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Havelock Europa PLC (HVE)

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Tuesday 06 September, 2011

Havelock Europa PLC

Half Yearly Report

RNS Number : 6708N
Havelock Europa PLC
06 September 2011
 



 

HAVELOCK EUROPA PLC

("Havelock" or the "Company")

Interim Results

 

 

Havelock Europa (HVE.L), the retail and educational interiors and point of sale printing group, announces its results for the half year to 30 June 2011.

 

Financial highlights

·    Group revenue increased by 4% to £42.9m (2010: £41.2m)

·    Reported pre-tax loss reduced to £1.5m (2010 : £4.6m loss after exceptional costs of £2.1m)

·    Group net debt decreased to £17.2m (December 2010 : £19.7m)

 

Operational Highlights

·    Progress made in securing new business in overseas markets with high quality retailers

·    Further projects secured in the UK with high street brands including Lloyds Banking Group, Marks and Spencer and Virgin Money

·    Strengthened sales team with new appointment of a Sales and Business Development Director

·    Project Horizon continues to deliver cost savings

 

Outlook

·    The trading environment remains challenging and competitive

·    Focus on growing our overseas business with major retailers

·    An integrated approach to broaden the services provided to our existing customer base

·    Continued emphasis on cost control and improvements in working capital

 

 

Eric Prescott, Havelock CEO, said: I am pleased with the progress made across the entire group, and I would like to thank our workforce for their continuing commitment.  In particular, we are seeing good growth internationally and we continue to work closely with strong blue chip partners.

 

 

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

 

www.havelockeuropa.com



INTERIM STATEMENT

 

I am pleased to be able to report on a continued improved performance for the six months to 30 June 2011.  The first half of our financial year is generally quieter.  However, despite this, we have significantly reduced our losses compared to the same period last year.  Our results show growth in revenue, which has been particularly driven by the performance of our high quality Retail customers.  The operational performance of the business has been strong and, during the period, debt levels have been reduced through improved control of working capital.

 

FINANCIAL REVIEW

 

Group revenue for the six months ended 30 June 2011 increased by 4% to £42.9m (2010: £41.2m).  The loss before taxation was £1.5m (2010: £4.6m loss after exceptional costs of £2.1m).  The loss per share was 3.0p (2010 : 8.9p loss, excluding exceptional items : 4.9p loss).

 

Group net debt decreased to £17.2m (December 2010: £19.7m), with improvements in working capital contributing to the reduction as a consequence of a successful programme to improve working capital efficiency which was implemented last year.  In addition, the sale of a surplus property in Bristol for £0.7m was completed which offset a £1m payment on the digital press acquired in the previous period.

 

TRADING REVIEW

 

Interiors

 

Revenue in the Interiors business increased by 9% to £29.1m (2010: £26.6m) on the comparable period last year.  This reflected a continuing recovery in Retail and ongoing activity in the Education sector on larger schools programmes including the projects which were delayed by adverse weather in December 2010.  Direct to school sales, however, remain weak with activity again declining in the first half.

 

During the period, the Group completed projects in China, Hong Kong, Ireland, the Netherlands and Germany.  These overseas activities continue to be an important source of growth.  Our business with Marks and Spencer has increased considerably as we have started to undertake store fit-out contracts as well as being a main shopfitting supplier.  Since the end of the period, we have completed our first projects for Virgin Money and are working on future plans with this customer.  Our performance in the Education sector continues to be robust.  We have strengthened our new business development activities and have made an appointment to the new senior role in the Interiors Business of Sales & Business Development Director, as well as expanding our sales teams. 

 

The operational performance of the business continued to improve throughout the period, with the factory achieving increasing levels of efficiency and our on-time deliveries to sites at levels above internal targets. 

 

Further cost savings have been made during the period and Project Horizon, which is the focus for our performance improvement initiatives, continues to be active with further opportunities being developed. 

 

Educational Supplies

 

Revenue in this segment was down 6% to £3.8m (2010: £4.0m) on the comparable period of 2010.  The lower revenues reflect continuing fragility in the direct to school market.  To compensate, the businesses are looking to increase their involvement with the commercial market and are achieving some success in this.  We have generated cost savings and the businesses continue to operate more closely to ensure that sales leads are maximised and integrated product offerings are made, particularly to the large building contractors who are increasingly looking to shorten their supply chains.

 

Point of Sale Printing

 

This division continues to operate strongly in a competitive market.  Revenue fell slightly to £10.0m (2010 : £10.5m) reflecting the ending of our contract to supply Somerfield which terminated in the second half of last year following the takeover of Somerfield by the Co-op.  Management at the business has successfully secured other customers to replace this business.  The business is operating at full capacity at peak times and options to increase capacity are currently being reviewed. 

 

DIVIDENDS

 

As previously announced, the Board does not propose, at this stage, to pay any dividend in 2011.

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The principal risks and uncertainties are set out in the notes to this statement and remain unchanged from those set out in the Annual Report for 2010.

 

GOING CONCERN

 

The current economic conditions create uncertainty over the demand for the Group's products and services.  The financial position of the Group, its cash flows and liquidity position are set out in the interim financial statement.

 

The Group operates under a bank facility which includes a term loan, a revolving credit, HP finance and an overdraft facility.  The Group's bankers remain supportive and during the period the overdraft facility has been renewed and certain covenant conditions relaxed.  As set out in the notes, the Group expects to be able to comply with the conditions of the Group's bank facilities based on its forecasts.

 

The Directors, therefore, have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Accordingly, the Directors continue to adopt the going concern basis in preparing the annual report and accounts.

 

CURRENT TRADING

 

The trading environment remains challenging and competitive.  However, we believe the actions we are taking will position us for further improvement and recovery.  Our focus currently continues to be to broaden the range of services that we supply to our existing customer base.  This does not involve us providing new services but simply ensuring that we adopt an integrated approach and offer services taken by one customer to all others.  At the same time we are seeking to develop new customers, particularly in overseas markets, and, to this end, we have expanded our sales resources considerably.

 

Cost control continues to be a focus and we believe that there are opportunities to make further savings in a number of areas within the business.  Cash control continues to improve, with further improvements in working capital being sought.

 

Overall, the Board is encouraged by the Group's recovery; however, it continues to look for further opportunities to improve the Group's trading performance as well as opportunities to reduce the Group's debts.

 

J Malcolm Gourlay

Chairman



CONDENSED CONSOLIDATED INCOME STATEMENT

for the 6 months ended 30 June 2011

 

 

                               


 

6 months

ended

30.06.11

£000

 

6 months

ended

30.06.10

£000

 

year

ended

31.12.10

£000


Note




Revenue

3

42,939

41,177

99,179

Cost of sales


(36,310)

(35,941)

(86,223)

Gross profit


6,629

5,236

12,956






Administrative expenses


(7,540)

     (8,849)

(15,872)

Operating loss


(911)

(3,613)

(2,916)






Analysed as:





Operating loss before exceptional items


(911)

(2,020)

575

Exceptional items

14

-

(1,593)

(3,491)

Operating loss


(911)

(3,613)

(2,916)






Expected return on defined benefit pension plan assets


909

919

1,824

Financial expenses - on bank borrowings and finance leases


(617)

(506)

(1,164)

Interest on defined benefit pension scheme liabilities           


(914)

(932)

(1,862)

Exceptional finance costs

14

-

(489)

(437)

Net financing costs


(622)

(1,008)

(1,639)






Loss before income tax


(1,533)

(4,621)

(4,555)






Income tax credit

4

399

1,294

493

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


(1,134)

(3,327)

(4,062)






Basic loss per share

5

(3.0p)

(8.9p)

(10.9p)

Diluted loss per share

5

(3.0p)

(8.9p)

(10.9p)






 



CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the 6 months ended 30 June 2011

 

 


 

6 months

ended

30.06.11

£000

 

6 months

ended

30.06.10

£000

 

year

ended

31.12.10

£000

Loss for the period

(1,134)

(3,327)

(4,062)

Actuarial gain/(loss) on defined benefit pension plan

71

(2,577)

251

Tax on items taken directly to equity

(48)

722

(121)

Cash flow hedges:




  Effective portion of changes in fair value

111

23

124

Net  income/(expense) recognised directly in equity

134

(1,832)

254





Total comprehensive income for the period

(attributable to equity holders of the parent)

(1,000)

(5,159)

(3,808)

 

 

 

 

 

 

               

CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 June 2011

 

 



 

as at

30.06.11

£000

 

as at

30.06.10

£000

 

as at

31.12.10

£000


Note




Assets





Non-current assets





Property, plant and equipment

7

9,994

11,453

10,745

Intangible assets

8

12,046

14,402

12,265

Deferred tax asset


2,332

2,184

1,981



24,372

28,039

24,991

Current assets





Inventories

9

13,139

12,703

11,056

Non-current assets classified as held for sale

10

-

834

773

Trade and other receivables                   


18,711

23,193

25,756

Current income tax asset

4

-

1,480

-

Cash and cash equivalents

11

6,416

1,964

4,830



38,266

40,174

42,415






Total assets


62,638

68,213

67,406






Liabilities





Current liabilities





Interest-bearing loans and borrowings

11

(2,537)

(2,592)

(2,581)

Derivative financial instruments


(116)

(328)

(227)

Trade and other payables


(20,559)

(20,589)

(23,096)



(23,212)

(23,509)

(25,904)

Non-current liabilities





Interest-bearing loans and borrowings

11

(21,046)

(21,651)

(21,937)

Retirement benefit obligations


(2,801)

(7,800)

(2,992)

Deferred tax liabilities


(501)

(540)

(501)



(24,348)

(29,991)

(25,430)






Total liabilities


(47,560)

(53,500)

(51,334)





Net assets

15,078

14,713

16,072






Equity





Issued share capital


3,853

3,853

3,853

Share premium


7,013

7,013

7,013

Other reserves


3,062

2,850

2,951

Revenue reserves


1,150

997

2,255

Total equity (attributable to equity holders of the parent)


15,078

14,713

16,072

 

 

               

 



 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the 6 months ended 30 June 2011

 

 

 

 

6 months

ended

30.06.11

£000

 

6 months

ended

30.06.10

£000

 

year

ended

31.12.10

£000





Cash flows from operating activities

 

 

 

Loss for the period

(1,134)

(3,327)

(4,062)

Adjustments for:




Depreciation of property, plant and equipment

856

907

1,803

Amortisation of intangible assets

267

276

561

Loss on disposal of assets classified as held for sale

48

-

-

Gain on sale of property, plant and equipment

-

-

(34)

Net financing costs

622

519

1,202

IFRS 2 charge relating to equity settled plans

6

10

18

Non-recurring pension credit

-

-

(1,205)

Impairment of goodwill

-

-

2,000

Income tax credit

(399)

(1,294)

(493)





Operating cash flows before changes in working capital

and provisions

266

(2,909)

(210)





Decrease in trade and other receivables

7,045

5,238

2,675

Increase in inventories

(2,083)

(2,152)

(505)

Decrease in trade and other payables

        ( 1,618)

         (3,872)

(1,266)

Movement relative to defined benefit pension scheme

(125)

(69)

(869)

Cash from/(used) in operations

3,485

(3,764)

(175)





Interest paid

(536)

(427)

(1,184)

Income taxes received

-

1,785

1,785

Net cash from/(used in) operating activities

2,949

(2,406)

426





Cash flows from investing activities




Proceeds from disposal of assets classified as held for sale

725

-

-

Proceeds from sale of property, plant and equipment

         -

         -

34

Acquisition of property, plant and equipment

(1,105)

(414)

(541)

Acquisition of intangible assets

          (48)  

          (37)  

(185)

Net cash outflow from investing activities

(428)

(451)

(692)

 




Cash flows from financing activities




Increase in bank loans

-

4,641

7,500

Repayment of bank borrowings

(634)

-

(2,293)

Repayment of finance lease liabilities

(301)

(281)

(572)

Net cash (outflow)/inflow from financing activities

(935)

4,360

4,635





Net increase in cash and cash equivalents

1,586

1,503

4,369

Cash and cash equivalents at 1 January

4,830

461

461

Cash and cash equivalents at end of period

6,416

1,964

4,830





 



 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

for the 6 months ended 30 June 2011

 


Share

capital

£000

Share

premium

£000

Merger

Reserve

£000

Hedging

Reserve

£000

Other

Reserve

£000

Revenue

Reserve

£000

Total

£000

Current interim period








At 1 January 2011

3,853

7,013

2,184

(227)

994

2,255

16,072

Total comprehensive income for the period

-

-

-

111

-

(1,111)

(1,000)

Movements relating to share-based payments








and ESOP Trust

-

-

-

-

-

6

6

At 30 June 2011

3,853

7,013

2,184

(116)

994

1,150

15,078

 

Previous interim period








At 1 January 2010

3,853

7,013

2,184

(351)

994

6,169

19,862

Total comprehensive income for the period

-

-

-

23

-

(5,182)

(5,159)

Movements relating to share-based payments








and ESOP Trust

-

-

-

-

-

10

10

At 30 June 2010

3,853

7,013

2,184

(328)

994

997

14,713

 

Prior year








At 1 January 2010

3,853

7,013

2,184

(351)

994

6,169

19,862

Total comprehensive income for the year

-

-

-

          124

-

(3,932)

(3,808)

Movements relating to share-based payments








and ESOP Trust

-

-

-

-

-

18

18

At 31 December 2010

3,853

7,013

2,184

(227)

994

2,255

16,072











NOTES TO THE FINANCIAL STATEMENTS

 

 

1. Basis of preparation

 

These interim financial statements represent the condensed consolidated financial information of the company and its subsidiaries (together referred to as "the Group") for the 6 months ended 30 June 2011. They have been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Services Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the EU. The interim financial statements were approved by the Board of Directors on 6 September 2011. The interim financial statements do not include all of the information and disclosures required for full annual financial statements. They should be read in conjunction with the Annual Report 2010 which is available on request from the company's registered office or to download from www.havelockeuropa.com.

 

The financial information contained in this report in respect of the year ended 31 December 2010 has been extracted from the Annual Report 2010 which has been filed with the Registrar of Companies. The auditors report on these financial statements was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The Group has reported an operating loss for the period ended 30 June 2011 of £0.9 million and the current economic environment remains challenging. As at 30 June 2011, the net debt position was £17.2 million with headroom of £9.4 million on committed facilities at that point. 

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 as detailed in Note 15.  The Group's bankers remain supportive andduring the period the directors have agreed a relaxation in certain covenant tests in relation to the relevant forecast period reviewed by directors.  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.

 

The interim financial statements are unaudited and have not been reviewed by the Company's auditors.

 

 2.  Significant accounting policies

 

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group as disclosed in its consolidated financial statements as at and for the year ended 31 December 2010 except for the impact of the standards disclosed below:

 

New standards

 

The following standards and amendments to standards are effective for the first time in the current financial period and, where relevant, have been adopted by the Group with no impact on its consolidated results or financial position:

 

 

·      IAS 24 Related Party Disclosures (revised 2009)

 

·      Amendments to IFRIC 14 - Prepayments of a Minimum Funding Requirement

 

·      Amendments to IFRS 1 First - time Adoption of IFRSs

 

·      Amendment to IFRS 7 Financial Instruments: Disclosures

 

·      Amendment to IAS 34 Interim Financial Reporting - Significant events and transactions

 

·      Amendment to IFRIC 13 Customer Loyalty Programmes

 

 

 

3. Segmental reporting

 

 

Management information is presented to the main board (the chief operating decision maker) based upon business segments.  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 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.

 

 

 




 


 

6 months

ended

30.06.11

 

6 months

ended

30.06.10

 

year

ended

31.12.10

 


£000

£000

£000

 

Total revenue from external customers




 

Interiors

29,111

26,599

69,037

 

Educational Supplies

3,822

4,045

9,193

 

Point of Sale

10,006

10,533

20,949

 

Total revenue from external customers

42,939

41,177

99,179

 

Inter-segment revenue




 

Interiors

-

(18)

6

 

Educational Supplies

856

795

1,410

 

Point of Sale

-

11

11

 

Total inter-segment revenue

856

788

1,427

 

Total revenue




 

Interiors

29,111

26,581

69,043

 

Educational Supplies

4,678

4,840

10,603

 

Point of Sale

10,006

10,544

20,960

 

Total revenue

43,795

41,965

100,606

 

Eliminate inter-segment revenue

(856)

(788)

(1,427)

 

Consolidated revenue

42,939

41,177

99,179

 





 

Segment result




 

Interiors

(1,291)

(2,681)

(1,321)

 

Educational Supplies

(39)

81

796

 

Point of Sale

1,267

1,444

2,813

 

Amortisation of intangibles (element relating to Educational Supplies segment)

(100)

(112)

(224)

 

Total segment result from operations

(163)

(1,268)

2,064

 

Unallocated expenses (excluding exceptional costs)

(748)

(752)

(1,489)

 

(Loss)/profit from operations

(911)

(2,020)

575

 

Net financing costs (excluding exceptional finance costs)

(622)

(519)

(1,202)

 

Loss before income tax and exceptional costs

(1,533)

(2,539)

(627)

 

Exceptional costs (note 14)

-

(2,082)

(3,928)

 

Loss before income tax

(1,533)

(4,621)

(4,555)

 

Income tax

399

1,294

493

 

Loss for the period

(1,134)

(3,327)

(4,062)

 

 

Segment assets




Interiors

 32,981

 36,849

37,920

Educational Supplies

10,776

13,390

10,664

Point of Sale

9,432

11,967

11,185

Unallocated

9,449

6,007

7,637

Total assets

62,638

68,213

67,406

 

 

4. Income tax

 

A credit for current taxation has been included at 26% (2010 28%), being the effective rate likely to be applied to the result for the full year to 31 December 2011.

 

The Budget on 23 March 2011 announced that the UK corporation tax rate will reduce from 26% to 23% over a period of 3 years from 2011.  It has not yet been possible to quantify the full anticipated effect of this 3% rate reduction, although this will further reduce the Group's future current tax charge and reduce the Group's net deferred tax asset accordingly.

 



5. Loss per share

 

The calculation of basic loss per share and underlying loss per share for the period ended 30 June 2011 is based on the profit attributable to ordinary shareholders as follows:

 

 


 

6 months

ended

30.06.11

£000

 

6 months

ended

30.06.10

£000

 

year

ended

31.12.10

£000

 

6 months

ended

30.06.11

EPS (pence)

 

6 months

ended

30.06.10

EPS (pence)

 

year

ended

31.12.10

EPS(pence)








Basic

(1,134)

(3,327)

(4,062)

(3.0)

(8.9)

(10.9)

Adjusted for:







Exceptional costs

-

2,082

3,928

-

5.5

10.5

Tax relief on exceptional costs

-

(583)

(552)

-

(1.5)

(1.4)

Adjusted

(1,134)

(1,828)

(686)

(3.0)

(4.9)

(1.8)

Diluted basic loss per share




(3.0)

(8.9)

(10.9)

Diluted adjusted loss per share




(3.0)

(4.9)

(1.8)

 

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

 

Basic earnings per share


 

6 months

ended

30.06.11

 

6 months

ended

30.06.10

 

year

ended

31.12.10

In thousands of shares








Issued ordinary shares at 1 January

38,532

38,532

38,532

Effect of own shares held

(1,225)

(1,261)

(1,254)





Weighted average number of ordinary shares for the period

37,307

37,271

37,278





Diluted earnings per share

 


 

6 months

ended

30.06.11

 

6 months

ended

30.06.10

 

year

ended

31.12.10

In thousands of shares




Weighted average number of ordinary shares

37,307

37,271

37,278

Effect of share options in issue

631

1,058

632





Weighted average number of ordinary shares (diluted) for the period

37,938

38,329

37,910





 

6. Equity dividends

 

No dividends have been declared for 2011.

 

 

7. Property, plant and equipment

 

 

                               

 

6 months

ended

30.06.11

£000

 

6 months

ended

30.06.10

£000

 

year

ended

31.12.10

£000

Carrying amount




At beginning of the period

10,745

11,780

11,780

Additions at cost

105

1,414

1,541

Transferred to assets held for sale

-

(834)

(773)

Depreciation charge for the period

(856)

(907)

(1,803)

At end of the period

9,994

11,453

10,745





 

Contracts placed for future capital expenditure not provided in the financial statements amount to £3,000 (30 June 2010: £108,000, 31 December 2010: £nil)

8. Intangible assets


 

6 months

ended

30.06.11

£000

 

6 months

ended

30.06.10

£000

 

year

ended

31.12.10

£000

Carrying amount




At beginning of the period

12,265

14,641

14,641

Additions

48

37

185

Amortisation for the period and impairment charges

(267)

(276)

(2,561)

At end of the period

12,046

14,402

12,265





 

9. Inventories

 

 

                               

 

as at

30.06.11

£000

 

as at

30.06.10

£000

 

as at

31.12.10

£000





Raw materials and consumables

2,769

3,549

3,459

Work in progress

6,104

4,575

2,208

Finished goods

4,266

4,579

 

5,389


_______

_______

_______


13,139

12,703

11,056


_______

_______

_______

 

At 30 June 2011, interim applications outstanding and payments received in respect of contract work in progress amounted to £2,182,000 (30 June 2010: £699,000, 31 December 2010: £542,000).

 

10. Assets held for resale

 

On 30 June and 31 December 2010, a property at Cater Road in Bristol and certain items of machinery met the criteria for classification as non-current assets held for sale under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. As such, the relevant carrying values were  reclassified from Property, plant and equipment  to Non-current assets classified as held for sale.  The sale of this property was completed on 30 June 2011.

 

11. Analysis of net cash and financial liabilities


 

as at

30.06.11

£000

 

as at

30.06.10

£000

 

as at

31.12.10

£000





Cash and cash equivalents per cash flow

6,416

1,964

4,830





Secured bank loans

(2,000)

(2,000)

(2,000)

Finance lease obligations

(537)

(592)

(581)

Current financial liabilities (excluding bank overdrafts)

(2,537)

(2,592)

(2,581)





Secured bank loans

(20,554)

(20,622)

(21,188)

Finance lease obligations

(492)

(1,029)

(749)

Non-current financial liabilities

(21,046)

(21,651)

(21,937)





Net cash and financial liabilities

(17,167)

(22,279)

(19,688)

 

12. Related parties

 

Transactions with key management personnel

 

Group key management personnel receive compensation in the form of salaries and short-term benefits, post-employment benefits and share-based payments. Group key management received total compensation of £ 864,000 for the six months ended 30 June 2011 (six months ended 30 June 2010: £ 1,114,000). This included £90,000 compensation for loss of office (six months ended 30 June 2010: £431,000).

 

13. Pension liabilities

 

During the period, the pension deficit, net of deferred tax, decreased to £2.1 million (December 2010: £2.2 million) as a result of an increase in the value of the fund's investments and a decrease in its liabilities.

 

 

14. Exceptional costs

 

An analysis of exceptional costs is as follows:     

 

6 months

ended

30.06.11

 

6 months

ended

30.06.10

 

year

ended

31.12.10


£000

£000

£000





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

-

732

1,301

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

-

  462

  462

Other restructuring costs  (note (c))

-

399

933

Goodwill impairment (note 8)               

-

          -

          2,000

Non-recurring pension curtailment gain

-

-

(1,205)


-

          1,593

          3,491





Charged to financing costs (note (d))

-

489

437

Total exceptional costs

-

2,082

3,928

 

(a) The integration of the Havelock Interiors business with ESA McIntosh, which commenced in 2009, was completed during the previous 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 a 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) Fees relating to and in connection with the renewal of banking facilities.

 

 

15. Principal risks and uncertainties

 

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 loaned. 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 its 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.



RESPONSIBILITY STATEMENT

 

 

 

We confirm that to the best of our knowledge:

 

·      the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

 

·      the interim management report includes a fair review of the information required by:

 

(a)   DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have        occurred during the first six months of the financial year and their impact on the condensed set of financial  statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(b)   DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

 

 

 

 

 

 Eric Prescott                                                                       Grant Findlay

Chief Executive                                                                    Finance Director

 

 

6 September 2011

 

 

 

 


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