("Eleco" or the "Group")

The Building Systems and Software Group

Interim Results for the Six Months Ended 31 December 2008

Financial performance 

• Turnover amounted to £37.2m (H1 2007: £39.4m) 

• Group operating profit amounted to £225,000 (H1 2007: £3.5m)

• Profit before tax amounted to £270,000 (H1 2007: £3.7m)

• Earnings per share of 0.3p (2007: 4.5p)

• Interim dividend of 0.4p per share (H1 2007: 1.0p)

• Net cash at 31 December 2008 amounted to £967,000

• Bank Facilities of £14.5 million committed up to 2012

Building Systems

• Turnover amounted to £31.0m (H1 2007: £33.18m)

• Operating profit amounted to £278,000 (H1 2007: £3.4m)

• Precast Concrete revenue contribution of £17.2m (H1 2007: £16.5m) following 2007 acquisition of Milbury Systems.

• Improvement in environmental and quality standards; three precast factories awarded ISO 14,001 certification

• Solid performance from overseas businesses 

Software

• Turnover amounted to £6.2m (H1 2007: £6.17m) 

• Overseas revenues for construction software exceeded expectations

• Launch of Grand Designs 3D product range

• New visualisation software launched in US market; initial sales encouraging 

John Ketteley, Executive Chairman of Eleco plc, commented:

"The slowdown in the construction sector challenged the Group significantly. However, in spite of the difficulties encountered, we remain cautiously optimistic that Group performance will recover towards the end of 2009.  

"Order intake for our building systems businesses has recently increased and renewal revenues for our construction software businesses have been resilient, reflecting the strength of our product offering. We have committed bank facilities of £14.5m through to 2012, and the business remains financially sound. 

"We will continue to develop our current product offering. However, in the current economic climate maintaining a financially sound business will remain our priority." 

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  Chairman's Statement

The six months period ended 31 December 2008 presented significant challenges for the Group, as the slowdown in the construction sector accelerated in the face of deteriorating economic and financial conditions that became markedly more hostile towards the end of the period.

Financial Performance

Revenue in the six months ended 31 December 2008 amounted to £37,160,000 (2007: £39,351,000), a decrease of 5.6 per cent. over the corresponding period last year.

Profit from operations for the period amounted to £225,000 (2007: £3,507,000), a substantial reduction from that of the corresponding period last year.

Profit before tax, including net finance income of £45,000 (2007: £145,000), was £270,000 (2007: £3,652,000). Profit after tax for the period was £197,000 (2007: £2,572,000).

Net cash at 31 December 2008 amounted to £967,000. 

The results achieved reflect the increasingly difficult market conditions throughout the first half of the financial year with the second quarter being particularly adversely affected. Background funding issues appeared increasingly to hamper customers' ability to finalise their supply chain arrangements and project start dates were delayed, which impacted on our scheduled production. Pressure on selling prices also intensified for two main reasons, namely customers seeking cost reductions in anticipation of input cost reductions, that had not necessarily been reflected in actual input costs experienced, and the effect of intensified competition for the lower level of project opportunities.

Given difficult market conditions and, despite the overall fall in revenues of 5.6 per cent compared with the same period in the previous year, the resilience of our businesses and the suitability of our products, which lend themselves to faster and more cost effective construction, have continued to be demonstrated. The more recent order intake of those of our Building Systems businesses, where project orders are confirmed some time in advance, have improved from the average levels achieved over the period as a whole and the renewal revenues of our Construction Software businesses have been maintained at close to historic levels.

The net cash outflow in the period reflects in part the impact of the full year dividend payment and tax settlements in respect of the last financial year's strong profits. This also included a sustained level in capital investment of £1.60m and a net outflow of £3.58m associated with an increase in working capital. The latter reflects the impact of the reduced scale of activity from that of the final quarter of the last financial year, principally in the Precast business, which had been able previously to operate with negative working capital. Nevertheless, our overall net cash position of £0.97m, still maintained at 31 December 2008, is encouraging in light of general circumstances prevailing in the marketplace and our liquidity position remains strong given the Group's committed bank facilities of £15.4m, including £14.5m which extend through to 2012 and beyond.

Earnings per share and Dividend

Earnings per share for the period amounted to 0.3p (2007: 4.5p).

The Board has concluded that it would not be appropriate in the prevailing circumstances to maintain the dividend at recent levels, but nevertheless, considers that the performance in the period under review as well as shorter-term prospects justifies a dividend being declared at the interim stage. Accordingly, it has declared a dividend of 0.4p a share to be paid on 9 April 2009 to shareholders on the register on 20 March 2009. The interim dividend is covered 0.8 times by earnings (2007: 4.3 times).

  Operational Review

BUILDING SYSTEMS

Revenues of the Building Systems operations decreased by 6.7 per cent. to £30,969,000 (2007: £33,180,000). Profits from operations declined sharply to £278,000 (2007: £3,356,000).

Precast Concrete

Revenues of Precast Concrete £17,210,000 compare with £16,493,000 in the comparative period, when Milbury Systems was acquired in November 2007. Revenues of Bell & Webster Concrete were 22.9 per cent. down period on period. Operating profits amounted to £19,000 (2007: £1,965,000).

The main targeted markets for Bell & Webster's Fastbuild rooms are those of new build hotel and student accommodation. During the period, there has been considerable experience of project start dates being affected by developers' funding constraints. However, indicative market demand is still strong evidenced by the fact that enquiry and tender levels compare favourably with the previous year. Since the turn of the year there have also been increasingly encouraging signs that a number of projects are gaining their funding, for which Bell & Webster has received letters of intent and is well placed to receive orders. Progress has also been made in addressing the product to the custodial accommodation market and Bell & Webster is involved in the preliminary stages of a number of such project opportunities.

Performance at Milbury Systems in the period has been disappointing given its performance last year following its acquisition in November 2007. While sales to agricultural markets in the UK have held up, the contraction in the Irish market as well as a significant reduction in new business secured in the industrial market resulted in sales activity below that for which the business was operationally geared. Necessary actions have been taken to remedy this situation.

Product development activity has been maintained as has work to enhance further environmental and quality standards at the three precast factories, which have now received full certification under ISO 14,001. Bell & Webster are also awaiting the final audit for OHSAS 18001:2007 accreditation which is recognised as the leading management system standard within the UK. 

Other Building Systems

Revenues were down 17.5 per cent. at £13,759,000 (2007: 16,687,000). Operating profits were £259,000 (2007: £1,391,000)

Roofing, Cladding and Timber Frame

Market conditions for the roofing and cladding companies were very difficult in the period. Despite enhanced sales resources being applied and the forward order book being maintained, previous revenue levels could not be upheld as an increasing rate of insolvencies in the sector impacted on continuity of business from previously established customer relationships. Operating costs have been adjusted to suit the prevailing conditions.

Eleco Timber Frame was positioned to service the private residential market and has been successful in establishing relationships with an increasing number of developer clients. While the value of commitments received from developers in terms of Elecoframe® being selected as the product and the number and value of orders and letters of intent has increased in the period, revenues were affected by the restriction in new start levels almost entirely due to client funding issues. The business continues to add further project prospects but timing of the acceleration in its revenues will be dependent on funding becoming increasingly available to its customers either through increased sales or bank lending. During the period, sales activity also encompassed the public authority and social housing and the rate of initial successes has been encouraging. 

  Timber Engineering Systems

The UK business is predominantly a timber engineering systems provider to the UK and Irish companies involved in residential housebuilding markets and was therefore greatly affected by the very significant fall in new housebuilding activity in the period. However, owing to our business mix, revenues did not reduce as much as reported overall market falls. Consultec UK, which offers software applications primarily to the housebuilding sector, has now been merged with Gang-Nail Systems, which will enable a better integrated portfolio of products and software and better customer service to be offered to the intermediate off-site manufacturers in the housebuilding sector. 

In Germany, Eleco Bauprodukte has benefited from its strong relationships in the supermarket sector and performed well at above previous year levels.

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

SOFTWARE

Revenues of the Software operations was up slightly at £6,191,000 (2007: £6,171,000). A modest operating loss of £53,000 compares with the modest operating profit of £151,000 for the comparative period last year.

Construction Software

Total revenues of Asta Development held up well at only 3.1% down on the comparable period last year as sales of project management software to the main contractor market in the UK progressively slowed during the period. The number of new project starts declined and major contractors sought to consolidate their positions in the market. Operating costs have been reduced to reflect the slowdown in demand. Encouragingly however, sales to new customers continued at a steady rate and renewals of annual maintenance agreements remained high and close to the historical average. Revenues from services were down but remain strong. Overseas revenues exceeded expectations and accounted for almost 12% of revenues during the period.

In January 2009, Asta Development GmbH, the distributor partner for Asta Powerproject® in Germany, was acquired which will enable 100% of the revenue flows from Germany to accrue for the benefit of the Group.

In Sweden, the Consultec companies have shown remarkable resilience to the downturn. Demand for estimating and planning software and services remain strong and revenues increased by 4.7% over those of the comparative the period. In combination with tight control over costs this resulted in an increase in profits compared with the comparative period in the previous year.

Visualisation Software

Revenues of Visualisation Software were 4.3% below those of the same period last year. Although the planned launch of our new Grand Designs 3D product range was materially affected by the disruption in UK consumer software distribution caused by the Administration in November 2008 of Entertainment UK Limited, a subsidiary of Woolworth plc, sales are now building in the UK after we re-launched the product in January 2009 in order to avoid wholesale discounting of our products prevalent in UK retail sector around the Christmas period. In January 2009, the international expansion of our consumer business has been furthered by the launch of a home design software application in the US market. We have been able to partner with Atari, a well known brand within our target demographic and initial sales are encouraging. In addition, although the outlook for the German economy is currently uncertain, we are confident in the performance of the German businesses for the remaining period.

Management

I am pleased that we have recently been able to announce the appointment of Fred Newby as Deputy Chairman of Eleco plc and Chief Executive of our UK Building Systems interests. He has been a major contributor to the development of our precast concrete businesses since he joined the Group in 1991 and has been engaged in the construction industry for the whole of his career. He will be responsible for ensuring greater cohesion and co-ordination of our building systems offering in the markets we serve. 

Outlook

Clearly, the performance of the Group in months to come will be dependent, to a significant degree, on an improvement in underlying market conditions for our products and we are well aware that considerable uncertainty in this regard still exists. Accordingly, during the year so far, steps have been taken to reduce our short-term production capacity, where we regarded it as prudent to do so. Some £1.6m of overhead cost reductions on an annual basis were also actioned by the end of the six month period. Opportunities to reduce further ongoing operating costs have been identified should the outlook for trading conditions warrant these. However, in light of more recent progress in order intake we remain cautiously optimistic for an upturn in performance becoming increasingly apparent in the latter part of our financial year. Our decision to pay a dividend reflects this optimism. I believe that the Group will benefit from the strength of its product offering and its comparatively robust financial position in these difficult markets. I am also confident that in the medium term, supply side issues will increase the attraction of off-site building systems and also software which helps reduce delays and enhance collaborative working in the build process. We will therefore continue to plan and invest prudently in the development of new products and software to enhance our current offering while having full regard in present conditions to the overriding need to maintain our sound financial position.

John Ketteley

EXECUTIVE CHAIRMAN

26 February 2009

Condensed Consolidated Income Statement

Condensed Consolidated Statement of Recognised Income and Expense

Condensed Consolidated Balance Sheet

Condensed Consolidated Cash Flow Statement

Notes to the Condensed Consolidated Interim Financial Statements

1.Basis of preparation

The condensed consolidated interim financial statements for the six months to 31 December 2008 have been prepared in accordance with the accounting policies set out in the Group's latest annual financial statements for the year ended 30 June 2008. These accounting policies are drawn up in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and as adopted for use in the European Union that are effective at 31 December 2008.

The condensed consolidated interim financial statements are unaudited and have not been subject to review. They do not include all the information and disclosures required in the annual financial statements, and therefore should be read in conjunction with the Group's annual financial statements as at 30 June 2008.

The financial information presented does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The Group's consolidated financial statements for the year ended 30 June 2008 have been filed and the audit report was not qualified and did not contain a statement under section 237(2) or section 237(3) of the Companies Act 1985.

Estimates

Application of the Group's accounting policies in preparing consolidated interim financial statements requires management to make judgements and estimates that affect the reported amount of assets and liabilities, revenues and expenses. Actual results may ultimately differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 June 2008.

Risks and uncertainties

A summary of the Group's principal risks and uncertainties was provided on page 10 of the 2008 annual report. In view of recent volatility in financial markets and changing economic conditions, an update of those risks where circumstances have changed or evolved in the intervening period is given below. This section of the interim statement should be read in conjunction with the Chairman's Statement and the full risk review provided in the Group's 2008 annual report.

UK and Global Economy

The majority of the Group's operations are based in the UK, and the majority of the Group's sales are made to UK customers, with the remainder mostly to customers in mainland Europe and South Africa. Any significant change in economic conditions in these territories, and particularly those that impact the building and construction sectors, could affect the Group's future revenues and profits.

Impairment risk

The Group currently has two cash generating units (CGU's), Milbury Systems and Asta Development, where indicators of impairment under IAS 36 exist. These CGU's principally manufacture and supply respectively pre-stressed and precast concrete structural elements and project and resource management software. Although the Board does not consider that an impairment of assets currently exists, the position will be monitored carefully in light of further developments during the second half of this financial year.

Foreign exchange rate risk

The Group is exposed to movements in foreign exchange rates, particularly in relation to the Euro, the Swedish Krona and the South African Rand. These risks are mitigated wherever possible by internal hedging between businesses and, where appropriate external, transaction related forward exchange contracts. Such hedging can only protect the Group against relatively short term volatility in exchange rates and not against the translation risk associated with more structural changes between these currencies and Sterling.  

Liquidity risk

The Group has a £10 million revolving credit banking facility that remains committed until 2012 and a £4.5 million term loan facility subject to repayment in instalments by 2016. In addition, the Group recently renewed overdraft facilities amounting to £0.9 million, for the year to 31 August 2009. Total available banking facilities are therefore £15.4 million, in addition to the net cash balances at 31 December 2008 of £0.97 million.

Credit risk

As financial conditions have become more challenging, credit risks have escalated. Credit risks are monitored carefully in all Group businesses and, where judged to be cost effective, these risks are insured. The Group has a wide range of customers reflecting the variety of end-user markets served and customer concentration is not high. This mitigates the Group's exposure to any one end-market segment or single third party. Credit insurance availability may become more restricted as insurers seek to reduce their risk exposures in current economic conditions.

2. Segmental information

3. Non-recurring items

The Precast segment incurred £159,000 of redundancy costs with £19,000 spent by the Other Building Systems segment and £5,000 by Software.

4. Earnings per share

The calculations of the earnings per share are based on the total profit after tax attributable to ordinary equity shareholders of the Company and the weighted average number of shares in issue for the reporting period.

5. Dividends

The Directors declared an interim dividend per share of 0.4p (2008: 1.0p) after the interim balance sheet date, which will be payable on 9 April 2009 to shareholders on the register on 20 March 2009.

6. Related Party Disclosures

There has been no material change in the nature of the related party transactions described in the 2008 annual report. Related party information is disclosed in note 28 and in the Remuneration Report on pages 14 to 18 there of.