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Hargreaves Services PLC   -  HSP   

Interim Results

Released 07:00 29-Jan-2020

RNS Number : 2165B
Hargreaves Services PLC
29 January 2020
 

 

29 January 2020

 

 

 

HARGREAVES SERVICES PLC

(the "Group" or "Hargreaves")

 

Interim Results for the six months ended 30 November 2019

 

Hargreaves Services plc (AIM: HSP), a diversified group delivering key projects and services to the industrial and property sectors, announces its interim results for the six months ended 30 November 2019.

 

KEY FINANCIAL RESULTS

Unaudited

Six Months ended 30 Nov 2019

 

Unaudited

Six Months ended 30 Nov 2018

 

Revenue

£124.7m

£167.9m

 

Underlying Operating Profit*

Profit/(loss) before tax

£2.5m

£5.2m

£2.1m

£(6.0)m

 

Underlying EPS

6.4p

5.4p

 

EPS

Interim Dividend

13.6p

2.7p

(2.6)p

2.7p

 

Net Debt (pre IFRS 16)

£34.7m

£28.6m

 

Net Asset Value

Net Assets per Share

£129.7m

403p

£133.4m

415p

 

                                               

* Underlying Operating Profit is defined by the Board as Operating Profit from continuing operations prior to exceptional items and amortisation of intangible assets and excludes the Group's share of the operating profit of its German associate.

 

HIGHLIGHTS

 

·      Underlying Operating Profit increased by 19% and margin improved to 2.0% (2018: 1.3%);

·      Underlying EPS increased by 18.5% to 6.4p (2018: 5.4p);

·      Interim dividend maintained at 2.7p (2018: 2.7p);

·      Net debt before IFRS 16 adjustments £34.7m (2018:  £28.6m), £40.3m after IFRS 16;

·      Successful disposal of Drakelands Restoration Ltd for £2.8m, generating exceptional profit of £2.4m and a strong future position at the Hemerdon tungsten mine;

·      HRMS (German associate) carbon pulverisation plant commencing trial production;

·      HRMS acquisition of DK Recycling in December 2019 for €1;

·      German associate is now an integrated speciality manufacturing and trading entity with an annualised revenue in excess of €300m.

 

Commenting on the interim results, Chairman Roger McDowell said: "These positive financial results demonstrate the Group's progress in delivering higher quality earnings from the Distribution & Services business. I am also pleased with the initiatives being driven by our German associate in developing and enhancing the underlying value of our German investment and am encouraged by early indications."

 

For further details:

 

Hargreaves Services plc

Gordon Banham, Group Chief Executive

John Samuel, Group Finance Director

 

 

0191 373 4485

Buchanan (Financial PR)

Mark Court / 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 / Cassie Herlihy

020 7597 5970

 

 

 

CHAIRMAN'S STATEMENT

 

Introduction

 

I am pleased to report a positive set of results for Hargreaves in the six months ended 30 November 2019. In addition to increased underlying profitability and improved margins, the Group has succeeded in securing a strong future position at the tungsten mine at Hemerdon, Devon, alongside recording a £2.4m exceptional gain, details of which were announced on 2 December 2019.

 

Hargreaves Raw Material Services GmbH ("HRMS")

As part of the Board's plans to create and realise shareholder value, it has been working with its German associate business, HRMS, to enhance the value of its investment. Hargreaves owns 49% of the voting share capital in HRMS and is entitled to 86% of the economic benefit. The management of HRMS owns and is entitled to the remainder.

As announced on 10 December 2019, HRMS has acquired 94.9% of DK Recycling und Roheisen GmbH ("DK") from DK Holdings GmbH. The acquisition cost was €1. Through a combination of this acquisition and the investment in its Carbon Pulverisation Plant ("CPP"), the management of HRMS is seeking to strengthen its business by adding complementary manufacturing process capability to HRMS' specialist commodity trading skills.

The CPP is about to begin trial production and is expected to be fully commissioned by early April 2020. The integrated and enlarged German business, which is expected to record future annual revenue in excess of €300m, should provide improved trading visibility, moderating the natural volatility of earnings in the original HRMS trading business whilst creating tangible value for shareholders.

As shareholders will be aware, HRMS is separately and independently managed from Hargreaves and, in recognition of that status, the Board has decided to change the presentation of the results and activities of HRMS. Previously, the Board included the results of HRMS (prior to interest and tax) within Underlying Operating Profit, which was inconsistent with IFRS reporting requirements and necessitated a reconciliation to statutory reporting. The results of HRMS are now presented in accordance with IAS 28 and are therefore excluded from Underlying Operating Profit.

 

The Board believes that reporting the results of the German associate separately from the rest of the Group's activities reflects both its independent management and ownership structure, as well as its growing importance as a key asset which the Board believes has the potential to deliver substantial shareholder value in the next few years.

 

Results

 

As expected, Revenue reduced to £124.7m (2018: £167.9m) but Underlying Operating Profit improved to £2.5m (2018: £2.1m). Revenue has declined primarily in the Specialist Earthworks business following the completion of civils contracts and because the comparative period included over £8m of revenue from Wolf Minerals Limited prior to its liquidation in October 2018. Further information on trading is given in the Chief Executive's Review. Underlying Operating Profit is defined by the Board as Operating Profit from continuing activities prior to exceptional items and amortisation of intangible assets and now excludes the results of the German associate. 

 

The Group has recorded £2.8m of exceptional profit in the period (2018: £8.1m exceptional loss). As previously announced, in connection with developments at the Hemerdon tungsten mine, the Group sold its subsidiary, Drakelands Restoration Limited, to Tungsten West Limited which gave rise to an exceptional gain of £2.4m. Additionally, the Group has continued to deliver services to British Steel during the period resulting in an £0.4m release from the exceptional provision made in the prior year.

 

After accounting for these exceptional items, operating profit was £5.4m (2018: loss of £6.1m). After financial income and expenses and including the Group's share of post-tax profits of the German associate of £0.7m (2018: £0.9m), the Group consolidated profit before tax was £5.2m (2018: loss of £6.0m).

 

 

Earnings Per Share

 

Basic underlying earnings per share from continuing operations were 6.4p (2018: 5.4p) and 13.6p (2018: loss per share 2.6p) on a reported basis.

 

IFRS 16

 

IFRS 16 'Leases' became effective for the Group from 1 June 2019 and replaces IAS 17 'Leases'.  The Group has adopted IFRS 16 using the modified retrospective approach under which the cumulative effect of adoption is recognised through reserves, with comparatives continuing to be reported under IAS 17. The adoption of the standard has had no material effect on the Income Statement but has increased the level of reported net debt by £5.6m as noted below. This increase has been largely offset by an increase in tangible assets recorded in property, plant and equipment.

 

Net Debt

 

Net debt was £40.3m. Prior to the accounting changes in accordance with IFRS 16, net debt would have been recorded as £34.7m (2018: £28.6m). The increase when compared with 30 November 2018 is due to higher levels of working capital in the Distribution & Services business, primarily related to finished goods inventory as efficient mining production exceeded demand levels. The Board expects to report a slightly lower level of net debt at the year end. The Board does not expect inventory levels to reduce until next financial year.

 

Dividend

 

The Board has decided to maintain the interim dividend at 2.7p (2018: 2.7p). This will be paid on 6 April 2020 to shareholders on the register at 28 February 2020.

 

Board Changes

 

For some time, the Board has been seeking to appoint another non-executive director. I am pleased to report that Christopher Jones MRICS has agreed to join the Board and will do so on 1 April 2020. Chris has over 30 years' experience working with a broad range of organisations within the UK commercial property market. In 1999, he was a founding partner of Christopher Dee LLP, a Manchester based partnership specialising in the analysis, acquisition and disposal of commercial property investment and development opportunities across the UK. Chris retires from the partnership at the end of March 2020. I look forward to welcoming Chris to the Board and to working with him to develop our Hargreaves Land business in particular.

 

Auditors

 

Following a thorough tender process, the Board has decided to appoint PricewaterhouseCoopers LLP as auditors to the Group in place of KPMG LLP.

 

Brexit

 

With the UK scheduled to leave the EU on 31 January 2020, uncertainty as to the outcome of future trade negotiations with the EU remains. As previously reported, 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 trading arrangements with the EU may be. The Group's German associate business, HRMS, trades almost exclusively within the EU but imports much of its trading stock from outside the EU.

 

The Board cannot meaningfully assess the impact of the potential future trading relationship with the EU on business sentiment in trading and financial markets which may lead to material change in the economic or financial environment within the UK and Europe for the Group or its customers.

Strategy and Shareholder Value

The Board's strategy to increase returns from the Distribution & Services business and to develop the Group's Property business, Hargreaves Land, which the Board regards as an important area to generate greater medium and longer-term value, remains unchanged. Additionally, as noted above, the Board is strongly supporting its German associate business in developing the value of its investment in HRMS.

 

Outlook

 

Hargreaves has made good progress in the last six months following the challenges it faced in the year ended 31 May 2019. The Board remains 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. The German associate has the full support of the Hargreaves' Board as it develops from a pure trading business into supplying and recycling specialist raw materials for the German manufacturing sector.

Although the Board expects to report higher than anticipated net debt at 31 May 2020 as a result of increased inventory levels, the Board anticipates reporting full year operating results slightly ahead of its expectations due to the benefit of ongoing trading with British Steel, which is expected to continue until at least the end of February 2020.

Roger McDowell

Chairman

29 January 2020

 

 

 

CHIEF EXECUTIVE'S REVIEW

 

Distribution & Services

 

The Distribution & Services business recorded revenue of £121.0m (2018: £152.5m) and an Underlying Operating Profit of £4.4m (2018: £4.4m). Operating profit under IFRS was £4.8m (2018 loss of £3.8m). Further information on the performance of each business within this segment is given below.

 

Production & Distribution

 

Revenue in Production & Distribution was £59.7m (2018: £63.4m). Operating profit improved to £2.5m (2018: £2.0m) following margin improvements in speciality coal markets and improved profitability in the Transport business resulting from greater contract selectivity and overhead reduction. The second half of the financial year may feature slightly weaker demand in the coal markets due to the mild winter weather.

 

Industrial Services

 

Revenue grew by 10% to £43.4m (2018: £39.4m) with an Underlying Operating Profit of £1.9m (2018: £1.4m) representing a margin of 4.4% (2018: 3.6%). The business has over 40 current contracts for 25 different customers.

 

Following the announcement in May 2019 that British Steel had gone into liquidation, the Official Receiver has continued to trade the business. This has benefitted our UK Industrial Services activity contributing £7m of revenue and £0.6m of operating profit during the period, similar to that recorded in the comparative period.

 

The Group recorded an exceptional provision of £8m in the year ended 31 May 2019 relating to unrecoverable debts and work in progress, potential redundancy and other costs on the assumption that British Steel would cease to trade as at 31 July 2019. In the six months to 30 November 2019, £0.2m of the provision has been utilised against costs incurred and £5m has been allocated against the unrecoverable debts and work in progress. Some possible employment related liabilities have been mitigated through the passage of time which has enabled a further £0.4m reduction in the provision, which now stands at £2.4m.

 

While the future of British Steel remains uncertain and discussions continue between the Government and interested parties, Hargreaves expects that its trading will continue at a similar level until at least the end of February 2020. This additional trading activity means that the result for the Industrial Services business for this financial year is now expected to be higher than previous expectations.

 

As in previous years, the cyclical profiling of contracts and planned site outages in Hong Kong, means that operating profit in the overseas Industrial Services business, which reported a loss in the period of £0.1m (2018: loss of £0.1m), will be heavily weighted to the second half. As reported in July the Hong Kong business secured its appointment to a new five year NEC4 Term Service Contract with its principal customer, CLP Power Hong Kong Ltd, providing a solid base for growth in the region.

 

Specialist Earthworks

 

Following the conclusion of site works on the major civils contracts in Specialist Earthworks and as a result of the liquidation of Wolf Minerals Ltd,  revenue reduced markedly and in line with expectations to £17.9m (2018: £49.9m) with an operating profit of £0.0m (2018: £1.0m).

 

The major contract in this business in the period has been the A14 bulk earthworks project which completed on site in December. Future major earthworks business opportunities are being pursued including participation in the construction of the HS2 high speed rail infrastructure, where the Group has been selected as a preferred supplier by one of the major consortia. The timing of many of these projects is uncertain and are often subject to political decisions, however the business is well placed to provide what is a specialist capability in a market with a small number of potential suppliers. Costs have been managed down to a minimum level whilst preserving the capability necessary to address HS2 and other opportunities as they arise.

 

As previously reported, the Group is continuing to seek to agree satisfactory final account settlements on three major completed legacy civils contracts which have a total of £9.2m of contract assets outstanding. Some or all of these accounts may not be fully resolved during the current financial year which may mean a higher than expected level of working capital and net debt at the year end.

 

 

Hargreaves Land

 

Hargreaves Land contributed £3.7m (2018: £9.4m) of revenue in the first half and an operating profit of £0.2m (2018: £0.4m). As in the comparative period, all of the revenue derived from the sale of parcels of surplus land which did not have sufficient development potential to warrant retention.

 

During the period, a further £4.3m of expenditure has been incurred installing infrastructure and services at the major Blindwells site near Edinburgh, where conditional sales to two housebuilders totalling in excess of £10m have already been announced. The third block of land has now been released to the market and strong interest has again been generated from residential developers. Legal completion of sales at Blindwells is dependent principally upon the housebuilders receiving detailed planning permission and associated statutory approvals.

As previously announced, in June 2019 Hargreaves Land entered into a joint venture with another developer at Hatfield, Yorkshire, to develop a 600 acre site with planning permission for 3,100 residential properties and 2 million square feet for a mixture of industrial, commercial and logistics use. Initial profits are not expected to flow from this project until the year ending 31 May 2021.

At 30 November 2019, the Group held interests in sites where planning permission has been achieved in respect of 4,700 residential plots and 4 million square feet of retail and commercial space.

In addition to the sites where planning permission has already been secured, Hargreaves Land is currently promoting 1,200 residential plots on four sites through the planning process. Additionally, over 125,000 square feet of retail warehousing has been submitted in detailed planning applications on two sites.  Typically, these sites are not owned by Hargreaves Land, but the Group's position is secured by options or conditional purchase agreements.

Investment in HRMS

 

The Group's German associate's post tax profit was £0.7m (2018: £0.9m). Trading conditions in the German market in certain speciality minerals have been weaker than a year ago. It should be noted that traditionally this business has been stronger in the second half of the financial year although, as it is a trading business, market conditions can be unpredictable creating short term volatility.

 

Currently, HRMS expects that second half trading will be a little stronger than the first half performance with a minimal contribution from the Carbon Pulverisation Plant which is expected to be fully commissioned in early April. Second half trading will also include the impact of HRMS' acquisition of DK although at this early stage, HRMS management does not expect a material contribution from DK in this financial year.

 

Legacy Asset Realisations

 

During the period there has been a further £1.2m realised from Legacy Assets (2018: £5.9m) at book value. The remaining Legacy Asset of £11.6m (2018: £21.5m) comprises the loan due from the Tower Joint Venture which is underpinned by tangible assets in the form of plant and machinery and land. A small reduction in the loan is expected in the second half of the financial year as a result of the sale of surplus plant.

 

Corporate Costs

 

The programme to reduce corporate and other overhead is ongoing with corporate costs falling in the period to £2.1m (2018: £2.7m).

 

Summary

 

During the period, it has been particularly satisfying to secure a solution at Hemerdon which provides our shareholders with substantial medium-term earnings potential alongside the immediate gain recorded in these results. The future holds a number of further opportunities, particularly in Specialist Earthworks should HS2 go ahead, although that is not expected to benefit the reported results in the current financial year.

 

I also expect Hargreaves Land to make further progress on a number of exciting projects including Hatfield. I look forward to seeing our German associate bring its trading expertise to bear in transforming the financial performance of DK together with initial production from the Carbon Pulverisation Plant.

The Group's balance sheet remains strong, providing the platform from which to continue the transition of our business and to generate and deliver shareholder returns.

 

 

Gordon Banham

Group Chief Executive

29 January 2020

 

 

Condensed Consolidated Statement of Profit and Loss and Other Comprehensive Income

for the six months ended 30 November 2019

 

 

Unaudited

Unaudited

Audited

 

 

six months

six months

year

 

 

ended

ended

ended

 

 

30 November

30 November

31 May

 

 

2019

2018*

2019*

 

Note

£000

£000

£000

 

 

 

 

 

Revenue

 

124,651

167,872

302,613

Cost of sales

 

(109,610)

(160,238)

(285,902)

 

 

 

 

 

Gross profit

 

15,041

7,634

16,711

Other operating income

 

945

163

4,291

Administrative expenses

 

(10,596)

(13,854)

(30,690)

 

 

 

 

 

Operating profit/(loss)

 

5,390

(6,057)

(9,688)

 

 

 

 

 

Operating profit (before exceptional items)

 

2,547

2,073

6,448

 

 

 

 

 

Exceptional items - Cost of sales

5

406

(8,130)

(12,645)

Exceptional items - Administrative expenses

5

2,437

-

(3,491)

 

 

 

 

 

Operating profit/(loss) (after exceptional items)

 

5,390

(6,057)

(9,688)

 

Financial income

 

240

98

450

Financial expenses**

 

(1,109)

(1,001)

(2,154)

Share of profit of associates and jointly controlled entities (net of tax)

 6

689

932

1,534

 

 

 

 

 

Profit/(loss) before tax

 

5,210

(6,028)

(9,858)

Taxation

7

(887)

1,173

1,665

 

 

 

 

 

Profit/(loss) for the period from continuing operations

 

4,323

(4,855)

(8,193)

 

Discontinued operations

 

 

 

 

Profit for the period from discontinued operations

8

-

4,007

3,526

 

 

 

 

 

Profit/(loss) for the period

 

4,323

(848)

(4,667)

 

 

 

 

 

Other comprehensive (expense)/income

 

 

 

 

Items that will not be reclassified to profit or loss

 

 

 

 

Remeasurements of defined benefit pension plans

 

-

-

(1,197)

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

 

-

-

203

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

 

 

 

 

Foreign exchange translation differences

 

(678)

313

318

Effective portion of changes in fair value of cash flow hedges

 

106

(992)

(1,269)

Equity adjustment relating to adoption of IFRS 16

 

(154)

-

-

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

 

(18)

169

216

Other comprehensive expense for the period, net of tax

 

(744)

(510)

(1,729)

 

 

 

 

 

Total comprehensive income/(expense) for the period

 

3,579

(1,358)

(6,396)

 

 

 

 

 

Profit/(loss) attributable to:

 

 

 

 

Equity holders of the company

 

4,358

(846)

(4,741)

Non-controlling interest

 

(35)

(2)

74

 

 

 

 

 

Profit/(loss) for the period

 

4,323

(848)

(4,667)

 

 

 

 

 

Total comprehensive income/(expense) for the period attributable to:

 

 

 

 

Equity holders of the company

 

3,614

(1,356)

(6,470)

Non-controlling interest

 

(35)

(2)

74

 

 

 

 

 

Total comprehensive income/(expense) for the period

 

3,579

(1,358)

(6,396)

 

 

 

 

 

GAAP measures

 

 

 

 

Basic earnings per share (pence)

10

13.56

(2.64)

(14.75)

Diluted earnings per share (pence)

10

13.26

(2.64)

(14.75)

Basic earnings per share from continuing operations (pence)

10

13.56

(15.13)

(25.71)

Diluted earnings per share from continuing operations (pence)

10

13.26

(14.95)

(25.71)

 

 

 

 

 

Non-GAAP measures (continuing)

 

 

 

 

Basic underlying earnings per share (pence)

10

6.39

5.40

15.30

Diluted underlying earnings per share (pence)

10

6.25

5.33

15.30

             

 

*The Group has adopted IFRS 16 starting 1 June 2019 using the modified retrospective transition option. Under this option, the comparative information is not restated. See Note 1.

**Finance expenses for the six months ended 30 November 2019 include £142,000 of additional finance charges in relation to the adoption of IFRS 16.
 

Condensed Consolidated Balance Sheet

as at 30 November 2019

 

Unaudited

Unaudited

 

Audited

 

30 November

30 November

31 May

 

2019

2018*

2019*

 

£000

£000

£000

 

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

25,224

53,712

45,528

Right of use assets

17,275

-

-

Investment property

9,666

11,762

10,067

Intangible assets

10,965

11,126

10,983

Investments in associates and jointly controlled entities

11,871

11,159

11,744

Deferred tax assets

5,299

5,299

6,229

 

 

 

 

 

80,300

93,058

84,551

Current assets

 

 

 

Assets held for sale

-

128

-

Inventories

62,392

35,622

48,040

Derivative financial instruments

10

215

25

Trade and other receivables

92,656

111,046

75,562

Contract assets

17,415

16,415

17,596

Cash and cash equivalents

15,493

26,999

21,583

 

 

 

 

 

187,966

190,425

162,806

 

 

 

 

Total assets

268,266

283,483

247,357

 

 

 

 

Non-current liabilities

 

 

 

Interest-bearing loans and borrowings**

(50,993)

(52,437)

(35,222)

Retirement benefit obligations

(3,336)

(3,686)

(4,184)

Provisions

(4,579)

(1,425)

(3,718)

Derivative financial instruments

-

(193)

(137)

 

 

 

 

 

(58,908)

(57,741)

(43,261)

 

 

 

 

Current liabilities

 

 

 

Interest-bearing loans and borrowings**

(4,798)

(3,199)

(4,289)

Trade and other payables

(72,251)

(86,519)

(69,259)

Provisions

(1,711)

(2,177)

(2,327)

Income tax liabilities

(736)

(454)

(594)

Derivative financial instruments

(165)

(6)

(150)

 

 

 

 

 

(79,661)

(92,355)

(76,619)

 

 

 

 

Total liabilities

(138,569)

(150,096)

(119,880)

 

 

 

 

Net assets

129,697

133,387

127,477

 

*The Group has adopted IFRS 16 starting 1 June 2019 using the modified retrospective transition option. Under this option, the comparative information is not restated. See Note 1.

**Interest-bearing loans and borrowings at 30 November 2019 include £0.5m of additional current liabilities and £5.8m of additional non-current lease liabilities recognised under IFRS 16.
 

Condensed Consolidated Balance Sheet (continued)

as at 30 November 2019

 

Unaudited

Unaudited

 

Audited

 

30 November

30 November

31 May

 

2019

2018*

2019*

 

£000

£000

£000

 

 

 

 

Equity attributable to equity holders of the parent

 

 

 

Share capital

3,314

3,314

3,314

Share premium

73,955

73,955

73,955

Other reserves

211

211

211

Translation reserve

(1,370)

(697)

(692)

Merger reserve

1,022

1,022

1,022

Hedging reserve

190

332

102

Capital redemption reserve

1,530

1,530

1,530

Share-based payment reserve

1,226

1,144

1,139

Retained earnings

49,599

52,597

46,841

 

129,677

133,408

127,422

 

 

 

 

Non-controlling interest

20

(21)

55

 

 

 

 

Total equity

129,697

133,387

127,477

 

*The Group has adopted IFRS 16 starting 1 June 2019 using the modified retrospective transition option. Under this option, the comparative information is not restated. See Note 1.

 

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 November 2018                                                                                                                                                        

 

 

Share

Share

Translation

Hedging

Other

Capital

redemption

Merger

Share-

based

payment

Retained

Total

parent

Non-controlling

Total

 

capital

premium

reserve

reserve

reserves

reserve

reserve

reserve

earnings

equity

interest

equity

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 June 2018

3,314

73,955

(1,010)

1,155

211

1,530

1,022

1,043

54,886

136,106

(19)

136,087

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income and expense for the period

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

-

-

-

-

(846)

(846)

(2)

(848)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation differences

-

-

313

-

-

-

-

-

-

313

-

313

Effective portion of changes in fair value of cash flow hedges

-

-

-

(992)

-

-

-

-

-

(992)

-

(992)

Tax recognised on other comprehensive income

-

-

-

169

-

-

-

-

-

169

-

169

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income/(expense)

-

-

313

(823)

-

-

-

-

-

(510)

-

(510)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income and expense for the period

-

-

313

(823)

-

-

-

-

(846)

(1,356)

(2)

(1,358)

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners recorded directly in equity

 

 

 

 

 

 

 

 

 

 

 

 

Equity settled share-based payment transactions

-

-

-

-

-

-

-

101

-

101

-

101

Dividends paid

-

-

-

-

-

-

-

-

(1,443)

(1,443)

-

(1,443)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contributions by and distributions to owners

-

-

-

-

-

-

-

101

(1,443)

(1,342)

-

(1,342)

 

Balance at 30 November 2018

3,314

73,955

(697)

332

211

1,530

1,022

1,144

52,597

133,408

(21)

133,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                   

 

 

 

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 November 2019

 

 

Share

Share

Translation

Hedging

Other

Capital

redemption

Merger

Share-

based

payment

Retained

Total

parent

Non-controlling

Total

 

capital

premium

reserve

reserve

reserves

reserve

reserve

reserve

earnings

equity

interest

Equity*

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 June 2019

3,314

73,955

(692)

102

211

1,530

1,022

1,139

46,841

127,422

55

127,477

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income and expense for the period

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the period

-

-

-

-

-

-

-

-

4,358

4,358

(35)

4,323

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (expense)/income

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation differences

-

-

(678)

-

-

-

-

-

-

(678)

-

(678)

Effective portion of changes in fair value of cash flow hedges

-

-

-

106

-

-

-

-

-

106

-

106

Equity adjustment relating to adoption of IFRS 16*

-

-

-

-

-

-

-

-

(154)

(154)

-

(154)

Tax recognised on other comprehensive income

-

-

-

(18)

-

-

-

-

-

(18)

-

(18)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive (expense)/income

-

-

(678)

88

-

-

-

-

(154)

(744)

-

(744)

 

 

 

 

 

 

 

 

 

 

 

 

-

-

(678)

88

-

-

-

-

4,204

3,614

(35)

3,579

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners recorded directly in equity

 

 

 

 

 

 

 

 

 

 

 

 

Equity settled share-based payment transactions

-

-

-

-

-

-

-

87

-

87

-

87

Dividends paid

-

-

-

-

-

-

-

-

(1,446)

(1,446)

-

(1,446)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contributions by and distributions to owners

-

-

-

-

-

-

-

87

(1,446)

(1,359)

-

(1,359)

3,314

73,955

(1,370)

190

211

1,530

1,022

1,226

49,599

129,677

20

129,697

 

 

*The Group has adopted IFRS 16 starting 1 June 2019 using the modified retrospective transition option which has resulted in an impact of £154,000 on the Group's opening equity. Under this option, the comparative information is not restated. See Note 1.         

Condensed Consolidated Cash Flow Statement

for the six months ended 30 November 2019

 

Unaudited

Unaudited

 

 

six months

six months

Audited

 

ended

ended

year ended

 

30 November

30 November

31 May

 

2019

2018*

2019*

 

£000

£000

£000

 

 

 

 

Cash flows from operating activities

 

 

 

Profit/(loss) for the period from continuing operations

4,323

(4,855)

(8,193)

Adjustments for:

 

 

 

Depreciation and impairment of property, plant and equipment***      

8,032

7,756

16,136

Amortisation and impairment of goodwill and intangible assets

-

-

142

Net finance expense

869

903

1,704

Share of profit of jointly controlled entities (net of tax)

(689)

(932)

(1,534)

Profit on sale of Property, Plant and Equipment

(945)

(190)

(4,291)

Equity settled share-based payment expense

87

101

96

Income tax expense/(credit)

887

(1,173)

(1,665)

Contributions to defined benefit pension schemes

(849)

(709)

(1,746)

Translation of non-controlling interest

18

(116)

(100)

 

    11,733**

785

549

 

 

 

 

Change in assets held for sale

-

8,832

8,961

Change in inventories

(14,352)

(154)

(11,262)

Change in trade and other receivables

(17,128)

(4,823)

26,172

Change in trade and other payables

3,032

1,239

(17,454)

Change in provisions and employee benefits

244

(603)

1,817

 

(16,471)

5,276

8,783

 

 

 

 

Interest paid

(546)

(802)

(1,635)

Income tax received

183

413

307

 

 

 

 

Net cash (outflow)/inflow from continuing operating activities

(16,834)

4,887

7,455

Net cash inflow from operating activities in discontinued operations

-

14,020

15,593

Net cash (outflow)/inflow from operating activities

(16,834)

18,907

23,048

 

 

 

 

Cash flows from investing activities

 

 

 

Proceeds from sale of property, plant and equipment and investment property

4,182

1,398

12,231

Acquisition of property, plant and equipment and investment property

(1,142)

(5,902)

(8,433)

Net cash inflow/(outflow) from investing activities

3,040

(4,504)

3,798

 

 

 

 

Cash flows from financing activities

 

 

 

Payment of finance lease liabilities

(4,794)

(2,775)

(6,780)

Dividends paid

(1,446)

(1,443)

(2,310)

Proceeds from/(repayments of) Group banking facilities

14,000

700

(12,300)

 

 

 

 

Net cash inflow/(outflow) from financing activities

7,760

(3,518)

(21,390)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

(6,034)

10,885

5,456

Cash and cash equivalents at the start of the period

21,583

16,110

16,110

Effect of exchange rate fluctuations on cash held

(56)

4

17

 

 

 

 

Cash and cash equivalents at the end of the period

15,493

26,999

21,583

           

*The Group has adopted IFRS 16 starting 1 June 2019 using the modified retrospective transition option. Under this option, the comparative information is not restated. See Note 1.

**Operating cash inflows before movements in working capital for the six months ended 30 November 2019 are £1,999,000 higher due to the adoption of IFRS 16. Interest paid for the six months ended 30 November 2019 is £142,000 higher due to the adoption of IFRS 16. Cash outflows in respect of the capital element of lease rental payments for the six months ended 30 November 2019 are £1,857,000 higher due to the adoption of IFRS 16.

***Additional depreciation on the Group's right-of-use assets due to the adoption of IFRS 16 amounted to £1,939,000 for the six months ended 30 November 2019.

 

 

Notes to the CONDENSED CONSOLIDATED Interim FINANCIAL INFORMATION

 

1.         Basis of preparation

 

The condensed consolidated interim financial information set out in this statement for the six months ended 30 November 2019 and the comparative figures for the six months ended 30 November 2018 is unaudited. This financial information does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. It does not comply with IAS 34 'Interim Financial Reporting', as is permissible under the rules of the Alternative Investment Market.          

The condensed consolidated interim financial information, which is neither audited nor reviewed, has been prepared in accordance with the measurement and recognition criteria of adopted International Financial Reporting Standards. This statement does not include all the information required for the annual financial statements and should be read in conjunction with the financial statements of the Group as at and for the year ended 31 May 2019.

For the year ending 31 May 2020, IFRS 16, Leases, has become effective and replaces the requirements of IAS 17, Leases. The Group has adopted IFRS 16 using the modified retrospective approach under which the cumulative effect of adoption is recognised through reserves, with comparatives continuing to be reported under IAS 17. An asset representing the Group's right as a lessee to use a leased item and a liability for the associated future lease payments, has been recognised for all leases, subject to limited exemptions for short-term leases and low-value lease assets. The cost of leases has been recognised in the consolidated income statement split between depreciation of the lease asset and a finance charge on the lease liability. This is similar to the accounting for finance leases under IAS 17, but different to the accounting for operating leases (under which no lease asset or lease liability was recognised, and operating lease rentals were charged to the consolidated income statement on a straight-line basis).

As a result of adopting the new accounting standard for the six months ended 30 November 2019, the Group's profit before tax has reduced by £224,000, and operating profit has increased by £82,000.  The reduction in profit before tax is the net impact of £142,000 of additional finance charges and £1,939,000 of additional depreciation, replacing £1,857,000 of operating lease rental charges. Finance charges under IFRS 16 are front-loaded in the early part of the lease term and when using the modified retrospective approach to adoption, this resulted in the overall cost of leases being greater than operating lease rental charges would have been under IAS 17. 

Net debt increased by £5,241,000 at 1 June 2019 as a result of the recording of the additional lease liabilities on the balance sheet.  This was largely offset within net assets by an increase of £5,200,000 in right-of-use assets recorded in property, plant and equipment and the recognition of £113,000 of associated accruals.

There are no other new IFRS which apply to the condensed consolidated interim financial information.

           

2.         Accounting policies                

 

The accounting policies applied in preparing the condensed consolidated interim financial information are the same as those applied in the preparation of the annual financial statements for the year ended 31 May 2019, as described in those financial statements, with the exception of the adoption of IFRS 16.

 

Adoption of IFRS 16

 

The Group adopted IFRS 16 with a date of initial application of 1 June 2019 using the modified retrospective approach whereby the right-of-use asset on transition equalled the lease liability, before the reclassification and adjustment of associated balance sheet items. The comparative information for the six months ended 30 November 2018 and for the year ended 31 May 2019 has not been restated and continues to be reported under IAS 17.

 

The Group applied the following measures/exemptions available on transition to IFRS 16, to leases previously classified as operating leases;

 

·      on transition the Group has applied IFRS 16 only to those contracts that were previously identified as containing a lease. Contracts previously identified as not containing leases under IAS 17 were not reassessed;

·      The Group has relied on its previous assessment of whether leases are onerous in accordance with IAS 37 immediately before the date of initial application as an alternative to performing an impairment review;

·      The Group has not recognised right-of-use assets and liabilities for leases of low value or for which the lease term ends within 12 months of the date of initial application, on a lease-by-lease basis; and

·      The Group has applied a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term in a similar class of underlying asset).

 

The Group has changed its accounting policies and updated its internal processes and controls relating to leasing. The new definition of a lease has been applied to contracts entered into from 1 June 2019.

 

Lease accounting policy

The Group has relied upon the exemption under IFRS 16 to exclude the impact of low-value leases and leases that are short-term in nature (defined as leases with a term of 12 months or less). Costs on these leases are recognised on a straight-line basis as an operating expense within the income statement. All other leases are accounted for in accordance with this policy.

The Group has various lease arrangements for properties (e.g. office buildings and storage facilities), vehicles, and other equipment including plant and machinery. At the inception of a lease contract, the Group assesses whether the contract conveys the right to control the use of an identified asset for a certain period of time and whether it obtains substantially all the economic benefits from the use of that asset, in exchange for consideration. The Group recognises a lease liability and a corresponding right-of-use asset with respect to all such lease arrangements in which it is a lessee.

A right-of-use asset is capitalised on the balance sheet at cost which comprises the present value of future lease payments determined at the inception of the lease adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred in addition to an estimate of costs to remove or restore the underlying asset. Where a lease incentive is receivable, the amount is offset against the right-of-use asset at inception. Right-of-use assets are depreciated using the straight-line method over the shorter of the estimated life of the asset or the lease term and are assessed in accordance with IAS 36 'Impairment of Assets' to determine whether the asset is impaired and to account for any loss.

The lease liability is initially measured at the present value of lease payments as outlined above and is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. Lease payments comprise fixed lease rental payments only with the exception of property, which also includes the associated fixed service charge. Lease liabilities are classified between current and non-current on the balance sheet.

The key estimate applied by management relates to the assessment of the incremental borrowing rate adopted by the Group to discount the future lease rentals to present value in order to measure the lease liabilities at 1 June 2019. The weighted average rate applied by the Group at transition was 3.7%.

The impact on the Group's opening balance sheet at 1 June 2019 as a result of the adoption of IFRS 16 was as follows:

 

£'000

Net assets at 31 May 2019

127,477

Right-of-use assets recognised

5,200

Reclassification of accruals

(113)

Lease liabilities recognised

(5,241)

Net assets at 1 June 2019

127,323

 

 

Applying the Group's incremental borrowing rate to discount the operating lease commitments reported at 31 May 2019 results in a liability of £5.2m. This reconciles to the right of use asset recognised as follows:

 

 

£'000

Operating lease commitments at 31 May 2019

 5,784

Discount using the incremental borrowing rate at 1 June 2019

(563)

Discounted operating lease commitments

5,221

Recognition exemption for short-term and low-value leases

(250)

Reassessment of lease terms including extension and termination options reasonably certain to be exercised

229

Right of use asset recognised at 1 June 2019

5,200

     

 

3.         Status of financial information

                                                           

The comparative figures for the financial year ended 31 May 2019 are not the Group's statutory consolidated financial statements for that financial year. The statutory financial accounts for the financial year ended 31 May 2019 have been reported on by the company's auditor and delivered to the Registrar of Companies. The report of the auditor was (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.

 

4.         Principal risks and uncertainties                                                                                                                                             

The principal risks and uncertainties affecting the Group are unchanged from those set out in the Group's accounts for the year ended 31 May 2019.  The Directors have reviewed financial forecasts and are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future on the basis that the Group is successful in refinancing its borrowing facilities by 31 August 2020.  Accordingly, the Group continues to adopt the going concern basis in preparing the condensed consolidated interim financial information.       

 

5.         Exceptional items

 

Six months ended 300 November 20198

Unaudited

£'000

Six months ended 30 November 2018

Unaudited

£'000

Year ended
31 May 2019

Audited

£'000

Gain on disposal of Drakelands Restoration Limited

2,437

-

-

Profit/(losses) due to the insolvency of British Steel Limited

406

-

(7,964)

Losses due to the insolvency of Wolf Minerals (UK) Limited

-

(8,130)

(8,130)

Losses on legacy contracts in C. A. Blackwell

-

-

(676)

Net amounts recovered from C. A. Blackwell breach of warranty claim

-

-

634

Total exceptional items

2,843

(8,130)

(16,136)

 

On 29 November 2019 the Group disposed of 100% of the share capital of Drakelands Restoration Limited ("Drakelands") for proceeds of £2,800,000. Associated disposal costs were £363,000, Drakelands net assets at the date of disposal were £nil.

 

6.         Results of associate

 

Six months ended 300 November 20198

Unaudited

£'000

Six months ended 30 November 2018

Unaudited

£'000

Year ended 31 May 2019

Audited

£'000

Underlying operating profit of associate

1,627

2,024

3,376

Interest on associates and joint ventures

(530)

(622)

(967)

Taxation on associates and joint ventures

(408)

(470)

(875)

Share of profit of associates and jointly controlled entities

689

932

1,534

 

 

7.         Taxation                                                                      

                                                                       

Income tax for the period is charged at 19% (2018: 19%). The effective tax rate, after removing the impact of jointly controlled entities is 19.6% (2018: 16.9%), representing an estimate of the annual effective rate for the full year to 31 May 2020.

 

8.         Discontinued operations

 

Six months ended 300 November 20198

Unaudited

£'000

Six months ended 30 November 2018

Unaudited

£'000

Year ended 31 May 2019

Audited

£'000

Proceeds from disposal of subsidiary

-

21,733

21,733

Assets disposed

-

(10,034)

(10,034)

 

-

11,699

11,699

Administrative expenses

-

(7,437)

(7,760)

Profit before tax of discontinued operations

-

4,262

3,939

Current tax charge

-

(255)

(313)

Deferred tax charge

-

-

(100)

Taxation

-

(255)

(413)

Profit for the period from discontinued operations

-

4,007

3,526

 

The discontinued operations represented the activities and disposal of Brockwell Energy Limited ("Brockwell"). The Company disposed of the whole of its shareholding in Brockwell on 19 October 2018. Proceeds included the reimbursement of certain costs and expenses incurred by or in respect of Brockwell. In addition to this the profit from discontinued operations for the year ended 31 May 2019 included a loss after tax of £1,008,000 relating to writing off a receivable in relation to the Belgian fraud uncovered in 2012.

 

9.         Dividends                                                                    

                                                                       

The final dividend of 4.5 pence per ordinary share, proposed in the 2019 annual accounts and approved by the shareholders at the Annual General Meeting on 30 October 2019, was paid on 2 November 2019. The directors have proposed an interim dividend of 2.7 pence per share (2018: 2.7p) which will be paid on 6 April 2020 to shareholders on the register at the close of business on 28 February 2020. This will be paid out of the Company's available distributable reserves. In accordance with IAS 1, dividends are recorded only when paid and are shown as a movement in equity rather than as a charge in the income statement.

 

10.        Earnings per share

           

Six months ended 30 November 2019

Unaudited

Six months ended 30 November 2018

Unaudited

Year ended 31 May 2019

Audited

 

Earnings

EPS

DEPS

Earnings

EPS

DEPS

Earnings

EPS

DEPS

 

£000

Pence

Pence

£000

Pence

Pence

£000

Pence

Pence

 

 

 

 

 

 

 

 

 

 

Underlying earnings per share from continuing operations

2,055

6.39

6.25

1,732

5.40

5.33

4,918

15.30

15.30

Exceptional items and amortisation (net of tax)

2,303

7.17

7.01

(6,585)

(20.53)

(20.28)

(13,185)

(41.01)

(41.01)

Continuing basic earnings per share

4,358

13.56

13.26

(4,853)

(15.13)

(14.95)

(8,267)

(25.71)

(25.71)

 

 

 

 

 

 

 

 

 

 

Discontinued operations

-

-

-

4,007

12.49

12.31

3,526

10.96

10.96

Basic earnings per share

4,358

13.56

13.26

(846)

(2.64)

(2.64)

(4,741)

(14.75)

(14.75)

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares

 

 

32,137

 

32,862

 

 

32,077

 

32,468

 

 

32,150

 

32,150

 

The calculation of diluted earnings per share is based on the profit for the period attributable to equity holders of the Company and on the weighted average number of ordinary shares in issue in the period adjusted for the dilutive effect of the share options outstanding. The effect on the weighted average number of shares is 725,000 (2018: 391,000), the effect on continuing basic earnings per ordinary share is 0.30p (2018: 0.18p).

 

11.        Segmental information

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board of Directors, since they are responsible for strategic decisions.

 

 

Distribution & Services

Hargreaves Land

Unallocated and Legacy

HRMS

Total

 

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

 

30 November

30 November

30 November

30 November

30 November

 

2019

2019

2019

2019

2019

 

£000

£000

£000

£000

£000

Revenue

 

 

 

 

 

Total revenue

121,000

3,700

-

-

124,700

Intra-segment revenue

(49)

-

-

-

(49)

 

 

 

 

 

 

Revenue from external customers

120,951

3,700

-

-

124,651

 

 

 

 

 

 

Operating profit/(loss) before exceptional items

4,405

201

(2,059)

-

2,547

Exceptional items

406

-

2,437

-

2,843

 

 

 

 

 

 

Operating profit

4,811

201

378

-

5,390

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

-

-

-

689

689

Net financing costs

(804)

(101)

36

-

(869)

 

 

 

 

 

 

Profit before taxation

4,007

100

414

689

5,210

 

 

Distribution & Services

Hargreaves Land

Unallocated and Legacy

HRMS

Total

 

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

 

30 November

30 November

30 November

30 November

30 November

 

2018

2018

2018

2018

2018

 

£000

£000

£000

£000

£000

Revenue

 

 

 

 

 

Total revenue

152,774

9,403

5,925

-

168,102

Intra-segment revenue

(230)

-

-

-

(230)

 

 

 

 

 

 

Revenue from external customers

152,544

9,403

5,925

-

167,872

 

 

 

 

 

 

Operating profit/(loss) before exceptional items

4,363

378

(2,668)

-

2,073

Exceptional items

(8,130)

-

-

-

(8,130)

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss)/profit

(3,767)

378

(2,668)

-

(6,057)

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

-

-

-

932

932

Net financing costs

(862)

(73)

32

-

(903)

 

 

 

 

 

 

 

 

 

 

 

 

(Loss)/profit before taxation

(4,629)

305

(2,636)

932

(6,028)

                               

Underlying Operating Profit is defined by the Board as Operating Profit from continuing activities prior to exceptional items and amortisation of intangible assets and excludes the Group's share of the operating profit of its German associate. It is a key performance measure monitored by the Board on a monthly basis.

 

                                   

12.        Condensed consolidated interim financial information                                                           

                                                           

The condensed consolidated interim financial information was approved by the Board of Directors on 29 January 2020. Copies of this interim statement will be sent to all shareholders and will be available to the public from the Group's registered office.

 


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Interim Results - RNS