Tuesday 5 April 2005

HAVELOCK EUROPA PLC - PRELIMINARY ANNOUNCEMENT

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

Financial Highlights:

• On an underlying basis, pre-tax profit increased by 16% to £5.0m and earnings per share were 10.9p, up 9%.
• On a reported basis, profit before tax totalled £4.5m (2003: £4.7m) and basic earnings per share were 9.2p (2003: 11.7p). 2003 benefited from an exceptional tax free profit of £0.9m.
• The Group’s financial position remains strong despite the net cash outflow of £6.4m in acquisition consideration which was partially offset by the £1.7m net proceeds from a share placing in July. Net debt at the year end amounted to £14.6m (2003: £10.5m) and gearing slightly reduced to 84.7% (2003: 87.5%). Interest cover was a comfortable 4.6 times (2003: 4.8 times), before exceptionals.
• Dividends per share are increased by 14% to 3.2p, covered 2.7 times, in line with the Group’s progressive dividend policy.

Commercial Highlights:

• ESA McIntosh, the UK market leader in science laboratories and fitted furniture for schools, benefited from strong direct sales to schools and Local Authorities but as announced in the Pre-Close Season Trading Update of 28 January 2005, suffered to some extent from contract delays in the PFI sector, which has resulted in a lower contribution to profits than was originally expected.
• The two new businesses acquired in the summer of 2004, TeacherBoards (which designs and manufactures teaching aids and display boards) and Clean Air (which manufactures fume cupboards for industrial, university and science laboratories), performed well.
• The Point of Sale Display Division had a good year, contributing substantially to profit.
• The Retail Interiors Division traded better than expected, making a small but improved profit.

Prospects for 2005:

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

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

Enquiries:

Havelock Europa PLC - 01383 820044
Hew Balfour (Chief Executive) - 07801 683851
Graham MacSporran (Finance Director) 07801 683803

Bankside Consultants Limited
Charles Ponsonby 0207 4444166

HAVELOCK EUROPA PLC - CHAIRMAN'S PRELIMINARY STATEMENT

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

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

Financial Overview:

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

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

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

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

Dividends:

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

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

Trading Review:

Education Furniture

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

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

Education Supply

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

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

Clean Air, based in Bolton, Lancashire, manufactures fume cupboards for industrial, university and science laboratories. Turnover was £3.5 million in the 12 months to 31 December 2004, of which £1.7 million related to the 5½ months under Havelock Europa's ownership. The first earn-out payment of £0.51 million will be made shortly in relation to this performance, with up to a further £1.29 million to follow, based on the profit before tax, in the current year, achieved in excess of £1 million.

Point of Sale Display

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

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

Retail Interiors

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

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

Middle East Interiors

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

International Fianancial Reporting Standards:

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

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

Strategy:

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

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

Current Trading and Prospects:

The Group has had an encouraging start to the year.

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

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

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

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

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


Malcolm Gourlay
Chairman

5 April 2005