THE MANAGEMENT of Fife fit-out firm Havelock Europa has said it has two years to turn the firm around to in order for it to continue operating as a going concern.

In its latest financial results, which were released yesterday after a four-week delay, the firm reported that its turnover fell by 12.5 per cent to £53.2m in the year to December 2017 while it went from making a marginal pre-tax profit of £200,000 to posting a loss of £5.3 million.

Noting that the results represented “one of the worst performances in Havelock’s history”, chairman Ian Godden said the firm had been “impacted by a lower opening order book brought forward from 2016, changes to the sales mix, lower Government spending on schools, weaker fixed cost coverage and serious issues with [a new enterprise resource planning] system”.

Read more: Fife firm plans annual hours move after government bailout

While Mr Godden said the firm had been further held back “by a lack of finance” in the latter part of the year, he added that £8m of loans secured from Bank of Scotland and Scottish Government development agency Scottish Enterprise earlier this year would allow the firm to put its turnaround plan in place.

However, as Bank of Scotland’s £5m loan expires in March 2020 while repayments on the £3m Scottish Enterprise loan are scheduled to begin in November of that year, the firm noted that the turnaround will have to be bearing fruit by that point.

“The group needs to turn around its financial performance over the next two years in order to stay within the various covenants on its debt during this period and to be in a position to roll over or refinance the facility and possibly the Scottish Enterprise loan, which incurs interest at a significant rate,” the firm said in its accounts.

In addition to repaying its debt, Havelock will see the amount of cash it has to contribute to its defined benefit pension scheme - whose deficit increased from £11.4m to £11.8m last year - more than double between this year and 2022.

Read more: Havelock Europa unveils plan for hitting £100m turnover target

This year the firm will pay £700,000 into the scheme, which has been closed to new members and future accruals for a number of years. The figure will rise to £1.5m from 2022.

In order to meet its commitments the firm is aiming to increase turnover by 25% by 2020 while also cutting its costs.

Chief executive Shaun Ormrod, who was tasked with turning the business around when he was brought in to replace David Ritchie last September, said the firm had already begun scaling back its cost base.

Read more: Pensions issue sees Havelock delay release of 2017 results

“The company has reduced headcount in 2017 by over 13%, shut offices, replaced underperforming commercial management, slimmed the management team and undertaken a major review of inventory,” he said.

The firm is also consulting on moving its remaining staff to an annualised-hours working model, which it is understood would reduce its costs by £1.6m by 2019.

While a note to the accounts said the firm’s directors “are satisfied that it is most likely that the business will be successfully turned around within the trajectory necessary to keep within the debt covenants”, the firm also noted that “a modest shortfall in the forecast revenue will result in a breach of covenants”.

Meanwhile, the firm's Annual Report revealed that Mr Ritchie's total remuneration for 2017, which included a payment for loss of office, was £211,000. In the previous year his total package was £204,000.