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Hargreaves Services PLC   -  HSP   

Preliminary Results

Released 07:00 31-Jul-2019

RNS Number : 2698H
Hargreaves Services PLC
31 July 2019
 

For immediate release

   31 July 2019

 

 

HARGREAVES SERVICES PLC

(the "Group" or "Hargreaves")

 

Preliminary Results for the year ended 31 May 2019

 

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 2019.

 

KEY FINANCIAL RESULTS

 

Year ended 31 May

   2019

2018


Revenue

£302.6m

£297.1m


Operating Loss

£(9.7)m

£(1.4)m


Underlying Operating Profit*

£10.0m

£9.4m


(Loss)/profit Before Tax

£(9.9)m

£0.5m


Basic loss/earnings per share from continuing operations

(25.7p)

3.8p


Underlying basic EPS from continuing operations

15.3p

14.9p


Final Dividend

4.5p

4.5p


Net Debt

£17.9m

£30.8m


Net Assets

£127.5m

£136.1m


Net Assets per Share

397p

424p


                                   

* 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, see note 8.

 

HIGHLIGHTS

 

·      Underlying performance of the Group has been satisfactory

·      £16.1m of exceptional provisions made against the insolvencies of British Steel & Wolf Minerals

·      Disposal of Brockwell Energy, treated as a Discontinued Operation, realising £5.2m pre-tax profit

·      Distribution & Services revenue up by 4.7% to £293.8m (2018: £280.7m)

·      Construction of Carbon Pulverisation Plant by German associate nearing completion

·      Conditional sales of first plots achieved at Blindwells

·      £13m Legacy assets left to realise, down from £28m at 31 May 2018 (£60m three years ago)

·      Net Debt down to £17.9m (2018: £30.8m)

·      Net Asset Value per share as at 31 May 2019 £3.97 per share (2018: £4.24)

·      Roger McDowell appointed Chairman on 1 August 2018

·      David Anderson recruited as Group Property Director in November 2018

·      Final dividend maintained at 4.5p (2018: 4.5p); full year dividend of 7.2p (2018: 7.2p)

·      Additional annual dividend of 12p per share from repatriating profits from German associate to commence in the year ending 31 May 2021

Commenting on the preliminary results, Chairman Roger McDowell said: "In what has been a challenging year, the Group has made progress towards its strategic objectives. The Group's property business, Hargreaves Land, has gained further momentum and, by extracting capital from our UK mining activities, its growth can be accelerated. Value held in the balance sheet of our German associate business is being unlocked and will be distributed to shareholders in due course. The Board anticipates progress through the next financial year."

 

Analyst meeting

A meeting for analysts will be held at 11.00am this morning, 31 July 2019, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. Please contact Buchanan on 020 7466 5000 or at hargreaves@buchanan.uk.com 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

 

0207 466 5000

N+1 Singer (NOMAD and Joint Corporate Broker)

Sandy Fraser / Rachel Hayes / Justin McKeegan

 

020 7496 3000

Investec (Joint Corporate Broker)

Sara Hale / Richard Short

020 7597 5970

 



 

Chairman's Statement

Roger McDowell, Group Chairman

 

 

Introduction

In my first full year report as the Chairman of Hargreaves, it is very disappointing to have to report a loss for the year. The Group has been impacted by the insolvency of two notable customers, Wolf Minerals Limited and British Steel Limited. These events caused the Group to make substantial provisions totalling £16.1m against unrecoverable debtor and work in progress balances and equipment values and also against employment related liabilities including redundancies.

 

Putting those setbacks to one side, the underlying performance of the Group has been satisfactory and progress on non-core asset realisation and cash generation has continued including the successful disposal of Brockwell Energy Limited in October 2018 for a profit after tax of £4.5m.

 

Results

Revenue from continuing operations was £302.6m (2018: £297.1m), an increase of 1.9%, despite the loss of revenue arising from the Wolf Minerals contract. The insolvency of British Steel had no material impact on revenue in the financial year.

 

Underlying Operating Profit from continuing operations for the year was £0.6m higher than the prior year at £10.0m (2018: £9.4m). 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 the financial statements. Further information on the trading performance of the businesses is given in the Chief Executive's Review.

 

Operating profit prior to exceptional items trebled to £6.4m (2018: £2.1m). After accounting for the provisions in respect of Wolf Minerals and British Steel of £16.1m (2018: £3.5m) as exceptional items, the operating loss under IFRS was £9.7m (2018: loss of £1.4m). After net financial expenses of £1.7m (2018: £1.3m) and accounting for the Group's share of post-tax profits of the German associate of £1.5m (2018: £3.2m), the consolidated loss before tax was £9.9m (2018: profit of £0.5m). After a tax credit of £1.7m (2018: £0.7m), the profit from discontinued operations of £3.5m (2018: loss of £1.0m) reduced the loss for the year to £4.7m (2018: profit of £0.2m). Basic underlying earnings per share from continuing operations were 15.3p (2018: 14.9p) and a loss per share of 25.7p (2018: earnings of 3.8p) on a reported basis.

 

Net Debt

As previously reported, net debt at the year end was £17.9m (2018: £30.8m). The decrease of £12.9m largely relates to the successful disposal of Brockwell Energy. Additionally, cash generation from the continuing unwind of Legacy assets has been offset by a planned increase in inventory. Although net debt is likely to increase again in the first half of this financial year, due to planned increases in working capital including at Blindwells, net debt is expected to return to similar levels by 31 May 2020 as working capital unwinds. Further reductions in working capital are expected to contribute to a material reduction in net debt by the end of the year ending 31 May 2021.

 

Dividend

The Board is recommending an unchanged final dividend of 4.5p (2018: 4.5p) per ordinary share thus maintaining the full year dividend at 7.2p (2018: 7.2p). This will be paid on 1 November 2019 to all shareholders on the register at the close of business on 20 September 2019. The shares will become ex-dividend on 19 September 2019.

 

In my interim report, I stated that the Board intended to return with immediate effect to a more conventional dividend payment policy, distributing approximately one third of the anticipated full year dividend at the interim stage and more generally that it would seek to increase dividends progressively, balancing this objective with continuing to reduce net debt. Despite the losses incurred this year, the Board believes it is appropriate to maintain the dividend, reflecting the Board's confidence in both the strength of the balance sheet and the trading prospects of the underlying business, and will look to increase it appropriately in due course.

 

People

Over 2,000 people are employed by the Group across its operations and their efforts and commitment are vital in delivering value to our shareholders. The Board would like to take this opportunity to thank them all publicly and to encourage them to carry on their good work as the Group continues the process of repositioning itself for new opportunities.

 

Board Changes

I am delighted that we were able to secure the services of David Anderson who joined the Board on 14 November 2018 as Group Property Director. David is driving forward with the growth of Hargreaves Land, the Group's property development business, as demonstrated by the announcements of the conditional disposal of plots at Blindwells.

 

Following both David Morgan and Peter Jones leaving the Board during the year, the Board is undertaking a process to appoint a further Non-Executive Director.

 

Brexit

The uncertainty of the final outcome to the Brexit discussions continues. Hargreaves has very little trading activity with any country within the EU. Consequently, the Board expects no material direct impact on the Group's trading activities whatever the final Brexit outcome may be. The Group's German specialist raw material trading associate business, Hargreaves Raw Materials Services GmbH ("HRMS"), trades almost exclusively within the EU but imports much of its trading stock from outside the EU. The Board cannot meaningfully assess any wider macro-economic impact of Brexit which may affect business sentiment in trading and financial markets leading to a material change in the economic or financial environment within the UK and Europe for the Group or its customers.

 

Strategy

I reported at the interim stage that following my appointment as Chairman, the Board had conducted an initial review of strategy. Three key areas of focus were identified. First, the realisation of cash from the disposal of surplus assets and non-core activities including the Legacy assets. Secondly, a focus to increase returns from the Distribution & Services business. Thirdly, the development of the Group's Property business, Hargreaves Land, which the Board regards as an important area to generate greater medium and longer-term value. The Board considers that progress is being made in all three areas.

 

Asset realisation

Legacy assets have reduced from over £60m in 2016 to £12.8m as at 31 May 2019, including a realisation of £15.7m during the year. A further reduction is expected during the new financial year as a result of the disposal of surplus plant and equipment in the Tower joint venture.

 

UK Distribution & Services

Following the failure of both British Steel and Wolf Minerals, the prospects for growth in the Distribution & Services business have been impacted. Both the Industrial Services and Specialist Earthworks business units have been adversely affected by these events although the UK Production & Distribution business remains stable. The emphasis across all revenue streams is on improving profits and generating cash, mainly from reductions in working capital.

 

HRMS

The investment by HRMS in a Carbon Pulverisation Plant ("CPP") to provide both improved resilience for the existing European specialty minerals trading business and additional growth opportunities is almost completed. The CPP is expected to begin trial production in the autumn with initial shipments of material expected in the second half of the financial year to a contracted customer.

 

Hargreaves Land

The Board regards the property development business, Hargreaves Land, as an important area for future growth. Cash generated from the evolution of our UK mining operations is expected to be invested into property development opportunities.  This investment is expected to gain further momentum in the financial year ending 31 May 2021. Typically, the return on investment in property developments can take approximately three years.

 

Overhead costs

The programme of reducing operational and overhead costs is ongoing at both Group level and within the business units and remains a key area of focus for the Board. During the last financial year, over 70 employees left the Group providing almost £4m of annualised overhead salary savings. Corporate overhead reduced by over 21% to £4.4m (2018: £5.6m). Over the last four years, some 300 people have left the business with annualised salary costs totalling £14m. Further cost reductions will take place through the new financial year.

 

Shareholder Value

As part of the Board's plans to create shareholder value, it is working with its German associate business, HRMS, to enhance the value of its investment whilst releasing capital where possible. HRMS is now an integrated business, including both the speciality trading activity, which has inherent market driven volatility and the CPP, which as a production asset should provide more predictable earnings. HRMS is working to increase further the overall visibility of future earnings without committing further substantial capital.

 

Over the last three financial years and continuing until the financial year ending 31 May 2021, HRMS is not permitted to pay dividends as a condition of its borrowing arrangements in connection with funding the construction of the CPP. Dividends, including the payment of previously undistributed reserves, should recommence in the financial year ending 31 May 2021, with cash being repatriated to the UK in the following financial year.

 

The Board has decided that the dividends from HRMS will be passed through to shareholders in the form of an extra dividend in addition to any normal final dividend which would be declared in accordance with the dividend policy outlined above. The Board anticipates that this extra dividend would be in the region of 12p per share and would be maintained at that level for the foreseeable future. The first such extra dividend would be declared along with the final dividend for the year ending 31 May 2021 and paid in the following financial year.

 

Outlook

2019 has been a challenging financial year for the Group and although progress has been made in several areas, following the setbacks that have arisen, much remains to be achieved.  The Board is focused on delivering reliable and growing profits in, and unlocking capital from, its Distribution & Services businesses enabling strong cash returns to shareholders alongside investment in the growth of Hargreaves Land.  

 

Roger McDowell

Chairman

30 July 2019



 

Group Business Review

Gordon Banham, Group Chief Executive Officer

 

 

Chief Executive's Review

Distribution & Services

The Distribution & Services business recorded revenue up 4.7% at £293.8m (2018: £280.7m). The increase in revenue was due to growth in Industrial Services and in Specialist Earthworks, partially offset by lower revenue in Production & Distribution. £2.8m (2018: £5.5m) of Specialist Earthworks revenue was attributable to legacy contracts which are recorded as exceptional.

 

Underlying Operating Profit was £12.1m (2018: £12.9m). The slight fall in Underlying Operating Profit was primarily due to a £3.2m reduction in the contribution from HRMS, as a result of weaker German economic activity, partially offset by improved results from Industrial Services and Specialist Earthworks. On an IFRS basis, this business segment recorded an Operating Loss of £8.1m (2018: profit of £2.0m), with the loss being due to the charge for exceptional items which are set out below.

 

Exceptional Items

Wolf Minerals Limited

As previously announced, in October 2018, one of the Group's customers, Wolf Minerals Limited, announced that it had ceased trading and subsequently it went into liquidation. As a result, the Group incurred an exceptional charge of £8.1m. The Group continues to have a small presence at the Hemerdon mine site where it is carrying out minor maintenance and asset safeguarding activities. The future of the site remains unclear, but Hargreaves is well positioned to secure any restoration or other work which may arise in due course. Hargreaves is not considering operating the mine.

 

British Steel Limited

In late May 2019, British Steel Limited announced that it was being placed into liquidation. Currently the business is being operated under the aegis of the Official Receiver and the Group is continuing to provide services under similar commercial terms as prior to the insolvency. Until the future of British Steel is clarified, the final financial impact on the Group cannot be fully determined, however, the Board has made a provision of £4.5m against trade debt and work-in-progress balances which are unlikely to be recovered. Additionally, a further expense of £3.5m has been recognised in respect of redundancy and other associated employment costs and equipment write downs, resulting in a total exceptional charge of £8.0m. 

 

Further information on the performance of each business within Distribution & Services is given below.

 

Production and Distribution

UK

Revenue was £119.4m (2018: £137.4m), primarily due to reduced volumes of low margin thermal coal being traded and so Underlying Operating Profit fell slightly to £3.2m (2018: £3.5m) although margins improved to 2.7% (2018: 2.5%). Mining operations have been conducted very efficiently through the financial year and as a result the business is carrying higher levels of inventory than is usual. It is more cost effective to mine out coal whilst favourable conditions exist than to suffer the costs of poor output during spells of bad weather.

 

Our mining operational strategy continues to evolve to meet the future demand for coal through focus on the speciality markets.  This will lead to a release of cash from working capital and the sale of surplus assets of approximately £20m. This cash should be released through financial years ending 31 May 2021 and 2022. The Transport business has delivered a much improved result in the period, returning profit to acceptable levels as we continue to focus on core markets and margin improvement.

 

HRMS

HRMS contributed £3.3m (2018: £6.5m) to Underlying Operating Profit as economic activity in Germany weakened. 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 almost completed. Initial trial product is expected to be supplied during the autumn with the first sales to a contracted customer by the start of calendar year 2020. The Board of HRMS is focused on securing further contracts for the CPP so that meaningful contribution to profit is expected in the financial year ending 31 May 2021.

 

Industrial Services

Revenue increased by 25% to £87.4m (2018: £70.0m) with Underlying Operating Profit up by 58% to £3.8m (2018: £2.4m), a margin of 4.3% (2018: 3.4%).

 

UK

In the UK, revenue grew by 22% to £57.9m (2018: £47.5m) with Underlying Operating Profit improving to £2.7m (2018: £1.7m), increasing margins to 4.7% from 3.6%.

 

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 main area of activity is in materials handling but increasingly the business is developing its skills in mechanical and electrical engineering within industrial complexes and is positioned to secure further work of that type. 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.

 

The insolvency of British Steel has caused a setback to this business' growth plans and as a result both revenue and Underlying Operating Profit are likely to be materially lower in the financial year ending 31 May 2020. British Steel contributed approximately £1m of revenue each month. The exceptional charge of £8m, which is £1m lower than announced on 22 May 2019, assumes that British Steel operations cease as at 31 July 2019 as, at the date of signing these accounts, the Board has no better information upon which to base its judgement.

 

International

In the international business, which is primarily based in Hong Kong, revenue grew by 31% to £29.5m (2018: £22.5m) with an Underlying Operating Profit of £1.1m (2018: £0.7m), a margin of 4.1% (2018: 3.1%).

 

The Hong Kong business continues to broaden both the range of services it provides to its clients and its customer base. The South African business broke even as it did in 2018.

 

The Hong Kong business has been appointed to a new five year NEC4 Term Service Contract by its principal customer, CLP Power Hong Kong Ltd ("CLP"). This contract has a wider scope than its predecessor, which Hargreaves has delivered over the past five years, and extends to CLP's operations at both Castle Peak and Black Point power stations. Hargreaves will be providing a range of mechanical and electrical engineering services in annual planned and reactive maintenance operations. The successful award of this contract is seen as critical to the ongoing development within Hong Kong and the wider Asia region. It both secures Hargreaves' position as a leading vendor to CLP and continues to develop this key and valued relationship whilst providing an enhanced platform for further diversified growth in the region.

 

 

 

Specialist Earthworks

The Specialist Earthworks business recorded revenue of £87.0m (2018: £78.8m) and an Underlying Operating Profit of £1.8m (2018: £0.5m). Most of the growth in revenue is as a result of increased sales of plant and equipment.

 

The business has continued to manage to completion three legacy civils contracts inherited from the acquisition of C. A. Blackwell. These contracts reported £2.8m (2018: £5.5m) of revenue and incurred operating losses of £0.7m in the year (2018: £3.4m), which are recorded as exceptional and which have been offset by the recovery of £0.6m after legal costs from a claim against the vendors of C. A. Blackwell for breach of warranty. These contracts are now completed on site with only small demobilisation or defects corrections activities remaining. Final accounts remain to be agreed with a total of £9.2m contract assets outstanding in respect of these legacy contracts. 

 

Following the insolvency of Wolf Minerals, the business has only a small level of activity currently at the Hemerdon tungsten mine site. Over the last several months, Hargreaves has sought to position itself to take advantage of whatever the future holds for the site. This would include carrying out the site restoration, the costs of which will be met by a fund which has already been set aside for that purpose during Wolf's tenure as mine operators.

 

The Specialist Earthworks business is focused on major earthworks projects. The principal current contract is the A14 bulk earthworks project which is expected to be completed in the new financial year. Future business opportunities with similar operational and contractual characteristics are being pursued and, as previously reported, 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. Currently the business is engaged in early stage enabling works on the site.

 

The business is also providing early contractor involvement consultancy advice on other major planned infrastructure projects in the south of England. The timing of many of these projects is uncertain and some are subject to political influence, but the business is well placed to provide what is a specialist capability in a market with a small number of potential suppliers.

 

As a result of the above events, both revenue and Underlying Operating Profit in this business are likely to be materially lower in the financial year ending 31 May 2020.

 

Hargreaves Land

Hargreaves Land, the Group's Property business, contributed £2.8m (2018: £11.7m) of revenue and an Operating Profit of £2.2m (2018: £2.1m). Property revenue was principally derived from the sale of non-strategic land. Additionally, Hargreaves Land sold £6.8m of land at the old Maltby colliery and Monckton coke works. This land was previously classified within fixed assets and so is excluded from the measurement of revenue. There remains approximately £5m of non-strategic land to be sold.

 

In last year's annual report, an independent valuation was carried out which supported the values given by a similar independent exercise in 2017. As the land portfolio develops, it becomes increasingly difficult to make a meaningful comparison with historic valuations and so the Board has decided not to carry out a similar exercise this year. The Board continues to hold the view that the market value of its property portfolio is materially greater than its book value. Where appropriate levels of return can be generated, Hargreaves Land will seek to deliver greater development value if that can be extracted through additional investment or by enhancing planning conditions.

 

At the major Blindwells site near Edinburgh, conditional sales of fully serviced plots to both Cruden Homes and Bellway have already been announced. These sales are expected to complete in the next financial year with a value in excess of £10m. £7.0m (2018: £1.6m) of infrastructure cost has been invested in the site during the year, which is included in Inventory in the Group balance sheet. Further investment of over £9m is planned in the next financial year with a further fifteen acres being brought to market in the autumn of this year. It is unlikely that sales of those plots will complete until the year ending 31 May 2021.

 

The site development plan for phase one will take approximately ten years and provides an ongoing stream of revenue and profit which will underpin the Property business, including the sale of land for around 1,600 homes. The second phase, known as Greater Blindwells, now has approval in principle to be allocated through the local development plan. This phase would result in an additional 900 homes to be built on land owned by the Group.

 

During the year, the business identified several other development opportunities in Scotland and the North of England which it plans to exploit either through joint venture arrangements or in other partnerships. One such opportunity is at Hatfield in Yorkshire. After the year end, Hargreaves Land entered into a joint venture there to develop a six hundred acre site with planning permission for 3,100 residential properties and 1.5 million square feet for a mixture of industrial, commercial and logistics use. Lead times on such developments can be unpredictable and as a result initial profits are not expected to arise on this scheme until 2021.

 

Hargreaves Land's strategic goal is that of a property developer rather than a long term owner of investment properties and it will seek to exploit appropriate opportunities whilst restricting the amount of capital to be invested as much as possible.

 

Brockwell Energy Limited

The Board was pleased to complete the sale of the entire share capital of Brockwell Energy Limited ("Brockwell") in October 2018. The initial gross proceeds of the disposal, including the reimbursement of certain costs, were £21.7m. An after-tax profit on the disposal of Brockwell of £4.5m, excluding the contingent consideration, has been recorded within Discontinued Operations.

 

Brockwell's new owners are specialist renewable energy investors and they have plans to develop a number of such assets, some of which will be on land which is owned by Hargreaves. As these assets are developed, they will provide the Group with long term high quality rental income streams. Currently, Brockwell is pursuing financial close to construct an Energy from Waste plant at the Hargreaves site at Westfield in Scotland and a further £2m in cash is receivable by Hargreaves should that financing be successful. At that point, Brockwell will also enter into a long term lease at commercial rates. The availability of low cost energy at the site should provide a strong incentive to enable Hargreaves Land to attract other potential industrial and warehouse operators to this 100 acre site.

 

Legacy Assets

During the period, sales of Legacy Assets amounted to £6.1m (2018: £4.7m) with no Operating Profit being recorded (2018: £nil). £12.8m of Legacy Assets remain in the form of loans due from the Tower Joint Venture which are supported by underlying land and equipment. Further sales of joint venture equipment are expected to take place in the new financial year.

 

Summary

The insolvencies of both Wolf Minerals and British Steel have cast a shadow over the Distribution & Services business which has otherwise traded well. The Board is resolved to derive value and cash from the component businesses as the Group transitions to a model which requires less capital to be employed.

 

HRMS, the German associate, is also transitioning to a more consistent business model as the CPP comes into production. This will add value to Hargreaves' investment in that business.

 

The Board has identified Hargreaves Land as a key area for growth given suitable investment into both existing assets and new opportunities, primarily utilising cash to be derived from the cessation of mining activities.

 

Gordon Banham

Group Chief Executive

30 July 2019

 



 

Consolidated Statement of Profit and Loss
and Other Comprehensive Income 

For the year ended 31 May 2019

 

Continuing operations

Note

2019

£000

2018

£000

 

 

 



 

Consolidated Balance Sheet

at 31 May 2019



2019

£000

Represented (see note 1)

2018

£000





 



 

Consolidated Statement of Changes in Equity

for year ended 31 May 2019

 

 

 

 

 

 



 

Consolidated Cash Flow Statements 

for year ended 31 May 2019

 

 

 

 

 



 

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 2019 or 31 May 2018. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 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 way 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 below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements. The adoption of IFRS 15 has resulted in a representation of contract assets and contract provisions in the 2018 balance sheet, this representation has not resulted in a change to the previously reported net assets of the Group.

 

These results were approved by the Board of Directors on 30 July 2019.

 

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, Hargreaves Land, Legacy and Unallocated.

•    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.

•    Hargreaves Land: 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.

•    Unallocated: The overhead costs related to 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:

 

 

 

Unallocated net liabilities of £25.9m include the Group banking facilities liability (£26.9m), cash and cash equivalents (£0.9m liability), derivative financial instruments (£0.3m liability), corporation tax liability (£0.6m) and deferred tax asset (£6.2m), retirement benefit obligations (£4.2m) and other corporate items (£0.8m asset).

 

 

Operating profit/(loss) including share of associate

6,876

2,085

46

(5,554)

3,453

 

Unallocated net liabilities of £39.8m 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).

 

 

3   Exceptional Items

The Group incurred a number of exceptional items in the year primarily related to the losses sustained due to the insolvency of Wolf Minerals (UK) Limited and British Steel Limited. Additionally, there were two other items relating to the C. A. Blackwell subsidiary.

 

 

 

 

4      Taxation

Recognised in the Income Statement

 

 

The deferred tax adjustment in respect of prior years of £918,000 relates to capital allowances, which were disclaimed within the Group provision previously.

 

 

Recognised in Other Comprehensive Income

 

 

Reconciliation of Effective Tax Rate

 

 

 

The UK corporation tax rate has been 19.00% for the duration of the financial year (2018: 19.00%).

 

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 6 April 2019. On 16 March 2016 it was announced that the main rate of UK Corporation Tax would reduce further to 17% on 6 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 2019 and 2018 have been calculated based on the rate of 17%, the rate substantively enacted at the Balance Sheet date.

 

 

5      Discontinued Operations

All discontinued operation results are attributable to equity holders. The Group's discontinued operations made a profit of £3,526,000 (2018: loss of £1,000,000) after tax during the year.

 

The discontinued operations represent the activities and disposal of Brockwell Energy Limited ("Brockwell"). The Company disposed of the whole of its shareholding in Brockwell on 19 October 2018 generating a profit after tax of £4,534,000. Proceeds includes the reimbursement of certain costs and expenses incurred by or in respect of Brockwell. Possible contingent consideration of £2m has not been recognised on grounds that any fair value attributable under IFRS 9 would be immaterial. In addition to this, discontinued operations include a loss after tax of £1,008,000 relating to a write off of a receivable in relation to the Belgian fraud uncovered in 2012. There are no remaining balances relating to this matter.

 

 

6 Assets Held for Sale

In the prior year the assets and liabilities of Brockwell were classified as held for sale. In addition to the assets associated with the disposal group, there was property, plant and equipment relating to the closure of Maltby Colliery which was also classified as held for sale in the previous year. Additionally, certain items of Freehold Land and Buildings were transferred into Assets Held for Sale as discussions regarding their sale were ongoing at the prior year end, these assets were disposed of during the year for proceeds of £8.4m.

 

 

 

 

7      Earnings per Share

The calculation of earnings per share ("EPS") 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.

               

 

 

The calculation of weighted average number of shares includes the effect of own shares held of 1,013,502 (2018: 1,069,904).

 

The calculation of diluted (loss)/earnings per share is based on the (loss)/profit for the year and the weighted average number of ordinary shares in issue in the year the potentially dilutive effect of the share options outstanding (effect on weighted average number of shares) is 425,491 (2018: 232,834); however the effect of these on basic (loss)/earnings per ordinary share in the current year is 0.00p as these instruments would have had an anti-dilutive impact (2018: 0.01p). Effect on continuing basic (loss)/earnings per ordinary share is 0.00p (2018: 0.02p).

 

8   Alternative Performance Measures Glossary

 

This report provides alternative performance measures ("APMs"), which are not defined or specified under the requirements of International Financial Reporting Standards. The Board believes that these APMs provide readers with important additional information on the business.

 

 

9   Posting of Report & Accounts

The Group confirms that the annual report and accounts for the year ended 31 May 2019 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.
 
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