Final Results

HAVELOCK EUROPA PLC

PRELIMINARY ANNOUNCEMENT

Havelock Europa (the 'Group'), (AIM:HVE.L), the retail and educational interiors provider announces its results for the year to 31 December 2011.

Financial Highlights

·; Group revenue was level with last year at £99.5m (2010: £99.2m)

·; The Group made an operating profit before exceptional items of £1.4m (2010: £0.6m)

·; The reported pre-tax loss was £4.5m (2010: £4.6m loss)

·; Cash generated from operating activities of £6.6m (2010: £0.4m)

·; Post year end, the Group divested its Point of Sale Division, Showcard Print, for a consideration of £15.3m. The proceeds from the sale have been used to reduce indebtedness.

Operational Highlights

·; Interiors revenue increased by 2% to £70.1m (£69.0m)

·; Successfully awarded retendered framework agreements with Boots and Lloyds Banking Group

·; Secured £20m education framework agreement with Balfour Beatty Construction Scottish & Southern Limited

·; Disposed of its Point of Sale Division to focus on the Group's core business; interior fittings and fit out services

Outlook

·; Encouraging levels of activity in the retail and educational sectors with committed orders in 2012 larger than in recent years

·; Strengthened sales team with new appointment of a Sales and Business Development Director which has generated positive results

·; Sale of the Point of Sale division will substantially reduce the Group's interest charge in 2012 and in future years

·; Market conditions expected to remain challenging

Eric Prescott, CEO of Havelock Europa said:

"This has been a year of significant progress for the Group. The strengthening of the sales and marketing team together with key operational changes has generated new business ensuring we have a solid order book for 2012. While we expect the market environment to remain challenging, our strategy to focus on our core activities only and with a stronger balance sheet we are in a better position than we have been in previous years. We look to the future with increased confidence."

Enquiries

CHAIRMAN'S STATEMENT

Despite another difficult trading year in 2011, considerable progress was made in reshaping the Havelock Group to be profitable in the main markets in which it operates. As announced on 10 April 2012, and subsequently approved by shareholders on 23 April, the Group has disposed of its Point of Sale business, Showcard Print, which will improve the Group's financial position by very significantly reducing the level of gearing in the business. The Group will now be focussed on its Interiors business and closely related activities where the rationalisation carried out over the past two years and an improved order book provide the foundations capable of delivering profitable growth in the future.

Financial Overview

Group revenue for the 12 months ended 31 December 2011 was little changed from 2010 at £99.5m (2010: £99.2m). Revenue from continuing operations was £78.7m (2010: £78.2m). The Group made an operating profit before exceptional items of £1.4m (2010: £0.6m). The continuing operations lost £1.8m (2010: £2.2m loss). The Group made an underlying profit before exceptional items and taxation of £0.2m (2010: £0.6m loss) which is reflected in a fully diluted earnings per share of 0.1p (2010: 1.8p loss). The reported pre-tax loss was £4.5m (2010: £4.6m loss) and, on this basis, the fully diluted loss per share amounted to 11.6p (2010: 10.9p loss). The continuing businesses made a reduced loss of £3.0m (2010: £3.4m loss).

The Group incurred net exceptional items of £4.7m (2010: £3.9m), which comprise a charge of £3.6m for impairment relating to the Educational Supplies Division which has continued to operate in a weak direct to school market and charges of £1.1m relating to the reorganisation of the Group comprising redundancy, property closure and refinancing costs.

Mainly as a result of continuing improvements in the management of working capital, the Group generated net cash from operating activities of £6.6m (2010: £0.4m) and year end net debt decreased substantially to stand at £13.7m (2010: £19.7m).

Post Balance Sheet Event

Since the year end, the Group has announced its intention to sell its Point of Sale Division, Showcard Print, for a consideration of £15.3m. The sale has subsequently been completed and the proceeds from sale have been used to reduce indebtedness. As a consequence, the results to December 2011 are presented on the basis that the Point of Sale Division is a discontinued activity.

The Board thanks the Showcard management team and staff for their valuable contribution over the years.

Dividends

No dividend is proposed for this year. When the Group returns to profitability and debt levels have reduced, the Board will consider the resumption of dividend payments.

Financial Position

The Group's bankers remain supportive and, subsequent to the year end following the disposal of Showcard Print, have agreed a renewal of its revolving credit facility until the end of December 2014. The Group's existing term loan has been repaid and an annual overdraft has also been agreed.

The Board

As indicated in my statement last year, Richard Lowery retired from the Board on June 30 2011. During the year, two senior appointments were made to the Interiors management team; a sales and marketing director and a commercial director, both well experienced in the markets in which the Group operates.

Last year I also announced my intention to stand down from the Board in 2012 and I am very pleased to say that David MacLellan will take on the role as Chairman in my place following the Annual General Meeting when I will resign from the Board. The sale of Showcard Print places the Group on a much firmer financial footing. However, it still faces challenging markets which will mean that a return to full health and profitability still requires more work. David's background and energy make him well placed to assist the Group in the next phase of its recovery and I wish him and my other Board colleagues all success in returning the Group to meaningful profitability. It is the intention of the Board to appoint a further non-executive director shortly.

Outlook

The reshaping of the business over the past two years has resulted in a business that is much better placed to offer customers the service delivery they require at a competitive price. I would like to pay tribute to the Group's management and staff for the positive way in which they have embraced change over this period and thank them for the efforts they have made to achieve a turnaround.

Although the Interiors market is likely to remain muted for some time yet and there are still further operational improvements to embed in the business, the Board detects an increasing opportunity for the restoration of top-line growth and the profits that should follow.

J Malcolm Gourlay

Chairman

CHIEF EXECUTIVE'S REVIEW

Trading Review

Interiors

During the year, a promising first half was followed by a disappointing second half with activity not reaching its normal peak. This was due both to the general economic conditions but also to two major customers re-tendering their framework agreements. I am pleased to say that our tenders were successful for both customers and we have expectations of increased volumes in the future as a result.

Overall revenue increased by 2% to £70.1m (2010: £69.0m). Within this, the revenue from education was slightly reduced but revenue from Retail customers continued to show a recovery. During the year, the level of committed orders increased and the business enters 2012 with a larger order book than in any recent year. A number of customers retendered framework agreements in the year and subsequent to the year end both Boots and Lloyds Banking Group have awarded the Interiors business new arrangements which offer the prospect of increased levels of work.

The Division made a reduced loss, before exceptional costs, of £0.8m (2010: £1.3m). Operationally, further benefit will be seen from cost savings in future years.

Educational Supplies

Revenue from the three educational supplies businesses fell by 7% to £8.6m (2010: £9.2m). This continued to reflect lower direct sales to schools. Continuing pressure on this higher margin sales segment led to a decline in contribution to £0.1m (2010: £0.6m). These businesses have identified new sources of revenue to counteract this trend in direct to school sales. For example, Stage Systems now provides a complete solution for drama facilities in schools including lights, curtains and sound as well as the core staging product. These efforts will bear fruit in the future.

Point of Sale

Revenue in the now discontinued Point of Sale Division remained unchanged at £20.8m (2010: £20.9m) with increases in sales to certain customers offset by lower activity at others. Margins have been maintained and with the benefit of a full year of cost savings from the closure of the Bristol plant in 2010, contribution from the division increased to £3.2m (2010: £2.8m).

Disposal of Point of Sale Division

The Group's principal activities are the supply of interior fittings and fit out services. The Point of Sale Division is not core to this strategy and, as the business is operating at close to capacity, further development of its business would require significant new investment. As the Group's stated aim is to reduce debt levels, the Board concluded it was unlikely to be able to make the necessary investment in the near future.

On 10 April 2012, the Group announced that it had entered into a conditional contract to sell its Showcard Print business, which comprises the Point of Sale Division, for £15.3m on a cash and debt free basis. The Group will retain the long leasehold property in Letchworth occupied by the business and it has entered into a lease for the use of this building.

The contract was conditional on the approval of shareholders at a general meeting which was held on 23 April 2012. The sale was approved and the other conditions in the contract were also completed with the consequence that the sale of the business was completed on 26 April and generated net cash proceeds of £12.9m. All of the net proceeds have been used to reduce the Group's indebtedness. The accounts to 31 December 2011 have therefore been presented on the basis that the Point of Sale Division is a discontinued activity. The sale will generate an exceptional gain in 2012.

Current Trading and Prospects

The Group expects market conditions to remain challenging in 2012. However, the Group entered 2012 with an increased order book in comparison with 2011, the bulk of the additional orders representing projects in the Educational sector, particularly as a result of the framework agreement with Balfour Beatty. Activity levels with Retail customers continue to improve and the renewed framework agreements with its largest customer Lloyds Banking Group and with Boots support this.

Without the contribution of the now discontinued Point of Sale Division, the Group made a loss at both operating and pre-tax levels in 2011. The sale proceeds will substantially reduce the Group's interest charge in the remainder of 2012 and in future years. The Board is looking to restore the Group to profitability through further cost savings but more importantly by boosting the top line revenues. The increased order book in 2012 gives a foundation to this aim and, in addition, the Group has bolstered its sales and marketing activities.

Overall, I am encouraged by the trading performance to date and expect to make further progress on improving the order book and operational efficiency.

Eric Prescott

Chief Executive

FINANCE DIRECTOR'S REVIEW

Results for the year

Group revenue for the 12 months ended 31 December 2011 was little changed from 2010 at £99.5m (2010: £99.2m). Revenue from continuing operations was £78.7m (2010: £78.2m). The Group made an operating profit before exceptional items of £1.4m (2010: £0.6m). The continuing operations lost £1.8m (2010: £2.2m loss). The Group made an underlying profit before exceptional items and taxation of £0.2m (2010: £0.6m loss) which is reflected in fully diluted earnings per share of 0.1p (2010: 1.8p loss). The reported pre-tax loss was £4.5m (2010: £4.6m loss) and, on this basis, the fully diluted loss per share amounted to 11.6p (2010: 10.9p loss). The continuing businesses made a reduced loss of £3.0m (2010: £3.4m loss).

The Group incurred net exceptional items of £4.7m (2010: £3.9m), which comprise a charge of £3.6m for impairment relating to the Educational Supplies Division which has continued to operate in a weak direct to school market and charges of £1.1m relating to the reorganisation of the Group comprising redundancy, property closure and refinancing costs.

Taxation

The Group has not paid any corporation tax due to the losses incurred in the year. Losses carried forward of some £4m will ensure that no taxation is likely to be payable for some time in the future.

Dividends

Given the results for the year, the Board is not recommending the payment of dividends.

Cash flow

The Group generated cash from operating activities of £6.6m (2010: £0.4m) as a result of continuing improvements in the control of working capital. Capital expenditure during the year totalled £1.3m, of which the largest part was the payment for a digital press at the Point of Sale business. This was partly offset by the proceeds of sale of £0.7m from the disposal of the Group's surplus Bristol premises.

Net debt and Bank Facilities

Net debt (which comprises both loans and obligations under finance leases net of cash) at 31 December was substantially reduced at £13.7m (2010: £19.7m). Since the year end, the Group's debt has been further reduced by the disposal of the Point of Sale Division. As a result of that, the Group has agreed new borrowing facilities which are as follows:

·; A committed working capital facility is available until 31 May 2013 when it will be subject to review. The initial limit is £3.25m reducing to £1.25m on 1 November 2012 and increasing to £2.05m on 1 January 2013.

·; A committed revolving credit facility is available until 31 December 2014. The initial limit is £6.25m reducing by £0.5m on 30 June 2013, by £0.5m on 31 December 2013 and a further £0.5m on 30 June 2014.

The Group's term loan and HP borrowings were repaid in full from the proceeds of sale.

The interest margin that the Group pays for its bank facilities has increased and, in the case of the revolving credit, is based on LIBOR interest rates. The overdraft continues to be linked to base rate.

Going concern accounting basis

The Group's business activities, together with the factors likely to affect its future development performance and position, are set out in the Chairman's Statement and Chief Executive's Review. The current economic conditions create uncertainty over the level of demand for the Group's products and services. The financial position of the Group, its cash flows and liquidity position are set out in the financial statements.

During the year, the Group operated under a bank facility which included a term loan, a revolving credit, HP finance and an overdraft facility. Since the year end, the facilities have been reduced with the term loan and part of the revolving credit being repaid from the proceeds of the sale of Showcard Print Limited (Note 13). The remaining overdraft and revolving credit facilities have been amended and, in the case of the revolving credit, continue until the end of December 2014. As set out in Note 2 (Basis of Preparation) the Group expects to be able to comply with the conditions of the Group's bank facilities based on its forecasts.

The directors, therefore, have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the annual report and accounts.

Principal risks and uncertainties

The Group's loan facilities contain covenants as to EBITDA, asset cover and cash performance. These covenants are tested quarterly and failure to meet these constitutes an event of default under the facility agreement, giving the Bank the right to require immediate repayment of all amounts loaned. The Group's financial forecasts show that these covenants can be met. However, any material disruption to operational and financial performance could result in a shortfall against the standard of performance required. The Group addresses this risk by detailed monitoring of financial performance and the expected outcome for each measurement period.

The Group's businesses have a strong seasonal element, with a peak of activity in the middle and second half of the year. This could result in peak output requirements exceeding the available capacity. The Group manages this risk by detailed and regular capacity planning reviews, with additional shifts and early production being planned.

In the current economic climate, there is less certainty for all businesses about future trading. This is particularly true in the retail sector, where customers may change their plans and programmes at short notice. The Group manages this risk by reviewing trading outlook more frequently, including the review of weekly order intake figures.

The Group operates in highly competitive markets and deals with major customers which increasingly employ procurement strategies designed to ensure that all purchases, and not just those of stock items, are acquired at the lowest possible cost. The business is addressing this risk by seeking production cost savings including, where appropriate, procurement from lower cost overseas suppliers.

The Group is involved as a supplier to major construction projects which can be subject to time delays and slippage caused by both commercial and weather-related issues. The business addresses this risk by building allowance for slippage into its production forecasts and budgets.

The Group undertakes work as sub-contractors under industry standard written contracts. The risks involved in working under such contracts are controlled by the employment of qualified and knowledgeable contract managers and quantity surveyors.

The largest element of working capital employed by the Group is trade receivables. These are subject to credit risk and, as a consequence, the Group employs credit insurance to cover the risk on most of its commercial debtors. However, in addition to debt owed by the public sector and local government, the Group bears the credit risk on a proportion of receivables where its credit insurers are unwilling to provide cover. At present, credit insurers continue to be prudent with the amount of cover they are willing to provide and consequently the level of uninsured debtors has increased. The Group's procedures require that material uninsured credit limits are approved by the Board. The Group also monitors the credit status of its major customers.

Pension scheme

In the year, the deficit on the Group's final salary pension scheme increased from £3.0m to £4.1m reflecting lower bond yields which impacted the discount rates used to calculate the present value of the scheme's liabilities. The scheme is closed to further accrual and all benefits are based on inflation measured by the Consumer Prices Index. These changes, introduced at the start of 2011, have limited the impact on the scheme of record low Gilt bond yields.

Grant Findlay

Group Finance Director

 Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Cash Flow Statement

for the year ended 31 December 2011

Consolidated Statement of Changes in Equity

Notes to the financial statements

1. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2011 or 2010 but is derived from the 2011 accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered in due course. The auditors have reported on those accounts; their reports (i) were unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under either section 498(2) or section 498(3) of the Companies Act 2006.

2. Basis of preparation

The consolidated financial statements comprise Havelock Europa PLC and its subsidiaries. The financial statements of subsidiaries are prepared to the same reporting date using accounting policies consistent with those of the parent company. Intra-group transactions and balances, including any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in full.

The group has reported an operating loss for the year ended 31 December 2011 of £3.2 million and the current economic environment remains challenging. As at 31 December 2011, the net debt position was £13.7 million with headroom of £11.2 million on committed facilities at that point.

Cash flow forecasts have been prepared for the period through to 31 December 2013, including sensitivity analyses, taking account of the risks and uncertainties facing the group as detailed in the Finance Director's Review. The group's bankers remain supportive and, subsequent to the year end, the directors have agreed amended bank facilities which took effect on completion of the disposal of Showcard Print Limited as set out in note 13. The group continues to operate within its facility requirements and is forecast to be covenant compliant during the relevant forecast period, albeit there are periods when the headroom is small and therefore the group has identified mitigating steps to be taken during those periods.

While the directors cannot envisage all possible circumstances that may impact the group in the future, the directors believe that, taking account of the forecasts, sensitised forecasts, future plans and committed funding levels, the group has sufficient resources to remain compliant with the relevant covenants and conditions attached to the group's banking facilities and to meet all debts as they fall due for the foreseeable future.

Accordingly, after making reasonable enquiries the directors have a reasonable expectation that the group can continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis in preparing the financial statements.

3. Segment reporting

Management information is presented to the main board (the chief operating decision maker) based upon business segments. There has been no change to the operating segments during the year. The reported segments are:

Segment assets

4. Loss before tax

5. Exceptional costs

(a) Costs arising from Project Horizon including redundancy, stock rationalisation and other costs

(b) Redundancy and other costs were incurred in the closure of the Bristol Point of Sale Printing facility and the Paisley administration centre and in the restructuring of the Educational Supplies businesses.

(c) The integration of the Havelock Interiors business with ESA McIntosh, which commenced in 2009, was completed during 2010. The costs comprise exceptional operating costs directly related to the integration.

(d) Compensation for loss of office and fees related to recruitment of Chief Executive.

(e) Fees relating to and in connection with the renewal of banking facilities.

6. Income tax expense

Recognised in the income statement

7. Earnings per share

The calculation of basic earnings per share and underlying earnings per share at 31 December 2011 is based on the profit attributable to ordinary shareholders as follows:

Continuing operations

The weighted average number of shares used in each calculation is as follows:

Undiluted earnings per share

Diluted earnings per share

9. Assets held for sale

On 31 December 2011, the Point of Sale Division, met the criteria for classification as a non-current asset held for sale under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. As such, the relevant carrying values have been reclassified to Assets classified as held for sale or Liabilities classified as held for sale from the following categories (the table below also shows the effect of the discontinuing operation on the financial position):

Cash flows from discontinued operation

The income statement, including the comparatives, has been restated to show the discontinued activities separately from continuing operations.

On 31 December 2010, a property at Cater Road in Bristol and certain items of machinery met the criteria for classification as non-current assets held for sale under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. As such, the relevant carrying values were reclassified from Property, plant and equipment to Assets classified as held for sale.

10. Trade and other receivables

11. Interest-bearing loans and borrowings

12. Trade and other payables

Amounts disclosed in current liabilities

13. Post balance sheet event

On 10 April 2012, the Group announced that it had entered into a conditional contract to sell its Showcard Print business, which comprises the Point of Sale Division, for £15.25m on a cash and debt free basis. The Group will retain the long leasehold property in Letchworth that is occupied by the business and it has entered into a lease for the use of this building.

The contract was conditional on the approval of shareholders at a general meeting which was held on 23 April 2012. The sale was approved and the other conditions in the contract were also completed with the consequence that the sale of the business was completed on 26 April and generated net cash proceeds of £12.9m.

All of the net proceeds have been used to reduce the Group's indebtedness. New bank facilities have been entered into which are for a period of three years and comprise:

·; A committed working capital facility which is available until 31 May 2013 when it will be subject to review. The initial limit is £3.25m reducing to £1.25m on 1 November 2012 and increasing to £2.05m on 1 January 2013.

·; A committed revolving credit facility which is available until 31 December 2014. The initial limit is £6.25m reducing by £0.5m on 30 June 2013, by £0.5m on 31 December 2013 and a further £0.5m on 30 June 2014.

The new bank facilities contain covenants covering interest cover, net debt against EBITDA, cash flow generation and trade debtor cover.

The accounts to 31 December 2011 have been presented on the basis that the Point of Sale Division is a discontinued activity. The sale will generate an exceptional gain in 2012.

14. The accounts for the year ended 31 December 2011 were approved by the Directors on 3 May 2012.