SHOPFITTING and interiors business Havelock Europa has returned to profit after a restructuring instituted in 2015 began to bear fruit.
The Fife-based firm, which laid off around 100 staff members during the 2015 financial year and has been streamlining its business processes ever since, reported a pre-tax profit of £400,000 for the year to the end of December 2016.
That is ten times bigger than the £40,000 profit the business made in 2014 and represents a turnaround from the £800,000 loss it made in 2015.
Chief executive David Ritchie said the figure, which came on the back of a 13.5 per cent slide in turnover, was a positive result for the company, which is still coming to terms with a major banking client, believed to be Lloyds Banking Group, slashing its branch-refurbishment budget at the end of 2015.
“2016 was a challenging year - it was a transitional year for us but we’re now addressing all the things we need to address,” Mr Ritchie said.
Chief among these has been broadening its customer base, with the loss of most of the banking client’s contract highlighting how dependant the firm had become on that sector. Indeed, the firm’s accounts reveal that in 2015 alone that one client accounted for £21.1 million of its £70.3m turnover, with the figure falling to £1.4m of £60.8m in 2016.
“When I got the role [of chief executive] in 2015 I looked at the business in terms of gearing and [exposure to the banking sector] was far too high,” he said. “[The loss of a big contract] was always going to come.”
As a result the firm has expanded the type of retailers it fits out shops for, signing up “the leading health food retailer and an electrical retailer” in addition to its traditional clothing customers during the course of the year. In another departure, it has also signed up a car showroom operator as a client.
The outcome, said Mr Ritchie, is that when the turnover generated by the banking customer that cut its contract is taken out of the equation turnover from other customers was up by 21 per cent, from £49.2m to £59.4m.
Despite this, he said a delay in a number of projects in the education sector, where Havelock Europa fits out schools and nurseries, was likely to have an impact on the firm’s cashflow in the first half of the current financial year.
The firm has therefore negotiated a temporary increase in its bank overdraft from £4.75m to £6m, received a £300,000 loan from chairman Ian Godden, who bought £300,000 worth of shares when he replaced David MacLellan in the role in January, and deferred making a £700,000 payment towards its pension deficit until 2017.
Incoming finance director Donald Borland, who succeeds Ciaran Kennedy this week, said the bank had agreed to increase the firm’s facility, which will reduce to £5m in November, because it recognised that trading would be even more skewed to the second half this year than it normally is. He said that the trustees of the company’s pension scheme, whose deficit increased from £1m to £9.4m during the year, had been “extremely helpful” too, adding that the company is currently looking at ways of minimising its pension liabilities, including a potential insurance buy-in deal.
The firm is about to embark on a broad-based strategic review led by Mr Godden.
While the results of that will not be known until later in the year, it is expected that the review will look at ways of creating “leaner processes” with the aim of enhancing cashflow and profitability.
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