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 2013.

Financial Highlights

· Group operating profit from continuing operations before exceptional items increased to £1.1m (2012: £0.2m)

· Pre-tax profit from continuing operations before exceptional items increased to £0.6m (2012: loss of £0.5m)

· Net debt reduced to £0.3m (2012: £2.4m)

· Group revenue from continuing operations of £89.6m (2012: £92.5m)

Operational Highlights

· Good progress made in the retail sector with projects won in the UK and overseas across a diversified range of clients

· High level of activity in financial services driven by increased work from Lloyds Banking Group and TSB

· Successful launch of Healthcare and, within Education, expansion into Student Accommodation, both of which have secured new business wins for the Group

· Launch of apprenticeship programme, the Havelock Academy and Graduate Trainee Programme

Outlook

· Outlook for education in 2014 likely to be subdued however activity looks positive for 2015 and beyond as new projects are announced

· Retail activity in key overseas markets continues to show growth and our presence is increasing

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

Eric Prescott, Havelock CEO, said:

 "The Group has made strong progress and I am pleased to report the business has delivered its first pre-tax profit on continuing operations since 2008 and net debt has been reduced to £0.3m at 31 December 2013. This return to profitability was driven by a diversified customer base in the improving retail sector and high level of activitity in financial services. We have successfully entered new markets which will compensate for the education market remaining subdued in 2014, although we expect this to improve in 2015.

I am also delighted to announce our new graduate training programme which together with our apprenticeship scheme launched last year demonstrates our commitment to the local community and the future of our business."

CHAIRMAN'S STATEMENT

During the year ended 31 December 2013, your Board continued to focus on reducing debt and improving efficiencies and I am pleased to report that we have made good progress on both fronts.

Financial Overview

For the 12 months to 31 December 2013, the Group made a pre-tax profit of £0.6m (2012: loss from continuing operations of £0.5m). This turn around to profit was as a result of improved gross margins, tighter cost control and lower interest charges. However, lower levels of activity in the educational sector resulted in Group revenues from continuing operations for the year reducing by 3% to £89.6m (2012: £92.5m).

Financial Position

As at 31 December 2013, the Group had net debt of £0.3m (2012: £2.4m). Shareholders' funds increased to £20.5m (2012: £18.0m) resulting in gearing of less than 5% at the year end. During the year, as previously announced, we sold Fontana House for a total consideration of £1.1m. Fontana House is situated at Letchworth and is occupied by the Showcard Print business which we sold in April 2012. The proceeds from the sale of this property have further enabled us to reduce debt.

We were delighted to be able to invest £0.7m during the year in a new laser cutting machine for the factory which has enabled us to achieve significant productivity improvements.

Since 31 December 2009, the Group has reduced its finance facilities from £35m to £5.5m. Its bank facility, which has been finalised since the year end, is, with further agreed reductions, committed until April 2016.

Dividends

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

Future Strategy

We continue to focus on growing the Interiors business around four main sectors. Retail customers now account for 20% of our revenues; the improving sentiment in retail has enabled us to diversify our revenue streams and, encouragingly, gain some new customers which should bode well for the future. Financial services (mainly banks) accounted for 43% of our revenue in 2013 and this continues to be a significant area of business for us. Education, which has historically been a significant part of the Interiors business, has been subdued over the last year and accounted for 37% of our revenue in 2013 but there are encouraging signs as evidenced by recently announced government spending plans. Finally, we are starting to build a presence in the healthcare market.

We are continuing to grow our overseas retail business and we expect that revenues from outside the UK which amounted to 5% of 2013 revenue will shortly exceed 10% of our income.

We continue to concentrate on driving efficiencies through the business and enhancing our margins. We intend to support all of this through further investment and will continue to offer a full range of services including design, procurement and installation.

The Board

I am pleased that Andrew Burgess agreed in November 2013 to join the Board as a non-executive director. Andrew is our largest shareholder and is committed to the future success of the business. He brings with him extensive commercial experience which will assist the Company as we look to take it to the next stage of its development.

I would also like to take the opportunity to formally record the Board's thanks to all of our colleagues for their contributions to the improving health of the business. The last few years have not been easy and it is gratifying for all of us to be able to report these more positive results.

Outlook for 2014

The UK economy is showing signs of recovery and growth and I believe we are now well positioned to take advantage of this. Although we are a Scotland based business and many of our employees live in Scotland, we have a UK wide customer base and a number of overseas customers. It is hoped that the economic recovery (and with it, our growth prospects) that is currently taking place across the UK will not be destabilised by the outcome of the Referendum on Scottish Independence.

The retail sector in the UK is improving and there are positive signs of renewed consumer confidence; this is reflected in our new business wins. Recent announcements of increased government spending on education are also encouraging, the results of which will be seen in the business in 2015.

The Board is pleased with progress made in both debt reduction and the move into profit in 2013 and we look to the future with confidence.

David MacLellan

Chairman

CHIEF EXECUTIVE'S REVIEW

Trading Review

Interiors

Operating profit before exceptional costs increased from £0.7m in 2012 to £2.1m in 2013 despite a slight reduction in revenue from £85.3m to £82.2m. During the year, activity in the educational sector reduced as projects completed and new funding for developers was put in place. Growth in revenue from financial sector customers partially offset this and remained strong in both branch and office refits, together with rebranding programmes. Activity in the retail sector was steady and a number of new customer relationships have been secured which will allow further scope for growth in the future. These included the completion of projects for a major UK supermarket chain as well as a retailer primarily operating from out of town sites. Both of these represent new areas of activity for the business. Overseas revenue continues to grow and during the year a contract to support all of the Far East activities of a major UK based retailer was won. An order to supply equipment sourced from China to a large Australian retailer has recently been secured, which provides a further increase in our footprint and capabilities in the Asia Pacific region.

The increased contribution from the division was a result of improved operational performance and efficiencies. The second half of the year benefitted from the investment in the new laser cutting machine which was operational from July onwards. This investment amounted to £0.7m and was supported by Scottish Enterprise. The first phase of investment in new drawing office software was also made in the period and this will improve efficiency as well as provide additional benefits to customers.

We intend to maintain the level of investment in the business and are currently finalising plans to replace the Group's main IT systems, which date from the 1990's and no longer work efficiently given the scale of change which has taken place in the Group's activities since they were first installed.

Educational Supplies

Revenue from the educational supplies businesses, Teacherboards and Stage Systems, remained steady at £8.7m (2012: £8.8m) despite the run down in activity in this sector, which particularly affected Stage Systems. At Teacherboards, Direct to School sales remained steady and there was growth in the volume of web based sales, which is expected to become an increasing market for this business. Both businesses continue to work closely with the Interiors business and will benefit when its pipeline of major project opportunities converts to orders in the future.

Management and Staff

During the year, the apprenticeship programme, the Havelock Academy, was successfully launched and 12 young people have joined the Group in both factory and office training schemes. We are continuing with this programme and, in addition, for the first time for a number of years, will be launching a graduate recruitment programme to fill vacancies in more highly skilled roles.

Current Trading and Prospects

We expect a further reduction in the amount of work in the Educational sector for 2014. This position will reverse in future years as programmes which have already been announced are finalised and orders are placed for their delivery. The level of quotation activity is currently very high as a consequence.

With a number of new customers secured in new areas of the retail sector and new wins in the financial sector, we view the future with optimism. In the current year, we will secure the full benefits from the capital investments made in 2013. We are also finalising plans for further investments, all of which offer attractive pay back periods.

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 and financial position

The Group made a pre-tax profit of £0.6m (2012 continuing businesses: loss of £0.5m). This is the first pre-tax profit made by the currently constituted Group for some years. Revenues were slightly reduced at £89.6m (2012 continuing businesses: £92.5m). There were no exceptional costs or income.

As a result of this return to profit and a further reduction in the pension fund deficit, the Group's net assets increased from £18.0m to £20.5m.

Taxation

The Group has not paid any corporation tax on the profits made in the year due to losses being brought forward. The reduction in the corporation tax rate has meant that the losses brought forward, and carried on the balance sheet as a deferred tax asset, are now worth less and the income statement tax charge reflects this.

Cash flow

The Group's cash flow from operating activities increased and, with continued tight control of working capital, resulted in an inflow of £2.7m from operations (2012: outflow of £1.2m). Capital expenditure totalled £1.2m and was financed principally through the sale of surplus assets, appropriate new finance leases and grant funding.

Net debt and bank facilities

Net debt at 31 December was once again substantially reduced to £0.3m (2012: £2.4m). The Group has the support of the following facilities:

· A committed revolving credit facility which is available until 30 April 2016. The amount is currently £5.0m and this reduces by £0.5m on 30 June and 30 September each year.

· Term loans and finance leases supporting specific capital investments which amounted to £0.5m at 31 December 2013.

Over the last four years, the Group has reduced its facilities from £35m at which they stood at 31 December 2009. This has been a major objective of the Group's strategy and it is pleasing to be able to report such a successful outcome.

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. The overdraft and revolving credit facilities have been amended and have now been consolidated into a revolving credit facility which is committed until April 2016. As set out in Note 1 (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 EBIT to interest, facility to EBITDA 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 1, 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.

Although the Group's headquarters and manufacturing facility are located in Scotland, a significant proportion of its revenue is generated in the rest of the UK and in the EU. Consequently, political and constitutional uncertainty in regard to currency and Scotland's relationship with the EU are matters of concern and the business is undertaking analysis to identify potential impacts and mitigating actions.

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. 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.

Key performance indicators

Havelock Europa's Board and Group Management monitor a range of financial and non-financial indicators, reported on a periodic basis, to measure the Group's performance over time.

Of these, the key performance indicators (KPIs) are:

Financial

Non-financial

Pension scheme

In the year, the deficit on the Group's final salary pension fund reduced to £1.3m from £4.6m despite adverse movements in the assumptions on bond yields and inflation which impacted the discount rates used to calculate the present value of the scheme's liabilities. A strong investment performance as a result of the fund's relatively high equity exposure more than offset these. As a consequence, the Fund's Trustees and the Board are considering whether there is an opportunity to alter the allocation of assets to reduce risk. The closure of the scheme to further accrual and the rebasing of all benefits to be based on inflation measured by the Consumer Prices Index in previous years means that the opportunities to further control the movement of liabilities are currently limited unless conditions in the markets for buying out pension liabilities improve.

Grant Findlay

Group Finance Director

Consolidated Income Statement

The results for the year ended 31 December 2012 have been restated in accordance with the requirements of IAS 19 (Revised) - note 1.

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Cash Flow Statement

for the year ended 31 December 2013

Statement of Changes in Equity

for the year ended 31 December 2013

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 2013 or 2012 but is derived from the 2013 accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 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.

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 2013, the net debt position was £0.3 million with headroom of £5.4 million on committed facilities at that point.

Cash flow forecasts have been prepared for the period through to 31 December 2015, 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 revolving credit facility of £5m. 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.

 IAS19 Employee Benefits Revised has been adopted since 1 January 2013. The most relevant impact of this revised standard is that for the Group's defined benefit pension scheme, net interest income or expense is calculated using the discount rate used to measure the defined benefit obligation. The amendments have no impact on the reported net assets, but impact previously reported administrative expenses, financing costs and actuarial losses for the year ended 31 December 2012 as shown below:

2. 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

3. Profit before tax

4. Exceptional costs

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

(b) 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.

5. Income tax expense

Recognised in the income statement

6. Earnings per share

The calculation of basic earnings per share and underlying earnings per share at 31 December 2013 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

8. Trade and other receivables

9. Interest-bearing loans and borrowings

10. Trade and other payables

Amounts disclosed in current liabilities