Half Yearly Report

28 September 2015

HAVELOCK EUROPA PLC

("Havelock" or the "Company")

Interim Results

Havelock Europa (HVE.L), the international interior solutions provider, announces its results for the half year to 30 June 2015.

Financial Highlights

· Group revenue from continuing operations at £28.9m (2014: £30.5m) reflecting subdued demand within the UK Retail and Financial Services sectors

· Reduced loss before tax from continuing operations of £1.8m (2014: loss of £1.9m), despite the lower turnover. Loss including exceptional costs and discontinued activities, of £2.4m (2014: loss of £2.3m)

· Group net debt increased from £2.6m (June 2014) to £3.1m due to £0.8m increase in finance lease obligations relating to the investment in ERP

· Pension deficit, before deferred tax, has fallen from £3.7m to £2.4m.However this position remains volatile

Operational Highlights

· Customer base significantly broadened during the period, continuing the strategy of diversifying within each of the sectors

· International retail sales on target to achieve expected growth

· Head office move carried out on time and within budget

· Developing a position within the premium office fit out market

· New management team in place from May

· Customer survey undertaken and business reorganisation plan initiated September following the sale of Teacherboards for £1.358m

Outlook

· Retail and Financial Services markets remain subdued

· Business reorganisation project on track and will be fully implemented by end 2015

· On target to achieve annualised cost savings of £3m for 2016

David Ritchie, Chief Executive Officer of Havelock Europa, said: "Whilst the short term trading outlook is challenging I am confident that the business reorganisation plan announced on 1 September 2015 will enable the business to deliver sustainable profits in the future".

Enquiries

Robert Ballantyne

Patrick Galbraith

www.havelockeuropa.com

INTERIM STATEMENT

The customer survey initiated during the period and concluded in August 2015 identified the need for immediate changes within the business. Accordingly on 1 September 2015 the company announced:

· A proposed reorganisation of the business to reflect changes in Havelock's various market places including staffing levels being reduced by approximately 10%.

· A streamlining and simplification of the business model designed to focus on and maximise the customer experience across the business.

· The sale of Teacherboards to Sundeala Limited for a total consideration of £1.358m

The changes are designed to reorganise the business to a level and cost structure that will enable the Company to deliver a sustainable, consistent level of profit on a more modest sales target.

The loss recorded for the first half of 2015 is largely as expected in what is normally the quieter period of the year.

FINANCIAL REVIEW

Group revenue, from continuing operations, for the six months ended 30 June 2015 decreased by 5% to £28.9m (2014: £30.5m). Despite the reduced turnover a £0.46m reduction in overheads has enabled the Group to record a slightly reduced first half loss before taxation and exceptional items, from continuing operations of £1.8m (2014: loss £1.9m). The loss per share after exceptional items was 5.0p (2014: loss of 4.8p).

Net debt at the end of June 2015 was £3.1m (2014: £2.6m). The continuing strong focus on working capital management delivered a net debt reduction of £0.3m but this was more than offset by the £0.8m increase in finance lease obligations reflecting the investment being made in an ERP system.

The half yearly increase in Group net debt to £3.1m (December 2014: Nil) reflects the seasonality of the business, as revenue is typically second half loaded. This pattern is consistent with previous years.

As at 30 June 2015 the pension deficit, before deferred tax, was £2.4m. This represents a £1.3m reduction from the position at 31 December 2014 with higher returns from the scheme's assets and the Company deficit contributions being the main drivers.

TRADING REVIEW

Interiors

Subdued demand in the UK Retail and Financial Services sectors was the main reason why Interiors sales reduced by 5% to £28.9m (2014: £30.5m). A £0.46m reduction in overheads in the period resulted in a slightly reduced loss before tax and exceptional items from continuing operations for the period of £1.8m. (2014: Loss £1.9m).

Within the Retail Sector, demand from our existing UK client base has been soft with many clients now re-evaluating their business cases before committing to invest in their projects. To counter this we are focussing on developing the number of customers that we trade with within each sector. Within Retail we have had some success with this strategy. In the period we began supplying 3 new major retailers, and our goal is to increase trading activity with these retailers as the relationship develops. Within International Retail we are beginning to see the benefits of the work done previously and we are on track to deliver the 15% of Group revenue targeted from this business stream.

Demand within Financial Services has continued to decrease as our customers continue to evaluate and downsize their estates. In addition, a significant framework contract won in late 2014 has not yet delivered the expected turnover as the end Client's programme has been delayed. On a positive note we are continuing to support the Network Transformation Programme currently being undertaken by the Post Office and we have targeted the office fit out market as an area of potential growth. We have been successful on a number of projects and are directing resource to maximise this opportunity.

As part of the business reorganisation plan we have amalgamated the education, accommodation and healthcare sectors into one Public Sector Services business stream. Activity within these sectors has benefited from a strong 2015 order book and our challenge for the second half is to maximise revenue from these projects as some of them have suffered from on-site Client delays.

Operationally the business executed a seamless relocation to its new head office facility which is close to the Kirkcaldy factory, and the expected benefits from this relocation are being realised. With the business reorganisation project we are redoubling our efforts to simplify, standardise and declutter the business thereby making us easier to do business with.

Educational Supplies

On 1 September 2015 the Group sold the Teacherboards business to Sundeala Limited for £1.358m. This sale together with the incorporation of the restructured Stage Systems business into core Interiors business at the start of 2015 means that the Group has exited the educational supplies business.

DIVIDENDS

The Board does not propose to pay any dividend in 2015.

CHAIRMAN'S STATEMENT

After a rigorous and comprehensive selection process, including both internal and external candidates, David Ritchie succeeded Eric Prescott as Chief Executive Officer on 5 May 2015. I am pleased to have David in the role and welcome the changes already made to ensure the business is reorganised for future growth and profitability.

Due to commitments overseas, Andrew Burgess, who remains the Company's largest shareholder, resigned from the Board on 4 June 2015. I would like to thank Andrew for his valuable contribution and wish him every success with his new business venture.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties are set out in the notes to this statement. The risks and uncertainties are largely unchanged from those set out in the Annual Report for 2014. However, we have included an additional risk in relation to over exposure to clients who represent more than 10% of turnover.

GOING CONCERN

The current market conditions continue to 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.

At the start of the period the Group operated with a bank facility which included a term loan, a revolving credit facility, HP finance and an overdraft facility. In April, the facilities, excluding HP finance, were amended and consolidated into a £5m overdraft facility. Following the receipt of monies from the sale of Teacherboards for £1.358m the overdraft facility was reduced slightly to £4.75m. The overdraft facilities are due for renewal in April 2016.

During the six months to 30 June 2015, the conditions of the facilities 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

As reported in the announcement of 1 September 2015 demand within the UK Retail and Financial Services sectors remains subdued and we expect this situation to continue until the end of the year. Progress on the business reorganisation is being made and we expect to have the major changes implemented by the end of December. This will ensure that we enter 2016 with a stable, focussed, more efficient business that is better placed to take advantage of the many opportunities that we are identifying.

David MacLellan

Chairman

Condensed Consolidated Income Statement

for the six months ended 30 June 2015 (unaudited)

for the six months ended 30.June 2014 (unaudited)

for the year ended 31 December 2014

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 June 2015

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the 6 months ended 30 June 2015

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 2015. 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. The estimates and judgements applied have not changed from those used in the 2014 Annual Report.

The interim financial statements were approved by the Board of Directors on 28 September 2015. 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 2014 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 2014 has been extracted from the Annual Report 2014 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 2014. 

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. From 1 January 2015, the operations of Stage Systems, which was previously included in the Educational Supplies segment, were consolidated within the Interiors segment. 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 2015.

The Chancellor announced in his Summer Budget on 8 July 2015 that the main rate of corporation tax will be reduced to 19% from 1 April 2017 and 18% from 1 April 2020 and the future current tax charges will reduce accordingly. These changes are contained in the Finance Bill 2015 which is not expected to be substantively enacted until October 2015 and at that point the changes will reduce the Company's deferred tax assets accordingly.

5. Earnings per share

The calculation of basic loss per share for the period ended 30 June 2015 is based on the loss 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 2015.

7. Property, plant and equipment

On 31 December 2014, a property at Dalgety Bay 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 was 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 £306,000 (30 June 2014: £1,249,000,

31 December 2014: nil). This expenditure will be analysed between Property, Plant and Equipment and Intangible Assets when the related assets are brought into use.

8. Intangible assets

9. Discontinued activities

On 30 June 2015, Teacherboards (1985) Limited 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.

10. Related parties

Transactions with key management personnel

Group key management personnel receive compensation in the form of salaries and short-term benefits, compensation for loss of office, post-employment benefits and share-based payments. Group key management received total compensation of £748,000 for the six months ended 30 June 2015 (six months ended 30 June 2014: £587,000).

11. Pension liabilities

During the period, the pension deficit, net of deferred tax, decreased to £1.9 million (December 2014: £3.0 million) mainly as a result of an increase in the value of the scheme's assets.

12. Exceptional costs

(a) In December 2014, the company entered into an agreement to sell the Dalgety Bay site and to lease new office premises near the Kirkcaldy factory. The impairment charge relates to the writing down of the carrying value of the existing premises to the agreed consideration of £750,000.

(b) The Group has changed its operating procedures and is rationalising its stock holding policy to hold fewer and newer lines so that it no longer needs to carry so much stock. The surplus stock will, where possible, be disposed of and the Group has made a provision against its carrying value.

(c) Impairment of goodwill in relation to Teacherboards (1985) Limited.

(d) Compensation for loss of office and fees related to recruitment of new CEO and Finance Director, net of share based payment credits.

(e) Redundancy and other costs incurred in the restructuring of the Educational Supplies and Interiors businesses.

13. 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 2014. 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

14. Principal risks and uncertainties

The principal risks and uncertainties facing the Group for the remainder of 2015 are shown below and have not changed from those disclosed in the Annual Report for 2014.

 The Group must operate within its bank facilities. The Group's financial forecast shows that this can be achieved. A material disruption to the Company's business or a shortfall in operational or financial performance could mean that the Group's ability to operate within its overdraft facility would be at risk. 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 has several clients each of which constitute more than 10% of revenue. The loss of any one of these would adversely impact the Group's profitability and cash flow. The business focusses on maintaining a good working relationship with all its customers, in particular these larger clients. We are continuing to pursue our strategy of diversifying the business across and within sectors to increase resilience and reduce dependence on particular markets and customers.

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 works 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.

One of the largest elements 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. 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.

16. Post balance sheet event

On 1 September 2015, the Group sold Teacherboards (1985) Limited for a consideration of £1,358,000.

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.

 David Ritchie Ciaran Kennedy

Chief Executive Officer Finance Director

28 September 2015