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Havelock Europa PLC (HVE)

  Print      Mail a friend       Annual reports

Tuesday 05 April, 2005

Havelock Europa PLC

Final Results

Havelock Europa PLC
05 April 2005


Tuesday 5 April 2005

                 HAVELOCK EUROPA PLC - PRELIMINARY ANNOUNCEMENT

2004 was a year of considerable progress for Havelock. Underlying pre-tax profit
(profit before exceptional items and goodwill amortisation) showed a marked
increase for a third consecutive year, to £5.0 million (2003 : £4.3 million),
boosted by a first-time contribution from the two companies acquired mid-year in
the education supply sector, TeacherBoards and Clean Air.

Financial Highlights

   •On an underlying basis, pre-tax profit increased by 16% to £5.0m and
    earnings per share were 10.9p, up 9%.

   •On a reported basis, profit before tax totalled £4.5m (2003: £4.7m) and
    basic earnings per share were 9.2p (2003: 11.7p). 2003 benefited from an
    exceptional tax free profit of £0.9m.

   •The Group's financial position remains strong despite the net cash
    outflow of £6.4m in acquisition consideration which was partially offset by
    the £1.7m net proceeds from a share placing in July. Net debt at the year
    end amounted to £14.6m (2003: £10.5m) and gearing slightly reduced to 84.7%
    (2003: 87.5%). Interest cover was a comfortable 4.6 times (2003: 4.8 times),
    before exceptionals.

   •Dividends per share are increased by 14% to 3.2p, covered 2.7 times, in
    line with the Group's progressive dividend policy.

Commercial Highlights

   •ESA McIntosh, the UK market leader in science laboratories and fitted
    furniture for schools, benefited from strong direct sales to schools and
    Local Authorities but as announced in the Pre-Close Season Trading Update of
    28 January 2005, suffered to some extent from contract delays in the PFI
    sector, which has resulted in a lower contribution to profits than was
    originally expected.

   •The two new businesses acquired in the summer of 2004, TeacherBoards
    (which designs and manufactures teaching aids and display boards) and Clean
    Air (which manufactures fume cupboards for industrial, university and
    science laboratories), performed well.

   •The Point of Sale Display Division had a good year, contributing
    substantially to profit.

   •The Retail Interiors Division traded better than expected, making a small
    but improved profit.

Prospects for 2005

The Group has made an encouraging start to the year with good levels of
enquiries in each of its divisions. With much of the benefit of the high volume
of enquiries in the LEA and direct-to-schools segment of the education sector
not being converted into business until the summer holidays, the Group's results
for 2005 will, even more than previously, be heavily slanted towards the second
half of the year. The impact of the implementation of IFRS on revenue
recognition is likely to exaggerate this seasonal bias.

Malcolm Gourlay, Chairman, stated 'The Board believes that significant further
progress will be made in the current year as a whole and that Havelock remains
well placed to benefit from increasingly high levels of Government educational
expenditure thereafter.'

Enquiries:

Havelock Europa PLC                                              01383-820 044
Hew Balfour (Chief Executive)                                    07801-683 851
Graham MacSporran (Finance Director)                             07801-683 803

Bankside Consultants Limited
Charles Ponsonby                                                 020-7444 4166


                             
                        CHAIRMAN'S STATEMENT

2004 was a year of considerable progress for Havelock. Underlying pre-tax profit
(profit before exceptional items and goodwill amortisation) showed a marked
increase for a third successive year, to £5.0 million (2003 : £4.3 million),
boosted by a first-time contribution from the two companies acquired mid-year in
the education supply sector, TeacherBoards and Clean Air.

Despite some deferral in the timing of new contracts in the education PFI
market, as announced in the Pre-Close Season Trading Update of 28 January 2005,
prospects for the Group remain positive for 2005 and beyond.

FINANCIAL OVERVIEW

The 16% increase in underlying profit was achieved despite a decrease in
turnover to £87.6 million (2003 : £97.7 million), as a result of a more
selective approach to business within the Retail Interiors Division. Underlying
earnings per share were 10.9p (2003 : 10.0p), up 9%. The underlying figures
exclude goodwill amortisation charges of £0.5 million in 2004 (2003 : £0.3
million) and in 2003 the exceptional profit of £0.9 million arising from the
partial disposal of the Group's share of the Middle East joint venture, Havelock
AHI, along with exceptional reorganisation charges of £0.2 million.

On a reported basis, profit before tax totalled £4.5 million (2003: £4.7
million) and basic earnings per share were 9.2p (2003 : 11.7p). The prior year
figure benefited from the exceptional gain arising from the Middle East, which
was tax free.

2004 saw a strong performance from the Point of Sale Display Division; an
improved contribution from Retail Interiors; a good return, despite the deferral
of a number of expected contracts in the last quarter, from the Group's
education interiors subsidiary, ESA McIntosh, and an excellent maiden
performance from each of the two newly acquired businesses, TeacherBoards and
Clean Air.

The Group's financial position remains strong despite the net cash outflow of
£6.4 million in acquisition consideration which was partially offset by the £1.7
million of net proceeds from a share placing in July. Net debt at the year end
amounted to £14.6 million (2003 : £10.5 million) and gearing slightly reduced to
84.7% (2003 : 87.5%). Interest cover was a comfortable 4.6 times (2003 : 4.8
times before exceptionals).

DIVIDENDS

The Board is proposing a 14% increase in the final dividend per share to 2.4p
(2003 : 2.1p), in line with the Group's progressive dividend policy. If approved
at the Annual General Meeting on 24 June 2005, the dividend will be paid on 4
July 2005 to shareholders on the register at close of business on 3 June 2005.

Including the interim dividend per share of 0.8p (2003 : 0.7p), paid on 29
December 2004, the proposed dividends per share for the year will total 3.2 p
(2003 : 2.8p), which is up 14% on 2003 and covered 2.7 times.

TRADING REVIEW

Education Furniture

ESA McIntosh is the UK market leader in the design, manufacture and installation
of science laboratories and fitted furniture for schools, with facilities in
Kirkcaldy, Fife.

Turnover increased to £22.7 million (2003 : £20.9 million) as a result of a
particularly strong showing in direct sales to schools and Local Education
Authorities. As expected, turnover in the PFI segment fell slightly as the first
phase of school refurbishments and rebuilding in Scotland, financed through the
PFI, was concluded. Towards the end of the year, contract delays in the PFI
sector became more apparent, particularly in relation to work where Jarvis is,
or was, originally the main contractor. As a result, ESA McIntosh's contribution
to profits was at a lower level than originally expected. The 2004 result
included expenditure of some £0.5 million incurred in gearing up for increased
activity in the future.

Education Supply

The two new businesses acquired in the summer of 2004, TeacherBoards and Clean
Air, performed well.

TeacherBoards, based in Skipton, North Yorkshire, designs, manufactures and
distributes teaching aids and display boards. Turnover was £5.7 million for the
12 months ended 31 December 2004, with some £2.9 million falling within the six
months in which TeacherBoards formed part of the Group. An initial earn-out
payment of £1.15 million has been made, with a further £0.25 million to follow
in 2006, subject to profit before tax in the current year reaching £1.0 million.
These payments reflect a performance which exceeded TeacherBoards' earnout
target for 2004.

Clean Air, based in Bolton, Lancashire, manufactures fume cupboards for
industrial, university and science laboratories. Turnover was £3.5 million in
the 12 months to 31 December 2004, of which £1.7 million related to the 51/2
months under Havelock Europa's ownership. The first earn-out payment of £0.51
million will be made shortly in relation to this performance, with up to a
further £1.29 million to follow, based on the profit before tax, in the current
year, achieved in excess of £1 million.

Point of Sale Display

The Point of Sale Display Division prints promotional graphics and manufactures
display equipment for use in retail and branded goods businesses, typically as
part of marketing rather than capital expenditure budgets, at its facilities in
Letchworth and Bristol.

The Division had a good year, contributing substantially to profit. Turnover
increased to £25.5 million (2003 : £24.1 million), with a strong performance in
both printing businesses. The Division benefited from further capital
investment, including the introduction of a new four-colour large-format screen
printing line at Letchworth, along with new digital printing equipment and the
latest technology in direct imagery. Investment in new technology has borne
considerable fruit in terms of enhancements to productivity throughout the
Division.

Retail Interiors

The Retail Interiors Division designs, manufactures and installs interiors for
retailers, banks, hotels and healthcare facilities. It has a factory co-located
with the Group's Head Office in Fife and a sales office in Derbyshire.

The Division traded better than expected, making a small but improved profit. A
more selective approach to business resulted in a lower level of turnover at
£34.8 million (2003 : £52.3 million) which, coupled with a modest amount of
investment in new machinery, served to raise gross margins, improve productivity
and increase the Division's overall contribution. Useful progress was made in
widening the customer base in the financial services sector.

Middle East Interiors

Havelock AHI, in which the Group owns a 17% stake, manufactures and installs
retail and hotel interiors from its base in Bahrain. A profit attributable to
the Group of £0.1 million was recorded.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

In accordance with European Union Legislation, all listed companies in the
European Union are required to adopt International Financial Reporting Standards
(IFRS) for their consolidated financial statements from 2005.

The Group is undertaking an impact analysis of the effect of implementing IFRS
which is nearing completion. The first annual report and accounts prepared under
IFRS will be for the year ending 31 December 2005. The interim accounts for the
half year ending 30 June 2005 will also be prepared under IFRS and these
accounts will include re-stated annual and interim comparative financial
information together with information on the effects of the implementation of
IFRS.

STRATEGY

Havelock's strategy is to concentrate on UK markets offering significant
opportunities for profitable growth. In this context, a programme of expansion
in healthcare and education is already underway.

At the same time, as detailed in the Interim Announcement of 28 September 2004,
the role of the Retail Interiors Division in Group activities continues to
evolve. While the Division is committed to remaining a market leader in its
sector, it intends to concentrate on UK retailers, banks and hotels which
require and value a consistency of quality in manufacturing and service
delivery. In addition, the Division is now devoting a proportion of its
resources to support the supply of equipment and services for other parts of the
Group, notably ESA McIntosh and the Point of Sale Display Division. Further,
with effect from the last quarter of 2004, the Division assumed responsibility
for the Group's developing activities in the healthcare furniture market, where
progress is already being made.

CURRENT TRADING AND PROSPECTS

The Group has had an encouraging start to the year.

The level of ESA McIntosh's enquiries from Local Education Authorities is
sizeably up on previous years. There is, however, clear evidence that a smaller
number of PFI projects reached financial close in the final quarter of 2004 than
was originally anticipated. As was announced in the Pre-Close Season Trading
Update of 28 January 2005, this will constrain ESA McIntosh's growth in 2005, as
compared with earlier expectations. Nevertheless, there is firm evidence that
growth in the volume of business to be derived from the PFI sector will continue
in 2006.

Within the education supply sector, order books at both TeacherBoards and Clean
Air remain solid.

The Point of Sale Display Division has had another strong start to the year,
with business in the first quarter at robust levels.

Whilst turnover for the Retail Interiors Division will, as usual, be biased
towards the second half, a further year of progress, bolstered by a growing
volume of work in the healthcare market, is anticipated.

With much of the benefit of the high volume of enquiries in the LEA and
direct-to-schools segment of the education sector not being converted into
business until the summer holidays, the Group's results for 2005 will, even more
than previously, be heavily slanted towards the second half of the year. The
impact of the implementation of IFRS on revenue recognition is likely to
exaggerate this seasonal bias. Nevertheless, the Board believes that significant
further progress will be made in the current year as a whole and that Havelock
remains well placed to benefit from increasingly high levels of Government
educational expenditure thereafter.


Malcolm Gourlay                                                 5 April 2005
Chairman


                      CONSOLIDATED PROFIT AND LOSS ACCOUNT
                      for the year ended 31 December 2004

                        2004           2004       2004      2003
                    Existing   Acquisitions      Total
            Notes       £000           £000       £000      £000

Turnover

Group and             83,066          4,580     87,646    97,742
share of
joint
venture

Less: share
of joint                   -              -          -      (502)
venture's
turnover
                     _______        _______    _______    ______

Group                 83,066          4,580     87,646    97,240
turnover

Operating
profit
before
exceptional
items

Group                  4,580          1,061      5,641     4,979

Exceptional                -              -          -      (226)
costs
                       _____          _____      _____    ______

Operating
profit                 4,580          1,061      5,641     4,753
after
exceptional
items

Share of
associated               104              -        104        47
company's
operating
profit

Share of
joint                      -              -          -       (24)
venture's
operating
loss
                      ______         ______     ______     _____

Total                  4,684          1,061      5,745     4,776
operating
profit

Gain on
sale of                    -              -          -       935
interest in
joint
venture
                      ______         ______     ______    ______

Profit on
ordinary               4,684          1,061      5,745     5,711
activities
before
interest

Net
interest
payable and
other
similar
items

Group                                           (1,242)     (981)

Associated                                         (17)      (19)
company

Joint                                                -        (2)
venture
                                                ______    ______


Profit on ordinary
activities before                                4,486     4,709
taxation


Tax charge
on profit       3                               (1,569)     (1,249)
on ordinary
activities
                                                ______      ______

Profit for                                       2,917       3,460
the
financial
year


Dividend -                                      (1,098)      (871)
equity
                                                ______     ______

Retained                                         1,819      2,589
profit for
the year
                                                ______     ______


Basic           4                                  9.2p      11.7p
earnings
per share

Basic           4                                 10.9p      10.0p
adjusted
earnings
per share

Diluted         4                                  8.8p      11.3p
earnings
per share

Dividends                                          3.2p       2.8p
per share

All operations are continuing.


                               GROUP BALANCE SHEET
                             as at 31 December 2004

                                              Group               Company
                                        2004        2003      2004        2003
                                               (restated)            (restated)
                             Notes      £000        £000      £000        £000

Fixed assets

Intangible assets - goodwill          14,196       3,825         -          38

Tangible assets                       13,888      12,786    10,348       9,413

Investment in associated
company                                  575         533       567         567

Investment in subsidiary
undertakings                               -           -    21,526       8,645
                                      ______      ______    ______      ______

                                      28,659      17,144    32,441      18,663
                                      ______      ______    ______      ______


Current assets

Stocks                           5     7,730       5,616     5,620       4,586

Debtors                          6    20,861      17,951    17,275      17,458

Cash at bank and in hand                 627       1,348         -         899
                                      ______      ______    ______      ______

                                      29,218      24,915    22,895      22,943

Creditors: Amounts falling
due within one year              7   (24,048)    (18,768)  (20,175)    (16,126)
                                      ______      ______    ______      ______
 
Net current assets                     5,170       6,147     2,720       6,817
                                      ______      ______    ______      ______


Total assets less current
liabilities                           33,829      23,291    35,161      25,480


Creditors: amounts falling
due                              8   (15,392)    (10,505)  (15,392)    (10,505)
after more than one year


Provision for liabilities
and                                   (1,164)       (791)   (1,064)       (714)
charges
                                       ______      ______    ______      ______

Net assets                             17,273      11,995    18,705      14,261
                                       ______      ______    ______      ______


Capital and reserves

Called up share capital                3,430       3,107     3,430       3,107

Share premium account            9     2,410         909     2,410         909

Merger reserve                   9     1,582           -     1,582           -

Revaluation reserve              9     1,318       1,318     1,318       1,318

Profit and loss account          9     8,533       6,661     9,965       8,927
                                      ______      ______    ______      ______

Equity shareholders' funds            17,273      11,995    18,705      14,261
                                      ______      ______    ______      ______



                  STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
                      for the year ended 31 December 2004

                                                              2004       2003
                                                              £000       £000

Profit for the year                                          2,917      3,460

Exchange loss on overseas investments                          (42)       (56)

Movement in Long Term Incentive Plan shares held                95          -
                                                            ______     ______

Total recognised gains relating to the year                  2,970      3,404

Prior year adjustment - UITF 38                               (228)         -
                                                             _____      _____

Total gains recognised since last annual report              2,742      3,404




                RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
                      for the year ended 31 December 2004

                                                              2004       2003
                                                              £000       £000

Opening shareholders' funds - as previously stated          12,223      9,650

Prior year adjustment - UITF 38                               (228)       (23)
                                                            ______     ______

Opening shareholders' funds - restated                      11,995      9,627
                                                            ______     ______


Profit for the year                                          2,917      3,460

Dividends                                                   (1,098)      (871)
                                                            ______     ______


Retained profit for the year                                 1,819      2,589

Exchange loss on overseas investment                           (42)       (56)

Movement in Long Term Incentive Plan shares held                95       (205)

New share capital issued                                     3,406         40
                                                            ______     ______


Net increase in shareholders' funds                          5,278      2,368
                                                            ______     ______


Closing shareholders' funds                                 17,273     11,995
                                                            ______     ______





                STATEMENT OF HISTORICAL COST PROFITS AND LOSSES

                                                                2004      2003
                                                                £000      £000

Reported profit on ordinary activities before taxation         4,486     4,709
Difference between a historical cost depreciation charge and
the actual depreciation charge of the year calculated on the
revalued amount                                                    4         4
                                                               _____     _____
Historical cost profit on ordinary activities before           4,490     4,713
taxation
                                                              ______    ______
Historical cost retained profit after taxation and dividends   1,823     2,593
                                                              ______    ______

                       
                        CONSOLIDATED CASH FLOW STATEMENT
                      for the year ended 31 December 2004

                                                      Notes     2004      2003
                                                                £000      £000

Cash inflow from operating activities                 10(a)    6,727     5,399


Return on investment and servicing of finance

Interest received                                                  4         1

Interest paid                                                 (1,209)     (958)
                                                              ______   _______

Net outflow from investment and servicing of finance          (1,205)     (957)
                                                              ______    ______

Taxation                                                      (1,244)     (107)
                                                              ______    ______

Capital expenditure and financial investments

Purchases of tangible fixed assets                            (2,907)   (2,052)

Proceeds from sale of tangible fixed assets                       84         6

Loan to ESOP trust                                                 -      (250)
                                                              ______    ______

Net cash outflow from capital expenditure and
financial                                                     (2,823)   (2,296)
investments
                                                              ______    ______
 
Acquisitions and disposals

Net cash outflow in connection with acquisition of
subsidiary undertakings                                       (6,356)        -

Deferred consideration and fees                                    -       (45)

Cost of investment in associated company                           -      (567)

Proceeds from disposal of interest in joint venture                -     2,567
                                                              ______    ______

Net cash (outflow)/inflow from acquisitions and disposals     (6,356)    1,955

Equity dividends paid                                           (928)     (775)
                                                              ______    ______


Cash (outflow)/inflow before financing                        (5,829)    3,219
                                                              ______    ______


Financing

Repayment of loan notes issued on acquisition of
subsidiaries                                                       -    (3,765)
Capital element of finance lease rental payments                (103)     (253)
Repayment of long term loan                                   (1,250)   (1,250)
Bank loan and other advances                                   4,750     2,455

Issue of new shares                                            1,656        40

Proceeds of exercise of share options                             55         -
                                                              ______    ______

Net cash inflow/(outflow) from financing                       5,108    (2,773)
                                                              ______    ______

(Decrease)/increase in cash for the year              10(b)     (721)      446
                                                              ______    ______




                             NOTES TO THE STATEMENT

1. The profit and loss account, balance sheet and abridged cash flow
statement do not constitute the Company's statutory accounts for 2004 or 2003
but are derived from those accounts. The statutory accounts for 2003, on which
the auditors have given an unqualified report, have been delivered to the
Registrar of Companies. Those for 2004 will be delivered following the Annual
General Meeting. The auditors have reported on those accounts which were
unqualified and did not contain a statement under Section 237(2) of the
Companies Act 1985.

2. Basis of consolidation

The consolidated profit and loss account and balance sheet include the financial
statements of the Company, its subsidiaries and its interest in an associated
company made up to 31 December 2004. The Group's share of the profits of the
associated company is included in the consolidated profit and loss account and
its interest in its net assets is included in the balance sheet.

3. Tax charge on profit on ordinary activities

                                                       2004              2003
                                                      £ 000             £ 000

UK corporation tax

- current year at 30%                                (1,181)             (510)

- prior year                                            (13)              (27)

Deferred tax

- current year                                         (310)             (749)

- prior year                                            (65)               37
                                                     ______            ______

                                                     (1,569)           (1,249)
                                                     ______            ______



The current tax charge for the year differs from 30% of the pre-tax profit
because certain expenses are not deductible for tax.

4. Earnings per share

Based on a profit after adjusting for goodwill amortisation and tax of
£3,464,000 (2003:£2,973,000) and 31,638,007 (2003: 29,612,442) shares, being the
weighted average number of shares in issue during the year, the adjusted basic
earnings per share were 10.9p (2003: 10.0p).The weighted average number of
shares excludes the shares held by the ESOP Trust. Based on a profit after tax
of £2,917,000 (2003: £3,460,000) and 31,638,007 shares (2003: 29,612,442), the
basic earnings per share were 9.2p (2003: 11.7p).

                                     2004       2003         2004         2003
                                     £000       £000

                                 Earnings   Earnings     Earnings     Earnings
                                                        pence per    pence per
                                                            share        share

Basic                               2,917      3,460          9.2         11.7
Adjusted for:
Gain on sale of investments             -       (935)           -         (3.2)
Exceptional costs                       -        226            -          0.8
Tax relief on exceptional costs         -        (68)           -         (0.3)
Goodwill amortisation                 547        290          1.7          1.0
                                  _______     ______       ______       ______

Adjusted basic                      3,464      2,973         10.9         10.0
                                   ______     ______       ______       ______


Diluted                             2,917      3,460          8.8         11.3
                                   ______     ______       ______       ______


The weighted average number of shares used in each calculation is as follows:
                                                             2004         2003

                                                           Number       Number
                                                        of shares    of shares

                                                             000s         000s

For basic and adjusted earnings
per share                                                  31,638       29,612
Effect of exercise of share
options                                                     1,540        1,023
                                                          _______      _______

For diluted earnings per share                             33,178       30,635
                                                         ________     ________


Earnings per share are calculated for the issued shares excluding those held by
the Employee Share Scheme in accordance with UITF 13.

5. Stocks
                                                          2004            2003
                                                          £000            £000

Raw materials and consumables                            3,312           2,380
Work in progress                                         1,454           1,439
Less: Payments to account                                 (562)           (677)
Finished goods                                           3,526           2,474
                                                         _____           _____

                                                         7,730           5,616
                                                         _____          ______


6. Debtors

                                                    2004                  2003
                                                    £000                  £000

Trade debtors                                     17,873                15,702
Other debtors                                        340                   333
Prepayments                                        2,648                 1,916
                                                  ______                ______

                                                  20,861                17,951
                                                  ______                ______



7. Creditors: amounts falling due within one year
                                                                2004      2003
                                                                £000      £000

Bank loans (secured)                                           1,250     1,250
Trade creditors                                               13,563    11,731
Corporation tax                                                  954       510
Other taxes and social security                                2,856     2,370
Accruals                                                       2,180     2,155
Dividend proposed                                                823       653
Obligations under hire purchase contracts and finance leases      72        99
Provision for deferred consideration                           2,350         -
                                                              ______    ______

                                                              24,048    18,768
                                                              ______    ______
 

8. Creditors: amounts falling due after more than one year

                                                                2004      2003
                                                                £000      £000

Bank loans (secured)                                          13,892    10,392
Obligations under hire purchase contracts and finance leases      50       113
Deferred consideration                                         1,450         -
                                                              ______    ______

                                                              15,392    10,505
                                                              ______    ______

9.    Reserves

                        Group and Company                   Group        Company
               Share premium  Merger   Revaluation     Profit and     Profit and                     
                             reserve       reserve   loss account   loss account
                      £000      £000          £000           £000           £000
At 1 January
2004 as
previously
stated                 909         -         1,318          6,889          9,155
Prior year
adjustment -
reclassificati
on of
investment in
own shares               -         -             -           (228)         (228)
                    ______    ______        ______         ______         ______
At 1 January
2004 as
restated               909         -         1,318          6,661          8,927

Retained
profit for the
year                     -         -             -          1,819            943
Exchange loss
on overseas
investments              -         -             -            (42)             -
Shares issued
pursuant to
acquisitions         1,501     1,582             -              -              -
Movement in
Long Term
Incentive Plan
shares held              -         -             -             95             95
                    ______    ______        ______         ______         ______
At 31 December
2004                 2,410     1,582         1,318          8,533          9,965
                    ______    ______        ______         ______         ______

Total goodwill written off directly to reserves in previous years
in respect of subsidiary undertakings at 31 December 2004 amounts
to £16,234,000 (2003:£16,234,000).
The profit after tax for the financial year attributable to the
Company was £2,041,000 (2003: £5,318,000)


10. Cash Flow Statement

                                                              2004        2003
                                                              £000        £000
(a) Reconciliation of operating profit to net cash inflow from operating
activities

Operating profit after exceptional items                     5,641       4,753
Depreciation                                                 1,933       1,918
Amortisation of goodwill                                       547         290
Gain on disposal of tangible fixed assets                      (30)         (6)
(Increase)/decrease in stocks                               (1,149)      1,701
Increase in debtors                                         (1,190)     (1,226)
Increase/(decrease) in creditors                               975      (2,031)
                                                            ______      ______
Net cash inflow from operating activities                    6,727       5,399
                                                            ______      ______
(b) Reconciliation of net cash flow to movement in net debt

(Decrease)/Increase in cash for the year                      (721)        446
Finance lease payments                                         103         253
Finance lease creditor acquired with acquisition               (13)          -
Loan notes issued in the year                                    -      (2,455)
Loan notes repaid                                                -       3,765
Bank loan repaid                                             1,250       1,250
New bank loan                                               (4,750)     (2,455)
                                                            ______      ______
Movement in net debt in the year                            (4,131)        804
Opening net debt                                           (10,506)    (11,310)
                                                            ______      ______
Closing net debt                                           (14,637)    (10,506)
                                                            ______      ______



(c) Analysis of net debt
                          At 1       Cash        Other  Acquisition     At 31
                       January       flow     non-cash   (excluding   December 
                          2004                 changes        cash)      2004                 
                          £000       £000         £000        £000       £000               

Cash at bank
and in hand              1,348       (721)           -          -        627
                        ______     ______       ______     ______     ______
Debt due within one
year
Bank loans              (1,250)     1,250       (1,250)         -     (1,250)
Finance lease
creditor                   (99)       103          (63)       (13)       (72)
                        ______     ______       ______     ______     ______
                        (1,349)     1,353       (1,313)       (13)    (1,322)
                        ______     ______       ______     ______     ______

Debt due after one
year
Finance lease
creditor                  (113)         -           63          -        (50)
Bank loans             (10,392)    (4,750)       1,250          -    (13,892)
                        ______     ______       ______     ______     ______
                       (10,505)    (4,750)       1,313          -    (13,942)
                        ______     ______       ______     ______     ______
Total net debt         (10,506)    (4,118)           -        (13)   (14,637)
                        ______     ______       ______     ______     ______


11. Pension Costs

Pension costs SSAP24 basis

The most recent actuarial valuation of the defined benefit section was at 31
October 2003. At the valuation date, the defined benefit section had assets with
a total market value of £15.1m, which represented approximately 74% of the value
of the benefits that had accrued to members, after allowing for expected future
increases in pensionable pay for defined benefit members.

Pension costs FRS17 basis
The last full valuation of 31 October 2003 has been updated to 31 December 2004
by qualified independent actuaries, using revised assumptions that are
consistent with the requirements of the accounting standard, FRS17. The standard
requires certain disclosures this year under the transitional arrangements. In
summary, the UK defined benefits pension scheme has assets at a current market
value of £17.8m (2003: £16.4m) and liabilities, discounted at the AA bond yield,
of £26.4m (2003: £24.3m). Using this valuation method, there is a deficit of
£8.6m (2003: £7.9m) which is partially offset by deferred tax of £2.6m (2003:
£2.4m) giving a net deficit of £6.0m (2003: £5.5m).

The defined benefit section has been closed to new entrants.


12. The accounts for the year ended 31 December 2004 were approved by the
Directors on 5 April 2005.



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