eleco House 15 Gentlemen’s Field Westmill Road, Ware Herts SG12 0EF Tel: +44 (0)1920 443830 Fax: +44 (0)1920 469681 E-mail: info@eleco.com Website: www.eleco.com

Eleco plc  Annual Report 2010

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Eleco plc Annual Report 2010


2010 Eleco plc Annual Report