NO IMMINENT job cuts are expected at Fife interior fit-out business Havelock Europa despite the firm warning yesterday that its profits for this year will “fall considerably below expectations”.
Shares in the company opened 40 per cent down at six pence yesterday after investors were told that the business had been impacted by “delays in the commencement of work for key customers and lower than anticipated orders from the public sector”.
The firm said this was “set against the previously announced backdrop of reduced activity in the first half” as well as the costs associated with putting in place a new business management system earlier this year.
Despite the outlook, which the firm will give more detail on when it announces its interim results on September 27, a source close to the business said there was “no suggestion that there will be job cuts at this stage”.
In 2015 Havelock Europa cut its workforce by 100 people after a major client, thought to be Lloyds Banking Group, cut its budget for branch refurbishment, resulting in the business losing a multi-million pound revenue stream.
Accounts reveal that in 2015 alone that one client accounted for £21.1 million of the firm’s £70.3m turnover, with the figure falling to £1.4m of £60.8m in 2016.
“The action taken on that front [redundancies] in the last couple of years means they are hopefully working pretty efficiently now,” the source said.
The profit warning has come after Havelock Europa, which fits out the interiors of hospitals, schools, offices and retail premises, had started to show signs of recovery after a difficult couple of years.
In the year to December 2016 the business reported a pre-tax profit of £400,000, which was ten times bigger than the £40,000 profit it made in 2014 and represented a turnaround from the £800,000 loss it made in 2015.
At the time of announcing the 2016 results chief executive David Ritchie said the profit figure, which came on the back of a 13.5 per cent slide in turnover, was a positive result for the company at the end of a “challenging” and “transitional” year.
It was achieved after the firm diversified its client base away from the banking sector, in particular by increasing the type of retail customers it works for. Having previously focused on doing work for clothing stores, it branched out into the health food and electrical sectors over the course of 2016.
The firm also began trialling its enterprise resource planning system during the year, with the system being fully implemented in June this year.
The system, which is expected to streamline the way work is handled from the point of order to actual fit out, is still bedding into the business but with the costs associated with it being met upfront it is anticipated that the benefits will start to be seen in the firm’s results within the next two years.
Havelock Europa is also understood to consider the slowdown in work from the public sector to be a temporary blip, with projects such as school upgrades taking longer to complete in the current economic environment.
As Havelock Europa’s involvement in such projects comes right at the end of the process it feels the biggest effect of any slowdown in activity.
That said, the business was already feeling the impact of the slowdown in the 2016 financial year, when it adopted a number of measures to help improve cashflow.
Specifically, it negotiated a temporary increase in its bank overdraft from £4.75m to £6m, received a £300,000 loan from chairman Ian Godden and deferred making a £700,000 payment towards its pension deficit until this year.
The results of a strategic review of the business designed to find ways of improving cashflow and profits are expected to be announced later this year.
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