TIDMHVE
RNS Number : 9030R
Havelock Europa PLC
27 September 2017
27 September 2017
HAVELOCK EUROPA PLC
("Havelock" or the "Company")
Interim Results
Havelock Europa (HVE.L), the international interior solutions
provider, announces its results for the half year to 30 June
2017.
This announcement contains inside information for the purposes
of Article 7 of Regulation 596/2014.
Financial and operational review
-- Revenue 9% lower at GBP23.2m (2016: GBP25.4m) due mainly to a
weak opening order book in public sector
-- Operating loss increased to GBP2.4m (2016: GBP0.7m)
reflecting lower revenue, changes to the sales mix and additional
costs associated with the implementation of the Enterprise Resource
Planning (ERP) system
-- As a result, net debt increased to GBP5.0m from GBP2.7m at
December 2016. The Board remains confident of operating within
facilities throughout their term
-- Whilst H2 is expected to be profitable, the results for the
full year will be significantly below last year
-- Changes to commercial model in public sector starting to
yield results - the sector 'quote bank' has doubled to over GBP50m
in the last three months, new framework appointments with main
contractors and strengthened business development team
Leadership change
-- New CEO appointed with immediate effect
-- Strategy review will be completed and announced at the end of October
Ian Godden, Chairman of Havelock Europa, said: "Havelock has
experienced a difficult first half, with market uncertainty among
both public and private sector clients resulting in reduced or
delayed activity. I believe, however, that our new leadership team,
combined with our developing commercial strategy, will set a strong
foundation for the future."
Enquiries
Havelock Europa PLC 01592 648480
Ian Godden, Chairman
Donald Borland, Chief
Financial Officer
WH Ireland Group plc (Nomad) 0207 220
Chris Fielding 1650
0131 516
Charlotte Street Partners 5310
Rob Ballantyne
David Gaffney
www.havelockeuropa.com
INTERIM STATEMENT
Performance during the period was impacted by a lower opening
order book brought forward from 31 December 2016, resulting in
lower sales, changes to the sales mix and additional costs incurred
as a consequence of the Enterprise Resource Planning (ERP) project
implementation. The loss before tax for the period increased to
GBP2.6m (2016: GBP0.9m), equating to a loss per share of 6.4p
(2016: 2.3p).
As announced on 7 September 2017, the Board now believes that
results for the full year ending 31 December 2017 will be
considerably lower than originally expected, although we do expect
to trade profitably in the second half.
FINANCIAL REVIEW
Revenue for the six months ended 30 June 2017 decreased by 9% to
GBP23.2m (2016: GBP25.4m). A strong performance in the Retail and
Lifestyle Sector was more than offset by lower activity in Public
Sector and Corporate Services.
Gross profit reduced to GBP1.1m (2016: GBP2.5m) due to the
combined effect of:
-- lower revenues from a weaker order book, in part reflecting
increased market uncertainty since mid 2016;
-- a different mix of business with a greater contribution from
Retail sector programmes, generally at lower margins;
-- reduced absorption of fixed costs due to the lower volumes
and also disruption to activities on implementation of the ERP
project.
Underlying administrative expenses were broadly consistent year
on year. Finance costs, however, increased due to the charge
relating to the increased pension deficit at 31 December 2016.
The Group has decided not to account for any further deferred
tax asset in respect of the losses incurred during the period.
Net debt at 30 June 2017 of GBP5.0m was higher than that
recorded in June 2016 (GBP3.6m). The increase reflects the trading
loss in H1 2017 combined with the investment in the ERP project,
particularly in H2 2016. The increase in Group net debt at the half
year to GBP5.0m (December 2016: GBP2.7m) also demonstrates the
seasonality of the business, as revenue is typically summer/second
half loaded. This pattern is consistent with previous years.
GBP0.6m of new funding was provided during the period from the
Chairman via an issue of new shares (GBP0.3m) and an unsecured loan
(GBP0.3m). The Board remains confident of operating within our
facilities throughout their term.
The pension deficit is GBP0.2m lower than the year-end position
due to cash contributions made during the period and a small
revaluation uplift as at 30 June 2017.
Net assets reduced to GBP3.2m (Dec 2016: GBP5.4m) as a
consequence of the loss incurred during the period.
STRATEGY
The Board has been conducting a comprehensive review of strategy
over the last six months. The review will be completed and
announced on 31 October 2017.
The Company will be hosting a presentation to shareholders on
the new strategy in Edinburgh at 9.30 am on 31 October 2017 and in
London at 9.30 am on 1 November 2017. To register for either
presentation, please contact the Company at
contactus@havelockeuropa.com.
TRADING REVIEW
A slow-down in the number of Public Sector opportunities in
Scotland was evident through H2 2016 and, combined with delays in
the second phase of the ESFA Priority Schools Building Programme in
England, contributed to a lower opening order book at the start of
the year and, hence, reduced revenues during the period. A new
nursery and early years' education product range was launched
earlier this year and was well received by the market.
Furthermore, strong progress has been made in the Public Sector
with a number of new main contractor customers in achieving
preferred/nominated supplier or framework status throughout the UK.
Together with an upgrading of our business development personnel
and leaner front end processes, these measures are expected to
ensure enhanced order intake going forward. The quote bank for this
sector has doubled to more than GBP50m over the last three months,
which bodes well for growth in turnover from this sector next year.
The Board is confident that we can further increase the value of
outstanding quotations by the end of the year.
Although volumes were lower in Corporate Services, we have been
actively engaged by two major UK Financial Institutions on the
initial stages of their new branch refurbishment programmes and
expect to see increasing volume starting to flow from these.
The Retail and Lifestyle sector experienced a positive first
half. A number of new accounts were secured during the period, both
in the UK and internationally. International retail continues to be
a significant element of our business and, in the period, accounted
for over 20% of revenue, driven in part by growth in demand from
existing and new customers in Australia.
Post the Brexit decision, cost reduction has become an even
greater focus for retail customers with investment programmes
subject to regular review and re-evaluation, with consequent
pressure on our margins and cost effective procurement and
manufacturing solutions.
The ERP project went 'live' during the period and there have
been a number of operational challenges as a consequence. This,
combined with lower activity levels, resulted in an
under-absorption of costs and therefore had a negative impact on
gross profit. Whilst the most significant issues have been
resolved, a further period of 'bedding-in' of the new system and
related processes will be required before we see the benefits being
fully realised.
DIVIDS
The Board does not propose to pay any dividend in 2017.
BOARD
David MacLellan resigned as Chairman on 25 January 2017 and was
replaced by Ian Godden.
Ciaran Kennedy resigned as a Director and Chief Financial
Officer and was succeeded by Donald Borland on 26 April 2017.
David Ritchie resigned as a Director and Chief Executive Officer
on 26 September 2017 and has been succeeded by Shaun Ormrod.
I would like to thank my former colleagues for their work on
behalf of the Company over many years and look forward to working
with the new team.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties are set out in the notes
to this statement. The risks and uncertainties are largely
unchanged from those set out in the Annual Report for 2016.
GOING CONCERN
The financial position of the Group, its cash flows and
liquidity position are set out in the interim financial
statements.
During the period the Group operated under a bank overdraft
facility, which increased from GBP4.75m to GBP6.0m on 1 May 2017.
The overdraft facility is subject to review in April 2018. During
the six months to 30 June 2017, the conditions of the facilities
were met and the Directors expect to be able to comply with the
conditions in the future, based on the most recent forecasts and
taking account of mitigating actions that could be taken.
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 accounts.
CURRENT TRADING AND OUTLOOK
The delayed schools building programmes and weaker than expected
order intake in Public Sector will impact on our full year results.
Whilst this will, in part, be mitigated by Retail and Corporate
Services, delays to programmes in these sectors have pushed out
revenues to 2018. As a consequence, and given the loss incurred in
the first half of the year, the Directors expect that results for
the year ending 31 December 2017 will fall significantly below last
year, although they do expect that the Group will trade profitably
in H2 2017.
The outlook for 2018 and beyond, as we implement our forthcoming
strategy changes, is more positive, as a result of:
-- new leadership of the Company;
-- new innovative product ranges, more framework agreements and
an enhanced procurement model driving a growing quote bank in the
Public Sector throughout the UK;
-- the branch refurbishment programmes being rolled out by our
key financial institution customers in Corporate Services; and
-- continued strong demand from an increased portfolio of
clients in the Retail and Lifestyle sector with established
investment programmes.
With a reduced cost base following the restructuring of the
business over the last 18 months, the Group is well placed to
improve its performance, as these changes take effect, and generate
a positive return to shareholders.
The Board would like to thank staff for their support and
commitment during this difficult period.
Ian Godden
Chairman
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 June 2017 (unaudited)
Unaudited Unaudited
6 months 6 months
ended ended
30.06.17 30.06.16
Note GBP000 GBP000
Revenue 23,163 25,401
Cost of sales (22,109) (22,859)
Gross profit 1,054 2,542
Administrative
expenses (3,428) (3,250)
Operating loss (2,374) (708)
Net finance costs (239) (160)
Loss before income
tax (2,613) (868)
Income tax credit - -
Loss for the
period (attributable
to equity holders
of the parent) (2,613) (868)
Basic loss per
share 4 (6.4p) (2.3p)
Diluted loss
per share 4 (6.4p) (2.3p)
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2016
Result
before
exceptional Exceptional
costs costs Total
GBP000 GBP000 GBP000
Note
Revenue 60,809 --- 60,809
Cost of sales (52,753) --- (52,753)
Gross profit 8,056 8,056
Administrative
expenses (7,525) (174) (7,699)
Operating profit/(loss) 531 (174) 357
Net finance costs (174) --- (174)
Profit/(loss) before
income tax 357 (174) 183
Income tax charge (99) 35 (64)
Profit/(loss) for
the year (attributable
to equity holders
of the parent) 258 (139) 119
Basic earnings
per share 4 0.7p 0.3p
Diluted earnings
per share 4 0.7p 0.3p
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the 6 months ended 30 June 2017
6 months 6 months year
ended ended ended
30.06.17 30.06.16 31.12.16
GBP000 GBP000 GBP000
(unaudited) (unaudited)
(Loss)/profit for the period/year (2,613) (868) 119
-------------- -------------- -----------
Items that will not be reclassified
to profit or loss
Re-measurement of defined
benefit pension scheme 87 (2,420) (8,420)
Tax on items taken directly
to equity (16) 436 1,516
-------------- -------------- -----------
Other comprehensive income
net of tax 71 (1,984) (6,904)
Total comprehensive income
for the period
(attributable to equity holders
of the parent) (2,542) (2,852) (6,785)
-------------- -------------- -----------
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 June 2017
as at as at as at
30.06.17 30.06.16 31.12.16
GBP000 GBP000 GBP000
(unaudited) (unaudited)
Note
Assets
Non-current assets
Property, plant and equipment 6 2,833 3,095 2,999
Intangible assets 7 9,893 8,917 9,577
Deferred tax assets 3,030 1,916 3,046
-------------- -------------- -----------
15,756 13,928 15,622
Current assets
Inventories 5,396 7,921 4,654
Trade and other receivables 12,024 10,376 10,374
-------------- -------------- -----------
17,420 18,297 15,028
Total assets 33,176 32,225 30,650
-------------- -------------- -----------
Liabilities
Current liabilities
Interest-bearing loans
and borrowings (4,638) (3,289) (2,620)
Trade and other payables (15,891) (15,844) (13,109)
-------------- -------------- -----------
(20,529) (19,133) (15,729)
Non-current liabilities
Interest-bearing loans
and borrowings (321) (271) (123)
Retirement benefit obligations (9,149) (3,466) (9,356)
-------------- -------------- -----------
(9,470) (3,737) (9,479)
Total liabilities (29,999) (22,870) (25,208)
-------------- -------------- -----------
Net assets 3,177 9,355 5,442
-------------- -------------- -----------
Equity
Issued share capital 4,153 3,853 3,853
Share premium 7,013 7,013 7,013
Other reserves 2,184 2,184 2,184
Revenue reserves (10,173) (3,695) (7,608)
-------------- -------------- -----------
Total equity (attributable
to equity holders
of the parent) 3,177 9,355 5,442
-------------- -------------- -----------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the 6 months ended 30 June 2017
6 months 6 months year
ended ended ended
30.06.17 30.06.16 31.12.16
GBP000 GBP000 GBP000
(unaudited) (unaudited)
Cash flows from operating activities
(Loss)/profit for the period/year (2,613) (868) 119
Adjustments for:
Depreciation of property, plant
and equipment 180 190 366
Amortisation of intangible assets 56 100 188
Net financing costs 239 160 174
Deferred tax on R&D credit - - (114)
Non-cash exceptional charges - - 91
IFRS 2 charge relating to equity
settled plans 9 16 36
Income tax credit - - 64
Operating cash flows before changes
in working capital and provisions (2,129) (402) 924
Increase in trade and other receivables (1,650) (943) (941)
(Increase)/decrease in inventories (742) (1,867) 1,400
Increase/(decrease) in trade and
other payables 2,775 (412) (3,146)
Cash contributions to defined
benefit pension scheme (249) - (134)
------------------- -------------- -----------
Cash used in operations (1,995) (3,624) (1,897)
Interest paid (103) (43) (125)
------------------- -------------- -----------
Net cash used in operating activities (2,098) (3,667) (2,022)
Cash flows from investing activities
Acquisition of property, plant
and equipment (14) (51) (131)
Acquisition of intangible assets (372) (951) (1,699)
------------------- -------------- -----------
Net cash outflow from investing
activities (386) (1,002) (1,830)
Cash flows from financing activities
Proceeds from the issue of share 268 - -
capital, net of associated costs
Increase in term loans 300 - -
Repayment of finance lease/HP
liabilities (200) (146) (402)
New finance leases - - 63
------------------- -------------- -----------
Net cash inflow/(outflow) from
financing activities 368 (146) (339)
Net decrease in cash and cash
equivalents (2,116) (4,815) (4,191)
(Overdraft)/cash and cash equivalents
at 1 January (2,230) 1,961 1,961
------------------- -------------- -----------
Overdrafts at end of period/year (4,346) (2,854) (2,230)
Analysis of net cash and financial
liabilities
Overdrafts per cash flow (4,346) (2,854) (2,230)
Finance lease obligations (292) (435) (390)
------------------- -------------- -----------
Current financial liabilities (4,638) (3,289) (2,620)
Term loan (300) - -
Finance lease obligations (21) (271) (123)
------------------- -------------- -----------
Non-current financial liabilities (321) (271) (123)
Net cash and financial liabilities (4,959) (3,560) (2,743)
------------------- -------------- -----------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the 6 months ended 30 June 2017
Share Share Merger Revenue
capital premium Reserve Reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000
Current interim period
(unaudited)
At 1 January 2017 3,853 7,013 2,184 (7,608) 5,442
Loss for the period - - - (2,613) (2,613)
Other comprehensive income
for the period - - - 71 71
Shares issued 300 - - - 300
Costs relating to issue
of ordinary shares - (32) (32)
IFRS 2 charge relating
to equity settled plan - - - 9 9
--------------------------------- ------- --------- --------- ---------- --------
At 30 June 2017 4,153 7,013 2,184 (10,173) 3,177
--------------------------------- ------- --------- --------- ---------- --------
Previous interim period
(unaudited)
At 1 January 2016 3,853 7,013 2,184 (859) 12,191
Loss for the period - - - (868) (868)
Other comprehensive income
for the period - - - (1,984) (1,984)
IFRS 2 charge relating
to equity settled plan - - - 16 16
--------------------------------- ------- --------- --------- ---------- --------
At 30 June 2016 3,853 7,013 2,184 (3,695) 9,355
--------------------------------- ------- --------- --------- ---------- --------
Prior year
At 1 January 2016 3,853 7,013 2,184 (859) 12,191
Profit for the year - - - 119 119
Other comprehensive income
for the year - - - (6,904) (6,904)
IFRS 2 charge relating
to equity settled plan - - - 36 36
--------------------------------- ------- --------- --------- ---------- --------
At 31 December 2016 3,853 7,013 2,184 (7,608) 5,442
--------------------------------- ------- --------- --------- ---------- --------
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 2017. 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 and have been prepared on the
historical cost basis except for the assets of the defined benefit
pension scheme which are stated at their fair value and the
liabilities of the defined benefit pension scheme which are
measured by the projected unit credit method.
The preparation of the interim statements requires the directors
to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates. The estimates and judgements applied have not changed
from those used in the 2016 Annual Report.
The interim financial statements were approved by the Board of
Directors on 27 September 2017. 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 2016 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 2016 has been extracted from the Annual
Report 2016 which has been filed with the Registrar of Companies.
The auditor's report on these financial statements was unqualified,
did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying his report and
did not contain a statement under Section 498(2) or (3) of the
Companies Act 2006.
The interim statements have been prepared on a going concern
basis. The reasons for this are outlined in the Chairman's
Statement.
The interim financial statements are unaudited and have not been
reviewed by the Company's auditor.
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 2016.
3. Income tax
The Group has decided not to recognise further deferred tax
assets in respect of losses incurred during the period.
A reduction in the main UK Corporation tax rate to 18% from 1
April 2020 had been substantively enacted by the balance sheet
date. The Group and Company's deferred tax assets and liabilities
are therefore recognised at 18%.
4. Earnings per share
The calculation of basic loss per share for the period ended 30
June 2017 is based on the loss attributable to ordinary
shareholders as follows:
6 months 6 months year 6 months 6 months year
ended ended ended ended ended ended
30.06.17 30.06.16 31.12.16 30.06.17 30.06.16 31.12.16
GBP000 GBP000 GBP000 EPS EPS EPS(pence)
(pence) (pence)
(unaudited) (unaudited) (unaudited) (unaudited)
Basic (2,613) (868) 119 (6.4) (2.3) 0.3
Adjusted for:
Exceptional costs
(net of associated
tax credit) - - 139 - - 0.4
------------- ------------- ---------- ------------- ------------- -------------
Continuing operations
before exceptional
costs (2,613) (868) 258 (6.4) (2.3) 0.7
Diluted basic (loss)/profit
per share (6.4) (2.3) 0.3
Adjusted diluted
(loss)/profit per
share - continuing
operations (6.4) (2.3) 0.7
The weighted average number of shares used in each calculation
is as follows:
Basic earnings per share
6 months 6 months year
ended ended ended
30.06.17 30.06.16 31.12.16
(unaudited) (unaudited)
In thousands of shares
Issued ordinary shares at 1 January 38,532 38,532 38,532
Effect of own shares held (165) (165) (165)
Effect of shares issued 2017 2,502 - -
Weighted average number of ordinary
shares for the period 40,869 38,367 38,367
------------------------------------- ------------- ------------- ----------
Diluted earnings per share
6 months 6 months year
ended ended ended
30.06.17 30.06.16 31.12.16
(unaudited)
(unaudited)
In thousands of shares
Weighted average number of ordinary
shares for the period 40,869 38,367 38,367
Effect of share options in issue 1,141 1,504 1,182
Weighted average number of ordinary
shares (diluted) for the period 42,010 39,871 39,549
------------------------------------- -------------- ------------- ----------
5. Equity dividends
No dividends have been declared or proposed for 2017.
6. Property, plant and equipment
6 months 6 months year
ended ended ended
30.06.17 30.06.16 31.12.16
GBP000 GBP000 GBP000
(unaudited) (unaudited)
Carrying amount
At beginning of the period 2,999 3,234 3,234
Additions at cost 14 51 131
Depreciation charge for
the period (180) (190) (366)
---------------------------- ------------- ------------- ----------
At end of the period 2,833 3,095 2,999
---------------------------- ------------- ------------- ----------
Contracts placed for future capital expenditure not provided in
the financial statements amount to GBPnil (30 June 2016:
GBPnil,
31 December 2016: nil)
7. Intangible assets
6 months 6 months year
ended ended ended
30.06.17 30.06.16 31.12.16
GBP000 GBP000 GBP000
(unaudited) (unaudited)
Carrying amount
At beginning of the period 9,577 8,066 8,066
Additions 372 951 1,699
Amortisation for the period (56) (100) (188)
----------------------------- ------------- ------------- ----------
At end of the period 9,893 8,917 9,577
----------------------------- ------------- ------------- ----------
8. Related parties
Transactions with key management personnel
Group key management personnel receive compensation in the form
of salaries and short-term benefits, compensation for loss of
office, post-employment benefits and share-based payments. Group
key management received total compensation of GBP419,000 for the
six months ended 30 June 2017 (six months ended 30 June 2016:
GBP420,000).
9. Pension liabilities
During the period, the pension deficit, net of deferred tax,
decreased to GBP7.5 million (December 2016: GBP7.7 million). On 24
April 2017, the Group agreed with the trustees of the pension
scheme the deferral of deficit funding payments of GBP0.7m,
scheduled in 2017, into 2018.
10. Exceptional costs
An analysis of exceptional 6 months year
costs is as follows:
ended ended
30.06.17 31.12.16
GBP000 GBP000
(unaudited)
Restructuring costs - 174
11. Financial instruments - fair value
The methods and assumptions used in estimating the fair value of
financial instruments are described in note 20 of the Annual Report
2016. There have been no changes in the valuation methods during
the period.
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together
with the carrying amounts shown in the balance sheet, are as
follows:
Group
as at 30.06.17 as at 30.06.16 as at 31.12.16
(unaudited) (unaudited)
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Trade receivables
and accrued income 11,241 11,241 9,315 9,315 9,438 9,438
Bank overdraft (4,346) (4,346) (2,854) (2,854) (2,230) (2,230)
Trade payables (10,170) (10,170) (9,472) (9,472) (8,944) (8,944)
Unsecured term
loan (300) (300) - - - -
Obligations under
finance leases/HP
contracts (313) (313) (706) (706) (513) (513)
12. Movement in share
capital and term loans
2017 2016
Number Number of
of shares shares
In issue at 1 January 38,532,050 38,532,050
Issued during the period 3,000,000 -
----------------------- -------------
In issue at 30 June 41,532,050 38,532,050
----------------------- -------------
On 31 January 2017, 3,000,000 new ordinary shares were issued to
the Chairman at par value in consideration for cash. GBP32,000 of
share issue costs have been charged directly to Revenue
Reserve.
During June 2017, the Chairman provided an unsecured loan of
GBP0.3m to the Company. The loan carries an interest rate of 6%, is
for a two year term and can be converted into shares in the event
of a future rights issue or placing.
13. Principal risks and uncertainties
The principal risks and uncertainties facing the Group for the
remainder of 2017 are shown below and have not changed from those
disclosed in the Annual Report for 2016.
The Group must operate within its bank facilities. The Group's
financial forecast shows that this can be achieved. A material
disruption to the Company's business or a shortfall in operational
or financial performance or a reduction in the ability to secure
appropriate credit terms could mean that the Group's ability to
operate within its overdraft facility would be at risk. The Group
addresses this risk by detailed monitoring of financial performance
and of the expected outcome for each measurement period. The
Group's bank facilities are subject to review on 30 April 2018.
The Group's business has 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.
The Group has a number of major clients each of which constitute
materially to Group revenue. The loss of a major client would
adversely impact the Group's profitability and cash flow. The
business focusses on maintaining a good working relationship with
all its customers, in particular these larger clients. We are
continuing to pursue our strategy of diversifying the business
across and within sectors to increase resilience and reduce
dependence on particular markets and customers.
The Group operates in highly competitive markets 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 Group is involved as a supplier to major construction
projects which can be subject to programme delays at Government
level as well as 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 Group undertakes work as a sub-contractor 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 largest element of working capital employed by the Group is
trade receivables and accrued income. 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. 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.
Ian Godden Donald Borland
Chairman Chief Financial Officer
27 September 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LFFSFAFIRFID
(END) Dow Jones Newswires
September 27, 2017 02:01 ET (06:01 GMT)
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