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Havelock Europa PLC (HVE)

  Print      Mail a friend       Annual reports

Tuesday 27 September, 2005

Havelock Europa PLC

IRFS RESTATEMENT

Havelock Europa PLC
27 September 2005



                              Havelock Europa PLC

                   Restatement of financial information under
                  International Financial Reporting Standards



Introduction

Havelock Europa PLC (the Group) historically prepared its consolidated financial
statements under UK Generally Accepted Accounting Practice (UKGAAP). European
Union law (IAS Regulation EC 1606/2002) requires the Group to adopt
International Financial Reporting Standards (IFRS) as its primary accounting
base.

To explain how the Group's reported performance and financial position are
affected by this change, information previously published under UKGAAP is
restated under IFRS in the attached appendices as follows:

• Appendix 1 - Accounting policies under IFRS;

• Appendix 2 - Consolidated income statement, consolidated statement of
recognised income and expense and consolidated statement of changes in equity
for the 6 months ended 30 June 2004 and year ended 31 December 2004,
consolidated balance sheet at 1 January 2004 (the date of transition to IFRS),
at 30 June 2004 and 31 December 2004, and consolidated statement of cash flows
for the six months ended 30 June 2004 and year ended 31 December 2004;

• Appendix 3 - Reconciliations between UKGAAP and IFRS of the
consolidated income statement for the year ended 31 December 2004, the
consolidated balance sheet at 31 December 2004, the consolidated income
statement for the 6 months ended 30 June 2004, the consolidated balance sheet at
30 June 2004 and the transition balance sheet at 1 January 2004, with
explanatory notes on the adjustments;

• Appendix 4 - Explanatory notes on the impact of IAS 32 Financial
Instruments: Disclosure and Presentation and IAS 39 Financial Instruments:
Recognition and Measurement as at 1 January 2005, the date from which the Group
prospectively applied these Standards; and

• Appendix 5 - Special purpose audit report of KPMG Audit Plc to
Havelock Europa PLC

This financial information has been prepared on the basis of IFRS expected to be
applicable at 31 December 2005. These are subject to ongoing review and
endorsement by the European Union or possible amendment by interpretative
guidance from the International Accounting Standards Board and are therefore
subject to change.

Transition to IFRS

The date of transition to IFRS was 1 January 2004, which was the beginning of
the comparative period for the six months ended 30 June 2004 and for the year
ended 31 December 2004. The Group has applied IFRS 1 for first-time adoption of
IFRS, and has elected to use the following exemptions:

   • IFRS 3 Business Combinations has not been applied retrospectively to
    business combinations that occurred before 1 January 2004;

   • The carrying amounts of certain properties revalued under UKGAAP before
    1 January 2004 have been retained as deemed cost at the date of transition;

   • Cumulative actuarial gains and losses at the date of transition on the
    valuation of post-employment benefit assets and liabilities have been
    recognised as an adjustment to shareholders' equity;

   • Cumulative translation differences for foreign operations have been
    deemed to be nil at 1 January 2004. Any gain or loss on a subsequent
    disposal of a foreign operation will exclude translation differences that
    arose before 1 January 2004;

   • IFRS 2 Share-based Payment has not been applied to equity-settled share
    incentives granted before 7 November 2002, but not vested prior to 1 January
    2004; and

   • IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39
    Financial Instruments: Recognition and Measurement have been adopted from 1
    January 2005 with no restatement of comparative information.

No adjustments have been made for any changes in estimates made at the time of
approval of the UKGAAP financial statements upon which the IFRS comparative
information is based.

Presentation of financial information

The primary statements within the financial information contained in this
document have been presented in accordance with IAS 1 Presentation of Financial
Statements. However, this format and presentation may require modification as
practice develops and in the event that further guidance is issued.

                                                                      Appendix 1

Accounting policies

Basis of preparation

This financial information has been prepared on the basis of the recognition and
measurement requirements of IFRS in issue that either are endorsed by the EU and
effective (or available for early adoption) at 31 December 2005 or are expected
to be endorsed and effective (or available for early adoption) at 31 December
2005, the Group's first annual reporting date at which it is required to use
adopted IFRS. Based on these adopted and unadopted IFRS, the directors have made
assumptions about the accounting policies expected to be applied, which are set
out below, when the first annual IFRS financial statements are prepared for the
year ending 31 December 2005.

In particular, the directors have assumed that the amendment to IAS 19 Employee
Benefits covering actuarial gains and losses, group plans and disclosures will
be adopted by the EU in sufficient time that it will be available for use in the
annual IFRS financial statements for the year ending 31 December 2005.

In addition, the accounting standards adopted by the EU that will be effective
(or available for early adoption) in the annual financial statements for the
year ending 31 December 2005 are still subject to change and to additional
interpretations and therefore cannot be determined with certainty. Accordingly,
the accounting policies for that annual period will be determined only when the
annual financial statements are prepared for the year ending 31 December 2005.

The financial information is presented in pounds sterling, rounded to the
nearest thousand. It is prepared on the historical cost basis except for
intangible assets acquired in a business combination, which are stated at their
fair values and derivative financial instruments, which from 1 January 2005, are
stated at their fair values.

The preparation of financial information in conformity with IFRS requires the
directors to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expense. The estimates and judgements 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 judgements about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.

The accounting policies set out below have been applied consistently to all
periods presented in this financial information, subject to the exemptions
contained in IFRS 1 and noted on page 1 and except in relation to financial
information where the accounting policies for periods prior to 1 January 2005
are different (see below).

Basis of consolidation

The consolidated financial information comprises Havelock Europa PLC and its
subsidiaries, together with the Group's share of the results of its associate.
The financial statements of subsidiaries and its associate are prepared to the
same reporting date using accounting policies consistent with those of the
parent company. Intragroup transactions and balances, including any unrealised
gains and losses or income and expenses, arising from intragroup transactions
are eliminated in full.

Subsidiaries

Subsidiaries are entities controlled by the Company. Control exists when the
Company has the power, directly or indirectly, to govern the financial and
operating policies of an entity to obtain benefits from its activities. The
financial statements of subsidiaries are included in the consolidated financial
information from the date that control commences until the date that control
ceases.

Associate

The associate is an entity in which the Group has significant influence, but not
control, over the financial and operating policies. The consolidated financial
information includes the Group's share of the total recognised gains and losses
of its associate on an equity accounted basis, from the date that significant
influence commences until the date that significant influence ceases.

Foreign currency translation

Transactions and balances

Transactions in currencies other than pounds sterling are recorded at the
exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date are
translated to sterling at the foreign exchange rate ruling at that date.
Non-monetary assets and liabilities denominated in foreign currencies that are
stated at fair value are translated at the rates prevailing at the dates when
the fair value was determined. Non-monetary assets and liabilities that are
measured at historical cost in a foreign currency (e.g. property, plant and
equipment purchased in a foreign currency) are translated using the exchange
rate prevailing at the date of the transaction. Exchange differences arising on
translation are recognised in the consolidated income statement for the period.

Financial statements of foreign operations

The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated to sterling at
foreign exchange rates ruling at the balance sheet date. The revenues and
expenses of foreign operations are translated to sterling at average exchange
rates for the period.

Net investment in foreign operations

Exchange differences arising from the translation of the net investment in a
foreign operation are taken to the translation reserve. Such differences are
released to the consolidated income statement upon disposal as part of the gain
or loss on sale.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation
and net of any accumulated impairment losses. Certain items of property, plant
and equipment that had been revalued under UKGAAP on or prior to 1 January 2004,
the date of transition to IFRS, are measured on the basis of deemed cost, being
the fair value at the date of transition.

Land is not depreciated. For all other property, plant and equipment,
depreciation is calculated on a straight-line basis to allocate cost less
residual values of the assets over their estimated useful lives on the following
bases:

   • Freehold and long leasehold buildings                                  2%

   • Plant and equipment                                            10% - 33%

   • Fixtures and fittings                                                 10%

   • Motor vehicles                                                        25%

Residual values and useful lives are reassessed annually. Assets held under
finance leases are capitalised and depreciated over their expected useful lives
on the same basis as owned assets or, where shorter, over the term of the
relevant lease.

Intangible assets


Goodwill

All business combinations are accounted for by applying the purchase method. In
respect of acquisitions that have occurred since 1 January 2004, goodwill
represents the difference between the cost of the acquisition and fair value of
the net assets acquired. In respect of acquisitions before this date, goodwill
is included based on its deemed cost, which represents the amount recorded under
UKGAAP.

Goodwill is stated at cost or deemed cost less any accumulated impairment losses
(see below). Goodwill is allocated to cash-generating units and is tested
annually for impairment. In respect of the associate, the carrying amount of
goodwill is included in the carrying amount of the investment in the associate.

On disposal of a subsidiary or associate, the attributable goodwill is included
in the determination of the gain or loss on disposal.

Negative goodwill arising from a business combination is recognised directly in
the consolidated income statement.

Other intangible assets

Other intangible assets acquired by the Group are stated at cost less
accumulated amortisation and accumulated impairment losses. The cost of
intangible assets acquired in a business combination is the fair value at
acquisition date. The cost of separately acquired intangible assets, including
computer software, comprises the purchase cost and any directly attributable
costs of preparing the asset for use. Amortisation of other intangible assets is
charged to the consolidated income statement when the asset is available for use
so as to allocate the carrying amounts of the intangible assets over their
estimated useful lives as follows:

   • Computer software                                            3 - 5 years

   • Brands                                                          10 years

   • Customer relationships                                           4 years

   • Contracted customer relationships                                4 years

   • Order backlog                                                  0.5 years

   • Non-compete clauses                                             2.5years

   • Design rights                                                   10 years


Impairment of assets

The carrying amounts of the Group's non-current assets, other than deferred tax,
are reviewed at each balance sheet date to determine whether there is any
indication of impairment. Additionally, goodwill is subject to an annual
impairment test.

An impairment loss is recognised whenever the carrying amount of an asset or
cash-generating unit exceeds its recoverable amount. Recoverable amount is the
higher of fair value, less costs to sell, and value in use. In assessing value
in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. For an asset that does
not generate largely independent cash inflows, the recoverable amount is
determined for the cash-generating unit to which the asset belongs.

Impairment losses are recognised in the consolidated income statement.
Impairment losses recognised in respect of cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to cash-generating
units and then to reduce the carrying amount of the other assets in the unit on
a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an
impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.

Inventories

Inventories are stated at the lower of cost and net realisable value using
weighted average cost. Cost comprises directly attributable purchase and
conversion costs and an allocation of production overheads based on normal
operating capacity. Net realisable value is the estimated selling price in the
ordinary course of business less estimated costs of completion and selling
expenses.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank, which is available for
immediate withdrawal or on short-term deposit, and cash in hand. Bank overdrafts
that are repayable on demand and form an integral part of the Group's cash
management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.

Dividends

Final equity dividends to the shareholders of Havelock Europa PLC are recognised
as a liability in the period that they are approved by shareholders. Interim
equity dividends are recognised as a liability in the period that the directors
approve them.

Financial instruments


Trade and other receivables

Trade and other receivables are stated at their cost less impairment losses (an
allowance for irrecoverable amounts).

Trade and other payables

Trade and other payables are stated at cost.

Derivative financial instruments

The Group uses interest rate swaps to hedge its exposure to interest rate risks.
The Group does not enter into speculative derivative contracts.

Accounting policies applicable up to 31 December 2004

Amounts payable or receivable in respect of interest rate swaps are recognised
as adjustments to interest expense on an accruals basis over the period of the
contracts.

Accounting policies applicable from 1 January 2005
Interest rate swaps are initially recognised at fair value and are subsequently
remeasured at their fair value at each balance sheet date. Treatment of the
resulting gain or loss depends on whether the interest rate swap qualifies for
hedge accounting as a cash flow hedge.

Interest rate swaps that qualify as cash flow hedges

The portion of the gain or loss on the swap that is determined to be an
effective hedge is recognised in the consolidated statement of recognised income
and expense, with any ineffective portion recognised in the consolidated income
statement. When hedged cash flows result in the recognition of a non-financial
asset or liability, the associated gains or losses previously recognised in
shareholders' equity are included in the initial measurement of the asset or
liability. For all other cash flow hedges, the gains or losses that are
recognised in shareholders' equity are transferred to the consolidated income
statement in the same period in which the hedged cash flows affect the
consolidated income statement.

Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for hedge accounting. Any
cumulative gain or loss on the hedging instrument recognised in equity remains
in equity until the forecast transaction occurs. If a hedged transaction is no
longer expected to occur, the net cumulative gain or loss recognised in equity
is transferred to the consolidated income statement.


Non-hedging interest rate swaps

The gain or loss on remeasurement to fair value is recognised immediately in the
consolidated income statement.

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at the fair value of the
consideration received, net of attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated at amortised cost
with any difference between cost and redemption value being recognised in the
consolidated income statement over the period of the borrowings using the
effective interest method.

Borrowing costs

Borrowing costs are recognised in the consolidated income statement as an
expense in the period in which they are incurred.

Employee benefits

The Group operates both defined benefit and defined contribution pension plans.

Defined contribution plans

Obligations for contributions to defined contribution pension plans are
recognised as an expense in the consolidated income statement as incurred.

Defined benefit plans

The Group's liability in respect of its defined benefit pension plan is the
present value of the defined benefit obligation less the fair value of the plan
assets at the balance sheet date. The defined benefit obligation is calculated
by independent qualified actuaries using the projected unit credit method and is
determined by discounting the estimated future cash outflows using interest
rates on high quality corporate bonds that have maturity dates approximating to
the terms of the Group's obligations.

Current service costs are recognised in the consolidated income statement to
spread the cost of providing the benefit systematically over the employees'
service lives. The expected return on plan assets, net of administration
expenses, and the interest on pension plan liabilities, are recognised in the
consolidated income statement.

All actuarial gains and losses as at 1 January 2004, the date of transition to
IFRS, were recognised in shareholders' equity. All actuarial gains and losses
that arise subsequent to 1 January 2004 in calculating the Group's obligation in
respect of a plan are recognised immediately in the consolidated statement of
recognised income and expense.

Share-based payment transactions

The Group operates a number of equity-settled share-based compensation plans and
Save-As-You-Earn (SAYE) schemes. The fair value of share incentives granted is
recognised as an employee expense in the consolidated income statement with a
corresponding increase in shareholders' equity. The fair value is measured at
grant date and spread over the period during which the employees become
unconditionally entitled to the share incentives on a straight-line basis. The
fair value of the share incentives granted is measured using appropriate
valuation models, taking into account the terms and conditions upon which the
share incentives were granted. At each reporting date, the Group re-estimates
the number of share incentives that are expected to vest based on non-market
conditions. Any adjustment is recognised in the consolidated income statement,
with a corresponding adjustment to shareholders' equity, over the remaining
vesting period.

The Havelock Europa PLC Employee Share Trust holds shares in Havelock Europa
PLC, which are presented in the consolidated financial information as a
deduction from retained earnings.

Revenue recognition

Revenue is measured at the fair value of the consideration received or
receivable net of trade discounts, cash discounts and volume rebates and
excluding value added tax. Revenue from the sale of goods is recognised in the
consolidated income statement when the Group has transferred the significant
risks and rewards of ownership of the goods and services to the customer, the
revenue can be measured reliably and it is probable that the economic benefits
associated with the transaction will flow to the Group. Revenue from goods
shipped subject to installation is recognised when the customer accepts delivery
and installation is complete. No revenue is recognised if there are significant
uncertainties regarding recovery of the consideration due, associated costs or
the possible return of goods and continuing involvement with the goods such that
the risks and rewards of ownership remain with the Group.

Leases

Finance leases
Leases are classified as finance leases where substantially all the risks and
rewards of ownership are transferred to the Group. Finance leases are
capitalised at the inception of the lease at the lower of the fair value of the
leased asset and the present value of the minimum lease payments. The
corresponding liability to the finance lessor is included in the balance sheet
as a lease obligation.

Lease payments are apportioned between the liability and the finance charge to
produce a constant periodic rate of interest on the remaining balance of the
finance lease liability.

Operating leases
Leases other than finance leases are classified as operating leases. Payments
made under operating leases are recognised in the consolidated income statement
on a straight-line basis over the lease term.

Segment reporting

A segment is a distinguishable component of the Group that is engaged either in
providing products or services (business segment), or in providing products or
services within a particular economic environment (geographical segment), which
is subject to risks and rewards that are different from those of other segments.
The Group's primary reporting format is business segments and its secondary
format is geographical segments.

Taxation

Current and deferred tax is recognised in the consolidated income statement,
unless the tax relates to items recognised directly in shareholders' equity, in
which case the tax is recognised directly in shareholders' equity through the
consolidated statement of recognised income and expense.

Current tax expense is the expected tax payable on the taxable income for the
reporting period, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to the tax payable in respect of prior
years.

Deferred tax is provided in full on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the
consolidated financial information. Deferred tax arising from initial
recognition of an asset or liability, other than a business combination, that
affects neither accounting or taxable profit nor loss, is not recognised.
Deferred tax is calculated using tax rates that are expected to apply when the
related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.


                                                                      Appendix 2

Consolidated income statement

                                                          Unaudited    Audited
                                                           6 months       year
                                                              ended      ended
                                                           30.06.04   31.12.04
                                                              £'000      £'000

Revenue                                                      33,464     86,526
Cost of sales                                               (27,875)   (69,988)
                                                            _______    _______
Gross profit                                                  5,589     16,538
Administrative expenses                                      (4,918)   (10,996)
                                                            _______    _______
Operating profit before financing costs                         671      5,542
                                                            _______    _______

Financial income - interest receivable                            -          4
Expected return on defined benefit pension plan assets          535      1,070
Financial expenses - on bank borrowings and finance            (491)    (1,366)
leases
Interest on defined benefit pension scheme liabilities         (663)    (1,325)
                                                            _______    _______
Net financing costs                                            (619)    (1,617)

Share of profit of associates                                    31        121
                                                            _______    _______
Profit before tax                                                83      4,046

Income tax credit/ (expense)                                      9     (1,152)
                                                            _______    _______
Profit for the period attributable to equity holders of
the parent                                                       92      2,894
                                                            _______    _______
                                                            =========  =========

Basic earnings per share                                        0.3p       9.1p

Diluted earnings per share                                      0.3p       8.7p



Consolidated statement of recognised income and expense



                                                          Unaudited    Audited
                                                           6 months       year
                                                              ended      ended
                                                           30.06.04   31.12.04
                                                              £'000      £'000

Exchange differences on translation of overseas associate       (11)       (42)
Actuarial losses on defined benefit pension plan               (372)      (975)
Tax on items taken directly to equity                           112        292
                                                            _______    _______
Net expense recognised directly in equity                      (271)      (725)

Profit for the period                                            92      2,894
                                                            _______    _______
Total recognised income and expense for the period             (179)     2,169
                                                            _______    _______
                                                            =========  =========





Consolidated statement of changes in equity



                                                          Unaudited    Audited
                                                           6 months       year
                                                              ended      ended
                                                           30.06.04   31.12.04
                                                              £'000      £'000

Shareholders' funds at beginning of period                    5,524      5,524
                                                            _______    _______
Total recognised income and expense for the period             (179)     2,169
Ordinary dividends                                             (653)      (928)
Issue of ordinary shares                                        751      3,406
Movements relating to share-based payments and ESOP trust        51        107
                                                            _______    _______
Shareholders' funds at end of period                          5,494     10,278
                                                            _______    _______
                                                            =========  =========


Consolidated balance sheet



                                              Audited    Unaudited     Audited
                                                as at        as at       as at
                                             01.01.04     30.06.04    31.12.04
                                                £'000        £'000       £'000

Assets
Non-current assets
Property, plant and equipment                  12,474       12,673      13,687
Intangible assets                               4,137        8,937      14,467
Investments in associates                         533          554         612
Deferred tax assets                             2,392        2,520       2,583
                                              _______      _______     _______
Total non-current assets                       19,536       24,684      31,349
                                              _______      _______     _______
Current assets
Inventories                                     7,112       11,609       9,629
Trade and other receivables                    15,281       15,643      16,777
Cash and cash equivalents                       1,348            -         627
                                              _______      _______     _______
Total current assets                           23,741       27,252      27,033
                                              _______      _______     _______
Total assets                                   43,277       51,936      58,382
                                              _______      _______     _______
Liabilities
Current liabilities
Bank overdraft                                      -       (5,372)          -
Other interest-bearing loans and borrowings    (1,349)      (1,320)     (1,322)
Derivative financial instruments                    -            -           -
Income tax payable                               (510)      (1,001)       (954)
Trade and other payables                      (16,796)     (16,719)    (21,112)
                                              _______      _______     _______
Total current liabilities                     (18,655)     (24,412)    (23,388)
                                              _______      _______     _______
Non-current liabilities
Interest-bearing loans and borrowings         (10,505)     (12,545)    (13,842)
Retirement benefit obligations                 (7,973)      (8,400)     (8,610)
Other payables                                      -         (472)     (1,426)
Deferred tax liabilities                         (620)        (613)       (838)
                                              _______      _______     _______
Total non-current liabilities                 (19,098)     (22,030)    (24,716)
                                              _______      _______     _______
Total liabilities                             (37,753)     (46,442)    (48,104)
                                              _______      _______     _______
Net assets                                      5,524        5,494      10,278
                                              _______      _______     _______
                                              =========    =========   =========
Equity
Issued share capital                            3,107        3,186       3,430
Share premium                                     307          979       1,808
Other reserves                                  1,596        1,585       3,136
Revenue reserves                                  514         (256)      1,904
                                              _______      _______     _______
Total equity attributable to equity holders
of the parent                                   5,524        5,494      10,278
                                              _______      _______     _______
                                              =========    =========   =========


Consolidated statement of cash flows

                                                          Unaudited    Audited
                                                           6 months       year
                                                              ended      ended
                                                           30.06.04   31.12.04
                                                              £'000      £'000

Cash flows from operating activities
Profit before tax                                                83      4,046
Adjustments for:
Depreciation                                                    849      1,772
Amortisation of intangible assets                                83        452
Gain on sale of property, plant and equipment                   (17)       (30)
Net financing costs                                             619      1,617
Share of profit of associates                                   (31)      (121)

Decrease in trade and other receivables                         514        224
Increase in inventories                                      (3,720)    (1,411)
(Decrease)/ increase in trade and other payables             (3,220)       731
Movement relative to defined benefit pension scheme             (73)      (593)
                                                            _______    _______
Cash (absorbed by)/ generated from operations                (4,913)     6,687
                                                            _______    _______
Interest paid                                                  (475)    (1,205)
Income taxes paid                                                 -     (1,244)
                                                            _______    _______
Net cash from operating activities                           (5,388)     4,238
                                                            _______    _______
Cash flows from investing activities
Proceeds from sale of property, plant and equipment               6         84
Acquisition of property, plant and equipment                 (1,010)    (2,856)
Acquisition of intangible assets                                (32)       (51)
Acquisition of subsidiaries, net of cash balances            (2,470)    (6,256)
acquired
                                                            _______    _______
Net cash from investing activities                           (3,506)    (9,079)
                                                            _______    _______
Cash flows from financing activities
Proceeds from the issue of share capital                          -      1,656
Increase in bank loans                                        2,847      4,650
Purchase of own shares and proceeds from exercise of
share                                                            12         95
options
Repayment of bank borrowings                                   (624)    (1,250)
Repayment of finance lease liabilities                          (61)      (103)
Dividends paid                                                    -       (928)
                                                            _______    _______
Net cash from financing activities                            2,174      4,120
                                                            _______    _______
Net decrease in cash and cash equivalents                    (6,720)      (721)
Cash and cash equivalents at 1 January                        1,348      1,348
                                                            _______    _______
Cash and cash equivalents at end of period                   (5,372)       627
                                                            _______    _______
                                                            =========  =========





                                                                      Appendix 3





Explanation of transition to IFRS


Reconciliation of profit for the year ended 31 December 2004


                UKGAAP   Pension    Revalued       Revenue     Share-       Business    Other IFRS      IFRS
               in IFRS     costs    property   recognition      based   combinations   adjustments
               formats             plant and                 payments
                                   equipment
                 £'000     £'000       £'000         £'000      £'000          £'000         £'000     £'000

Revenue         87,646         -           -        (1,120)         -              -             -    86,526
Cost of        (70,989)       63           -           860          -             78             -   (69,988)
sales           ------                                                                                 -----
Gross profit    16,657                                                                                16,538
                ------                                                                                 -----

Administrative
expenses       (11,016)       30           -             -        (13)             -             3   (10,996)
                ------                                                                                 -----
Operating
profit before
financing
costs            5,641                                                                                 5,542
                ------                                                                                 -----

Financial
income -
interest
receivable           4         -           -             -          -              -             -         4
Expected
return on
defined
benefit
pension plan
assets               -     1,070           -             -          -              -             -     1,070
Financial
expenses - on
bank
borrowings and
finance leases  (1,263)        -           -             -          -           (120)           17    (1,366)
Interest on
defined
benefit
pension scheme
liabilities          -    (1,325)          -             -          -              -             -    (1,325)
                ------                                                                                 -----
Net financing
costs           (1,259)                                                                               (1,617)
                ------                                                                                 -----

Share of
profit of
associates         104         -           -             -          -              -            17       121
                ------                                                                                 -----
Profit before
tax              4,486                                                                                 4,046
                ------                                                                                 -----

Income tax
expense         (1,569)       65          80            86        132             54             -    (1,152)
                ------                                                                                 -----
Profit for the
period
attributable
to equity
holders of the
parent           2,917                                                                                 2,894
                ------                                                                                 -----

Explanation of transition to IFRS (contd.)

Reconciliation of equity as at 31 December 2004

                UKGAAP Reclassification Proposed   Pension    Revalued       Revenue     Share-       Business
               in IFRS       of UKGAAP   dividend     costs    property   recognition      based   combinations
               formats        reserves                        plant and                 payments
                                                              equipment
Assets           £'000           £'000      £'000     £'000       £'000         £'000      £'000          £'000

Non-current
assets
Property,
plant and
equipment       13,888               -          -         -           -             -          -              -
Intangible
assets          14,196               -          -         -           -             -          -             70
Investments in
associates         575               -          -         -           -             -          -              -
Deferred tax
assets               -               -          -     2,583           -             -          -              -
                ------
Total
non-current
assets          28,659
                ------

Current
assets
Inventories      7,730               -          -         -           -         1,337          -              -
Trade and
other
receivables     20,861               -          -    (1,640)          -        (2,444)         -              -
Cash and cash
equivalents        627               -          -         -           -             -          -              -
                ------
Total current
assets          29,218
                ------
                ------
Total assets    57,877
                ------

Liabilities
Current
liabilities
Other
interest-beari
ng loans and
borrowings      (1,322)              -          -         -           -             -          -              -
Income tax
payable           (954)              -          -         -           -             -          -              -
Trade and
other payables (21,772)              -        823         -           -           364        (92)           127
                 ------
Total current
liabilities    (24,048)
                ------

Non-current
liabilities
Interest-beari
ng loans and
borrowings     (13,942)              -          -         -           -             -          -            100
Retirement
benefit
obligations          -               -          -    (8,610)          -             -          -              -
Other payables  (1,450)              -          -         -           -             -          -             24
Deferred tax
liabilities     (1,164)              -          -       492        (140)          243         40           (309)
                ------
Total
non-current
liabilities    (16,556)
                ------
                ------
Total
liabilities    (40,604)
                ------
                ------
Net assets      17,273
                ------

Equity
Issued share
capital          3,430               -          -         -           -             -          -              -
Share            2,410            (602)         -         -           -             -          -              -
premium
Other reserves   2,900             278          -         -           -             -          -              -
Revenue
reserves         8,533             324        823    (7,175)       (140)         (500)       (52)            12
                ------
Total equity
attributable
to equity
holders of the
parent          17,273
                ------

Explanation of transition to IFRS (contd.)

Reconciliation of equity as at 31 December 2004

                                                          Other IFRS      IFRS
                                                         adjustments
Assets                                                         £'000     £'000

Non-current assets
Property, plant and equipment                                   (201)   13,687
Intangible assets                                                201    14,467
Investments in associates                                         37       612
Deferred tax assets                                                -     2,583
                                                                         -------
Total non-current assets                                                31,349
                                                                         -------

Current assets
Inventories                                                      562     9,629
Trade and other receivables                                        -    16,777
Cash and cash equivalents                                          -       627
                                                                         -------
Total current assets                                                    27,033
                                                                         -------
                                                                         -------
Total assets                                                            58,382
                                                                         -------

Liabilities
Current liabilities
Other interest-bearing loans and borrowings                        -    (1,322)
Income tax payable                                                 -      (954)
Trade and other payables                                        (562)  (21,112)
                                                                         -------
Total current liabilities                                              (23,388)
                                                                         -------

Non-current liabilities
Interest-bearing loans and borrowings                              -   (13,842)
Retirement benefit obligations                                     -    (8,610)
Other payables                                                     -    (1,426)
Deferred tax liabilities                                           -      (838)
                                                                         -------
Total non-current liabilities                                          (24,716)
                                                                         -------
                                                                         -------
Total liabilities                                                      (48,104)
                                                                         -------
                                                                         -------
Net assets                                                              10,278
                                                                         -------

Equity
Issued share capital                                               -     3,430
Share premium                                                      -     1,808
Other reserves                                                   (42)    3,136
Revenue reserves                                                  79     1,904
                                                                         -------
Total equity attributable to equity holders of the                      10,278
parent                                                                   -------



Explanation of transition to IFRS (contd.)

Reconciliation of profit for the year ended 30 June 2004

                UKGAAP   Pension         Revenue   Share-       Business    Other IFRS      IFRS
                                    recognition
               in IFRS     costs                    based   combinations   adjustments
               formats                           payments
                 £'000     £'000         £'000      £'000          £'000         £'000     £'000

Revenue         34,924         -        (1,460)         -              -             -    33,464
Cost of        (29,027)       52           974          -            126             -   (27,875)
sales             ------                                                                    ------
Gross profit     5,897                                                                     5,589
                  ------                                                                    ------

Administrative
expenses        (4,895)       21             -        (46)             -             2    (4,918)
                  ------                                                                    ------
Operating
profit before
financing
costs            1,002                                                                       671
                  ------                                                                    ------

Expected
return on
defined
benefit
pension plan
assets               -       535             -          -              -             -       535
Financial
expenses - on
bank
borrowings and
finance leases    (500)        -             -          -              -             9      (491)
Interest on
defined
benefit
pension scheme
liabilities          -      (663)            -          -              -             -      (663)
                  ------                                                                    ------
Net financing
costs             (500)                                                                     (619)
                  ------                                                                    ------

Share of
profit of
associates          22         -             -          -              -             9        31
                  ------                                                                    ------
Profit before
tax                524                                                                        83
                  ------                                                                    ------

Income tax
(expense)/
credit            (168)       16           134         27              -             -         9
                  ------                                                                    ------
Profit for the
period
attributable
to equity
holders of the
parent             356                                                                        92
                  ------                                                                    ------


Explanation of transition to IFRS (contd.)

Reconciliation of equity as at 30 June 2004


                UKGAAP Reclassification  Proposed   Pension    Revalued        Revenue
                                                                           recognition
               in IFRS       of UKGAAP   dividend     costs    property
               formats        reserves                        plant and
                                                              equipment
Assets           £'000           £'000      £'000     £'000       £'000         £'000
Non-current
assets
Property,
plant and
equipment       12,934               -          -         -           -             -
Intangible
assets           8,657               -          -         -           -             -
Investments in
associates         534               -          -         -           -             -
Deferred tax
assets               -               -          -     2,520           -             -
                --------
Total
non-current
assets          22,125
                --------

Current
assets
Inventories      9,270               -          -         -           -         1,631
Trade and
other
receivables     19,838               -          -    (1,140)          -        (3,055)
Cash and cash        -               -          -         -           -             -
equivalents     --------
Total current
assets          29,108
                --------
                --------
Total assets    51,233
                --------

Liabilities
Current
liabilities
Bank overdraft  (5,372)              -          -         -           -             -
Other
interest-beari
ng loans and
borrowings      (1,320)              -          -         -           -             -
Income tax
payable         (1,001)              -          -         -           -             -
Trade and
other payables (16,846)              -        255         -           -           455
                --------
Total current
liabilities    (24,539)
                --------

Non-current
liabilities
Interest-beari
ng loans and
borrowings     (12,599)              -          -         -           -             -
Retirement
benefit
obligations          -               -          -    (8,400)          -             -
Other payables    (500)              -          -         -           -             -
Deferred tax
liabilities       (791)              -          -       326        (220)          291
                --------
Total
non-current
liabilities    (13,890)
                --------
                --------
Total
liabilities    (38,429)
                --------
                --------
Net assets      12,804
                --------

Equity
Issued share
capital          3,186               -          -         -           -             -
Share            1,581            (602)         -         -           -             -
premium
Other reserves   1,318             278          -         -           -             -
Revenue
reserves         6,719             324        255    (6,694)       (220)         (678)
                --------
Total equity
attributable
to equity
holders of the
parent          12,804
                --------

Explanation of transition to IFRS (contd.)

Reconciliation of equity as at 30 June 2004

                                 Share-       Business    Other IFRS      IFRS
                                  based   combinations   adjustments
                               payments
Assets                            £'000          £'000         £'000     £'000
Non-current assets
Property, plant and equipment         -              -          (261)   12,673
Intangible assets                     -             19           261     8,937
Investments in associates             -              -            20       554
Deferred tax assets                   -              -             -     2,520
                                                                         -------
Total non-current assets                                                24,684
                                                                         -------

Current assets
Inventories                           -             97           611    11,609
Trade and other receivables           -              -             -    15,643
Cash and cash equivalents             -              -             -         -
                                                                         -------
Total current assets                                                    27,252
                                                                         -------
                                                                         -------
Total assets                                                            51,936
                                                                         -------

Liabilities
Current liabilities
Bank overdraft                        -              -             -    (5,372)
Other interest-bearing loans
and                                   -              -             -    (1,320)
borrowings
Income tax payable                    -              -             -    (1,001)
Trade and other payables            (54)            82          (611)  (16,719)
                                                                         -------
Total current liabilities                                              (24,412)
                                                                         -------

Non-current liabilities
Interest-bearing loans and            -             54             -   (12,545)
borrowings
Retirement benefit obligations        -              -             -    (8,400)
Other payables                        -             28             -      (472)
Deferred tax liabilities            (65)          (154)            -      (613)
                                                                         -------
Total non-current liabilities                                          (22,030)
                                                                         -------
                                                                         -------
Total liabilities                                                      (46,442)
                                                                         -------
                                                                         -------
Net assets                                                               5,494
                                                                         -------

Equity
Issued share capital                  -              -             -     3,186
Share premium                         -              -             -       979
Other reserves                        -              -           (11)    1,585
Revenue reserves                   (119)           126            31      (256)
                                                                         -------
Total equity attributable to
equity                                                                   5,494
holders of the parent                                                    -------


Explanation of transition to IFRS


Reconciliation of equity as at 1 January 2004


                UKGAAP Reclassification Proposed   Pension      Revalued       Revenue
                                                               property
               in IFRS       of UKGAAP   dividend     costs     plant and  recognition
                                                              equipment
               formats        reserves
Assets           £'000           £'000      £'000     £'000       £'000         £'000
Non-current
assets
Property,
plant and
equipment       12,786               -          -         -           -             -
Intangible
assets           3,825               -          -         -           -             -
Investments in
associates         533               -          -         -           -             -
Deferred tax
assets               -               -          -     2,392           -             -
                 -------
Total
non-current
assets          17,144
                 -------

Current
assets
Inventories      5,616               -          -         -           -           819
Trade and
other
receivables     17,951               -          -    (1,140)          -        (1,530)
Cash and cash
equivalents      1,348               -          -         -           -             -
                 -------
Total current
assets          24,915
                 -------
                 -------
Total assets    42,059
                 -------

Liabilities
Current
liabilities
Other
interest-beari
ng loans and
borrowings      (1,349)              -          -         -           -             -
Income tax
payable           (510)              -          -         -           -             -
Trade and
other payables (16,909)              -        653         -           -           228
                 -------
Total current
liabilities    (18,768)
                 -------

Non-current
liabilities
Interest-beari
ng loans and
borrowings     (10,505)              -          -         -           -             -
Retirement
benefit
obligations          -               -          -    (7,973)          -             -
Deferred tax
liabilities       (791)              -          -       326        (220)          157
                 -------
Total
non-current
liabilities    (11,296)
                 -------
                 -------
Total
liabilities    (30,064)
                 -------
                 -------
Net assets      11,995
                 -------

Equity
Issued share
capital          3,107               -          -         -           -             -
Share              909            (602)         -         -           -             -
premium
Other reserves   1,318             278          -         -           -             -
Revenue
reserves         6,661             324        653    (6,395)       (220)         (326)
                 -------
Total equity
attributable
to equity
holders of the
parent          11,995
                 -------



Explanation of transition to IFRS

Reconciliation of equity as at 1 January 2004

                                                Share-    Other IFRS      IFRS
                                                 based   adjustments
                                              payments
Assets                                           £'000         £'000     £'000
Non-current assets
Property, plant and equipment                        -          (312)   12,474
Intangible assets                                    -           312     4,137
Investments in associates                            -             -       533
Deferred tax assets                                  -             -     2,392
                                                                         -------
Total non-current assets                                                19,536
                                                                         -------

Current assets
Inventories                                          -           677     7,112
Trade and other receivables                          -             -    15,281
Cash and cash equivalents                            -             -     1,348
                                                                         -------
Total current assets                                                    23,741
                                                                         -------
                                                                         -------
Total assets                                                            43,277
                                                                         -------

Liabilities
Current liabilities
Other interest-bearing loans and borrowings          -             -    (1,349)
Income tax payable                                   -             -      (510)
Trade and other payables                           (91)         (677)  (16,796)
                                                                         -------
Total current liabilities                                              (18,655)
                                                                         -------

Non-current liabilities
Interest-bearing loans and borrowings                -             -   (10,505)
Retirement benefit obligations                       -             -    (7,973)
Deferred tax liabilities                           (92)            -      (620)
                                                                         -------
Total non-current liabilities                                          (19,098)
                                                                         -------
                                                                         -------
Total liabilities                                                      (37,753)
                                                                         -------
                                                                         -------
Net assets                                                               5,524
                                                                         -------

Equity
Issued share capital                                 -             -     3,107
Share premium                                        -             -       307
Other reserves                                       -             -     1,596
Revenue reserves                                  (183)            -       514
                                                                         -------
Total equity attributable to equity holders
of the parent                                                            5,524
                                                                         -------



Explanation of transition to IFRS (contd.)


Notes to the reconciliation of equity and profit


Reclassification of reserves

An amount of £324,000, representing the net realised gain from the disposal of
the Group's revalued properties and the cumulative difference between
depreciation calculated on a historical cost basis and depreciation calculated
on the revalued amount has been transferred from the Revaluation reserve to
Revenue reserves as at 1 January 2004. In addition, the premium arising on the
shares issued in respect of the acquisition of ESA McIntosh in 2001 qualified
for merger relief under Section 131 of the Companies Act 1985, and as such, an
amount of £602,000 originally credited to the share premium account has been
transferred to the Merger reserve. This adjustment, which is solely a balance
sheet reclassification, does not affect earnings.

Dividends

Under UKGAAP, dividends relating to the current period but approved after the
balance sheet date are recognised as a liability at the balance sheet date.
Under IAS 10 Events After the Balance Sheet Date, equity dividends are
recognised only when approved. Havelock Europa PLC declared its 2003 final
dividend and its 2004 interim and final dividends after the relevant balance
sheet dates, and as such these dividends have been reversed.

The effect of reversing the dividend accruals is to decrease Trade and other
payables and increase Revenue reserves by £823,000 at 31 December 2004 (June
2004: £255,000; January 2004: £653,000).

Pension costs

Under UKGAAP, pensions were accounted for under SSAP 24 Accounting for Pension
Costs. This required the spreading of the cost of providing pension benefits
over the estimated average service life of employees. Contributions above the
regular cost were recognised as a prepayment, with an associated deferred tax
liability.

IAS 19 Employee Benefits requires the Group's defined benefit pension scheme
deficits to be carried on balance sheet at each reporting date. In accordance
with amendments to IAS 19, actuarial gains and losses are included in the
consolidated statement of recognised income and expense. At transition date, as
permitted by IFRS 1 First-time Adoption of International Financial Reporting
Standards, the net deficit arising on the Havelock Europa PLC defined benefit
scheme is recognised as a liability on the consolidated balance sheet at 1
January 2004. The related deferred tax asset is carried in the balance sheet as
it is anticipated that there will be sufficient profit in future years to allow
recoverability. The prepayment under UKGAAP has been reversed. The impact of
adopting IAS 19 on the consolidated income statement is to replace the SSAP 24
regular cost with an actuarially determined current service cost, interest cost
and expected return on pension plan assets.

The impact on the consolidated balance sheet at 31 December 2004 is to increase
Deferred tax assets by £2,583,000 (June 2004: £2,520,000; January 2004:
£2,392,000); decrease Trade and other receivables by £1,640,000 (June and
January 2004: £1,140,000); increase Retirement benefit obligations by £8,610,000
(June 2004: £8,400,000; January 2004: £7,973,000); reduce Deferred tax
liabilities by £492,000 (June and January 2004: £326,000) and reduce Revenue
reserves by £7,175,000 (June 2004: £6,694,000; January 2004: £6,395,000).

The impact on the consolidated income statement from the increased pension
charge for the year ended 31 December 2004 is to reduce Cost of sales by £63,000
(half year: £52,000); reduce Administrative expenses by £30,000 (half year:
£21,000); increase Expected return on defined pension benefit plan assets by
£1,070,000 (half year: £535,000); increase Interest on defined benefit pension
scheme liabilities by £1,325,000 (half year: £663,000) and reduce Income tax
expense by £65,000 (half year: £16,000).


Revalued property, plant and equipment

Under UKGAAP, deferred tax is provided when items of income and expenditure are
recognised in the financial statements and for tax purposes in different
periods. IAS 12 Income Taxes requires deferred tax to be provided on the
difference between the carrying amount and the tax base of assets and
liabilities that give rise to taxable temporary differences and this has given
rise to an adjustment to deferred tax on revalued property, plant and equipment.

The effect of recognising the deferred tax liability is to increase Deferred tax
liabilities and reduce Revenue reserves by £140,000 at 31 December 2004 (June
and January 2004: £220,000).

The impact on the consolidated income statement for the year ended 31 December
2004 is a reduction in Income tax expense of £80,000 (half year: £nil).



Revenue recognition

(i) Goods shipped subject to installation

Under UKGAAP, revenue was recognised on certain items where goods had been
manufactured and the customer had accepted title, but where installation had not
been completed until shortly after the reporting date. Revenue from installation
was recognised in the period in which it was completed. Given the more
prescriptive guidance that IFRS offers in this regard, the directors consider it
more appropriate that under IFRS, revenue on goods shipped subject to
installation, and where installation is a significant part of the contract, is
recognised when installation is complete. The revenue and associated costs of
goods supplied in the reporting period, and which were installed in the
following period, have been reversed and their recognition deferred until the
following reporting period.

(ii) Retrospective volume rebates

Under UKGAAP, retrospective volume rebates were recognised as a charge against
cost of sales. IAS 18 Revenue requires that revenue be recognised net of volume
rebates. Volume rebates have been removed from Cost of sales and recognised as a
reduction in Revenue.

The effect on the consolidated balance sheet at 31 December 2004 is to increase
Inventories by £1,337,000 (June 2004: £1,631,000; January 2004: £819,000);
reduce Trade and other receivables by £2,444,000 (June 2004: £3,055,000; January
2004: £1,530,000); reduce Trade and other payables by £364,000 (June 2004:
£455,000; January 2004: £228,000); reduce Deferred tax liabilities by £243,000
(June 2004: £291,000; January 2004: £157,000), and reduce Revenue reserves by
£500,000 (June 2004: £678,000; January 2004: £326,000).

The net impact of these timing adjustments and volume rebates on the
consolidated income statement for the year ended 31 December 2004 is to reduce
Revenue by £1,120,000 (half year: £1,460,000) and Cost of sales by £860,000
(half year: £974,000) and reduce Income tax expense by £86,000 (half year:
£134,000).

Share-based payments

Under UKGAAP, the cost of awards under the Group's employee share schemes was
based on the intrinsic value of the awards, with the exception of SAYE schemes
for which no cost was recognised. Under IFRS 2 Share-based Payment, an expense
is recognised based on the fair value of the share incentives at the date of
grant and is spread over the vesting period of the scheme. The Group applied
IFRS 2 to its active share-based payment arrangements at 1 January 2004 except
for equity-settled share-based payment arrangements granted before 7 November
2002 and vested prior to 1 January 2004 as permitted by IFRS 1 First-time
Adoption of International Financial Reporting Standards. The IFRS 2 expense is
deductible for tax purposes when the shares are awarded or share options
exercised. In accordance with IAS 12 Income Taxes, a deferred tax asset has been
calculated on the temporary difference between the share price at the balance
sheet date and the exercise prices of the share incentives. As the estimated
future tax deduction in respect of share-based payments is less than the expense
charged in the income statement, the deferred tax credit has been recognised in
the consolidated income statement.

The effect on the consolidated balance sheet at 31 December 2004 is to increase
Trade and other payables by £92,000 (June 2004: £54,000; January 2004: £91,000);
reduce Deferred tax liabilities by £40,000 (June 2004: increase £65,000; January
2004: increase £92,000); and reduce Revenue reserves by £52,000 (June 2004:
£119,000; January 2004: £183,000).

The impact on the consolidated income statement for the year ended 31 December
2004 is to increase Administrative expenses by £13,000 (half year: £46,000) and
reduce Income tax expense by £132,000 (half year: £27,000).

Business combinations

Under UKGAAP, business combinations were accounted for by comparing the purchase
consideration and the fair value of net assets acquired, and recognising the
residual balance as goodwill in the consolidated balance sheet. Goodwill was
amortised over its useful economic life. Under IFRS 3 Business Combinations, the
Group recognises its share of the acquiree's identifiable assets, liabilities
and contingent liabilities at their fair values at the date of the business
combination. Goodwill is no longer amortised, but is tested annually for
impairment.

IFRS 1 First-time Adoption of International Financial Reporting Standards allows
companies to elect not to apply IFRS 3 Business Combinations retrospectively to
business combinations that occurred before the date of transition to IFRS. The
Group has elected to take advantage of this exemption and has applied IFRS 3
only to business combinations that have occurred since 1 January 2004.
Accordingly, the Group has revised the measurement of the cost of business
combinations to fair value at the date of the business combination. It has also
recognised separately identifiable intangible assets for brands, customer
relationships, contracted customer relationships, order backlog, non-compete
clauses and design rights and revised the measurement of stocks of finished
goods and work in progress to fair value at the date of the business
combination.

The effect on the consolidated balance sheet at 31 December 2004 is to increase
Intangible assets by £70,000 (June 2004: £19,000); increase Inventories by £nil
(June 2004: £97,000); reduce Trade and other payables by £127,000 (June 2004:
£82,000); Interest-bearing loans and borrowings are reduced by £100,000 (June
2004: £54,000); Other payables are reduced by £24,000 (June 2004: £28,000);
Deferred tax liabilities are increased by £309,000 (June 2004: £154,000) and
Revenue reserves increased by £12,000 (June 2004: £126,000).

The impact on the consolidated income statement for the year ended 31 December
2004 is to reduce Cost of sales by £78,000 (half year: £126,000); increase
Financial expenses - on bank borrowings and finance leases by £120,000 (half
year: £nil) and reduce Income tax expense by £54,000 (half year: £nil).

Other IFRS adjustments


Software costs

Under UKGAAP, software is classified as Property, plant and equipment. Under IAS
38 Intangible Assets, software that is not integral to a related item of
hardware is classified as an Intangible asset.

The effect of this reclassification at 31 December 2004 is to reduce Property,
plant and equipment and increase Intangible assets by £201,000 (June 2004:
£261,000; January 2004: £312,000). Reclassification has not resulted in a
revision to useful economic lives and has not affected the Group's results.

Payments to account

Under UKGAAP, payments to account were shown as a deduction from work in
progress within inventories. Under IFRS, payments to account are classified
within current trade and other payables.

The effect on the consolidated balance sheet at 31 December 2004 is to increase
Inventories and Trade and other payables by £562,000 (June 2004: £611,000;
January 2004: £677,000).

Cumulative translation differences

Under UKGAAP, cumulative translation differences arising from translation of
foreign operations were recognised directly in equity shareholders' funds in the
Group's profit and loss account reserve. IAS 21 The Effects of Changes in
Foreign Exchange Rates requires cumulative translation differences to be
classified separately in equity, with a reconciliation of the opening and
closing cumulative translation differences. These exchange differences are
recycled as a gain or loss on disposal when the foreign operation is sold.

IFRS 1 First-time Adoption of International Financial Reporting Standards
permits an exemption from IAS 21 such that at 1 January 2004 cumulative
translation differences are deemed to be zero and are not recycled on disposal
of the foreign operation. The Group has taken advantage of this exemption.

Under IFRS, retranslation differences for the year ended 31 December 2004 of
£42,000 (half year: £11,000) have been transferred from Revenue reserves to
Other reserves.

Associate

(i) Goodwill

Under UKGAAP, goodwill is amortised over its expected useful life, and is tested
for impairment in specific circumstances. IAS 28 Associates requires that
goodwill is not amortised but is reviewed annually for impairment. The Group's
goodwill amortisation charge has been reversed. Goodwill arising in the
associate's underlying financial statements has been similarly treated, which
has increased the Group's share of the associate's profits.

(ii) Financial expenses

Under UKGAAP, the Group recognises a share of the associate's operating results
and a share of any non-operating exceptional items, interest and tax under each
of these headings. Under IAS 31 Associates, the Group's share of its associate's
interest charge is included in Share of profit of associates on the face of the
consolidated income statement. The Group's share of the associate's interest
charge has been reclassified.

The combined effect of these adjustments on the consolidated balance sheet at 31
December 2004 is to increase Revenue reserves and Investments in associates by
£37,000 (June 2004: £20,000). The impact on the consolidated income statement
for the year ended 31 December 2004 is to reduce Administrative expenses (by
reclassification) by £3,000 (half year: £2,000) and reduce Financial expense -
on bank borrowings and finance leases and increase Share of profit of associates
by £17,000 (half year: £9,000).


Explanation of material adjustments to cash flow statement

There are no material differences between the cash flow statement presented
under IFRS and the cash flow statement presented under UKGAAP for the 6 months
ended 30 June 2004 or for the year ended 31 December 2004.

                                                                      Appendix 4



Explanation of transition to IFRS

Reconciliation of equity as at 1 January 2005

Financial instruments

As permitted by IFRS 1 First-time Adoption of International Financial Reporting
Standards, the Group has elected to adopt IAS 32 Financial Instruments:
Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and
Measurement on a prospective basis from 1 January 2005. The accounting treatment
under UKGAAP has been retained for comparative purposes. There is therefore no
impact on the results and financial position for the six months ended 30 June
2004 or for the year ended 31 December 2004.

The principal areas of future impact are in respect of interest rate swaps, and
hedge accounting. Under UKGAAP, only accrued interest under interest rate swaps
is recognised on the balance sheet. Under IAS 39, the fair value of interest
rate swaps is recognised. Interest rate swaps will be revalued at each reporting
date. Changes in fair value will depend on market factors that by their nature
cannot be forecast.

Treatment of the effective portion of the resulting gain or loss depends on
whether the interest rate swap qualifies for hedge accounting as a cash flow
hedge. Gains and losses on interest rate swaps that qualify as effective hedges
are recognised in the consolidated statement of recognised income and expense,
with any ineffective portion recognised in the consolidated income statement,
which may result in earnings volatility.

Interest rate swaps

Under UKGAAP, only accrued interest under interest rate swaps was recognised on
the balance sheet. Under IAS 39, the fair value of interest rate swaps is
recognised. The effect is to increase Derivative financial instruments by
£165,000 and reduce Revenue reserves by the same amount at 1 January 2005.

Interest bearing loans and borrowings

Under UKGAAP, interest accrued on borrowings was included in Trade and other
payables. Under IAS 39, interest accrued on borrowings is included within Other
interest-bearing loans and borrowings. The effect is to reduce Trade and other
payables by £76,000 and increase Other interest-bearing loans and borrowings by
£76,000 at 1 January 2005.

                                                                      Appendix 5

Special Purpose Audit Report of KPMG Audit Plc to Havelock Europa PLC ('the
Company') on its Preliminary International Financial Reporting Standards
('IFRS') Financial Statements for the year ended 31 December 2004 and on its
preliminary opening IFRS balance sheet as at 1 January 2004

In accordance with the terms of our engagement letter dated 15 December 2004, we
have audited the consolidated preliminary IFRS balance sheet of Havelock Europa
PLC ('the Company') as at 31 December 2004, and the related consolidated
statements of income, changes in equity and cash flows for the year then ended,
the related accounting policy notes and the opening IFRS balance sheet as at 1
January 2004 ('the preliminary IFRS financial statements') which are included on
pages 2 to 10.

Respective responsibilities of directors and KPMG Audit Plc

The directors of the Company have accepted responsibility for the preparation of
the preliminary IFRS financial statements which have been prepared as part of
the Company's conversion to IFRS.  Our responsibilities, as independent
auditors, are established in the United Kingdom by the Auditing Practices Board,
our profession's ethical guidance and the terms of our engagement. Under the
terms of engagement we are required to report to you our opinion as to whether
the preliminary IFRS financial statements have been properly prepared, in all
material respects, in accordance with the accounting policies note to the
preliminary IFRS financial statements.  We also report to you if, in our
opinion, we have not received all the information and explanations we require
for our audit.

We read the other information accompanying the preliminary IFRS financial
statements and consider whether it is consistent with the preliminary IFRS
financial statements. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the
preliminary IFRS financial statement.

Our report has been prepared for the Company solely in connection with the
Company's conversion to IFRS.  Our report was designed to meet the agreed
requirements of the Company determined by the Company's needs at the time.  Our
report should not therefore be regarded as suitable to be used or relied on by
any party wishing to acquire rights against us other than the Company for any
purpose or in any context.  Any party other than the Company who chooses to rely
on our report (or any part of it) will do so at its own risk.  To the fullest
extent permitted by law, KPMG Audit Plc will accept no responsibility or
liability in respect of our report to any other party.

Basis of audit opinion

We conducted our audit having regard to Auditing Standards issued by the UK
Auditing Practices Board.  An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the preliminary IFRS
financial statements.  It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
preliminary IFRS financial statements, and of whether the accounting policies
are appropriate to the Group's circumstances, consistently applied and
adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the preliminary IFRS
financial statements are free from material misstatement, whether caused by
fraud or other irregularity or error.  In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the preliminary IFRS
financial statements.
Emphasis of matters

Without qualifying our opinion, we draw your attention to the following matters:

• As described in the accounting policies included as part
of the preliminary IFRS financial statements, as part of its conversion to IFRS,
the Company has prepared the preliminary IFRS financial statements for the year
ended 31 December 2004 to establish the financial position, results of
operations and cash flows of the Company necessary to provide the comparative
financial information expected to be included in the Company's first complete
set of IFRS financial statements for the year ending 31 December 2005.  The
preliminary IFRS financial statements do not themselves include comparative
financial information for the prior period.

• As explained in the accounting policies note to the
preliminary IFRS financial statements, in accordance with IFRS 1 First-time
Adoption of International Financial Reporting Standards, no adjustments have
been made for any changes in estimates made at the time of approval of the UK
Generally Accepted Accounting Practices financial statements on which the
preliminary IFRS financial statements are based.

• As permitted by IFRS 1, IAS 32 Financial Instruments:
Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and
Measurement have not yet been applied and there has been no related restatement
of the 31 December 2004 balance sheet.  Any adjustments that arise from the
application of those standards will be shown as an equity movement on 1 January
2005.

Opinion

In our opinion, the preliminary IFRS financial statements for the year-ended 31
December 2004 have been prepared, in all material respects, in accordance with
the basis set out in the accounting policies included as part of the preliminary
IFRS financial statements, which describes how IFRS have been applied under IFRS
1, including the assumptions made by the directors of the Company about the
standards and interpretations expected to be effective, and the policies
expected to be adopted, when they prepare the first complete set of consolidated
IFRS financial statements of the Company for the year ending 31 December 2005.

KPMG Audit Plc
Chartered accountants
191 West George Street
Glasgow G2 2LJ
27 September 2005



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