Havelock Europa has posted a £5.8million loss for 2014 after battling weakness in its school and retail interiors markets, but it says debt has finally been wiped out and a more diversified business created.

The Fife-based group, which parted company with chief executive Eric Prescott three weeks ago and is now hunting for his replacement, saw operating profit cut from £632,000 to £180,000 as revenues fell from £89.6m to £83.4m.

It was hit by £5.9m of exceptional costs, but says £5m are non-cash. The pension fund deficit meanwhile trebled to £3.7m, two-thirds of the company' s current market value, and back to its 2012 level.

Under Mr Prescott, who arrived in September 2010 , the shares more than doubled and were above 23p last autumn. But the notoriously unpredictable second half of the year saw the group issue a profits warning as retail and financial sector customers delayed orders, on top of a cutback in schools spending due partly to the funding of free school meals. The shares had sunk to 14p this week but rallied to 15p yesterday.

David MacLellan, chairman, said it had been a challenging year, but overhauling what was almost £20m of debt five years ago showed the progress that had been made, with net cash now £1.4m and leasing debt £1.2m at the year end. "That is a really positive result for the business," he said.

During the year the group won framework contracts with the Post Office and ISS, secured its first orders in the healthcare sector, and is now targeting a rise from 10per cent to 15per cent in international business.

Mr MacLellan said the recovery in education was under way and would continue through 2016, though both financial and retail markets were still challenging. The opening order book of £25m, up from £14m last year, was helped by last year's deferrals.

On the exceptionals, including a £2m write-off of goodwill on its Teacherboards acquisition, finance director Ciaran Kennedy said the £900,000 for restructuring at another educational supplies Stage Systems was the only cash item.

Mr MacLellan said he did not expect another big list of exceptionals in the current year. Havelock had become the first occupant of the new John Smith Business Park at Kirkcaldy, having sold its historic Dalgety Bay site, and had invested £1.1m in the ERP management system which would enable the business to become more efficient and customer-friendly.

The chairman said the group was "focused on continuing to diversify its customer base across its chosen sectors and reducing its reliance on second half performance". It employs over 500 at Kirkcaldy, and MacLellan said: "I am pleased to be able to announce our new graduate training and senior management leadership programmes which together with our apprenticeship scheme launched last year, demonstrates our commitment to the local community and the future of our business."

On the group's manufacturing facilities in China and eastern Europe, Mr Kennedy said they were used for orders with long lead times or "overflow", and were not supplanting work done in Scotland.

He said the group was looking at reducing the pension fund's exposure to equities as it sought to reduce risk.