Half Yearly Report

HAVELOCK EUROPA PLC

("Havelock" or the "Company")

Interim Results

Havelock Europa (HVE.L), the retail and educational interiors group, announces its results for the half year to 30 June 2013.

Financial Highlights

· Group revenue decreased by 9% to £34.2m (2012: £37.5m from continuing operations) as a consequence of orders being more weighted than normal to the second half of the year

· Pre-tax loss at £2.0m (2012: loss of £1.2m from continuing operations) as a result of lower revenue

· Group net debt at £4.8m (December 2012: £2.4m) higher due to an increase in inventories to support a busy second half and capital investment totalling £0.9m in new equipment for the factory

Operational Highlights

· Won new framework agreements with the Post Office

· Appointed the lead supplier to Marks and Spencer in Far East Asia resulting in further new orders in the region

· First orders won from a major UK supermarket

· New capital investment in laser cutting machine completed leading to increased output and efficiency

Outlook

· Encouraging second half activity on back of higher than expected orders from retailers

· Significant activity supporting a strong second half in the financial sector

· Outlook for education more certain with new schemes being released

· Strategic entry into student accommodation and healthcare sectors progressing

Eric Prescott, Havelock CEO, said: "This has been a period of progress and despite a quiet first half, we are now running again at full capacity and have a robust order book for the second half. Market conditions remain challenging but we believe the work we have undertaken to increase efficiency and provide value added services across our client base puts us in a strong position to deliver continued improvement."

Enquiries

Rob Ballantyne

Shan Shan Willenbrock

Tom Horsman

www.havelockeuropa.com

INTERIM STATEMENT

Following the restructuring last year, which enabled significant debt reduction, our focus has been on improving the performance of the core Interiors business. While the Group recorded a loss for the six months to 30 June 2013, the first half is generally quieter with the peak activity period for both our educational and retail sectors falling in the second half of the year added to which we have secured a high level of orders from our financial sector customers. During the period, we invested £0.9m in the business to improve our manufacturing operations.

FINANCIAL REVIEW

Group revenue from continuing operations for the six months ended 30 June 2013 decreased by 9% to £34.2m (2012: £37.5m). The loss before taxation was £2.0m (2012: loss from continuing operations of £1.2m). The loss per share was 4.7p (2012: 2.6p loss from continuing operations).

Group net debt increased to £4.8m (December 2012: £2.4m) as a consequence of capital expenditure which totalled £0.9m and an increase in inventories, principally of manufactured product, to support revenue growth in the second half of the year. This still represents a significant reduction in the Group's debt in comparison with the period prior to the sale of Showcard Print last year. The deficit on the pension fund narrowed to £1.8m net of deferred tax (December 2012: £3.6m) mainly as a result of the continuing good performance of the fund investments.

TRADING REVIEW

Interiors

Revenue in the Interiors business decreased by 10% to £31.3m (2012: £34.6m) and the loss increased accordingly to £1.1m (2012: loss of £0.1m). This lower activity in the first half was a consequence of orders made by key customers being even more second half weighted than in the prior year.

During the period, we have won a new framework with the Post Office to support its network refurbishment programme. Our activity in the financial sector is increasing with both branch and office refit projects being undertaken. Significant wins include the rebranding of Lloyds Bank and TSB branches which will occur in the second half and beyond. International activity continues to grow and we have carried out projects in a number of continental European countries and in the Far East. We are increasing our resources in that region to support our recent appointment as the lead partner for Marks and Spencer's Far East activities. We have recently secured our first orders from a leading UK supermarket chain which represents an entry into a sector we have not previously served.

The Educational sector has seen fewer new programmes finalised in the period but recent announcements of further school building programmes in both England and Wales suggest that this will be a temporary lull with activity picking up again in the future. We have increased our resources directed to student accommodation in order to secure larger projects in this area. We have also developed a new range of specialist healthcare furniture which meets the latest infection control standards and are quoting for a significant number of projects.

The new laser cutting machine has been installed and is now operational and increasing our output during our peak activity period. This investment has been supported by assistance from Scottish Enterprise. Our manufacturing activities performed well during the period with efficiency and service levels all high as a result of the investment and new planning processes which are bringing additional benefits during our summer peak period.

Educational Supplies

Revenue in this segment remained unchanged at £2.9m (2012: £2.9m). This reflects continuing stability in the Direct to Schools market. Margins remain steady although the segment reported a small loss of £0.1m (2012: profit of £0.03m) due to a change in the mix towards larger sound and light projects at Stage Systems. The greater focus on the Direct to Schools market means there has been a lesser impact from the timing of new school building programmes than has been the case for the Interiors business.

DIVIDENDS

As previously announced, the Board does not propose to pay any dividend in 2013.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties are set out in the notes to this statement and remain unchanged from those set out in the Annual Report for 2012.

GOING CONCERN

The current economic conditions create uncertainty over the 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 interim financial statement.

The Group operates under a bank facility which comprises a revolving credit and an overdraft facility. The overdraft facility was renewed until April 2014 during the period and the Directors are not aware of any circumstances which might prevent its renewal. The revolving credit lasts until December 2014. During the six months to 30 June 2013, the conditions of the facility have been met and the Directors expect to be able to comply with the conditions in the future, based on the most recent forecasts and taking account of mitigating actions that could be taken in any periods where headroom is tight.

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 accounts.

CURRENT TRADING

The recent upturn in national retail sales figures is reflected in current activity for our retail customers. This, coupled with activity for financial sector customers, is leading to a busy second half for the Group. The overall climate remains competitive and our aim is to improve margins through greater efficiency and "value engineered" products which cost less to produce. Progress in developing new retail customers is steady but will take time to deliver significant revenue. We continue to increase our overseas activity in support of our well established customer base.

The outlook for the Educational sector is more certain with the recent announcement of new school investment programmes and we expect further schemes to be released over the coming months. We anticipate that our efforts to increase accommodation work and move into the healthcare sector will be successful.

Although the first half has been challenging, overall I am encouraged that the Group is continuing to make progress towards restoring profitability and I am confident that the work we are undertaking to improve our performance and efficiency will lead to a stronger second half despite difficult market conditions.

David MacLellan

Chairman

Condensed Consolidated Income Statement

for the six months ended 30 June 2013

The results for the six months ended 30 June 2012 and for the year ended 31 December 2012 have been restated in accordance with the requirements of IAS 19 (Revised) - see note 2. The results for the six months ended 30 June 2012 have also been restated to reclassify as a discontinued activity the results of Clean Air Limited which was disposed of on 5 December 2012 - see note 13.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 June 2013

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the 6 months ended 30 June 2013 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE FINANCIAL STATEMENTS

1. Basis of preparation

These interim financial statements represent the condensed consolidated financial information of the Company and its subsidiaries (together referred to as "the Group") for the 6 months ended 30 June 2013. They have been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Services Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the EU and have been prepared on the historical cost basis except for the assets of the defined benefit pension scheme which are stated at their fair value and the liabilities of the defined benefit pension scheme which are measured by the projected unit credit method.

The preparation of the interim statements requires the directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There has been no change in the estimates and judgements applied in the 2012 Annual Report.

The interim financial statements were approved by the Board of Directors on 25 September 2013. The interim financial statements do not include all of the information and disclosures required for full annual financial statements. They should be read in conjunction with the Annual Report 2012 which is available on request from the Company's registered office or to download from www.havelockeuropa.com.

The financial information contained in this report in respect of the year ended 31 December 2012 has been extracted from the Annual Report 2012 which has been filed with the Registrar of Companies. The auditor's report on these financial statements was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying his report and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The interim statements have been prepared on a going concern basis. The reasons for this are outlined in the Chairman's Statement.

The interim financial statements are unaudited and have not been reviewed by the Company's auditor.

 2. Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group as disclosed in its consolidated financial statements as at and for the year ended 31 December 2012 except that IAS19 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 plan, 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 or operating profit, but impact previously reported financing costs and actuarial losses as shown below:

Although the Group has adopted a number of other new interpretations and amendments to existing standards in the period, the application of these has not had any significant impact on the net assets or results of the Group.

3. Segmental 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 period. The reported segments are:

4. Income tax

A credit for current taxation has been included at the effective rate likely to be applied to the result for the full year to 31 December 2013.

A reduction in the rate from 24% to 23% (effective from 1 April 2013) was substantively enacted on 3 July 2012 and the deferred tax liability/asset has therefore been calculated based on the rate of 23%.

The Budget on 28 March 2013 announced that the UK corporation tax rate will reduce from 23% to 21% in 2014 with a further reduction to 20% in 2015. Substantive enactment of the fall in the rate to 21% from April 2014 took place on 17 July 2013. It has not yet been possible to quantify the full anticipated effect of these further rate reductions, although this will further reduce the Group's future current tax charge and reduce the Group's net deferred tax asset accordingly. 

5. Earnings per share

The calculation of basic loss per share for the period ended 30 June 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:

Basic earnings per share

Diluted earnings per share

6. Equity dividends

No dividends have been declared or proposed for 2013. 

7. Property, plant and equipment

On 30 June 2013, a property at Works Road, Letchworth met the criteria for classification as a non-current asset held for sale under IFRS5 Non-current Assets Held for Sale and Discontinued Operations. The relevant carrying value has been reclassified from Property, plant and equipment to Assets classified as held for sale.

 Contracts placed for future capital expenditure not provided in the financial statements amount to £95,000 (30 June 2012: £26,000, 31 December 2012: nil)

8. Intangible assets

9. Analysis of net cash and financial liabilities

10. Related parties

Transactions with key management personnel

Group key management personnel receive compensation in the form of salaries and short-term benefits, post-employment benefits and share-based payments. Group key management received total compensation of £316,000 for the six months ended 30 June 2013 (six months ended 30 June 2012: £572,000).

11. Pension liabilities

During the period, the pension deficit, net of deferred tax, decreased to £1.8 million (December 2012: £3.6 million) mainly as a result of an increase in the value of the fund's investments.

12. Exceptional costs

13. Discontinued operations

On 26 April 2012, the Group sold the Showcard Print business which comprised the Point of Sale Division. The results of the discontinued activity are shown in the comparative 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

On 5 December 2012, The Group sold Clean Air Limited. Comparatives have been restated accordingly. The results of the discontinued activity are shown in the comparative income statement.

Effect of disposal on the financial position of the Group

The results included in the comparative income statement were as follows:

Cash flows from discontinued operation

14. Financial instruments - fair value

The methods and assumptions used in estimating the fair value of financial instruments are described in note 20 of the Annual Report 2012. There have been no changes in the valuation methods during the period.

Fair values versus carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:

Group

15. Principal risks and uncertainties

The principal risks and uncertainties facing the Group for the remainder of 2013 are shown below and have not changed from those disclosed in the Annual report for 2012.

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 Retail Interiors business operates in a highly competitive market 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 Educational Interiors business 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 Retail and Educational Interiors businesses 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.

RESPONSIBILITY STATEMENT 

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 Eric Prescott Grant Findlay

Chief Executive Finance Director

25 September 2013