Final Results

HAVELOCK EUROPA PLC 

("Havelock" or the "Group")

Final Results

Havelock Europa (HVE.L), the retail and educational interiors group, announces its results for the year to 31 December 2012.

Financial highlights

·; Group revenue from continuing operations increased by 20% to £92.5m (2011: £76.9m)

·; Group operating profit from continuing operations before exceptional items increased to £0.3m (2011: loss of £1.7m)

·; Pre-tax loss from continuing operations before exceptional items reduced to £0.5m (2011: loss of £2.9m)

·; Sale of non-core businesses generated net cash receipts of £13.4m significantly reducing debt from £13.7m to £2.4m

Operational Highlights

·; Educational sector continues to benefit from the framework agreements with Balfour Beatty

·; Retail performing strongly driven by higher levels of work with Lloyds Banking Group and Marks and Spencer both in the UK and overseas

·; Educational supplies benefitted from intra-group activity and Stage Systems which has become a supplier to educational projects

·; Launch of apprenticeship programme, the Havelock Academy, which will see at least 12 young people join the Group in both factory and office training schemes in the first year

Outlook

·; New educational programmes delivering opportunities

·; Overseas retail activity continues to show growth

·; Secured first projects in student accommodation and healthcare, growth markets in the UK

·; Capital investment planned in order to achieve further cost savings and efficiencies

Eric Prescott, Havelock CEO, said:

 "I am very pleased to report steady progress in our recovery plan, with healthy order books in our core businesses of Retail and Educational Interiors. The sale of our non-core businesses has substantially reduced our net debt. In addition, we are seeing continuing strong activity levels in the educational sector, and we have been encouraged to see new business in the student accommodation and healthcare sectors.

I am also delighted that our new apprenticeship programme, the Havelock Academy, will see 12 young people join the group in its first year of operation. We strongly believe in investing in the future of our business and our community.

Enquiries

Rob Ballantyne

Shan Shan Willenbrock

Tom Horsman

CHAIRMAN'S STATEMENT

I am pleased to be able to report that the Group has made good progress in its recovery plan despite market conditions which continue to be difficult. The sale of two non-core businesses during the year significantly reduced net debt and the Group's core business of Retail and Educational Interiors grew revenues by 20% over the previous year and achieved a profit at the operating level which represented a £2.0m turnaround from the losses sustained in 2011.

Financial overview

Group revenue from continuing operations for the 12 months ended 31 December 2012 grew by 20% to £92.5m (2011: £76.9m). Total revenue was £100.8m (2011: £99.5m). The Group made an operating profit from continuing operations before exceptional items of £0.3m (2011: loss of £1.7m). Group profit was £8.1m (2011: £4.3m loss) which is reflected in a fully diluted earnings per share of 21.0p (2011: 11.6p loss).

A gain of £8.0m was made on the sale of the discontinued Showcard Print and Clean Air businesses. The sale of these businesses generated net cash receipts of £13.4m which led to a reduction of debt from £13.7m at December 2011 to £2.4m despite an increase in working capital to fund the substantial growth in revenue from continuing operations.

Financial position

The Group's bankers have agreed a renewal of its overdraft facility until the end of April 2014. In addition, the Group has a revolving credit facility which is due for review on 31 December 2014.

The results for 2012 reflect well on the Group given that it has been through a period of significant transformation. With a stronger balance sheet and a healthier order book, the Group is increasingly well positioned to generate growth and deliver value for shareholders.

Dividends

No dividend is proposed for this year. When the Group's profitability improves and debt has reduced further, the Board will consider the resumption of dividend payments.

Future Strategy

The market for fit-out in the United Kingdom continues to be dynamic. Our strategy is to focus on our core business of Retail and Education while also looking to expand into additional areas such as Accommodation and Healthcare. The challenge is to protect our margins whilst continuing to provide our customers with the level of service they expect from your Company.

Our strategy looks forward five years and is updated annually to reflect changes in the economy, markets and geographies which we need to address to ensure that we adapt to the changing environment in which we operate.

The Board

I assumed the chairmanship following the AGM in June 2012 at which time my predecessor, Malcolm Gourlay, retired as a director of the Company. Malcolm was appointed a director in 1999 and chairman in 2004. As chairman he guided the Group through some turbulent years and I would like to thank him for his wise counsel and leadership. One of his last acts as chairmanwas to oversee the sale of the Showcard Print business which has enabled a significant reduction in the Group's indebtedness.

I am pleased that Alastair Kerr agreed to join the Board in September 2012 as a non-executive director. Alastair's considerable retailing and business experience will assist the continued recovery and development of the Group.

Outlook for 2013

The business is progressing well albeit markets continue to be difficult. There remain opportunities for further efficiencies driven by capital investment. The Board feels that the financial position and outlook for the Group are sufficiently stable that investment in the business can once again be considered.

During the year, there was growth in educational activity and, with new programmes coming to market and some thinning out of competitors, the Group is well positioned to retain its leading position in what is likely to remain a significant market. The Retail market remains competitive and uncertain. Nevertheless, the quality of the Group's customer base both in the United Kingdom and overseas, continues to provide a firm foundation for its efforts to expand.

Finally, we could not have achieved the debt reduction and revenue growth last year without the hard work and dedication of the management team and staff in the Group. I would like to thank them all for their contribution over the last year and I look forward to a further year of progress in 2013.

David MacLellan

Chairman

CHIEF EXECUTIVE'S REVIEW

Trading Review

Interiors

During the year, a busy first half continued into the second half. This reflected a recovery in the educational sector, principally because of the framework agreement with Balfour Beatty entered into during 2011. Retail customers, however, were active with higher activity with Lloyds Banking Group and Marks and Spencer both in the UK and overseas.

Overall revenue increased by 22% to £85.3m (2011: £70.1m) and the division returned to profit on the back of these higher volumes. Further cost savings were made during the year, but the impact of these was offset by continuing margin pressure from customers with the new framework agreements entered into recently all offering lower prices in exchange for the additional volumes.

During this and the previous two years, capital investment has been held below the depreciation charged. To achieve further efficiencies and to cope with planned increases in revenue this trend will need to be reversed. An order has been placed for a new laser cutting machine for the factory in Kirkcaldy with the support of Scottish Enterprise. This will increase the capacity of the metal shop by nearly 50% and enable certain products which currently have to be bought in to be manufactured in house.

Educational Supplies

Revenue from the continuing educational supplies businesses, Teacherboards and Stage Systems, grew by 12% to £8.8m (2011: £7.8m). This reflected growth in intra-group activity particularly by Stage Systems which has become a supplier to educational projects carried out by the Group for the first time. There was also a welcome recovery in Direct to School sales. As a result of this, profits in the Division more than doubled to £0.5m (2011: £0.2m).

Disposal of Showcard Print and Clean Air

During the year, the Group disposed of its Showcard Print and Clean Air businesses in order to concentrate its efforts on its core activity of Interior furniture and fit-out. Both businesses required further investment in capacity or product development and, against the background of the Group's wish to reduce debt, it was unlikely that sufficient resources would have been available to meet the needs of these businesses. In what remain difficult trading conditions, it is important that the Group's resources, both financial and managerial, are directed at its core activities.

Management and Staff

During the year, I was very pleased to present awards to 14 staff who have completed 40 or more years service with the Group. This illustrates the commitment and craftsmanship that forms the basis of the very high standard of service that we provide to our customers. In addition to considering investment in machinery, we have also taken steps to invest in our skills and have launched an apprenticeship programme, the Havelock Academy, that will, in its first year, see 12 young people join the Group in both factory and office training schemes.

Current trading and prospects

The Group expects market conditions to remain challenging in 2013. However, the prospects for activity in the educational sector remain solid. We continue to pursue new business and we are currently providing products and services to a number of new customers. We are also re-addressing certain markets including student accommodation and healthcare and have already secured our first projects in each of these areas. Overseas activity continues to grow and we are working towards achieving 10% of our revenue from this area in the medium-term.

There remain opportunities for further cost saving and efficiency, although these will require the commitment of capital investment. The Group's aim is to make these investments, thereby enabling profitability to improve whilst still concentrating on markets where the Group is competitive.

Overall, I am encouraged by the trading performance to date and expect to make further progress and continue to improve operational efficiency.

Eric Prescott

Chief Executive

FINANCE DIRECTOR'S REVIEW

Results for the year

Group revenue for the 12 months ended 31 December 2012 increased to £100.8m (2011: £99.5m) despite the sale of the Showcard Print and Clean Air businesses during the year. Revenue from continuing operations grew by 20% to £92.5m (2011: £76.9m). The Group made an operating profit before exceptional items from continuing operations of £0.3m (2011: loss of £1.7m). The Group overall made a pre-tax profit of £0.1m (2011: £4.5m loss) and in addition made a gain of £8.0m from the sale of the discontinued businesses.

As a result the Group's net assets increased from £10.7m to £18.0m.

Taxation

The Group has not paid any corporation tax on the profits made in the year due to losses being brought forward.

Cash flow

The Group's operating activities used £1.7m of cash (2011: £6.6m generated) as a result of extra working capital requirements to support the revenue growth of 20%. Capital expenditure amounted to £0.3m and the sale of the businesses brought in £13.4m of cash enabling the significant reduction in debt at the year end.

Net debt and bank facilities

Net debt at 31 December was substantially reduced at £2.4m (2011: £13.7m). This debt level can vary significantly during the year due to working capital movements and is supported by the following bank facilities:

·; A committed working capital facility of £1.25m is available until 30 April 2014 when it will be subject to review.

·; A committed revolving credit facility is available until 31 December 2014. The amount is currently £5.85m and this reduces by £0.5m on each of 30 June 2013, 31 December 2013 and 30 June 2014.

The Group intends to use HP finance to support its capital investment plans.

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 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 facility, HP finance and an overdraft facility. During the year, the facilities were reduced, with the term loan, HP finance and part of the revolving credit facility being repaid from the proceeds of the sale of Showcard Print Limited. The remaining overdraft and revolving credit facilities have been amended and, in the case of the revolving credit facility, continue until the end of December 2014. Since the year end, the working capital facility has been extended to 30 April 2014. As set out in Note 2, 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. As set out in Note 2, 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 who 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 a sub-contractor 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 and accrued income. 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 value 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 £4.1m to £4.6m 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 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 2012

Consolidated Statement of Changes in Equity

for the year ended 31 December 2012

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 2012 or 2011 but is derived from the 2012 accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered in due course. The auditor has reported on those accounts; his reports (i) were unqualified, (ii) did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying his 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.

As at 31 December 2012, the net debt position was £2.4 million with headroom of £4.7 million on committed facilities at that point.

Cash flow forecasts have been prepared for the period through to 31 December 2014, including sensitivity analyses, taking account of the risks and uncertainties facing the group as detailed in the Finance Director's Review . Since the year end, the Group has agreed a renewal of its working capital facility of £1.25m. The group's bankers remain supportive and 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.

Further information regarding the company's business activities, together with the factors likely to affect its future development, performance and position, is set out in the Chief Executive's Review.

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 revenues and results

Segment assets

The total assets of Clean Air have been separately presented and the comparatives restated accordingly.

4. Profit/(loss) before tax

5. Exceptional costs

(a) Re-organisation of central functions following disposal of Showcard Print and Clean Air Limited.

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

(c) Other restructuring costs largely relate to redundancy and other costs which 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.

(d) 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 2012 is based on the profit attributable to ordinary shareholders as follows:

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 and discontinued operations

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 were 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):

On 26 April 2012, the Group sold the Showcard Print business which comprised the Point of Sale Division. Comparatives have been restated accordingly. The results of the discontinued activity are shown in the income statement for both 2012 and 2011.

Effect of disposal on the financial position of the Group

The results included in the income statement were as follows:

Cash flows from discontinued operation

On 5 December 2012, The Group sold Clean Air Limited. Comparatives have been restated accordingly to include Clean Air Limited within the discontinued activities column within the income statement.

Effect of disposal on the financial position of the Group

The results included in the income statement were as follows:

Cash flows from discontinued operation

10. Trade and other receivables

11. Interest-bearing loans and borrowings

12. Trade and other payables

Amounts disclosed in current liabilities