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Havelock Europa PLC (HVE)

  Print      Mail a friend       Annual reports

Wednesday 19 September, 2007

Havelock Europa PLC

Interim Results

Havelock Europa PLC
19 September 2007

Wednesday 19 September 2007


                   HAVELOCK EUROPA PLC - INTERIM ANNOUNCEMENT

Havelock, the Educational and Retail Interiors and Point of Sale Display Group,
announces that it increased its pre-tax profit in the first half to 30 June,
historically much the quieter of the two halves, and continues to have good
prospects for the full year to 31 December 2007, 2008 and beyond.

Financial Highlights

  • Revenue increased by 23% to £51.6m, reflecting growth in all three
    Divisions; the like-for-like increase was 19%.
  • Pre-tax profit increased by 43% to £0.66m (reported) and by 43% to
    £0.93m (underlying +).
  • Diluted earnings per share increased by 30% to 1.2p (reported) and by
    32% to 1.9p (underlying +).
  • An interim dividend per share of 1.1p is declared, up 10%.

+ Underlying excludes the amortisation of intangibles (other than IT software).

Commercial Highlights

  • Revenue from Educational Interiors improved by 34% to £18.2m - a
    like-for-like 23% increase. The enlarged proportion represented by PFI
    contracts rather than the direct to schools market will generate a somewhat
    lower full year contribution than originally expected, but prospects for
    2008 are strong. Stage Systems, an educational furniture business acquired
    in February 2007 for £3.45m, is on track to have a good first year.
  • Revenue from Point of Sale Display increased by 3% to £11.9m. The
    savings generated by rationalisation at Bristol are likely to contribute
    towards an improved full year contribution.
  • Revenue from Retail Interiors increased by 27% to £21.5m. Full year
    revenue is likely to be substantially up on the prior year.

Malcolm Gourlay, Chairman, stated 'With strong performances in the Retail
Interiors and Point of Sale Display Divisions, the Board anticipates good
overall progress in the full year, with further advances to follow in 2008 and
2009, as the Educational Interiors Division realises its substantial potential.'

Enquiries:

Havelock Europa PLC                                              01383-820 044
Hew Balfour (Chief Executive)                                    07801-683 851
Grant Findlay (Finance Director)                                 07768-745 960

Bankside Consultants Limited
Charles Ponsonby                                                 020-7367 8851




                              Chairman's Statement

Continuing a five year trend of rising underlying pre-tax profits, Havelock
again increased its pre-tax profit in the first half, historically much the
quieter of the two halves, and continues to have good prospects for the full
year to 31 December 2007, 2008 and beyond.

FINANCIAL REVIEW

Group revenue for the six months ended 30 June 2007 increased by 23% to £ 51.6
million (2006 : £42.1 million), reflecting growth in all three Divisions: the
like-for-like increase was 19%. Operating profit at £1.2 million (2006 : £1.1
million) was up 14%. Profit before tax was £659,000 (2006 : £462,000), an
increase of 43%. Basic and diluted earnings per share were 1.2 p (2006 : 0.9p),
an improvement of 30%. Underlying pre-tax profit, after adding back the
amortisation of intangibles (other than IT software), increased by 43 % to
£927,000 (2006 : £646,000), whilst underlying diluted earnings per share were
1.9p (2006: 1.5p), up 32%.

Despite significantly higher activity levels, tight working capital controls,
particularly on stock and debtors, resulted in net debt declining at 30 June
2007 to £16.3 million (2006 : £21.4 million), a reduction of £5.1 million, of
which £1.7 million was attributable to a cash placing in February 2007.
Typically, net debt is higher at the half year end than at the year end.
Interest cover, excluding pension scheme interest, for the half year improved by
25% to 1.9x (2006 : 1.5x).

DIVIDEND

The Board is pleased to declare an interim dividend of 1.1p per share (2006 :
1.0p), an increase of 10%. This dividend will be paid on 27 December 2007 to
shareholders on the register on 9 November 2007.

ACQUISITION OF STAGE SYSTEMS LIMITED

In February 2007, £3.2 million was raised through a vendor placing. This issue
substantially funded the acquisition of Stage Systems, an educational furniture
business, for a consideration of £3.45 million. Stage Systems traded well in the
first five months of its ownership, generating revenue of £1.5 million.

TRADING REVIEW

Educational Interiors

Revenue in the educational furniture and supplies businesses was 34% ahead of
last year at £18.2 million (2006 : £13.6 million). Without Stage Systems, the
increase would still have been a substantial 23%. Most of the like-for-like
increase reflected a significant improvement in PFI revenues at ESA McIntosh,
which were up by 63% in comparison to the first half of 2006. The revenue from
the direct to schools sector (which in 2006 represented 52% of ESA McIntosh's
revenue) was 38% down on the first half of 2006. The variation in margin between
these two sectors means that the profit contribution from this segment is
presently a little behind that of last year.

Point of Sale Display

The Point of Sale Display Division increased its revenue by 3% to £11.9 million
(2006 : £11.6 million) as a result of high levels of activity in the Division's
customer base, with sizeable increases in revenue from Tesco and BHS. The final
stage of consolidation of the two print operations at Letchworth and Bristol has
been completed and significant new capacity has been added through the
installation and commissioning at Letchworth of a new KBA large format digital
litho printing press.

Retail Interiors

The Retail Interiors Division had a buoyant first half, helped by strong sales
to Marks & Spencer, Primark, Boots the Chemists and HBOS. Revenue in the
Division was up 27% at £21.5 million (2006 : £16.9 million).

Business Process

Further progress has been made in exploiting the synergies available between the
educational and retail interiors operations. In this connection, the programme
to relocate the Group's metal working facilities from Dalgety Bay to vacant
space at ESA McIntosh's Kirkcaldy site was completed on time and on budget in
April.

The Group continues to expand its 'low cost country' procurement activities and
will have a team of five full time staff operating in Shanghai by the end of the
year. It is intended that the benefits of this activity, currently concentrated
on the Retail Interiors Division, will be extended to include the Educational
Interiors Division.

PROSPECTS

Within the Educational Interiors Division, a further increase in revenue from
the PFI sector is anticipated in 2007. Although the order flow in the direct to
schools market has improved in July and August, it is apparent that the Building
Schools for the Future (BSF) programme, in England and Wales, is consolidating
activity from this part of the market into larger and more complex projects,
with a resultant delay on the timing of their execution. As a consequence of
this change, the Group's direct to schools revenues are expected to be lower in
2007 than those for 2006. Whilst the Division will return a somewhat lower
contribution for the year than was originally expected, reflecting the
difference in margin between the direct to schools and the PFI sectors as well
as the resolution of difficulties on two specific PFI contracts, 2008 will open
with a much enhanced order book.

Stage Systems, a business designing and producing demountable stages and
postural furniture, is performing well up to expectations and is on track to
have a good first year.

July and August have been busy months in the Point of Sale Display Division. The
savings generated as a consequence of property and workforce rationalisation at
Bristol are likely to benefit the overall results of this Division, giving an
improved contribution for the year.

The Retail Interiors Division is performing well, with revenues likely to be
substantially up on the prior year stemming from a robust performance generally
and the return of House of Fraser as a significant customer, through its new
stores being built in Belfast and High Wycombe. Orders from financial services
providers have recently been more subdued than expected and, in the current
climate, we are more cautious about prospects in this sector.

The management team at Retail Interiors has proved its strength and resilience
over the last five years. Its capacity to take on additional work, along with
the evolution of tight management and contracting disciplines, have already
allowed the Group to carry out supplementary work in the educational sector,
particularly in the PFI arena, where contracts are increasingly complex and
numerous. Given the substantial growth that is expected to take place in 2008 as
a result of growing demand in the BSF and PFI sectors, the educational and
retail interiors operational teams will work together as one unit to optimise
the efficient use of resources and to ensure the implementation of common
business processes.

With strong performances in the Retail Interiors and Point of Sale Display
Divisions, the Board anticipates good overall progress in the full year, with
further advances to follow in 2008 and 2009, as the Educational Interiors
Division realises its substantial potential.


J Malcolm Gourlay                                              19 September 2007
Chairman




                         CONSOLIDATED INCOME STATEMENT
                for the 6 months ended 30 June 2007 (unaudited)

                                              Unaudited   Unaudited    Audited
                                               6 months    6 months       year
                                                  ended       ended      ended
                                               30.06.07    30.06.06   31.12.06
                                                   £000        £000       £000
                                       Note

Revenue                                          51,629      42,122    114,504
Cost of sales                                   (41,158)    (34,065)   (91,767)
                                                _______     _______    _______
Gross profit                                     10,471       8,057     22,737
Administrative expenses                          (9,233)     (6,967)   (15,868)
                                                _______     _______    _______
Operating profit                                  1,238       1,090      6,869

Expected return on defined benefit
pension plan assets                                 900         730      1,484
Financial expenses - on bank
borrowings and finance leases                      (669)       (750)    (1,561)
Interest on defined benefit pension
scheme liabilities                                 (810)       (730)    (1,479)
                                                _______     _______    _______
Net financing costs                                (579)       (750)    (1,556)

Share of profit of associate                          -          24         24
Gain on sale of interest in associate                            98         98
                                                _______     _______    _______
Profit before tax                                   659         462      5,435

Income tax expense                        2        (200)       (141)    (1,743)
                                                _______     _______    _______
Profit for the period (attributable to
equity holders of the parent)                       459         321      3,692
                                                =======     =======    =======

Basic earnings per share                  3         1.2p        0.9p      10.8p

Diluted earnings per share                3         1.2p        0.9p      10.6p



            CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
               for the 6 months ended 30 June 2007 (unaudited)

                                              Unaudited   Unaudited    Audited
                                               6 months    6 months       year
                                                  ended       ended      ended
                                               30.06.07    30.06.06   31.12.06
                                                   £000        £000       £000

Exchange differences on translation of
overseas associate                                    -           -        (21)
Actuarial gain on defined benefit pension
plan                                              2,293       2,173        622
Tax on items taken directly to equity              (727)       (668)      (187)
Cash flow hedges:
Effective portion of changes in fair value          173         211        303
                                                _______     _______    _______
Net income recognised directly in equity          1,739       1,716        717

Profit for the period                               459         321      3,692
                                                _______     _______    _______
Total recognised income and expense for the
period (attributable to equity holders of the
parent)                                           2,198       2,037      4,409
                                                =======     =======    =======


                           CONSOLIDATED BALANCE SHEET
                         as at 30 June 2007 (unaudited)


                                              Unaudited   Unaudited    Audited
                                                  as at       as at      as at
                                               30.06.07    30.06.06   31.12.06
                                                   £000        £000       £000
                                       Note
Assets

Non-current assets
Property, plant and equipment                    14,956      13,131     12,321
Intangible assets                                14,693      12,630     12,470
Deferred tax asset                                1,200       1,650      1,927
                                                _______     _______    _______
Total non-current assets                         30,849      27,411     26,718
                                                _______     _______    _______
Current assets
Inventories                               5      14,033      15,361     11,791
Non-current assets classified as held
for sale                                            631           -        348
Trade and other receivables               6      22,905      22,334     25,279
Derivative financial instruments                    158        (107)       (15)
Cash and cash equivalents                             -           -      2,080
                                                _______     _______    _______
Total current assets                             37,727      37,588     39,483
                                                _______     _______    _______
Total assets                                     68,576      64,999     66,201
                                                _______     _______    _______
Liabilities
Current liabilities
Bank overdraft                                   (2,163)     (5,675)         -
Other interest-bearing loans and
borrowings                                       (3,595)     (2,997)    (3,591)
Income tax payable                                 (504)       (518)    (1,160)
Trade and other payables                  7     (24,713)    (23,234)   (26,603)
                                                _______     _______    _______
Total current liabilities                       (30,975)    (32,424)   (31,354)
                                                _______     _______    _______
Non-current liabilities
Interest-bearing loans and borrowings           (10,573)    (12,686)   (11,964)
Retirement benefit obligations                   (4,000)     (5,500)    (6,424)
Deferred tax liabilities                         (1,132)     (1,072)    (1,132)
                                                _______     _______    _______
Total non-current liabilities                   (15,705)    (19,258)   (19,520)
                                                _______     _______    _______
Total liabilities                               (46,680)    (51,682)   (50,874)
                                                _______     _______    _______
Net assets                                       21,896      13,317     15,327
                                                =======     =======    =======
Equity
Issued share capital                              3,851       3,484      3,486
Share premium                                     7,003       2,017      2,020
Other reserves                                    3,337       3,072      3,163
Revenue reserves                                  7,705       4,744      6,658
                                                _______     _______    _______
Total equity (attributable to equity
holders of the parent)                    9      21,896      13,317     15,327
                                                =======     =======    =======



                      CONSOLIDATED STATEMENT OF CASH FLOWS
                for the 6 months ended 30 June 2007 (unaudited)


                                              Unaudited   Unaudited    Audited
                                               6 months    6 months       year
                                                  ended       ended      ended
                                               30.06.07    30.06.06   31.12.06
                                                   £000        £000       £000

Cash flows from operating activities
Profit before tax                                   659         462      5,435
Adjustments for:
Depreciation of property, plant and equipment       869         912      1,818
Amortisation of intangible assets                   323         222        466
Loss/(gain) on sale of property, plant and
equipment                                            28          11        (11)
Gain on sale of asset held for resale              (306)          -          -
Provision for accelerated depreciation and
rationalisation costs                               280           -          -
Gain on sale of interest in associate                 -         (98)       (98)
Net financing costs                                 579         750      1,556
Share of profit of associate                          -         (24)       (24)
IFRS 2 charge relating to equity settled
plans                                               179           -        177

Operating cash flows before changes in          _______     _______    _______
working capital and provisions                    2,611       2,235      9,319

Decrease/(increase) in trade and other
receivables                                       2,847      (2,073)    (5,018)
Increase in inventories                          (2,300)     (6,438)    (2,868)
(Decrease)/increase in trade and other
payables                                         (4,027)        432      4,627
Movement relative to defined benefit pension
scheme                                              (43)        (52)      (674)
                                                _______     _______    _______
Cash (absorbed by)/generated from operations       (912)     (5,896)     5,386
                                                _______     _______    _______
Interest paid                                      (603)       (761)    (1,585)
Income taxes paid                                  (856)       (213)      (909)
                                                _______     _______    _______
Net cash from operating activities               (2,371)     (6,870)     2,892
                                                _______     _______    _______
Cash flows from investing activities
Proceeds from sale of property, plant and
equipment                                            19          35         64
Proceeds from sale of asset held for resale         653           -          -
Proceeds from sale of interest in associate           -         993        943
Acquisition of property, plant and equipment     (3,568)     (1,187)    (1,105)
Acquisition of intangible assets                   (153)          -        (84)
Acquisition of subsidiary, net of cash
balances acquired                                (2,535)          -          -
Repayment of loan notes and deferred
consideration                                         -        (778)      (246)
                                                _______     _______    _______
Net cash outflow from investing activities       (5,584)     (937))       (428)
                                                _______     _______    _______
Cash flows from financing activities
Proceeds from the issue of share capital          5,098          35         40
Increase in bank loans                                -         782        782
Movements in relation to purchase of own
shares                                                -         (59)       (99)
Repayment of loan notes                               -           -       (532)
Repayment of bank borrowings                     (1,339)       (625)    (1,250)
Repayment of finance lease liabilities              (47)        (36)       (72)
Dividends paid                                        -           -     (1,288)
                                                _______     _______    _______
Net cash from financing activities                3,712          97     (2,419)
                                                _______     _______    _______
Net (decrease)/increase in cash and cash
equivalents                                      (4,243)     (7,710)        45
Cash and cash equivalents at 1 January            2,080       2,035      2,035
                                                _______     _______    _______
Cash and cash equivalents at end of period       (2,163)     (5,675)     2,080
                                                =======     =======    =======


                       NOTES TO THE FINANCIAL STATEMENTS

1. Principal accounting policies

Havelock Europa PLC is a company domiciled in the United Kingdom. The
consolidated interim financial statements for the six months ended 30 June 2007
comprise the Company and its subsidiaries (together referred to as the Group) .
The directors approved the consolidated interim financial statements on 19
September 2007.

Basis of preparation

This interim financial information has been prepared applying the accounting
policies and presentation that were applied in the preparation of the Company's
published consolidated financial statements for the year ended 31 December 2006.


Status of financial information

The figures for the financial year ended 31 December 2006 are not the Company's
statutory accounts for that financial year. The statutory accounts for the year
ended 31 December 2006, which were prepared in accordance with International
Financial Reporting Standards ('IFRSs') as adopted by the EU, have been reported
on by the Company's auditors and delivered to the Registrar of Companies. The
report of the auditors (i) was unqualified, (ii) did not include references to
any matters to which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain statements under section 237
(2) or (3) of the Companies Act 1985.

2. Income tax

A charge for current taxation has been included at 30% (2006: 30%), being the
effective rate likely to be applied to the result for the full year to 31
December 2007.

3. Earnings per share

The calculation of basic earnings per share and underlying earnings per share
for the period ended 30 June 2007 is based on the profit attributable to
ordinary shareholders as follows:

             Unaudited   Unaudited    Audited     Unaudited    Unaudited      Audited
              6 months    6 months       year      6 months     6 months         year
                 ended       ended      ended         ended        ended        ended
              30.06.07    30.06.06   31.12.06      30.06.07     30.06.06     31.12.06
                  £000        £000       £000   EPS (pence)   EPS(pence)   EPS(pence)

Basic              459         321      3,692           1.2          0.9         10.8
Adjusted
for:
Amortisation
of intangibles
that attract
no tax             
deduction          268         184        368           0.8          0.6          1.1
              --------     -------    -------      --------    ---------     --------
Adjusted           727         505      4,060           2.0          1.5         11.9
              --------     -------    -------      --------    ---------     --------
Diluted
basic 
earnings per                                            
share                                                   1.2          0.9         10.6
Diluted
adjusted
earnings per
share                                                   1.9          1.5         11.6

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

Undiluted earnings per share

                                            Unaudited    Unaudited     Audited
                                             6 months     6 months        year
                                                ended        ended       ended
                                             30.06.07     30.06.06    31.12.06
In thousands of shares

Issued ordinary shares at 1 January            34,859       34,789      34,789
Effect of own shares held                        (656)        (656)       (656)
Effect of shares issued in 2006                     -           40          50
Effect of shares issued in 2007                 2,659            -           -
                                              _______      _______     _______
Weighted average number of ordinary shares
for the period                                 36,862       34,173      34,183
                                              _______      _______     _______

Diluted earnings per share

                                            Unaudited    Unaudited     Audited
                                             6 months     6 months        year
                                                ended        ended       ended
                                             30.06.07     30.06.06    31.12.06
In thousands of shares
Weighted average number of ordinary shares     36,862       34,173      34,183
Effect of share options on issue                1,016          388         724
                                              _______      _______     _______
Weighted average number of ordinary shares
(diluted) for the period                       37,878       34,561      34,907
                                              _______      _______     _______

4. Equity dividends

The directors declared an interim dividend per equity share of 1.1p after the
balance sheet date. In accordance with IFRS accounting requirements, this
dividend has not been accrued in the interim consolidated financial statements.

5. Inventories

                                    Unaudited        Unaudited         Audited
                                        as at            as at           as at
                                     30.06.07         30.06.06        31.12.06
                                         £000             £000            £000

Raw materials and consumables           4,436            3,615           3,161
Work in progress                        4,364            6,233           3,783
Finished goods                          5,233            5,513           4,847
                                      _______          _______         _______
                                       14,033           15,361          11,791
                                      _______          _______         _______

6. Trade and other receivables

                              Unaudited           Unaudited            Audited
                                  as at               as at              as at
                               30.06.07            30.06.06           31.12.06
                                   £000                £000               £000

Trade receivables                21,542              20,320             22,719
Other receivables                   412                 446                466
Prepayments                         951               1,568              2,094
                                _______             _______            _______
                                 22,905              22,334             25,279
                                _______             _______            _______

7. Trade and other payables

                                            Unaudited    Unaudited     Audited
                                                as at        as at       as at
                                             30.06.07     30.06.06    31.12.06
                                                 £000         £000        £000

Amounts disclosed in current liabilities
Trade payables                                 15,134       15,299      15,045
Other taxes and social security                 2,581        1,568       3,981
Accruals                                        5,843        5,427       7,577
Dividends                                       1,155          940           -
                                              _______      _______     _______
                                               24,713       23,234      26,603
                                              _______      _______     _______


8. Acquisition of Stage Systems

On 12 February 2007, the Company acquired 100% of the equity of Stage Systems
Limited for a purchase price of £3.45 million plus £0.41 million in costs. £3.2
million was satisfied in cash raised in a placing of 2,091,504 shares at 153p
each. The balance of £0.25 million was paid by the issue to the vendors of
159,236 shares at 157p each.

Cost of business acquisition
                                                                          2007
                                                                          £000
Shares issued                                                              250
Cash                                                                     3,200
Directly attributable costs of business combination                        409
                                                                         _____
Total purchase consideration                                             3,859
                                                                         _____

9. Reconciliation of changes in equity

                                              Unaudited   Unaudited    Audited
                                               6 months    6 months       year
                                                  ended       ended      ended
                                               30.06.07    30.06.06   31.12.06
                                                   £000        £000       £000

Total equity at beginning of period              15,327      12,265     12,265
Total recognised income and expense for the
period                                            2,198       2,037      4,409
Ordinary dividends                               (1,155)       (940)    (1,288)
Issue of ordinary shares                          5,347          35         40
Release of translation reserve on disposal of
interest in associate                                 -         (21)         -
Movements relating to share-based payments
and ESOP trust                                      179         (59)       (99)
                                                _______     _______    _______
Total equity at end of period                    21,896      13,317     15,327
                                                =======     =======    =======


Independent review report to Havelock Europa PLC

Introduction

We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprises the Consolidated Income
Statement, the Group Balance Sheet, the Group Cash Flow Statement, the Group
Statement of Recognised Income and Expense and the related notes. We have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.

This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the company for
our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the UK. A review consists
principally of making enquiries of management and applying analytical procedures
to the financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Statements on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.

KPMG Audit Plc
Chartered Accountants
191 West George Street
Glasgow
G2 2LJ
19 September 2007



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