Havelock Europa PLC Acquires ESA McIntosh; UK leader in educational laboratories

London Stock Exchange - Regulatory News Service - 7 September 2001

Havelock, the retail interiors and point of sale display business, today announces the acquisition of McIntosh 88 Ltd and its subsidiary, ESA. McIntosh, the UK market leader in the design, manufacture and installation of educational science laboratories.

An initial consideration of £3m will be paid at Completion. Further consideration of up to £5m will be payable dependent on McIntosh's pre-tax profit in both 2001 and 2002. The maximum additional consideration of ?5m will only be payable if McIntosh's pre-tax profit in both 2001 and 2002 reaches £3m. Other than the issue of 2,800,000 new Havelock shares, valued at approximately £882,000, the acquisition will be bank financed.

The directors believe that the acquisition of McIntosh will have the following key commercial benefits:

• The entry of the Group into a market where there is the opportunity for significant growth and attractive returns and in which McIntosh has already established a strong foothold;
• The integration into the Group of a business which is geographically close to Havelock's headquarters, involving similar production processes to those used by Havelock and where the Group's established manufacturing skills can be brought to bear to support growth and enhance profit;
• The opportunity to increase the efficiency of the combined business through significant asset rationalisation; and
• A more even manufacturing work flow, as a result of the seasonal demand for McIntosh's products falling earlier in the year than that of Havelock, thereby enabling an improved utilisation of the manufacturing resources of the Enlarged Group.

Michael Kennedy, Chairman, stated 'McIntosh is an excellent fit with Havelock, with considerable scope for enhancement in earnings per share. McIntosh matches our strategic criteria and follows earlier successful initiatives to broaden Havelock's business into areas with significant growth prospects.'

INVESTORS CHRONICLE 15th AUGUST 2003 - HAVELOCK EUROPA (HVE)

In September 2001, Havelock bought ESA McIntosh for £11m, including maximum deferred payments. It's the UK's market leader in designing, manufacturing and installing science laboratories, and it has been Havelock's salvation. As the maximum deferred consideration in 2002 was based on McIntosh's profits last year of £3m, the rest of the company did not contribute a lot. Not only that, but there's more private finance initiative-work than McIntosh expected, and the next wave of contracts suggests that the subsidiary already has a lot of work booked for the next two to three years.

But McIntosh also brought with it some £6m of tax losses. So the only corporation tax Havelock paid last year was £44,000. But then in comes FRS19, with a deferred tax provision of £951,000 that increases the tax rate from 0.11 to 25.34 per cent. A similar story could be told in 2003, when tax losses run out. But a low tax charge is good news for cash flow, which jumped to £7.05m last year, cutting end-December net debt from £15.7m to £11.3m.

For 2003, brokers expect that predicted "further progress" means profits of £4.5m, before goodwill amortisation of £230,000 and a £900,000 gain on the sale of its Middle East joint-venture.

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