RNS Number : 4313W
Hargreaves Services PLC
01 August 2018
 

For immediate release

1 August 2018

 

 

HARGREAVES SERVICES PLC

(the "Group" or "Hargreaves")

 

Preliminary Results for the year ended 31 May 2018

 

Hargreaves Services plc (AIM: HSP), a diversified group delivering key services to the industrial and property sectors, announces its preliminary results for the year ended 31 May 2018.

 

KEY FINANCIAL RESULTS

 

Year ended 31 May

   2018

2017

 

Revenue

£297.1m

£342.7m

 

Operating (Loss)/Profit

£(1.4)m

£1.4m

 

Underlying Operating Profit*

£9.4m

£11.0m

 

Profit Before Tax

£0.5m

£4.7m

 

Basic EPS from continuing operations

3.8p

17.8p

 

Underlying basic EPS from continuing operations

14.9p

19.8p

 

Final Dividend

4.5p

4.5p

 

Net Debt

£30.8m

£15.7m

 

Net Assets

£136.1m

£137.9m

 

Net Assets per Share

424p

432p

 

         

                                   

* Underlying Operating Profit is stated prior to exceptional items, the amortisation and impairment of intangible assets and including the Group's share of operating profit in associates and joint ventures.

 

HIGHLIGHTS

 

·    Underlying trading satisfactory and in line with management expectations

·    Distribution & Services Underlying Operating Profit margin up to 4.6% (2017: 4.3%)

·    Independent property valuation confirms £20m market value uplift and a further £28m development value uplift

·    Total property valuation uplift equates to 129p per share

·    Good progress continues to be made on the development of the Blindwells project

·   £29m Legacy assets to realise, down from £66m two years ago, with the majority to be realised by 31 May 2019

·    Disposal of Brockwell Energy, treated as a Discontinued Operation, well advanced

·    Roger McDowell becomes Chairman, 1 August 2018

·    Final dividend maintained at 4.5p; full year dividend of 7.2p (2017: 7.2p)

Commenting on the preliminary results, retiring Chairman David Morgan said: "The Group is delivering against its strategic objectives. As revenues from traditional markets decline, operational focus is on risk management and margin improvement. Value realisation from the Group's Property and Energy assets is continuing with exclusivity granted to a purchaser for the Energy portfolio and sale completion expected in the next few months. Independent property valuations confirm the latent value in the Group's property portfolio. Legacy asset realisation should be substantially completed by 31 May 2019. The Board looks forward to an improvement in cash generation and underlying operating profits."

Analyst meeting

A meeting for analysts will be held at 10.00am this morning, 1 August 2018, at the offices of Buchanan,

107 Cheapside, London EC2V 6DN. Please contact Buchanan on 020 7466 5000 for further information.

 

 

Enquiries:

 

Hargreaves Services plc

Gordon Banham, Chief Executive Officer

John Samuel, Group Finance Director

 

 

0191 373 4485

Buchanan (Financial PR)

Mark Court  / Sophie Wills / Henry Wilson

 

020 7466 5000

N+1 Singer (NOMAD and Joint Corporate Broker)

Sandy Fraser / Rachel Hayes

 

020 7496 3000

Investec (Joint Corporate Broker)

Sara Hale / Helene Comitis

020 7597 4000

 

 

 

 

Chairman's Statement

David Morgan, Group Chairman

 

 

Introduction

 

I am pleased to report on the progress of Hargreaves in the year ended 31 May 2018. It was a year during which the Board continued to deliver its strategy of simplification of the Group, with the on-going disposal of Legacy and non-core assets and a focus on core activities in Distribution & Services and Property. Hargreaves is well positioned to deliver value from its chosen markets where appropriate margins and returns on capital can be achieved. Underlying trading for the year has been satisfactory and in line with management expectations.

 

Results

 

Revenue from continuing operations was £297.1m (2017: £342.7m). £40.9m of this reduction, which was in line with expectations, arises within the Distribution & Services business. Additionally, there was a reduction of £12.5m in revenue from the sale of Legacy assets during the year.

 

Underlying Operating Profit from continuing operations for the year was lower than the comparative period at £9.4m (2017: £11.0m). The reduction is attributable to Distribution & Services which recorded Underlying Operating Profit of £12.9m (2017: £13.7m). Underlying Operating Profit is defined by the Board as Operating Profit prior to exceptional items, amortisation and impairment of intangible assets and includes the Group's share of the operating profit of its German associate. The Board uses this measure as a Key Indicator in assessing the financial performance of the Group throughout the year and believes that its disclosure benefits readers of these financial statements. Further information on the trading performance of the businesses is given in the Chief Executive Officer's Business Review.

 

Operating profit prior to exceptional items improved by 17% to £2.1m (2017: £1.8m). After accounting for £3.5m (2017: £0.5m) of exceptional items, principally attributable to the legacy contracts in Specialist Earthworks and associated restructuring costs, operating loss under IFRS was £1.4m (2017: profit of £1.4m). After net financial expenses of £1.3m (2017: £2.1m) and accounting for the share of post-tax profits of the German associate of £3.2m (2017: £5.5m), the consolidated profit before tax was £0.5m (2017: £4.7m). Basic underlying earnings per share from continuing operations were 14.9p (2017: 19.8p) and 3.8p (2017: 17.8p) on a reported basis.

 

Brockwell Energy Limited

 

As previously announced, the Board has entered into exclusive negotiations with one party to acquire Brockwell Energy Limited, the holding company for the Group's Energy business. Completion of the disposal is expected to occur within the next few months. The decision to dispose of the whole of the Group's investment in Brockwell was reached as the Board considered that a minority position would not provide the Group with sufficient influence over the development of the business. Consequently, Brockwell Energy Limited is reported as a Discontinued Operation within these results.

 

Net Debt

 

As previously indicated, net debt of £30.8m (2017: £15.7m) was approximately £7m higher than expected due to the timing of a legacy land asset disposal, in respect of which contracts were exchanged after the year end. The underlying increase of approximately £8m was primarily due to an increased investment of £4.3m in Brockwell Energy Limited and £3.5m of exceptional items. Although net debt may increase further in the first half of this financial year primarily due to planned increases in working capital including at Blindwells, a substantial reduction is forecast by the year end as Legacy assets are expected to be realised in the second half.

 

The Group has recently renegotiated its banking facilities and has put a two-year agreement in place with its bankers which provides appropriate operational headroom without committing the Group to excess unnecessary facilities and associated non-utilisation costs.

 

Dividend

 

The Board is recommending an unchanged final dividend of 4.5p (2017: 4.5p) per ordinary share thus maintaining the full year dividend at 7.2p (2017: 7.2p). This will be paid on 2 November 2018 to all shareholders on the register at the close of business on 21 September 2018. The shares will become ex-dividend on 20 September 2018.

 

People

 

The Board would like to thank each of our employees for their efforts which are the foundation of the Group's ability to deliver returns for our shareholders. The Group employs over 2,000 people and each of them plays their part in its achievements.

 

Board Changes

 

On 2 January 2018, Iain Cockburn stepped down as Group Finance Director to take up the role of Chief Financial Officer of Brockwell Energy Limited on a full-time basis. Iain was succeeded on that date by John Samuel, formerly Group Finance Director at Renew Holdings plc. Additionally, Kevin Dougan retired from the Board on 1 December 2017. We also recently announced the recruitment of David Anderson who will join the Board no later than 1 December 2018 as Group Property Director.

 

Additionally, Peter Jones has informed the Board of his intention not to seek re-election at the Annual General Meeting to be held on 30 October 2018. The Board will commence a process to appoint a further non-executive Director shortly.

 

As previously announced, I will be resigning from the Board immediately following these results and will be succeeded by Roger McDowell, who joined the Board on 11 May 2018. In the short period I have been working with Roger, it is clear to me that his experience will prove to be of great benefit to the Board in developing the Group's strategy and delivering shareholder value.

 

Strategy

 

In April 2016, the Board announced three key strategic objectives. First, to report an Underlying Operating Profit from the Distribution & Services business in excess of £10m by the year ending 31 May 2018. This has been achieved in each of the years ended 31 May 2017 and 2018.

 

Secondly, to create more than £35m of value from the Property & Energy portfolio by 2021. As at 31 May 2018, whilst only £8.5m has been realised in cash from the Property portfolio to date, this does not reflect the progress that has been made and the work to realise further value continues. A key element of the value realisation from the Property & Energy portfolio is the disposal of Brockwell Energy Limited on which I have commented above.

 

Finally, to generate £60m of cash from the realisation of Legacy assets. To date, £31.4m of Legacy asset sales has been recorded and the net book value of the remaining legacy assets is £28.6m, compared with £39.6m one year ago. Further substantial Legacy asset realisations are expected in the second half of this financial year.

 

Following a review of the prospects for each of the Group's activities, the Board has determined that the strategy to deliver sustainable and growing profits from its core trading businesses in Distribution & Services whilst optimising investment to grow its Property business remains valid. This strategy sits alongside converting the value of those assets which have limited growth potential for the Group into cash in a controlled manner. The Board will continue to consider the best ways of deploying that cash for optimal shareholder return as the financial year progresses.

 

Within Distribution & Services, the Board believes that medium term revenue growth and near-term margin improvement can be forthcoming in both the Industrial Services and Specialist Earthworks business units whilst the UK Production & Distribution business is stable and cash generative. The Industrial Services business does not require substantial capital investment and the Specialist Earthworks business, whilst capital asset intensive, only requires committing to that investment with respect to secured contractual positions. The investment by the Group's German associate, Hargreaves Raw Materials Services GmbH ("HRMS") in a Carbon Pulverisation Plant will provide both improved resilience for the existing European trading business and additional growth opportunities.

 

The Board regards the Property business, known as Hargreaves Land, as an important area for future growth and aims to strengthen its resources to generate greater medium and longer-term value. We are excited by the recent recruitment of David Anderson as Group Property Director and we look forward to David joining the Board and furthering the momentum in Hargreaves Land. The successful development of the Blindwells site will be a key example that the Group can realise the substantial latent value within the existing land portfolio as well as demonstrating that the Group has the skills to bring substantial development opportunities to market successfully.

 

Outlook

 

The Group enters the 2018/19 financial year in a healthy financial position with further surplus asset realisation plans well advanced. The Group has impetus and ambition to grow its businesses in those sectors where it has a strong market position.  The Board looks forward to an improving financial performance from the Group both in terms of cash generation and underlying operating profits and margins. 

 

 

 

 

David Morgan

Chairman

31 July 2018

 

 

Group Business Review

Gordon Banham, Group Chief Executive Officer

 

 

Distribution & Services

 

The Distribution & Services business recorded revenue of £280.7m (2017: £321.6m).The reduction in revenue was due to lower levels of activity in Production & Distribution (£16.2m) and in Specialist Earthworks (£29.8m), partially offset by increased revenue in Industrial Services of £4.6m. £5.5m (2017: £15.1m) of Specialist Earthworks revenue was attributable to legacy contracts which are recorded as exceptional.

 

Underlying Operating Profit was £12.9m (2017: £13.7m). When eliminating revenue arising from exceptional contracts, margins at this level improved to 4.7% from 4.5%. The slight fall in Underlying Operating Profit was due to a £1.9m reduction in the contribution from Specialist Earthworks and a £2.3m reduction in that from HRMS. It should be noted that the contribution from HRMS in the 2017 financial year was particularly high. These reductions were offset by strong results from UK Production & Distribution, up £2.8m, and Industrial Services, up £0.6m. On an IFRS basis, this business segment recorded an Operating Profit of £6.9m (2017: £10.0m), with the reduction being due to the £3.5m charge for exceptional items.

 

Further information on the performance of each business within this segment is given below.

 

Production & Distribution

 

During the second half of the year, the Logistics and Coal Production & Distribution businesses were brought under a unified management structure realising an initial £0.3m of annualised overhead savings.

 

Revenue was £137.4m (2017: £153.6m), primarily due to lower volumes of low margin thermal coal being traded. Underlying Operating Profit increased by 5.3% to £10.0m (2017: £9.5m). The UK operations contributed £3.5m of this (2017: £0.7m), a marked improvement over the prior year. Our UK coal production and processing sites in Scotland continue to yield a high proportion of speciality coals, pricing of which has been strong. Favourable trading conditions in the speciality coal market are continuing into the new financial year. The Maxibrite domestic briquette business has now completed its conversion to a cold cure process which is already delivering lower production costs. Additionally, the Logistics business returned to profitability albeit on lower revenue as the business focused on contract selectivity.

 

HRMS contributed £6.5m (2017: £8.8m) to Underlying Operating Profit as it continued to trade well. As a speciality commodity trading business, the results of HRMS are subject to fluctuations depending upon market conditions. As previously reported, HRMS is constructing a Carbon Pulverisation Plant in Duisburg, Germany, to add resilience and greater predictability to future trading prospects. Construction work is well underway, and the plant is expected to become operational by the end of the first half of calendar year 2019.

 

Industrial Services

 

Revenue increased by 7.0% to £70.0m (2017: £65.4m) with Underlying Operating Profit up by 33.3% at £2.4m (2017: £1.8m). Margins improved to 3.4% (2017: 2.8%). Whilst modest revenue growth was achieved in the UK, our international operations, which are primarily based in Hong Kong, grew by 19% and recorded an Underlying Operating Profit of £0.7m (2017: £0.3m loss). The Hong Kong business has quadrupled in size since 2015 and continues to broaden the range of services it can provide to its clients. The South African business broke even after suffering a £0.9m loss in 2017. The UK business is focused on margin improvement as it transitions gradually from mainly supporting coal fired power stations and broadens its customer base. The forward order book and term contract positions held by the Industrial Services business mean that its budget revenue for the next financial year is almost fully secured.

 

Specialist Earthworks

 

The Specialist Earthworks business recorded revenue of £78.8m (2017: £108.6m) and an Underlying Operating Profit of £0.5m (2017: £2.4m). Activity levels have decreased as a result of greater contract selectivity and risk mitigation, together with lower revenue arising from the three legacy civils contracts. The business is engaged on completing its general civil engineering contractual commitments, including those relating to legacy contracts, and on agreeing associated final accounts. These contracts have been either loss making or at low margins and appropriate provisions have been made against their expected outcomes.

 

The C. A. Blackwell business has two principal current contracts which support the forward outlook, being the A14 bulk earthworks project and the contract mining activity at the Hemerden tungsten mine in Devon. Future business opportunities with similar operational and contractual characteristics to the A14 are being pursued and I am pleased to report that C. A. Blackwell has been selected as a strategic partner to one of the major contractor consortia for two sections of earthworks on the HS2 rail project. Over the next several months the parties will collaborate to determine the value and programming of the work. Regarding the contract at the Hemerdon tungsten mine, which is operated by Wolf Minerals Limited ("Wolf"), the Board notes Wolf's statement issued to the London Stock Exchange on 30 July 2018. It sets out Wolf's financing arrangements which are expected to be sufficient to support Wolf's short-term working capital requirements until 28 October 2018, during which time Wolf will undertake a strategic review of its funding arrangements.

 

The Specialist Earthworks business has continued to manage to completion three legacy civils contracts inherited from the acquisition of C. A. Blackwell. These contracts reported £5.5m (2017: £15.1m) of revenue and incurred operating losses of £3.4m in the year (2017: £3.4m), which are recorded as exceptional. All of these contracts are now completed on site with only small demobilisation or defects corrections activities remaining. Full provision has been made for all expected losses. An additional exceptional charge of £0.5m has been recorded which relates to restructuring costs within C. A. Blackwell.

 

As reported in November 2017, the Group is pursuing a claim against the vendors of C. A. Blackwell for breach of warranty. The matter is being progressed through an ongoing legal process.

 

Hargreaves Land

 

Hargreaves Land, the Group's Property business, contributed £11.7m (2017: £3.4m) of revenue and an Operating Profit of £2.1m (2017: £1.8m). Property revenue was principally derived from the sale of land where the time and cost of investment to realise the longer term potential development value is not warranted.

 

At the major Blindwells site near Edinburgh, we are well advanced in discussions with a number of residential developers and will shortly commence the construction of key infrastructure for the site. £1.6m was invested in the site during the year, which is included in Inventory in the Group balance sheet. As a result of those discussions, the Company is continuing to consider the best site remediation and development plan to realise maximum value over the medium and long term. It is expected that the first block of land, which will accommodate around fifty houses, will become available for a developer to take ownership around the end of this calendar year.

 

The Company plans to release two or three blocks of land per annum as they become ready for developers. The site development plan for phase one will take between ten and fifteen years and provides an ongoing stream of revenue and profit which will underpin the Property business, including the sale of land for approximately 1,600 homes. The second phase, known as Greater Blindwells, now has approval in principle to be allocated through the local development plan to be adopted formally later this year. This phase would result in an additional 900 homes to be built on land owned by the Group.

 

In August 2017, we reported that the independent Red Book valuation of our property assets had been completed providing a market value of £49m and a development value of £83m compared with a book value at 31 May 2017 of £31m. The following table includes the results of an updated independent valuation carried out at this financial year end which shows that the valuations remain valid.

 

Approximately £12m of properties (by book value) have been identified as non-strategic and the Group continues to pursue their disposal in an orderly fashion. Of these non-strategic properties, contracts for sale were exchanged after the year end for £7.7m at book value. The balance of properties to be retained either generate an income for the Group through rental, are used in Group operations or are being held for development. No properties have been added to the portfolio during the year. It should be noted that properties included at £2.8m in the opening market value of £49.4m actually realised £6.4m in sales achieved during the year, £1m more than the estimated development value.

 

 

 

Acreage

Book Value

Market Value

Development Value

Category

 

 

£m

£m

£m

 

 

 

 

 

 

31 May 2017:

 

 

 

 

 

Residential

 

446

£6.3

£19.3

£37.4

Commercial/Industrial

 

3,351

£11.4

£13.5

£25.4

Operational/Agricultural/Low Grade

10,471

£10.7

£10.8

£12.8

Energy

 

4,282

£2.4

£5.8

£7.3

Total

 

18,550

£30.8

£49.4

£82.9

 

 

 

 

 

 

Movements in the year ended 31 May 2018:

 

 

 

Properties disposed in the year

(884)

(£3.6)

(£2.8)

(£5.4)

Capitalised spend and revaluations

-

£2.9

£3.4

£0.5

 

 

 

 

 

 

31 May 2018:

 

 

 

 

 

Residential

 

589

£8.4

£21.9

£37.7

Commercial/Industrial

 

3,297

£9.0

£12.0

£21.2

Operational/Agricultural/Low Grade

10,346

£10.5

£12.3

£14.5

Energy

 

3,434

£2.2

£3.8

£4.6

Total

 

17,666

£30.1

£50.0

£78.0

 

 

 

 

 

 

             

 

The definitions of the valuation methodologies used are set out below:

 

Development Value

 

Development value has been calculated by independent valuers using the residual method of valuation. This involves estimating the gross development value of the property using market derived yield and future income stream parameters, deducting gross development costs and applying an appropriate level of risk premium to reflect uncertainties such as market and planning outcomes.

 

Market Value

 

Market value has been calculated by independent valuers in accordance with the Royal Institution of Chartered Surveyors Valuation - Professional Standards and represents the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing.

 

The Board considers that market value is a better indication than book value of the amount of the Group's capital that is tied up in each specific asset. The difference between the market value and the development value represents the risk-adjusted value creation opportunity on each property. The Board assesses and monitors the likely time and cost required to realise the development value and evaluates the return that is available from holding and developing each property. If the return is not appropriate, then the property is disposed of as quickly as is practical.

 

The uplift to market value represents 62p per share and to development value a further 87p per share, which in total would add 149p to the share price were these valuations reflected.

.

Legacy Asset Realisations

 

During the period, sales of Legacy Assets amounted to £4.7m (2017: £17.2m) with no Operating Profit being recorded (2017: £0.1m).

 

At 31 May 2016, £65.8m of legacy assets were identified and at 31 May 2017 £39.6m of those remained to be disposed. During the year, £6m has been realised and a further £5m, which is a land asset, has been reclassified into inventory leaving a residual £28.6m. This comprises loans due from the Tower Joint Venture of £17.2m and £11.4m of surplus plant and machinery. The Tower Joint Venture surface mine site restoration is expected to be completed by the end of the 2018 calendar year. This will enable the sale of the plant used in this major earthworks operation, which is managed by C.A. Blackwell, creating the funds to repay the majority of the loan due from the joint venture company in the second half of the 2018/19 financial year. Other surplus plant realisations are ongoing and by the year end, the Board expects there to be a material reduction in the value of legacy assets left to realise.

 

Group

 

The process for simplifying the Group's structure and reducing both operational and overhead costs is ongoing at both Group level and within the business units. During the last financial year, over 70 employees left the Group providing over £4.2m of annualised overhead salary savings and further reductions in the cost base will be implemented during the current financial year. It is important to deliver these cost reductions alongside implementing improved business processes to ensure that the Group delivers its services in the most effective and efficient manner. These processes are also aimed at positioning the business units to deliver growth in sectors and markets where the Group has a strong set of skills and experience and where appropriate margins and returns on capital can be achieved.

 

Brockwell Energy Limited

 

During the year the total capitalised expenditure on development projects in Brockwell Energy Limited amounted to £4.3m (2017: £4.2m). The carrying value of Brockwell is £7.7m (2017: £3.5m) which has been reclassified as an Asset Held for Sale in the Group Balance Sheet. A loss of £1.0m (2017: £0.5m) has been shown as the loss from a Discontinued Operation in the Statement of Profit and Loss. There was no revenue recorded in Brockwell (2017: £0.2m). The Group is committed to funding the costs of Brockwell until completion of the sale process.

 

David Morgan

On behalf of myself and all of his Board colleagues, I would like to take this opportunity to record my thanks to David Morgan who has acted as a Director of the Company since 2012 and as Chairman since October 2015. David's advice and wisdom has served the Company very well throughout his tenure in times which have raised very material challenges. We will miss his contribution at the Board and wish David very well in the future.

 

 

Summary

 

Each of the Group's businesses within Distribution & Services has been repositioning itself to deliver greater shareholder value and the new financial year will see that process continue. All of the businesses are profitable, and each has robust processes for the management of risk and return. Each has differing market opportunities which the Board reviews regularly, managing the allocation of capital accordingly.

 

 

 

Gordon Banham

Group Chief Executive Officer

31 July 2018

 

 

 

Consolidated Statement of Profit and Loss
and Other Comprehensive Income 

For the year ended 31 May 2018

 

Continuing operations

 

2018

£000

Represented*

2017

£000

Revenue

 

297,119

342,706

Cost of sales

 

(266,746)

(309,826)

 

 

 

 

Gross profit

 

30,373

32,880

Other operating (expense)/income

 

(185)

4,803

Administrative expenses

 

(31,564)

(36,332)

Operating (loss)/profit

 

(1,376)

1,351

 

 

 

 

 Analysed as:

 

 

 

 Operating profit (before exceptional items)

 

2,108

1,821

 

 

 

 

 Exceptional items - Cost of sales

 

(3,025)

(3,566)

 Exceptional items - Administrative expenses

 

(459)

3,096

 Exceptional items

 

(3,484)

(470)

 

 

 

 

 Operating profit (after exceptional items)

 

(1,376)

1,351

 

 

 

 

Financial income

 

626

922

Financial expenses

 

(1,937)

(3,014)

 

 

 

 

Share of profit in associates and joint ventures (net of tax)

 

3,175

5,487

 

Profit before tax

 

488

4,746

Taxation

 

693

569

 

Profit for the year from continuing operations

 

1,181

5,315

 

Discontinued operations

 

 

 

Loss for the year from discontinued operations

 

(1,000)

(533)

 

Profit for the year

 

181

4,782

 

Other comprehensive income

 

 

 

Items that will not be reclassified to profit or loss

 

 

 

Remeasurements of defined benefit pension schemes

 

(857)

(544)

Tax recognised on items that will not be reclassified to profit or loss

 

120

36

Items that are or may be reclassified subsequently to profit or loss

 

 

 

Foreign exchange translation differences

 

(22)

2,594

Effective portion of changes in fair value of cash flow hedges

 

1,123

349

Tax recognised on items that are or may be reclassified subsequently to profit or loss

 

(192)

(63)

 

Other comprehensive income for the year, net of tax

 

172

2,372

 

Total comprehensive income for the year

 

353

7,154

 

 

 

 

 

2018

£000

 

2017

£000

Profit attributable to:

 

 

 

Equity holders of the Company

 

229

5,138

Non-controlling interest

 

(48)

(356)

 

 

 

 

Profit for the year

 

181

4,782

 

 

 

 

Total comprehensive income/(expense) attributable to:

 

 

 

Equity holders of the Company

 

401

7,510

Non-controlling interest

 

(48)

(356)

 

 

 

 

Total comprehensive income for the year

 

353

7,154

 

 

 

 

Basic earnings per share (pence)

 

0.72

16.14

Diluted earnings per share (pence)

 

0.71

15.93

Basic earnings per share from continuing operations (pence)

 

3.84

17.81

Diluted earnings per share from continuing operations (pence)

 

3.82

17.58

 

 

 

 

Non GAAP Measures

 

 

 

Basic underlying earnings per share from continuing operations (pence)

 

14.90

19.79

Diluted underlying earnings per from share continuing operations (pence)

 

14.79

19.53

 

* Comparative figures have been represented to reflect the discontinued operation under IFRS 5, as explained in Note 1.

 

 

 

 

Balance Sheet

at 31 May 2018

 

 

Group

 

 

2018

£000

2017

£000

Non-current assets

 

 

 

Property, plant and equipment

 

53,777

63,664

Investment property

 

11,909

12,124

Intangible assets

 

11,121

12,389

Investments in associates and joint ventures

 

10,116

6,917

Other financial assets

 

-

7

Deferred tax assets

 

3,814

2,844

 

 

90,737

97,945

 

 

 

 

Current assets

 

 

 

Assets held for sale

 

16,660

5,040

Inventories

 

34,652

29,147

Other financial assets

 

1,044

139

Trade and other receivables

 

122,215

121,657

Cash and cash equivalents

 

16,110

27,817

 

 

190,681

183,800

Total assets

 

281,418

281,745

 

 

 

 

Non-current liabilities

 

 

 

Other interest-bearing loans and borrowings

 

(4,434)

(38,587)

Retirement benefit obligations

 

(4,395)

(5,103)

Provisions

 

(2,682)

(5,344)

Other financial liabilities

 

(30)

(12)

 

 

(11,541)

(49,046)

 

 

 

 

Current liabilities

 

 

 

Other interest-bearing loans and borrowings

 

(42,460)

(4,965)

Trade and other payables

 

(89,800)

(88,958)

Provisions

 

(1,523)

(600)

Other financial liabilities

 

(7)

(249)

 

 

(133,790)

(94,772)

 

 

 

 

Total liabilities

 

(145,331)

(143,818)

 

 

 

 

Net assets

 

136,087

137,927

 

 

 

 

 

 

Group

 

 

2018

£000

2017

£000

Equity attributable to equity holders of the parent

 

 

 

Share capital

 

3,314

3,314

Share premium

 

73,955

73,955

Other reserves

 

211

211

Translation reserve

 

(1,010)

(988)

Merger reserve

 

1,022

1,022

Hedging reserve

 

1,155

224

Capital redemption reserve

 

1,530

1,530

Share based payment reserve

 

1,043

936

Retained earnings

 

54,886

57,694

 

 

136,106

137,898

 

 

 

 

Non-controlling interest

 

(19)

29

 

 

 

 

Total equity

 

136,087

137,927

         

 

 

 

Statements of Changes in Equity

for year ended 31 May 2018

 

 

Group

 

Share capital

£000

Share premium

£000

Translation reserve

£000

Hedging reserve

£000

Other reserves

£000

Capital redemption reserve

£000

Merger reserve

£000

Share based payment reserve £000

Retained earnings

£000

Total parent equity

£000

Non-controlling interest

£000

Total equity

£000

At 1 June 2016

3,314

73,955

(3,582)

(62)

211

1,530

1,022

465

54,117

130,970

385

131,355

Total comprehensive income
for the year

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the year

-

-

-

-

-

-

-

-

5,138

5,138

(356)

4,782

Other comprehensive income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation differences

-

-

2,594

-

-

-

-

-

-

2,594

-

2,594

Effective portion of changes in fair
value of cash flow hedges

-

-

-

349

-

-

-

-

-

349

-

349

Remeasurements of defined benefit pension schemes

-

-

-

-

-

-

-

-

(544)

(544)

-

(544)

Tax recognised on other
comprehensive income

-

-

(63)

-

-

-

-

36

(27)

-

(27)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income/(expense)

-

2,594

286

-

-

-

-

(508)

2,372

-

2,372

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income/(expense) for the year

-

2,594

286

-

-

-

-

4,630

7,510

(356)

7,154

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners recorded directly in equity

 

 

 

 

 

 

 

 

 

 

 

 

Equity settled share-based
payment transactions

-

-

-

-

-

-

-

471

-

471

-

471

Dividends paid

-

-

-

-

-

-

-

-

(1,053)

(1,053)

-

(1,053)

Total contributions by and
distributions to owners

-

-

-

-

-

-

-

471

(1,053)

(582)

-

(582)

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 May 2017

3,314

(988)

224

211

1,530

1,022

936

57,694

137,898

29

137,927

 

 

 

 

 

 

 

 

 

 

 

 

Group

Share capital £000

Share premium £000

Translation reserve £000

Hedging reserve £000

Other reserves £000

Capital redemption reserve £000

Merger reserve £000

Share based payment reserve £000

Retained earnings £000

Total parent equity £000

Non-controlling interest £000

Total equity £000

At 1 June 2017

3,314

73,955

(988)

224

211

1,530

1,022

936

57,694

137,898

29

137,927

Total comprehensive income
for the year

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the year

-

-

-

-

-

-

-

-

229

229

(48)

181

Other comprehensive
income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange
translation differences

-

-

(22)

-

-

-

-

-

-

(22)

-

(22)

Effective portion of changes in
fair value of cash flow hedges

-

-

-

1,123

-

-

-

-

-

1,123

-

1,123

Remeasurements of defined benefit pension schemes

-

-

-

-

-

-

-

-

(857)

(857)

-

(857)

Tax recognised on other comprehensive income

-

-

-

(192)

-

-

-

-

120

(72)

-

(72)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive
income/(expense)

-

-

(22)

931

-

-

-

-

(737)

172

-

172

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income/(expense) for the year

-

-

(22)

931

-

-

-

-

(508)

401

(48)

353

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners recorded directly in equity

 

 

 

 

 

 

 

 

 

 

 

 

Equity settled share-based payment transactions

-

-

-

-

-

-

-

107

-

107

-

107

Dividends paid

-

-

-

-

-

-

-

-

(2,300)

(2,300)

-

(2,300)

Total contributions by and distributions to owners

-

-

-

-

-

-

-

107

(2,300)

(2,193)

-

(2,193)

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 May 2018

3,314

73,955

(1,010)

1,155

211

1,530

1,022

1,043

54,886

136,106

(19)

136,087

 

 

 

Cash Flow Statements 

for year ended 31 May 2018

 

 

 

 

Group

 

 

2018

£000

Represented*2017

£000

Cash flows from operating activities

 

 

 

Profit for the year from continuing operations

 

1,181

5,315

Adjustments for:

 

 

 

Depreciation and impairment of property, plant and equipment

 

12,936

14,850

Impairment of investment properties

 

621

-

Amortisation and impairment of goodwill and intangible assets

 

880

315

Net finance expense

 

1,311

2,092

Share of profit in associates and joint ventures (net of tax)

 

(3,175)

(5,487)

Loss/(profit) on sale of property, plant and equipment

 

185

(1,716)

Equity settled share-based payment expenses

 

107

471

Income tax credit

 

(693)

(569)

Contributions to defined benefit pension schemes

 

(1,829)

(1,516)

Translation of non-controlling interest and investments

 

(24)

(373)

 

 

11,500

13,382

Change in inventories

 

10,976

17,828

Change in trade and other receivables

 

(2,984)

2,271

Change in trade and other payables

 

(387)

6,608

Change in provisions and employee benefits

 

(1,475)

1,478

 

 

17,630

41,567

Net interest paid

 

(905)

(1,306)

Income tax received/(paid)

 

1,127

(6,994)

Net cash inflow from continuing operating activities

 

17,852

33,267

Net cash (outflow)/inflow from operating activities in discontinued operations

 

(1,017)

217

Net cash inflow from operating activities

 

16,835

33,484

 

 

 

 

Cash flows from investing activities

 

 

 

Proceeds from sale of property, plant and equipment

 

1,001

5,282

Acquisition of subsidiaries (net of cash acquired)

 

-

(248)

Acquisition of investment property

 

(469)

-

Acquisition of property, plant and equipment

 

(20,758)

(15,782)

Net cash outflow from investing activities in continuing operations

 

(20,226)

(10,748)

Net cash outflow from investing activities in discontinued operations

 

(4,309)

(4,189)

Net cash outflow from investing activities

 

(24,535)

(14,937)

 

 

 

 

Cash flows from financing activities

 

 

 

Payment of finance lease liabilities

 

(5,461)

(8,612)

Dividends paid

 

(2,300)

(1,053)

Proceeds from/(repayment of) Group banking facilities

 

3,800

(2,500)

Net cash outflow from financing activities

 

(3,961)

(12,165)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(11,661)

6,382

Cash and cash equivalents at 1 June

 

27,817

21,161

Effect of exchange rate fluctuations on cash held

 

(46)

274

 

 

 

 

Cash and cash equivalents at 31 May

 

16,110

27,817

 

* Comparative figures have been represented to reflect the discontinued operation under IFRS 5, as explained in Note 1.

 

 

 

 

 

1. Basis of preparation and status of financial information

 

The financial information set out above has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU (Adopted IFRSs).

 

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 May 2018 or 31 May 2017. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by was of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

The accounting policies set out in the Group's statutory accounts, unless otherwise stated, been applied consistently to all periods presented. The Board has determined that the Energy business is to be disposed and so in accordance with IFRS 5, the disposal group has been treated as an Asset Held for Sale and the comparative figures have been represented in the Income Statement. The impact of this change in accounting treatment is set out in Note 5.

 

These results were approved by the Board of Directors on 31 July 2018.

 

2.  Segmental Information

 

The following analysis by industry segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are regularly reviewed by the Board of Directors (the Chief Operating Decision Maker as defined by IFRS 8) to assess performance and make strategic decisions about allocation of resources.

 

The sectors distinguished as operating segments are Distribution & Services, Property, Legacy and Corporate. The segments have been changed during this year, following the reclassification of Energy as a discontinued business. The comparative period has been restated accordingly.

 

·      Distribution & Services: Provides coal distribution, including mining operations, materials handling and contracting services and logistics to a range of industrial, wholesale and public sector customers. The business unit also provides earth moving and infrastructure services across the UK and trades in plant and machinery.

·      Property: The development and realisation of value from the land portfolio including rental income from investment properties.

·      Legacy: The realisation of surplus assets which are not associated with the continuing operations into cash in a timely manner, whilst obtaining full value.

·      Corporate: The corporate overhead contains the central functions that are not devolved to the individual business units.

 

These segments are combinations of subsidiaries, jointly controlled entities and associates. They have separate management teams and provide different products and services. The four operating segments are also reportable segments.

 

Underlying Operating Profit is defined by the Board as Operating Profit prior to exceptional items, amortisation and impairment of intangible assets and includes the Group's share of the operating profit of its German associate.

 

The segment results, as reported to the Board of Directors, are calculated under the principles of IFRS. Performance is measured on the basis of underlying operating profit/(loss), which is reconciled to profit/(loss) before tax in the tables below:

 

 

 

 

 

 

 

Continuing operations

Distribution & Services

2018

£000

Property

2018

£000

Legacy

2018

£000

Corporate

2018

£000

Total

2018

£000

Revenue

 

 

 

 

 

Total revenue

286,188

11,730

4,706

-

302,624

Intra-segment revenue

(5,505)

-

-

-

(5,505)

Revenue from external customers

280,683

11,730

4,706

-

297,119

 

 

 

 

 

 

Underlying operating profit/(loss)

12,872

2,085

46

(5,554)

9,449

Amortisation and impairment of intangibles

(880)

-

-

-

(880)

Taxation on associates and joint ventures

(1,632)

-

-

-

(1,632)

Exceptional items

(3,484)

-

-

-

(3,484)

Operating profit/(loss) including share of associate

6,876

2,085

46

(5,554)

3,453

Interest on associates and joint ventures

 

 

 

 

(1,654)

Net financing costs

 

 

 

 

(1,311)

Profit before taxation

 

 

 

 

488

Depreciation charge

(12,019)

(467)

-

(450)

(12,936)

Capital expenditure

(23,421)

(5,545)

-

(295)

(29,261)

Net assets/(liabilities)

 

 

 

 

 

Segment assets

203,256

34,115

28,547

5,384

271,302

Segment liabilities

(93,634)

(6,492)

-

(45,205)

(145,331)

Segment net assets/(liabilities)

109,622

27,623

28,547

(39,821)

125,971

Associates and joint ventures

 

 

 

 

10,116

Total net assets

 

 

 

 

136,087

 

 

Corporate net assets include the Group banking facilities liability (£39.3m), cash and cash equivalents (£0.6m liability), derivative financial instruments (£1.0m asset), corporation and deferred tax assets (£3.9m), retirement benefit obligations (£4.4m) and other corporate items (£0.4m liability).

 

 

Continuing operations

Distribution & Services

2017

£000

Represented*Property &

Energy

2017

£000

 

Legacy

2017

£000

Corporate

2017

£000

Represented*Total

2017

£000

Revenue

 

 

 

 

 

Total revenue

327,601

3,356

17,214

554

348,725

Intra-segment revenue

(6,019)

-

-

-

(6,019)

Revenue from external customers

321,582

3,356

17,214

554

342,706

 

 

 

 

 

 

Underlying operating profit/(loss)

13,695

1,845

101

(4,613)

11,028

Amortisation of intangibles

(315)

-

-

-

(315)

Taxation on associates and joint ventures

(2,873)

-

-

-

(2,873)

Exceptional items

(470)

-

-

-

(470)

Operating profit/(loss) including share of associate

10,037

1,845

101

(4,613)

7,370

Interest on associates and joint ventures

 

 

 

 

(532)

Net financing costs

 

 

 

 

(2,092)

Profit before taxation

 

 

 

 

4,746

Depreciation charge

(11,128)

(644)

-

(423)

(12,195)

Capital expenditure

(14,756)

(5,319)

-

(378)

(20,453)

Net assets/(liabilities)

 

 

 

 

 

Segment assets

202,924

28,791

40,090

3,023

274,828

Segment liabilities

(98,464)

(7,099)

(5,560)

(32,695)

(143,818)

Segment net assets/(liabilities)

104,460

21,692

34,530

(29,672)

131,010

Associates and joint ventures

 

 

 

 

6,917

Total net assets

 

 

 

 

137,927

*Comparative figures have been represented as explained in note 1.

 

Corporate net assets include Group banking facilities liability (£32.3m), cash and cash equivalents (£0.7m liability), derivative financial instruments (£0.1m liability), deferred and corporation tax balances (£4.3m asset) and other corporate items (£0.9m liability).

 

 

 

3   Exceptional items

 

The Group incurred a number of exceptional items in the year relating to the C. A. Blackwell subsidiary, additionally the Group has written back an element of the mining cost impairment taken in the prior year due to favourable changes in market conditions:

 

 

2018

£000

2017

£000

Reversal of impairment loss on receivables due from Tower Colliery Ltd

-

2,000

Credit/(cost) associated with early closure of certain mining operations

410

(1,874)

Net losses on legacy contracts in C. A. Blackwell

(3,435)

(3,380)

Impairment of Property, Plant and Equipment

-

(2,277)

Cash recovery from discontinued operation

-

1,096

Historic plant rebate

-

3,280

Liquidator dividend

-

796

Other restructuring costs relating to C. A. Blackwell

(459)

(111)

 

 

 

Total

(3,484)

(470)

 

 

 

 

4   Taxation

 

Recognised in the Income Statement

 

 

2018

£000

Represented*2017

£000

Current tax

 

 

Current year

469

325

Adjustments for prior years

(173)

(1,230)

Current tax expense/(credit)

296

(905)

 

 

 

Deferred tax

 

Origination and reversal of temporary timing differences

(712)

191

Adjustments for prior years

(277)

67

Reduction in tax rate

-

78

Deferred tax (credit)/charge

(989)

336

 

 

 

Tax credit in income statement (excluding share of tax of equity accounted investees)

(693)

(569)

Share of tax of equity accounted investees

1,632

2,873

 

 

 

Total tax expense from continuing operations

939

2,304

 

*Comparative figures have been represented as explained in note 1.

 

Recognised in Other Comprehensive Income

 

 

2018

£000

2017

£000

Deferred tax (expense)/income

 

 

Effective portion of changes in fair value of cash flow hedges

(192)

(63)

Remeasurements of defined benefit pension schemes

120

36

 

(72)

(27)

 

Reconciliation of Effective Tax Rate

 

 

2018

£000

2017

£000

Profit for the year from continuing operations

1,181

5,315

Total tax expense (including share of tax of equity accounted investees)

939

2,304

 

 

 

Profit excluding taxation from continuing operations

2,120

7,619

 

 

 

Tax using the UK corporation tax rate of 19.00% (2017: 19.83%)

403

1,511

 

 

 

Effect of tax rates in foreign jurisdictions

741

1,276

Unrecognised tax losses

(508)

-

Non-deductible expenses

753

598

Reduction in tax rate on deferred tax balances

-

78

Adjustment in respect of previous periods

(450)

(1,159)

 

 

 

Effective tax rate and total tax expense

939

2,304

 

The current tax adjustment in respect of prior years relates to the refund of taxes received from HMRC following the carry back of losses.

 

The UK corporation tax rate reduced to 19% on 1 April 2017, giving an effective base rate of 19.00% (2017: 19.83%).

 

Factors That May Affect Future Current and Total Tax Charges

The UK corporation tax rate reduced from 20% to 19% (effective from 1 April 2017) and remained at 19% for the tax year beginning 1 April 2018. On 16 March 2016 it was announced that the main rate of UK Corporation Tax would reduce further to 17% on 1 April 2020. This change was substantively enacted on 6 September 2016. This will reduce the Group's current tax charge accordingly. The deferred tax balances at 31 May 2018 have been calculated based on the rate of 17%, the rate substantively enacted at the Balance Sheet date.

 

 

 

 

5      Discontinued Operations and Assets Held for Sale

 

All discontinued operation results are attributable to equity holders.

 

The Group is in advanced discussion to dispose of its investment in Brockwell Energy Limited as announced on 8 June 2018, meaning that the Group will no longer continue with Energy as a business stream. As such, this business unit has been classified as discontinued, and the associated assets have been classified as held for sale, with the results for the comparative period represented accordingly. The Group's discontinued operations made a loss of £1,000,000 (2017: £533,000) after tax during the year.

 

 

 

2018

£000

2017

£000

Revenue

-

163

Gross profit

-

163

Other operating income

-

67

Administrative expenses

(1,144)

(888)

Loss before tax of discontinued operations

(1,144)

(658)

 

 

 

Current tax credit

91

125

Deferred tax credit

53

-

 

144

125

Loss for the year from discontinued operations

(1,000)

(533)

 

The assets and liabilities of the Brockwell Energy group have been reclassified as held for sale. In addition to the assets associated with the disposal group, there is property, plant and equipment relating to the closure of Maltby Colliery which was classified as held for sale in a previous year. Additionally, certain items of Freehold Land and Buildings have been transferred into Assets Held for Sale as discussions regarding their sale were ongoing as at the year end.

 

 

Assets Held for Sale

2018

£000

2017

£000

Property, plant and equipment - Land and Buildings

8,433

-

Property, plant and equipment - Other

9,016

5,040

Goodwill

383

-

Other current assets

138

-

Other current liabilities

(1,310)

-

Total assets held for sale

16,660

5,040

 

 

 

 

 

6      Earnings per Share

 

The calculation of earnings per share is based on the profit for the year attributable to equity holders and on the weighted average number of shares in issue and ranking for dividend in the year.

 

 

 

2018

 

Earnings

EPS

DEPS

Earnings

EPS

DEPS

 

£000

Pence

Pence

£000

Pence

Pence

 

 

 

 

 

 

 

Underlying earnings per share from continuing operations

4,764

14.90

14.79

6,301

19.79

19.53

Exceptional items and amortisation (net of tax)

(3,535)

(11.06)

(10.97)

(630)

(1.98)

(1.95)

Continuing basic earnings per share

1,229

3.84

3.82

5,671

17.81

17.58

 

 

 

 

 

 

 

Discontinued operations

(1,000)

(3.12)

(3.11)

(533)

(1.67)

(1.65)

Basic earnings per share

229

0.72

0.71

5,138

16.14

15.93

 

 

 

 

 

 

 

Weighted average number of shares

 

31,981

32,214

 

31,842

32,267

 

*Comparative figures have been represented as explained in note 1.

 

The calculation of weighted average number of shares includes the effect of own shares held of 1,069,904 (2017: 1,228,072). The calculation of diluted earnings per share is based on the profit for the year and the weighted average number of ordinary shares in issue in the year adjusted for the dilutive effect of the share options outstanding (effect on weighted average number of shares is 232,834 (2017: 424,804); effect on basic earnings per ordinary share is 0.01p (2017: 0.21p). Effect on continuing basic earnings per ordinary share is 0.02p (2017: 0.23p).

 

 

Underlying EPS from continuing operations

Profit attributable to the equity holders of the parent before net exceptional items and the amortisation and impairment of intangible assets after tax divided by the weighted average number of ordinary shares during the financial year adjusted for the effects of any potentially dilutive options.

 

7   Posting of Report & Accounts

 

The Group confirms that the annual report and accounts for the year ended 31 May 2018 will be posted to shareholders as soon as practicable and a copy will be made available on the Group's website:

www.hsgplc.co.uk

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
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