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Havelock Europa PLC (HVE)

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Monday 27 June, 2011

Havelock Europa PLC

Final Results

RNS Number : 1073J
Havelock Europa PLC
27 June 2011
 



 

HAVELOCK EUROPA PLC

PRELIMINARY ANNOUNCEMENT

 

Havelock Europa (the 'Group'), (AIM:HVE.L), the retail and educational interiors provider announces its results for the year to 31 December 2010.

 

A year of transition

Financial highlights

  ·  Group revenue decreased by 9% to £99.2m (2009: £108.5m)

  ·  The Group made an operating profit before exceptional items of £0.6m (2009: £1.2m loss)

  ·  The loss before exceptional items and taxation reduced to £0.6m (2009: £2.3m loss)

  ·  The reported pre-tax loss was £4.6m (2009: £5.9m loss)

  ·  Cash generated from operating activities of £0.4m (2009: outflow of £4.7m), debt levels stabilised

Operational highlights

·  Integration of Retail Interiors and ESA McIntosh showing positive signs as losses reduced to £1.3m (2009: £3.8m)

·  Point of Sale Printing division revenue increased by 6% to £20.9m (2009: £19.7m) reflecting higher levels of activity and the securing of new high street customers

·  Revenue from Educational Supplies fell by 16% to £9.2m (2009: £10.9m) and produced a profit of £0.6m (2009: £0.8m)

Outlook

·  Group will increasingly benefit from the substantial cost savings made during 2009 and 2010

·  Encouraging and increased levels of enquiries from customers in the retail and educational sectors

·  Signs indicate further overseas work will become a feature, with projects being undertaken in China and Hong Kong as well as continental Europe

 

Eric Prescott, Havelock CEO, said:- "This has been a year of transition in which losses have been substantially reduced, and there are encouraging signs of increased inquiries from new customers and of further potential new work overseas. I'd like to thank all our employees for their efforts towards reshaping the company over the past year."


Enquiries

Havelock Europa

01383 820044

Eric Prescott, Chief Executive

Grant Findlay, Finance Director

 


Investec

James Grace

Keith Anderson

 

020 7597 4000

 

 

Cardew Group

020 7930 0777

Rob Ballantyne

Shan Shan Willenbrock

Sophie Leigh Pemberton



 

Preliminary Statement

2010 was a year of transition for the Group.  We have made substantial changes to the business to deliver efficiencies and cost savings and we have also made progress in securing new contracts.  While Havelock recognises it continues to operate in a difficult economic environment, the rationalisation of the business and an improved order book provide the foundations for a full recovery. 

 

Financial Overview

Group revenue for the 12 months ended 31 December 2010 decreased by 9% to £99.2m (2009: £108.5m).  The Group made an operating profit before exceptional items of £0.6m (2009: £1.2m loss).  The underlying loss before exceptional items and taxation reduced to £0.6m (2009: £2.3m loss) which is reflected in a fully diluted loss per share of 1.8p (2009: 3.7p loss).  The reported pre-tax loss was £4.6m (2009: £5.9m loss) and, on this basis, the fully diluted loss per share amounted to 10.9p (2009: 10.7p loss). 

 

The Group incurred net exceptional items of £3.9m (2009: £3.6m), which comprise a charge for the impairment of goodwill on the Clean Air Ltd business of £2.0m and charges of £3.1m relating to the completion of the reorganisation of the Group in 2010, mainly consisting of redundancy, property closure and refinancing costs.  In addition, exceptional items include an off-setting credit of £1.2m arising from the cessation of further benefits accrual in the Group's closed Final Salary Pension Scheme and the re-basing of benefits from the Retail Prices Index to the Consumer Prices Index.

 

The Group generated net cash from operating activities of £0.4m (2009: outflow of £4.7m), despite the sizeable pre-tax loss.  Following continued investment to increase efficiency, year end net debt increased marginally to £19.7m (2009: £19.4m).

 

Dividends

No dividend is proposed for this year.  When the Group returns to profitability and debt levels have reduced, the Board will consider the resumption of dividend payments.

 

Financial Position

The Group's bankers remain supportive and, subsequent to the year end, have agreed a renewal on amended terms of its working capital facility. During the next 12 months, the Board will be examining opportunities to reduce the Group's debt.

 

The Board

During 2010 there have been significant changes to the Board with Eric Prescott joining as Chief Executive in September and David MacLellan and Richard Sweetman joining as Non-executive Directors.  These individuals bring a wealth of relevant experience in contracting and finance which will greatly help Havelock to reshape its business and return to profitability.  I would like to thank the five Directors who resigned during the year for their contribution.

 

Since the year-end, Richard Lowery has intimated his wish to retire from the Board following nearly 14 years of service with the Company and it has now been agreed that he will leave on 30 June 2011.  During his time with Havelock, Richard has been involved in a number of important management roles and, in particular, in the planning and implementing of a great amount of change.  I would like to pay tribute to Richard and thank him for his significant contribution.

 

Finally, it is my intention to step down from the Board in 2012.  A search for a new Chairman will commence shortly.

 

 

Trading Review

Interiors

During the year, the Group completed the establishment of its Interiors business through the integration of Retail Interiors (the HCI store fit-out business) and ESA McIntosh, which specialises in education furniture. 

 

Overall revenue decreased by 11% to £69.0m (2009: £77.9m).  This was a consequence of the cessation of a very large PFI programme in Scotland which had generated record revenues in 2009.  ESA's activities are now mainly directed to the English market which, despite some uncertainty on Direct to School sales, generated healthy revenues as a result of an increased market share.  Retail customers were busier during the year and their share of total revenue increased.  Much of this activity was derived from framework agreements with a number of strong customers. 

 

Overall, the Division made a reduced loss, before exceptionals, of £1.3m (2009: £3.8m).  The combined businesses have performed at an improved level throughout the year and substantial cost savings have been made.  Operationally, further benefit will be seen from these cost savings in future years, which now amount to in excess of £3.0m on an annualised basis.

 

Point of Sale

Revenue in Point of Sale Printing increased by 6% to £20.9m (2009: £19.7m) reflecting higher levels of activity from customers, particularly at the time of the World Cup in the earlier part of the year.  During the period a number of new high street customers were won resulting in a stronger portfolio of clients and, as a result, the Division has withstood the loss of what once was its principal customer, Somerfield, following its takeover by the Co-operative Group.  As a consequence of the loss of the Somerfield business, the Division closed its printing factory in Bristol during the summer and all production activity is now carried out from Letchworth.  This has reduced costs and increased efficiency. 

 

Educational Supplies

Revenue from the three smaller educational supplies businesses fell by 16% to £9.2m (2009: £10.9m).  This reflected lower direct sales to schools, which reduced their spending in anticipation of cuts in their budget from Government.  Whilst uncertainty continues in the market, the rate of decline was most severe in the early part of 2010.  Cost savings have been made at these businesses and, as a result, profits before exceptional items continued to be earned, with the Division generating £0.6m, only slightly down from the 2009 result of £0.8m. 

 

Current Trading and Prospects

During 2011 the Group will benefit fully from the substantial cost savings made during 2009 and 2010.  Levels of enquiries from customers are encouraging and the Board expects that these will translate into an increase in revenue.  This increase in activity comes from both retail clients and those in the educational area.   Nevertheless, the market remains competitive and there is a degree of margin pressure which the Group is counteracting through increased efficiency. 

 

Overseas work continues to grow, with projects being undertaken in China and Hong Kong as well as continental Europe.  This is likely to be a continuing feature of the Group's activities. 

 

Overall, the Board is encouraged by the success of the actions it has taken to enable the Group's recovery and although, as is normal, a loss will be incurred in the first half of 2011, the outlook for the full year is in line with the Board's expectations.

 

Malcolm Gourlay

Chairman

27 June 2011



Consolidated Income Statement

 
for the year ended 31 December 2010

 

 

 

 



2010

2010

2010

2009

2009

2009



Before

Exceptional

Total

Before

Exceptional

Total



exceptional

items and


exceptional

items




items and

goodwill


items

(note 5)




goodwill

impairment







impairment

(note 5)






Note

£000

£000

£000

£000

£000

£000

Revenue

3

99,179

-

99,179

108,480

-

108,480

Cost of sales


(83,780)

(2,443)

(86,223)

(94,024)

(2,683)

(96,707)



______

______

_____

______

______

_____

Gross profit


15,399

(2,443)

12,956

14,456

(2,683)

11,773

Administrative expenses


(14,824)

(1,048)

(15,872)

(15,670)

(778)

(16,448)











_______

______

_______

_______

______

_______

Operating profit/(loss)


575

(3,491)

(2,916)

(1,214)

(3,461)

(4,675)









Finance costs


(1,202)

(437)

(1,639)

(1,041)

(180)

(1,221)



______

______

______

______

______

______

Loss before income tax


(627)

(3,928)

(4,555)

(2,255)

(3,641)

(5,896)









Income tax (charge)/credit

6

(59)

552

493

893

1,020

1,913



_______

______

______

_______

______

______

Loss for the year (attributable to equity holders of the parent)


(686)

(3,376)

(4,062)

(1,362)

(2,621)

(3,983)



_______

______

______

_______

______

______









Basic loss per share

7



(10.9p)



(10.7p)









Diluted loss per share

7



(10.9p)



(10.7p)











Consolidated Statement of Comprehensive Income

 
for the year ended 31 December 2010

 

 



  



2010

2009



£000

£000





Loss for the year


     (4,062)

     (3,983)



_______

_______

Actuarial gain on defined benefit pension plan


       251

       474

Tax on items taken directly to equity


 (121)

 (133)

Cash flow hedges:




Effective portion of changes in fair value


      124

        48



_______

_______

Net income recognised directly in equity


       254

       389





Total comprehensive income (attributable to equity holders of the parent)


(3,808)

(3,594)





 

 



Consolidated Balance Sheet

 

as at 31 December 2010

 



2010



£000


Note


Assets



Non-current assets



Property, plant and equipment


10,745

Intangible assets


12,265

Deferred tax assets


1,981



_______

Total non-current assets


24,991



_______

_______

Current assets



Inventories

8

11,056

Non-current assets classified as held for sale


773

Trade and other receivables

9

25,756

Income tax receivable


-

Cash and cash equivalents


4,830



_______

Total current assets


42,415






_______

Total assets  


67,406



_______

_______

Liabilities



Current liabilities



Interest-bearing loans and borrowings

10

(2,581)

Derivative financial instruments


(227)

Trade and other payables

11

(23,096)



_______

Total current liabilities


(25,904)



_______

Non-current liabilities



Interest-bearing loans and borrowings

10

(21,937)

Retirement benefit obligations


(2,992)

Deferred tax liabilities


(501)



_______

Total non-current liabilities


(25,430)



_______

Total liabilities


(51,334)



_______

Net assets


16,072



_______

Equity



Issued share capital


3,853

Share premium


7,013

Other reserves


       2,951

Revenue reserves


2,255



_______

Total equity attributable to equity holders of the parent


16,072



_______

_______

 



Consolidated Cash Flow Statement

 

for the year ended 31 December 2010

 

 

                        


   



2010

2009



£000

£000

Cash flows from operating activities




Loss for the year


(4,062)

(3,983)

Adjustments for:




Depreciation of property, plant and equipment


1,803

1,821

Amortisation of intangible assets


561

475

(Gain)/loss on sale of property, plant and equipment


(34)

157

Net financing costs (before exceptional items)

 

1,202

1,041

   IFRS 2 charge and net movements relating to equity-     settled plans


18

(330)

Non-recurring pension credit


(1,205)

-

Impairment of goodwill


2,000

-

Income tax credit


(493)

(1,913)

Operating cash flows before changes in working capital and provisions

 


 

(210)

 

(2,732)

Decrease in trade and other receivables


2,675

3,802

(Increase)/decrease in inventories


(505)

2,042

Decrease in trade and other payables


(1,266)

(4,788)

Movement relative to defined benefit pension scheme


(869)

(1,017)



_______

_______

Cash used in operations


(175)

(2,693)



_______

_______

Interest paid


(1,184)

(691)

Income taxes repaid/(paid)


1,785

(1,365)



_______

_______

Net cash from/(used in) operating activities


426

(4,749)



_______

_______

Cash flows from investing activities




Proceeds from sale of property, plant and equipment


34

-

Disposal of discontinued operation net of cash disposed of


-

(91)

Acquisition of property, plant and equipment


(541)

(733)

Acquisition of intangible assets


(185)

(402)



_______

_______

Net cash used in investing activities


(692)

(1,226)



_______

_______

Cash flows from financing activities




Increase in bank loans


7,500

5,000

Repayment of bank borrowings


(2,293)

(996)

Repayment of finance lease/HP liabilities


(572)

(532)

Dividends paid


-

(1,772)



_______

_______

Net cash from financing activities


4,635

1,700



_______

_______

Net increase/(decrease) in cash and cash equivalents


4,369

(4,275)

Cash and cash equivalents at 1 January


461

4,736



_______

_______

Cash and cash equivalents at 31 December


4,830

461



_______

_______

 



Consolidated Statement of Changes in Equity

 

 


Share

capital

Share

premium

Merger

reserve

Hedging

reserve

Other

reserve

Revenue

reserve

Total


£000

£000

£000

£000

£000

£000

£000

Current period








At 1 January 2010

3,853

7,013

2,184

(351)

994

6,169

19,862

Total comprehensive income for the period

-

-

-

124

-

(3,932)

   (3,808)

Movements relating to share-based payments and the ESOP trust

-

-

-

-

-

18

18

At 31 December 2010

3,853

7,013

2,184

(227)

994

2,255

16,072









Previous period








At 1 January 2009

3,853

7,013

2,184

(399)

994

11,913

25,558

Total comprehensive income  for the period

-

-

-

48

-

(3,642)

   (3,594)

Movements relating to share-based payments and the ESOP trust

-

-

-

-

-

(330)

(330)

Dividends to shareholders

-

-

-

-

-

(1,772)

(1,772)

At 31 December 2009

3,853

7,013

2,184

(351)

994

6,169

19,862

 



Notes to the financial statements

 

 

1. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2010 or 2009 but is derived from the 2010 accounts.  Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered in due course.  The auditors have reported on those accounts; their reports  (i) were unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under either section 498(2) or section 498(3) of the Companies Act 2006.

 

2. Basis of preparation

 

The consolidated financial statements comprise Havelock Europa PLC and its subsidiaries. The financial statements of subsidiaries are prepared to the same reporting date using accounting policies consistent with those of the parent company.  Intra-group transactions and balances, including any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in full.

Cash flow forecasts have been prepared for the period through to 31 December 2012, including sensitivity analyses, taking account of the risks and uncertainties facing the group.  The group's bankers remain supportive and, subsequent to the year end, the directors have agreed a relaxation in certain covenant tests in relation to the relevant forecast period reviewed by directors along with a step down in the level of the working capital facility from £4.5 million, at the year end, to £3 million by 1 July 2012.  The group is currently in compliance with these revised borrowing covenants, continues to operate within its facility requirements and is forecast to remain covenant compliant during the relevant forecast period, if necessary by taking mitigating steps in periods when the headroom is small.  Notwithstanding this, the directors nevertheless believe the level of overall group net debt should be reduced and are currently considering relevant options to give effect to this.

While the directors cannot envisage all possible circumstances that may impact the group in the future, the directors believe that, taking account of the forecasts, sensitised forecasts, future plans and committed funding levels, the group has sufficient resources to remain compliant with the relevant covenants and conditions attached to the group's banking facilities and to meet all debts as they fall due for the foreseeable future.

Accordingly, after making reasonable enquiries the directors have a reasonable expectation that the group can continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis in preparing the financial statements.

3. Segment reporting

 

  Management information is presented to the main board (the chief operating decision maker) based upon business segments. The composition of the reported segments was revised with effect from 1 January 2010. The figures for prior periods have been restated accordingly. Following the integration in 2009 of the Retail Interiors business with ESA McIntosh, the principal business within the Educational Interiors division, the integrated business is now reported as a separate Interiors segment. The Educational Supplies segment now includes only the three smaller Supplies businesses: TeacherBoards, Clean Air and Stage Systems. The reported segments are:

 

·     Interiors - design, manufacture and installation of interiors for schools, retail, financial services, hotels and other accommodation premises;


·     Educational Supplies - design, manufacture, supply and installation of teaching aids, display boards and fume cupboards for the education sector;


·     Point of Sale - printing of promotional graphics for use in retail, financial services and branded goods businesses.

 


         Interiors

Educational Supplies

Point
of Sale

Elimination

Total


2010

2009

2010

2009

2010

2009

2010

2009

2010

2009



Restated -

see above


Restated -see above


Restated -see above


Restated -

see above


Restated -see above


£000

£000

£000

£000

£000

£000

£000

£000

£000

£000












External sales

69,037

77,855

9,193

10,923

20,949

19,702

-

-

99,179

108,480

Inter-segment sales

6

18

1,410

2,557

11

34

(1,427)

(2,609)

-

-


69,043

77,873

10,603

13,480

20,960

19,736

(1,427)

(2,609)

99,179

108,480

Operating (loss)/ profit before net exceptional costs and impairment of goodwill

(1,321)

(3,795)

572

830

2,813

3,105

-

-

2,064

140

Net exceptional costs (excluding central exceptional  costs)

(326)

(3,247)

(62)

(91)

(329)

(78)

-

-

(717)

(3,416)

Impairment of goodwill



(2,000)






(2,000)

-

Central exceptional costs









(774)

(45)

Other unallocated costs









(1,489)

(1,354)

(Loss)/profit from operations

(1,647)

(7,042)

(1,490)

739

2,484

3,027

-

-

(2,916)

(4,675)

Net financing costs









(1,202)

(1,041)

Exceptional finance costs









(437)

(180)

Loss before tax









(4,555)

(5,896)

Tax









493

1,913

Loss for the year









(4,062)

(3,983)

 

Depreciation and amortisation

1,109

1,054

345

349

865

837

-

-

2,319

2,240

Unallocated depreciation









45

56

Total  amortisation and depreciation









2,364

2,296

 

egment assets



 Interiors

Educational Supplies

Point
of Sale

    Unallocated

Total


2010

2009

2010

2009

2010

2009

2010

2009

2010

2009



Restated -see above


Restated -see above


Restated -see above


Restated -see above


Restated -see above


£000

£000

£000

£000

£000

£000

£000

£000

£000

£000












Stock and debtors

28,637

31,079

2,592

2,803

5,227

4,588

356

512

36,812

38,982

Property, plant, equipment, software and assets held for sale

5,496

5,965

295

389

5,920

5,676

470

565

12,181

12,595

Total segment assets

34,133

37,044

2,887

3,192

11,147

10,264

826

1,077

48,993

51,577












Intangible assets (excluding software)









11,602

13,826

Deferred tax assets









1,981

1,478

Current tax assets









-

1,971

Cash and cash equivalents









4,830

461

Total assets









67,406

69,313

 

 

4. Loss before tax

                                                                                          



    Cost of

     sales

Administrative

Total



  costs





  2010

2009

2010

2009

2010

2009



   £000

  £000

£000

 £000

  £000

 £000

Loss before tax is stated after charging/(crediting):















Depreciation of property, plant and equipment


1,257

881

546

940

1,803

1,821

Amortisation of intangible assets


        -

        -

561

475

561

475

(Gain)/loss on sale of property, plant and equipment


      (34)

      157

-

-

(34)

157 

 



5. Exceptional costs

 

An analysis of exceptional costs is as follows:     




2010

2009


£000

£000




Cost of integration of business units (note(a))

1,301

3,260

Re-organisation of the Board (note (b))     

  462

-

Other restructuring costs  (note (c))

933

   201

Goodwill impairment  (note(d))

          2,000

-

Non-recurring pension curtailment gain

(1,205)

-


          3,491

3,461




Charged to financing costs (note (e))

437

180

Total exceptional costs

3,928

3,641




 

(a) The integration of the Havelock Interiors business with ESA McIntosh, which commenced in 2009, was completed during the period. The costs comprise redundancy and exceptional operating costs directly related to the integration.

 

(b) Compensation for loss of office and fees related to recruitment of new CEO.

 

(c) Redundancy and other costs were incurred in the closure of the Bristol Point of Sale Printing facility and the Paisley administration centre and in the restructuring of the Educational Supplies businesses.

 

(d) Impairment recognised in the carrying amount of goodwill in relation to Clean Air Limited.

 

(e) Fees relating to and in connection with the renewal of banking facilities.

 

6. Income tax expense

 

Recognised in the income statement

 



2010

2009



£000

£000

Current tax (expense)/credit




Current year


-

1,684

Adjustments for prior years


(186)

70



(186)

1,754





Deferred tax credit




Origination and reversal of temporary differences


535

8

Adjustments for prior years


107

151

Adjustments for change in deferred tax rate - prior year


37

-



679

159

Total income tax credit recognised in the consolidated income statement


493

1,913

 



7. Earnings per share

 

The calculation of basic earnings per share and underlying earnings per share at 31 December 2010 is based on the profit attributable to ordinary shareholders as follows:

 


2010

2009

2010

2009


Loss

Loss

per share

per share


£000

£000

pence

pence

Basic

(4,062)

(3,983)

(10.9)

(10.7)

Adjusted for:





Exceptional items (net of associated tax credit)

3,376

2,621

9.1

7.0

Adjusted

(686)

(1,362)

(1.8)

(3.7)

Diluted loss per share



(10.9)

(10.7)

Diluted adjusted loss per share



(1.8)

(3.7)

 

 

 

 

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

 

Undiluted earnings per share

 

In thousands of shares






2010

2009





Issued ordinary shares at 1 January


38,532

38,532

Effect of own shares held


  (1,254)

  (1,264)

Weighted average number of ordinary shares for the year ended 31 December


37,278

37,268

 

Diluted earnings per share

 

In thousands of shares






2010

2009





Weighted average number of ordinary shares for the year ended 31 December


37,278

37,268

Effect of share options in issue


632

1,085

Weighted average number of ordinary shares (diluted) for the year ended 31 December


37,910

38,353

                                     

8. Inventories


      


2010

2009


£000

£000

Raw materials and consumables 

3,459

3,975

Work in progress      

2,208

2,202

Finished goods

5,389

4,374


11,056

10,551

 

9. Trade and other receivables


  


2010

2009


£000

£000

Trade receivables and accrued income

24,565

27,157

Other receivables

209

216

Prepayments

982

1,058


   25,756

   28,431

 



10. Interest-bearing loans and borrowings


     

Current liabilities

2010

2009


£000

£000

Secured bank loans

2,000

2,000

Obligations under hire purchase contracts and finance leases

581

572


2,581

2,572

 


    

Non-current liabilities

2010

2009


£000

£000

Secured bank loans

21,500

16,001

Arrangement fees to be amortised over term of loans

(312)

(20)

Obligations under hire purchase contracts and finance leases

749

1,330


21,937

17,311

 

11. Trade and other payables

 

Amounts disclosed in current liabilities


        


2010

2009


£000

£000

Trade payables

15,553

15,692

Other taxes and social security

2,810

2,285

Accruals

4,733

5,405


23,096

23,382

 

12. Bank facilities

 

At the year end, the following facilities were available to the Group:

 

·      A committed working capital facility of £4.5 million which was due for renewal on 31 July 2011.

 

·      A committed revolving credit facility of £12.5 million which is available until 31 July 2012.

 

·      A term loan on which £11 million remains outstanding with annual repayments of £2.0 million i which ends in September 2013.

 

·      HP drawings which, at 31 December 2010, amounted to £1.3 million.

 

The Group's bankers remain supportive and, subsequent to the year end, the directors have agreed a relaxation in certain covenant tests in relation to the relevant forecast period reviewed by directors, along with a step down in the level of the working capital facility from £4.5 million, at the year end, to £3 million by 1 July 2012.

 

13. Principal risks

 

The Group's loan facilities contain covenants as to EBITDA, asset cover and cash performance. These covenants are tested quarterly and failure to meet these constitutes an event of default under the facility agreement giving the Bank the right to require immediate repayment of all amounts lent. The Group's financial forecasts show that these covenants can be met. However, any material disruption to operational and financial performance could result in a shortfall against the standard of performance required. The Group addresses this risk by detailed monitoring of financial performance and the expected outcome for each measurement period.

 

The Group's businesses have a strong seasonal element, with a peak of activity in the middle and second half of the year. This could result in peak output requirements exceeding the available capacity. The Group manages this risk by detailed and regular capacity planning reviews, with additional shifts and early production being planned.

 

In the current economic climate, there is less certainty for all businesses about future trading. This is particularly true in the retail sector, where customers may change their plans and programmes at short notice. The Group manages this risk by reviewing trading outlook more frequently, including the review of weekly order intake figures.

 

The Retail Interiors business operates in a highly competitive market and deals with major customers which increasingly employ procurement strategies designed to ensure that all purchases, and not just those of stock items, are acquired at the lowest possible cost. The business is addressing this risk by seeking production cost savings including, where appropriate, procurement from lower cost overseas suppliers.

 

The Educational Interiors business is involved as a supplier to major construction projects which can be subject to time delays and slippage caused by both commercial and weather-related issues. The business addresses this risk by building allowance for slippage into its production forecasts and budgets.

The Retail and Educational Interiors businesses work as sub-contractors under industry standard written contracts. The risks involved in working under such contracts are controlled by the employment of qualified and knowledgeable contract managers and quantity surveyors.

 

The Point of Sale business operates in a market where new digital printing technology to produce the product is increasingly sophisticated and, unless regular investment takes place, the business could lose competitive advantage. The Group has an ongoing investment plan for the Point of Sale business which has seen the acquisition of new digital presses.

 

The largest element of working capital employed by the Group is trade receivables. These are subject to credit risk and, as a consequence, the Group employs credit insurance to cover the risk on most of its commercial debtors. However, in addition to debt owed by the public sector and local government, the Group bears the credit risk on a proportion of receivables where its credit insurers are unwilling to provide cover. At present, credit insurers continue to be prudent with the amount of cover they are willing to provide and consequently the level of uninsured debtors has increased. The Group's procedures require that material uninsured credit limits are approved by the Board. The Group also monitors the credit status of its major customers.

 

14. The accounts for the year ended 31 December 2010 were approved by the Directors on 27 June 2011.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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