Havelock Europa, the interiors group which counts some of the UK's top retailers and banks among its customers, is confident it can weather a high street downturn and overcome setbacks in its schools supply arm.

Havelock has seen the value of its shares more than halve in the past 12 months, despite its traditional retail-linked businesses having performed better than ever.

It says orders in the first quarter are almost 50% up on last year at £36.4m, and management issues in the education side of the business are being ironed out.

"This is not a time for sackcloth and ashes," commented Hew Balfour, chief executive, as he unveiled annual results showing a sixth successive year of substantial profit growth for the Fife-based firm.

Pre-tax profit jumped 24% to £6.7m on revenue up 9% at £125m, gearing was cut from 88% to 48% following a share issue a year ago, and the dividend rose 13% to 4.5p.

The retail interiors business lifted revenue by 14% to £54m thanks to strong performances from key customers House of Fraser, Marks & Spencer, Boots and HBOS. The division has started 2008 with strong orders and Havelock considers it "well placed to withstand any temporary downturn in the retail sector".

Point-of-sale display, which increased revenue marginally to £27.6m, has in the past benefited from weaker trading on the high street, as retailers boost promotion budgets to preserve sales.

The key growth business of education, however, produced a flat year apart from newly-acquired Stage Systems, which added 9% to revenue at £43.6m.

"In 2008, renewed organic growth in educational interiors is anticipated, with the group likely to be involved in approximately 21 PFI and BSF projects in 2008, in respect to which letters of intent or orders have already been received for 19," Havelock said. Its order book topped £43m at January 1 against £10m in 2007.

Balfour commented that the group had met the same market expectations that prevailed when Havelock's share price was twice its current level.

"We are not alone in that," he added. "But we are disappointed with education, not in the long-term but in the short-term. If we had produced what we should have produced, we would have been in for a monster upgrade."

He added, however, that having three legs to the business had proved a sound strategy. "Some of the investment community take the view that you should have a one-trick pony but we have a three-legged stool and the two other businesses have performed very well."

Balfour said all Havelock's big retail clients, including Marks & Spencer and Primark, had maintained their investment at high levels despite the predicted slowdown. "If you are going to be in bed with a retailer, we are in bed with the right retailers."

He said Havelock had in recent years turned a "pretty average performer into a star performer", with the retail business turning in its best performance for 10 years. "We only need to apply those skills to education and this business will come round."

Investec, the house broker, said: "There clearly remains uncertainty in the outlook for Havelock's retail customer base, but we believe this is a positive for the point-of-sale division and education appears to be back on track and set to benefit from an increased order book."

It has a price target of 119p. The shares rose 4.5p to 77.5p yesterday.