REG - Hargreaves Servs PLC - Preliminary Results

Hargreaves ServicesAnnouncement

01/08/2018 07:05

RNS Number : 4313W
Hargreaves Services PLC
01 August 2018
 






For immediate release


1 August 2018




 
 
HARGREAVES SERVICES PLC
(the "Group" or "Hargreaves")
 
Preliminary Results for the year ended 31 May 2018
 
Hargreaves Services plc (AIM: HSP), a diversified group delivering key services to the industrial and property sectors, announces its preliminary results for the year ended 31 May 2018.
 
KEY FINANCIAL RESULTS
 




Year ended 31 May


   2018


2017


 




Revenue


£297.1m


£342.7m


 




Operating (Loss)/Profit


£(1.4)m


£1.4m


 




Underlying Operating Profit*


£9.4m


£11.0m


 




Profit Before Tax


£0.5m


£4.7m


 




Basic EPS from continuing operations


3.8p


17.8p


 




Underlying basic EPS from continuing operations


14.9p


19.8p


 




Final Dividend


4.5p


4.5p


 




Net Debt


£30.8m


£15.7m


 




Net Assets


£136.1m


£137.9m


 




Net Assets per Share


424p


432p


 



 
 
 
 
 



                                   
* Underlying Operating Profit is stated prior to exceptional items, the amortisation and impairment of intangible assets and including the Group's share of operating profit in associates and joint ventures.
 
HIGHLIGHTS
 
·    Underlying trading satisfactory and in line with management expectations
·    Distribution & Services Underlying Operating Profit margin up to 4.6% (2017: 4.3%)
·    Independent property valuation confirms £20m market value uplift and a further £28m development value uplift
·    Total property valuation uplift equates to 129p per share
·    Good progress continues to be made on the development of the Blindwells project
·   £29m Legacy assets to realise, down from £66m two years ago, with the majority to be realised by 31 May 2019
·    Disposal of Brockwell Energy, treated as a Discontinued Operation, well advanced
·    Roger McDowell becomes Chairman, 1 August 2018
·    Final dividend maintained at 4.5p; full year dividend of 7.2p (2017: 7.2p)
Commenting on the preliminary results, retiring Chairman David Morgan said: "The Group is delivering against its strategic objectives. As revenues from traditional markets decline, operational focus is on risk management and margin improvement. Value realisation from the Group's Property and Energy assets is continuing with exclusivity granted to a purchaser for the Energy portfolio and sale completion expected in the next few months. Independent property valuations confirm the latent value in the Group's property portfolio. Legacy asset realisation should be substantially completed by 31 May 2019. The Board looks forward to an improvement in cash generation and underlying operating profits."
Analyst meeting
A meeting for analysts will be held at 10.00am this morning, 1 August 2018, at the offices of Buchanan,
107 Cheapside, London EC2V 6DN. Please contact Buchanan on 020 7466 5000 for further information.
 
 
Enquiries:




 
Hargreaves Services plc
Gordon Banham, Chief Executive Officer
John Samuel, Group Finance Director
 


 
0191 373 4485




Buchanan (Financial PR)
Mark Court  / Sophie Wills / Henry Wilson
 


020 7466 5000




N+1 Singer (NOMAD and Joint Corporate Broker)
Sandy Fraser / Rachel Hayes
 


020 7496 3000




Investec (Joint Corporate Broker)
Sara Hale / Helene Comitis


020 7597 4000




 
 
 
 
Chairman's Statement
David Morgan, Group Chairman
 
 
Introduction
 
I am pleased to report on the progress of Hargreaves in the year ended 31 May 2018. It was a year during which the Board continued to deliver its strategy of simplification of the Group, with the on-going disposal of Legacy and non-core assets and a focus on core activities in Distribution & Services and Property. Hargreaves is well positioned to deliver value from its chosen markets where appropriate margins and returns on capital can be achieved. Underlying trading for the year has been satisfactory and in line with management expectations.
 
Results
 
Revenue from continuing operations was £297.1m (2017: £342.7m). £40.9m of this reduction, which was in line with expectations, arises within the Distribution & Services business. Additionally, there was a reduction of £12.5m in revenue from the sale of Legacy assets during the year.
 
Underlying Operating Profit from continuing operations for the year was lower than the comparative period at £9.4m (2017: £11.0m). The reduction is attributable to Distribution & Services which recorded Underlying Operating Profit of £12.9m (2017: £13.7m). Underlying Operating Profit is defined by the Board as Operating Profit prior to exceptional items, amortisation and impairment of intangible assets and includes the Group's share of the operating profit of its German associate. The Board uses this measure as a Key Indicator in assessing the financial performance of the Group throughout the year and believes that its disclosure benefits readers of these financial statements. Further information on the trading performance of the businesses is given in the Chief Executive Officer's Business Review.
 
Operating profit prior to exceptional items improved by 17% to £2.1m (2017: £1.8m). After accounting for £3.5m (2017: £0.5m) of exceptional items, principally attributable to the legacy contracts in Specialist Earthworks and associated restructuring costs, operating loss under IFRS was £1.4m (2017: profit of £1.4m). After net financial expenses of £1.3m (2017: £2.1m) and accounting for the share of post-tax profits of the German associate of £3.2m (2017: £5.5m), the consolidated profit before tax was £0.5m (2017: £4.7m). Basic underlying earnings per share from continuing operations were 14.9p (2017: 19.8p) and 3.8p (2017: 17.8p) on a reported basis.
 
Brockwell Energy Limited
 
As previously announced, the Board has entered into exclusive negotiations with one party to acquire Brockwell Energy Limited, the holding company for the Group's Energy business. Completion of the disposal is expected to occur within the next few months. The decision to dispose of the whole of the Group's investment in Brockwell was reached as the Board considered that a minority position would not provide the Group with sufficient influence over the development of the business. Consequently, Brockwell Energy Limited is reported as a Discontinued Operation within these results.
 
Net Debt
 
As previously indicated, net debt of £30.8m (2017: £15.7m) was approximately £7m higher than expected due to the timing of a legacy land asset disposal, in respect of which contracts were exchanged after the year end. The underlying increase of approximately £8m was primarily due to an increased investment of £4.3m in Brockwell Energy Limited and £3.5m of exceptional items. Although net debt may increase further in the first half of this financial year primarily due to planned increases in working capital including at Blindwells, a substantial reduction is forecast by the year end as Legacy assets are expected to be realised in the second half.
 
The Group has recently renegotiated its banking facilities and has put a two-year agreement in place with its bankers which provides appropriate operational headroom without committing the Group to excess unnecessary facilities and associated non-utilisation costs.
 
Dividend
 
The Board is recommending an unchanged final dividend of 4.5p (2017: 4.5p) per ordinary share thus maintaining the full year dividend at 7.2p (2017: 7.2p). This will be paid on 2 November 2018 to all shareholders on the register at the close of business on 21 September 2018. The shares will become ex-dividend on 20 September 2018.
 
People
 
The Board would like to thank each of our employees for their efforts which are the foundation of the Group's ability to deliver returns for our shareholders. The Group employs over 2,000 people and each of them plays their part in its achievements.
 
Board Changes
 
On 2 January 2018, Iain Cockburn stepped down as Group Finance Director to take up the role of Chief Financial Officer of Brockwell Energy Limited on a full-time basis. Iain was succeeded on that date by John Samuel, formerly Group Finance Director at Renew Holdings plc. Additionally, Kevin Dougan retired from the Board on 1 December 2017. We also recently announced the recruitment of David Anderson who will join the Board no later than 1 December 2018 as Group Property Director.
 
Additionally, Peter Jones has informed the Board of his intention not to seek re-election at the Annual General Meeting to be held on 30 October 2018. The Board will commence a process to appoint a further non-executive Director shortly.
 
As previously announced, I will be resigning from the Board immediately following these results and will be succeeded by Roger McDowell, who joined the Board on 11 May 2018. In the short period I have been working with Roger, it is clear to me that his experience will prove to be of great benefit to the Board in developing the Group's strategy and delivering shareholder value.
 
Strategy
 
In April 2016, the Board announced three key strategic objectives. First, to report an Underlying Operating Profit from the Distribution & Services business in excess of £10m by the year ending 31 May 2018. This has been achieved in each of the years ended 31 May 2017 and 2018.
 
Secondly, to create more than £35m of value from the Property & Energy portfolio by 2021. As at 31 May 2018, whilst only £8.5m has been realised in cash from the Property portfolio to date, this does not reflect the progress that has been made and the work to realise further value continues. A key element of the value realisation from the Property & Energy portfolio is the disposal of Brockwell Energy Limited on which I have commented above.
 
Finally, to generate £60m of cash from the realisation of Legacy assets. To date, £31.4m of Legacy asset sales has been recorded and the net book value of the remaining legacy assets is £28.6m, compared with £39.6m one year ago. Further substantial Legacy asset realisations are expected in the second half of this financial year.
 
Following a review of the prospects for each of the Group's activities, the Board has determined that the strategy to deliver sustainable and growing profits from its core trading businesses in Distribution & Services whilst optimising investment to grow its Property business remains valid. This strategy sits alongside converting the value of those assets which have limited growth potential for the Group into cash in a controlled manner. The Board will continue to consider the best ways of deploying that cash for optimal shareholder return as the financial year progresses.
 
Within Distribution & Services, the Board believes that medium term revenue growth and near-term margin improvement can be forthcoming in both the Industrial Services and Specialist Earthworks business units whilst the UK Production & Distribution business is stable and cash generative. The Industrial Services business does not require substantial capital investment and the Specialist Earthworks business, whilst capital asset intensive, only requires committing to that investment with respect to secured contractual positions. The investment by the Group's German associate, Hargreaves Raw Materials Services GmbH ("HRMS") in a Carbon Pulverisation Plant will provide both improved resilience for the existing European trading business and additional growth opportunities.
 
The Board regards the Property business, known as Hargreaves Land, as an important area for future growth and aims to strengthen its resources to generate greater medium and longer-term value. We are excited by the recent recruitment of David Anderson as Group Property Director and we look forward to David joining the Board and furthering the momentum in Hargreaves Land. The successful development of the Blindwells site will be a key example that the Group can realise the substantial latent value within the existing land portfolio as well as demonstrating that the Group has the skills to bring substantial development opportunities to market successfully.
 
Outlook
 
The Group enters the 2018/19 financial year in a healthy financial position with further surplus asset realisation plans well advanced. The Group has impetus and ambition to grow its businesses in those sectors where it has a strong market position.  The Board looks forward to an improving financial performance from the Group both in terms of cash generation and underlying operating profits and margins. 
 
 
 
 
David Morgan
Chairman
31 July 2018
 
 
Group Business Review
Gordon Banham, Group Chief Executive Officer
 
 
Distribution & Services
 
The Distribution & Services business recorded revenue of £280.7m (2017: £321.6m).The reduction in revenue was due to lower levels of activity in Production & Distribution (£16.2m) and in Specialist Earthworks (£29.8m), partially offset by increased revenue in Industrial Services of £4.6m. £5.5m (2017: £15.1m) of Specialist Earthworks revenue was attributable to legacy contracts which are recorded as exceptional.
 
Underlying Operating Profit was £12.9m (2017: £13.7m). When eliminating revenue arising from exceptional contracts, margins at this level improved to 4.7% from 4.5%. The slight fall in Underlying Operating Profit was due to a £1.9m reduction in the contribution from Specialist Earthworks and a £2.3m reduction in that from HRMS. It should be noted that the contribution from HRMS in the 2017 financial year was particularly high. These reductions were offset by strong results from UK Production & Distribution, up £2.8m, and Industrial Services, up £0.6m. On an IFRS basis, this business segment recorded an Operating Profit of £6.9m (2017: £10.0m), with the reduction being due to the £3.5m charge for exceptional items.
 
Further information on the performance of each business within this segment is given below.
 
Production & Distribution
 
During the second half of the year, the Logistics and Coal Production & Distribution businesses were brought under a unified management structure realising an initial £0.3m of annualised overhead savings.
 
Revenue was £137.4m (2017: £153.6m), primarily due to lower volumes of low margin thermal coal being traded. Underlying Operating Profit increased by 5.3% to £10.0m (2017: £9.5m). The UK operations contributed £3.5m of this (2017: £0.7m), a marked improvement over the prior year. Our UK coal production and processing sites in Scotland continue to yield a high proportion of speciality coals, pricing of which has been strong. Favourable trading conditions in the speciality coal market are continuing into the new financial year. The Maxibrite domestic briquette business has now completed its conversion to a cold cure process which is already delivering lower production costs. Additionally, the Logistics business returned to profitability albeit on lower revenue as the business focused on contract selectivity.
 
HRMS contributed £6.5m (2017: £8.8m) to Underlying Operating Profit as it continued to trade well. As a speciality commodity trading business, the results of HRMS are subject to fluctuations depending upon market conditions. As previously reported, HRMS is constructing a Carbon Pulverisation Plant in Duisburg, Germany, to add resilience and greater predictability to future trading prospects. Construction work is well underway, and the plant is expected to become operational by the end of the first half of calendar year 2019.
 
Industrial Services
 
Revenue increased by 7.0% to £70.0m (2017: £65.4m) with Underlying Operating Profit up by 33.3% at £2.4m (2017: £1.8m). Margins improved to 3.4% (2017: 2.8%). Whilst modest revenue growth was achieved in the UK, our international operations, which are primarily based in Hong Kong, grew by 19% and recorded an Underlying Operating Profit of £0.7m (2017: £0.3m loss). The Hong Kong business has quadrupled in size since 2015 and continues to broaden the range of services it can provide to its clients. The South African business broke even after suffering a £0.9m loss in 2017. The UK business is focused on margin improvement as it transitions gradually from mainly supporting coal fired power stations and broadens its customer base. The forward order book and term contract positions held by the Industrial Services business mean that its budget revenue for the next financial year is almost fully secured.
 
Specialist Earthworks
 
The Specialist Earthworks business recorded revenue of £78.8m (2017: £108.6m) and an Underlying Operating Profit of £0.5m (2017: £2.4m). Activity levels have decreased as a result of greater contract selectivity and risk mitigation, together with lower revenue arising from the three legacy civils contracts. The business is engaged on completing its general civil engineering contractual commitments, including those relating to legacy contracts, and on agreeing associated final accounts. These contracts have been either loss making or at low margins and appropriate provisions have been made against their expected outcomes.
 
The C. A. Blackwell business has two principal current contracts which support the forward outlook, being the A14 bulk earthworks project and the contract mining activity at the Hemerden tungsten mine in Devon. Future business opportunities with similar operational and contractual characteristics to the A14 are being pursued and I am pleased to report that C. A. Blackwell has been selected as a strategic partner to one of the major contractor consortia for two sections of earthworks on the HS2 rail project. Over the next several months the parties will collaborate to determine the value and programming of the work. Regarding the contract at the Hemerdon tungsten mine, which is operated by Wolf Minerals Limited ("Wolf"), the Board notes Wolf's statement issued to the London Stock Exchange on 30 July 2018. It sets out Wolf's financing arrangements which are expected to be sufficient to support Wolf's short-term working capital requirements until 28 October 2018, during which time Wolf will undertake a strategic review of its funding arrangements.
 
The Specialist Earthworks business has continued to manage to completion three legacy civils contracts inherited from the acquisition of C. A. Blackwell. These contracts reported £5.5m (2017: £15.1m) of revenue and incurred operating losses of £3.4m in the year (2017: £3.4m), which are recorded as exceptional. All of these contracts are now completed on site with only small demobilisation or defects corrections activities remaining. Full provision has been made for all expected losses. An additional exceptional charge of £0.5m has been recorded which relates to restructuring costs within C. A. Blackwell.
 
As reported in November 2017, the Group is pursuing a claim against the vendors of C. A. Blackwell for breach of warranty. The matter is being progressed through an ongoing legal process.
 
Hargreaves Land
 
Hargreaves Land, the Group's Property business, contributed £11.7m (2017: £3.4m) of revenue and an Operating Profit of £2.1m (2017: £1.8m). Property revenue was principally derived from the sale of land where the time and cost of investment to realise the longer term potential development value is not warranted.
 
At the major Blindwells site near Edinburgh, we are well advanced in discussions with a number of residential developers and will shortly commence the construction of key infrastructure for the site. £1.6m was invested in the site during the year, which is included in Inventory in the Group balance sheet. As a result of those discussions, the Company is continuing to consider the best site remediation and development plan to realise maximum value over the medium and long term. It is expected that the first block of land, which will accommodate around fifty houses, will become available for a developer to take ownership around the end of this calendar year.
 
The Company plans to release two or three blocks of land per annum as they become ready for developers. The site development plan for phase one will take between ten and fifteen years and provides an ongoing stream of revenue and profit which will underpin the Property business, including the sale of land for approximately 1,600 homes. The second phase, known as Greater Blindwells, now has approval in principle to be allocated through the local development plan to be adopted formally later this year. This phase would result in an additional 900 homes to be built on land owned by the Group.
 
In August 2017, we reported that the independent Red Book valuation of our property assets had been completed providing a market value of £49m and a development value of £83m compared with a book value at 31 May 2017 of £31m. The following table includes the results of an updated independent valuation carried out at this financial year end which shows that the valuations remain valid.
 
Approximately £12m of properties (by book value) have been identified as non-strategic and the Group continues to pursue their disposal in an orderly fashion. Of these non-strategic properties, contracts for sale were exchanged after the year end for £7.7m at book value. The balance of properties to be retained either generate an income for the Group through rental, are used in Group operations or are being held for development. No properties have been added to the portfolio during the year. It should be noted that properties included at £2.8m in the opening market value of £49.4m actually realised £6.4m in sales achieved during the year, £1m more than the estimated development value.
 




 


 


Acreage


Book Value


Market Value


Development Value




Category


 


 


£m


£m


£m




 


 


 


 


 


 




31 May 2017:


 


 


 


 


 




Residential


 


446


£6.3


£19.3


£37.4




Commercial/Industrial


 


3,351


£11.4


£13.5


£25.4




Operational/Agricultural/Low Grade


10,471


£10.7


£10.8


£12.8




Energy


 


4,282


£2.4


£5.8


£7.3




Total


 


18,550


£30.8


£49.4


£82.9




 


 


 


 


 


 




Movements in the year ended 31 May 2018:


 


 


 




Properties disposed in the year


(884)


(£3.6)


(£2.8)


(£5.4)




Capitalised spend and revaluations


-


£2.9


£3.4


£0.5




 


 


 


 


 


 




31 May 2018:


 


 


 


 


 




Residential


 


589


£8.4


£21.9


£37.7




Commercial/Industrial


 


3,297


£9.0


£12.0


£21.2




Operational/Agricultural/Low Grade


10,346


£10.5


£12.3


£14.5




Energy


 


3,434


£2.2


£3.8


£4.6




Total


 


17,666


£30.1


£50.0


£78.0




 


 


 


 


 


 



 
 
 
 
 
 
 



 
The definitions of the valuation methodologies used are set out below:
 
Development Value
 
Development value has been calculated by independent valuers using the residual method of valuation. This involves estimating the gross development value of the property using market derived yield and future income stream parameters, deducting gross development costs and applying an appropriate level of risk premium to reflect uncertainties such as market and planning outcomes.
 
Market Value
 
Market value has been calculated by independent valuers in accordance with the Royal Institution of Chartered Surveyors Valuation - Professional Standards and represents the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing.
 
The Board considers that market value is a better indication than book value of the amount of the Group's capital that is tied up in each specific asset. The difference between the market value and the development value represents the risk-adjusted value creation opportunity on each property. The Board assesses and monitors the likely time and cost required to realise the development value and evaluates the return that is available from holding and developing each property. If the return is not appropriate, then the property is disposed of as quickly as is practical.
 
The uplift to market value represents 62p per share and to development value a further 87p per share, which in total would add 149p to the share price were these valuations reflected.
.
Legacy Asset Realisations
 
During the period, sales of Legacy Assets amounted to £4.7m (2017: £17.2m) with no Operating Profit being recorded (2017: £0.1m).
 
At 31 May 2016, £65.8m of legacy assets were identified and at 31 May 2017 £39.6m of those remained to be disposed. During the year, £6m has been realised and a further £5m, which is a land asset, has been reclassified into inventory leaving a residual £28.6m. This comprises loans due from the Tower Joint Venture of £17.2m and £11.4m of surplus plant and machinery. The Tower Joint Venture surface mine site restoration is expected to be completed by the end of the 2018 calendar year. This will enable the sale of the plant used in this major earthworks operation, which is managed by C.A. Blackwell, creating the funds to repay the majority of the loan due from the joint venture company in the second half of the 2018/19 financial year. Other surplus plant realisations are ongoing and by the year end, the Board expects there to be a material reduction in the value of legacy assets left to realise.
 
Group
 
The process for simplifying the Group's structure and reducing both operational and overhead costs is ongoing at both Group level and within the business units. During the last financial year, over 70 employees left the Group providing over £4.2m of annualised overhead salary savings and further reductions in the cost base will be implemented during the current financial year. It is important to deliver these cost reductions alongside implementing improved business processes to ensure that the Group delivers its services in the most effective and efficient manner. These processes are also aimed at positioning the business units to deliver growth in sectors and markets where the Group has a strong set of skills and experience and where appropriate margins and returns on capital can be achieved.
 
Brockwell Energy Limited
 
During the year the total capitalised expenditure on development projects in Brockwell Energy Limited amounted to £4.3m (2017: £4.2m). The carrying value of Brockwell is £7.7m (2017: £3.5m) which has been reclassified as an Asset Held for Sale in the Group Balance Sheet. A loss of £1.0m (2017: £0.5m) has been shown as the loss from a Discontinued Operation in the Statement of Profit and Loss. There was no revenue recorded in Brockwell (2017: £0.2m). The Group is committed to funding the costs of Brockwell until completion of the sale process.
 
David Morgan
On behalf of myself and all of his Board colleagues, I would like to take this opportunity to record my thanks to David Morgan who has acted as a Director of the Company since 2012 and as Chairman since October 2015. David's advice and wisdom has served the Company very well throughout his tenure in times which have raised very material challenges. We will miss his contribution at the Board and wish David very well in the future.
 
 
Summary
 
Each of the Group's businesses within Distribution & Services has been repositioning itself to deliver greater shareholder value and the new financial year will see that process continue. All of the businesses are profitable, and each has robust processes for the management of risk and return. Each has differing market opportunities which the Board reviews regularly, managing the allocation of capital accordingly.
 
 
 
Gordon Banham
Group Chief Executive Officer
31 July 2018
 
 
 
Consolidated Statement of Profit and Loss

and Other Comprehensive Income 
For the year ended 31 May 2018
 




Continuing operations


 


2018
£000


Represented*
2017
£000




Revenue


 


297,119


342,706




Cost of sales


 


(266,746)


(309,826)




 


 


 


 




Gross profit


 


30,373


32,880




Other operating (expense)/income


 


(185)


4,803




Administrative expenses


 


(31,564)


(36,332)




Operating (loss)/profit


 


(1,376)


1,351




 


 


 


 




 Analysed as:


 


 


 




 Operating profit (before exceptional items)


 


2,108


1,821




 


 


 


 




 Exceptional items - Cost of sales


 


(3,025)


(3,566)




 Exceptional items - Administrative expenses


 


(459)


3,096




 Exceptional items


 


(3,484)


(470)




 


 


 


 




 Operating profit (after exceptional items)


 


(1,376)


1,351




 


 


 


 




Financial income


 


626


922




Financial expenses


 


(1,937)


(3,014)




 


 


 


 




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


 


3,175


5,487




 
Profit before tax


 


488


4,746




Taxation


 


693


569




 
Profit for the year from continuing operations


 


1,181


5,315




 
Discontinued operations


 


 


 




Loss for the year from discontinued operations


 


(1,000)


(533)




 
Profit for the year


 


181


4,782




 
Other comprehensive income


 


 


 




Items that will not be reclassified to profit or loss


 


 


 




Remeasurements of defined benefit pension schemes


 


(857)


(544)




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


 


120


36




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


 


 


 




Foreign exchange translation differences


 


(22)


2,594




Effective portion of changes in fair value of cash flow hedges


 


1,123


349




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


 


(192)


(63)




 
Other comprehensive income for the year, net of tax


 


172


2,372




 
Total comprehensive income for the year


 


353


7,154




 
 
 




 


 


2018
£000


 
2017
£000




Profit attributable to:


 


 


 




Equity holders of the Company


 


229


5,138




Non-controlling interest


 


(48)


(356)




 


 


 


 




Profit for the year


 


181


4,782




 


 


 


 




Total comprehensive income/(expense) attributable to:


 


 


 




Equity holders of the Company


 


401


7,510




Non-controlling interest


 


(48)


(356)




 


 


 


 




Total comprehensive income for the year


 


353


7,154




 


 


 


 




Basic earnings per share (pence)


 


0.72


16.14




Diluted earnings per share (pence)


 


0.71


15.93




Basic earnings per share from continuing operations (pence)


 


3.84


17.81




Diluted earnings per share from continuing operations (pence)


 


3.82


17.58




 


 


 


 




Non GAAP Measures


 


 


 




Basic underlying earnings per share from continuing operations (pence)


 


14.90


19.79




Diluted underlying earnings per from share continuing operations (pence)


 


14.79


19.53




 
* Comparative figures have been represented to reflect the discontinued operation under IFRS 5, as explained in Note 1.
 
 
 
 
Balance Sheet
at 31 May 2018




 


 



Group





 


 


2018
£000


2017
£000




Non-current assets


 


 


 




Property, plant and equipment


 


53,777


63,664




Investment property


 


11,909


12,124




Intangible assets


 


11,121


12,389




Investments in associates and joint ventures


 


10,116


6,917




Other financial assets


 


-


7




Deferred tax assets


 


3,814


2,844




 


 


90,737


97,945




 


 


 


 




Current assets


 


 


 




Assets held for sale


 


16,660


5,040




Inventories


 


34,652


29,147




Other financial assets


 


1,044


139




Trade and other receivables


 


122,215


121,657




Cash and cash equivalents


 


16,110


27,817




 


 


190,681


183,800




Total assets


 


281,418


281,745




 


 


 


 




Non-current liabilities


 


 


 




Other interest-bearing loans and borrowings


 


(4,434)


(38,587)




Retirement benefit obligations


 


(4,395)


(5,103)




Provisions


 


(2,682)


(5,344)




Other financial liabilities


 


(30)


(12)




 


 


(11,541)


(49,046)




 


 


 


 




Current liabilities


 


 


 




Other interest-bearing loans and borrowings


 


(42,460)


(4,965)




Trade and other payables


 


(89,800)


(88,958)




Provisions


 


(1,523)


(600)




Other financial liabilities


 


(7)


(249)




 


 


(133,790)


(94,772)




 


 


 


 




Total liabilities


 


(145,331)


(143,818)




 


 


 


 




Net assets


 


136,087


137,927




 


 


 


 




 


 



Group





 


 


2018
£000


2017
£000




Equity attributable to equity holders of the parent


 


 


 




Share capital


 


3,314


3,314




Share premium


 


73,955


73,955




Other reserves


 


211


211




Translation reserve


 


(1,010)


(988)




Merger reserve


 


1,022


1,022




Hedging reserve


 


1,155


224




Capital redemption reserve


 


1,530


1,530




Share based payment reserve


 


1,043


936




Retained earnings


 


54,886


57,694




 


 


136,106


137,898




 


 


 


 




Non-controlling interest


 


(19)


29




 


 


 


 




Total equity


 


136,087


137,927



 
 
 
 
 



 
 
 
Statements of Changes in Equity
for year ended 31 May 2018
 
 




Group


 
Share capital
£000


Share premium
£000


Translation reserve
£000


Hedging reserve
£000


Other reserves
£000


Capital redemption reserve
£000


Merger reserve
£000


Share based payment reserve £000


Retained earnings
£000


Total parent equity
£000


Non-controlling interest
£000


Total equity
£000




At 1 June 2016


3,314


73,955


(3,582)


(62)


211


1,530


1,022


465


54,117


130,970


385


131,355




Total comprehensive income

for the year


 


 


 


 


 


 


 


 


 


 


 


 




Profit/(loss) for the year


-


-


-


-


-


-


-


-


5,138


5,138


(356)


4,782




Other comprehensive income/(expense)


 


 


 


 


 


 


 


 


 


 


 


 




Foreign exchange translation differences


-


-


2,594


-


-


-


-


-


-


2,594


-


2,594




Effective portion of changes in fair

value of cash flow hedges


-


-


-


349


-


-


-


-


-


349


-


349




Remeasurements of defined benefit pension schemes


-


-


-


-


-


-


-


-


(544)


(544)


-


(544)




Tax recognised on other

comprehensive income


-


-


-


(63)


-


-


-


-


36


(27)


-


(27)




 


 


 


 


 


 


 


 


 


 


 


 


 




Total other comprehensive income/(expense)


-


-


2,594


286


-


-


-


-


(508)


2,372


-


2,372




 


 


 


 


 


 


 


 


 


 


 


 


 




Total comprehensive income/(expense) for the year


-


-


2,594


286


-


-


-


-


4,630


7,510


(356)


7,154




 


 


 


 


 


 


 


 


 


 


 


 


 




Transactions with owners recorded directly in equity


 


 


 


 


 


 


 


 


 


 


 


 




Equity settled share-based

payment transactions


-


-


-


-


-


-


-


471


-


471


-


471




Dividends paid


-


-


-


-


-


-


-


-


(1,053)


(1,053)


-


(1,053)




Total contributions by and

distributions to owners


-


-


-


-


-


-


-


471


(1,053)


(582)


-


(582)




 


 


 


 


 


 


 


 


 


 


 


 


 




At 31 May 2017


3,314


73,955


(988)


224


211


1,530


1,022


936


57,694


137,898


29


137,927




 
 
 
 
 
 
 
 
 
 
 
 




Group


Share capital £000


Share premium £000


Translation reserve £000


Hedging reserve £000


Other reserves £000


Capital redemption reserve £000


Merger reserve £000


Share based payment reserve £000


Retained earnings £000


Total parent equity £000


Non-controlling interest £000


Total equity £000




At 1 June 2017


3,314


73,955


(988)


224


211


1,530


1,022


936


57,694


137,898


29


137,927




Total comprehensive income

for the year


 


 


 


 


 


 


 


 


 


 


 


 




Profit/(loss) for the year


-


-


-


-


-


-


-


-


229


229


(48)


181




Other comprehensive

income/(expense)


 


 


 


 


 


 


 


 


 


 


 


 




Foreign exchange

translation differences


-


-


(22)


-


-


-


-


-


-


(22)


-


(22)




Effective portion of changes in

fair value of cash flow hedges


-


-


-


1,123


-


-


-


-


-


1,123


-


1,123




Remeasurements of defined benefit pension schemes


-


-


-


-


-


-


-


-


(857)


(857)


-


(857)




Tax recognised on other comprehensive income


-


-


-


(192)


-


-


-


-


120


(72)


-


(72)




 


 


 


 


 


 


 


 


 


 


 


 


 




Total other comprehensive

income/(expense)


-


-


(22)


931


-


-


-


-


(737)


172


-


172




 


 


 


 


 


 


 


 


 


 


 


 


 




Total comprehensive income/(expense) for the year


-


-


(22)


931


-


-


-


-


(508)


401


(48)


353




 


 


 


 


 


 


 


 


 


 


 


 


 




Transactions with owners recorded directly in equity


 


 


 


 


 


 


 


 


 


 


 


 




Equity settled share-based payment transactions


-


-


-


-


-


-


-


107


-


107


-


107




Dividends paid


-


-


-


-


-


-


-


-


(2,300)


(2,300)


-


(2,300)




Total contributions by and distributions to owners


-


-


-


-


-


-


-


107


(2,300)


(2,193)


-


(2,193)




 


 


 


 


 


 


 


 


 


 


 


 


 




At 31 May 2018


3,314


73,955


(1,010)


1,155


211


1,530


1,022


1,043


54,886


136,106


(19)


136,087




 
 
 
Cash Flow Statements 
for year ended 31 May 2018
 
 




 


 



Group





 


 


2018
£000


Represented*2017
£000




Cash flows from operating activities


 


 


 




Profit for the year from continuing operations


 


1,181


5,315




Adjustments for:


 


 


 




Depreciation and impairment of property, plant and equipment


 


12,936


14,850




Impairment of investment properties


 


621


-




Amortisation and impairment of goodwill and intangible assets


 


880


315




Net finance expense


 


1,311


2,092




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


 


(3,175)


(5,487)




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


 


185


(1,716)




Equity settled share-based payment expenses


 


107


471




Income tax credit


 


(693)


(569)




Contributions to defined benefit pension schemes


 


(1,829)


(1,516)




Translation of non-controlling interest and investments


 


(24)


(373)




 


 


11,500


13,382




Change in inventories


 


10,976


17,828




Change in trade and other receivables


 


(2,984)


2,271




Change in trade and other payables


 


(387)


6,608




Change in provisions and employee benefits


 


(1,475)


1,478




 


 


17,630


41,567




Net interest paid


 


(905)


(1,306)




Income tax received/(paid)


 


1,127


(6,994)




Net cash inflow from continuing operating activities


 


17,852


33,267




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


 


(1,017)


217




Net cash inflow from operating activities


 


16,835


33,484




 


 


 


 




Cash flows from investing activities


 


 


 




Proceeds from sale of property, plant and equipment


 


1,001


5,282




Acquisition of subsidiaries (net of cash acquired)


 


-


(248)




Acquisition of investment property


 


(469)


-




Acquisition of property, plant and equipment


 


(20,758)


(15,782)




Net cash outflow from investing activities in continuing operations


 


(20,226)


(10,748)




Net cash outflow from investing activities in discontinued operations


 


(4,309)


(4,189)




Net cash outflow from investing activities


 


(24,535)


(14,937)




 


 


 


 




Cash flows from financing activities


 


 


 




Payment of finance lease liabilities


 


(5,461)


(8,612)




Dividends paid


 


(2,300)


(1,053)




Proceeds from/(repayment of) Group banking facilities


 


3,800


(2,500)




Net cash outflow from financing activities


 


(3,961)


(12,165)




 


 


 


 




Net (decrease)/increase in cash and cash equivalents


 


(11,661)


6,382




Cash and cash equivalents at 1 June


 


27,817


21,161




Effect of exchange rate fluctuations on cash held


 


(46)


274




 


 


 


 




Cash and cash equivalents at 31 May


 


16,110


27,817




 
* Comparative figures have been represented to reflect the discontinued operation under IFRS 5, as explained in Note 1.
 
 
 
 
 
1. Basis of preparation and status of financial information
 
The financial information set out above has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU (Adopted IFRSs).
 
The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 May 2018 or 31 May 2017. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by was of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
 
The accounting policies set out in the Group's statutory accounts, unless otherwise stated, been applied consistently to all periods presented. The Board has determined that the Energy business is to be disposed and so in accordance with IFRS 5, the disposal group has been treated as an Asset Held for Sale and the comparative figures have been represented in the Income Statement. The impact of this change in accounting treatment is set out in Note 5.
 
These results were approved by the Board of Directors on 31 July 2018.
 
2.  Segmental Information
 
The following analysis by industry segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are regularly reviewed by the Board of Directors (the Chief Operating Decision Maker as defined by IFRS 8) to assess performance and make strategic decisions about allocation of resources.
 
The sectors distinguished as operating segments are Distribution & Services, Property, Legacy and Corporate. The segments have been changed during this year, following the reclassification of Energy as a discontinued business. The comparative period has been restated accordingly.
 
·      Distribution & Services: Provides coal distribution, including mining operations, materials handling and contracting services and logistics to a range of industrial, wholesale and public sector customers. The business unit also provides earth moving and infrastructure services across the UK and trades in plant and machinery.
·      Property: The development and realisation of value from the land portfolio including rental income from investment properties.
·      Legacy: The realisation of surplus assets which are not associated with the continuing operations into cash in a timely manner, whilst obtaining full value.
·      Corporate: The corporate overhead contains the central functions that are not devolved to the individual business units.
 
These segments are combinations of subsidiaries, jointly controlled entities and associates. They have separate management teams and provide different products and services. The four operating segments are also reportable segments.
 
Underlying Operating Profit is defined by the Board as Operating Profit prior to exceptional items, amortisation and impairment of intangible assets and includes the Group's share of the operating profit of its German associate.
 
The segment results, as reported to the Board of Directors, are calculated under the principles of IFRS. Performance is measured on the basis of underlying operating profit/(loss), which is reconciled to profit/(loss) before tax in the tables below:
 
 
 
 
 
 
 




Continuing operations


Distribution & Services
2018
£000


Property
2018
£000


Legacy
2018
£000


Corporate
2018
£000


Total
2018
£000




Revenue


 


 


 


 


 




Total revenue


286,188


11,730


4,706


-


302,624




Intra-segment revenue


(5,505)


-


-


-


(5,505)




Revenue from external customers


280,683


11,730


4,706


-


297,119




 


 


 


 


 


 




Underlying operating profit/(loss)


12,872


2,085


46


(5,554)


9,449




Amortisation and impairment of intangibles


(880)


-


-


-


(880)




Taxation on associates and joint ventures


(1,632)


-


-


-


(1,632)




Exceptional items


(3,484)


-


-


-


(3,484)




Operating profit/(loss) including share of associate


6,876


2,085


46


(5,554)


3,453




Interest on associates and joint ventures


 


 


 


 


(1,654)




Net financing costs


 


 


 


 


(1,311)




Profit before taxation


 


 


 


 


488




Depreciation charge


(12,019)


(467)


-


(450)


(12,936)




Capital expenditure


(23,421)


(5,545)


-


(295)


(29,261)




Net assets/(liabilities)


 


 


 


 


 




Segment assets


203,256


34,115


28,547


5,384


271,302




Segment liabilities


(93,634)


(6,492)


-


(45,205)


(145,331)




Segment net assets/(liabilities)


109,622


27,623


28,547


(39,821)


125,971




Associates and joint ventures


 


 


 


 


10,116




Total net assets


 


 


 


 


136,087




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




Continuing operations


Distribution & Services
2017
£000


Represented*Property &
Energy
2017
£000


 
Legacy
2017
£000


Corporate
2017
£000


Represented*Total
2017
£000




Revenue


 


 


 


 


 




Total revenue


327,601


3,356


17,214


554


348,725




Intra-segment revenue


(6,019)


-


-


-


(6,019)




Revenue from external customers


321,582


3,356


17,214


554


342,706




 


 


 


 


 


 




Underlying operating profit/(loss)


13,695


1,845


101


(4,613)


11,028




Amortisation of intangibles


(315)


-


-


-


(315)




Taxation on associates and joint ventures


(2,873)


-


-


-


(2,873)




Exceptional items


(470)


-


-


-


(470)




Operating profit/(loss) including share of associate


10,037


1,845


101


(4,613)


7,370




Interest on associates and joint ventures


 


 


 


 


(532)




Net financing costs


 


 


 


 


(2,092)




Profit before taxation


 


 


 


 


4,746




Depreciation charge


(11,128)


(644)


-


(423)


(12,195)




Capital expenditure


(14,756)


(5,319)


-


(378)


(20,453)




Net assets/(liabilities)


 


 


 


 


 




Segment assets


202,924


28,791


40,090


3,023


274,828




Segment liabilities


(98,464)


(7,099)


(5,560)


(32,695)


(143,818)




Segment net assets/(liabilities)


104,460


21,692


34,530


(29,672)


131,010




Associates and joint ventures


 


 


 


 


6,917




Total net assets


 


 


 


 


137,927




*Comparative figures have been represented as explained in note 1.
 
Corporate net assets include Group banking facilities liability (£32.3m), cash and cash equivalents (£0.7m liability), derivative financial instruments (£0.1m liability), deferred and corporation tax balances (£4.3m asset) and other corporate items (£0.9m liability).
 
 
 
3   Exceptional items
 
The Group incurred a number of exceptional items in the year relating to the C. A. Blackwell subsidiary, additionally the Group has written back an element of the mining cost impairment taken in the prior year due to favourable changes in market conditions:
 




 


2018
£000


2017
£000




Reversal of impairment loss on receivables due from Tower Colliery Ltd


-


2,000




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


410


(1,874)




Net losses on legacy contracts in C. A. Blackwell


(3,435)


(3,380)




Impairment of Property, Plant and Equipment


-


(2,277)




Cash recovery from discontinued operation


-


1,096




Historic plant rebate


-


3,280




Liquidator dividend


-


796




Other restructuring costs relating to C. A. Blackwell


(459)


(111)




 


 


 




Total


(3,484)


(470)




 
 
 
 
4   Taxation
 
Recognised in the Income Statement
 




 


2018
£000


Represented*2017
£000




Current tax


 


 




Current year


469


325




Adjustments for prior years


(173)


(1,230)




Current tax expense/(credit)


296


(905)




 


 


 




Deferred tax
 
Origination and reversal of temporary timing differences


(712)


191




Adjustments for prior years


(277)


67




Reduction in tax rate


-


78




Deferred tax (credit)/charge


(989)


336




 


 


 




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


(693)


(569)




Share of tax of equity accounted investees


1,632


2,873




 


 


 




Total tax expense from continuing operations


939


2,304




 
*Comparative figures have been represented as explained in note 1.
 
Recognised in Other Comprehensive Income
 




 


2018
£000


2017
£000




Deferred tax (expense)/income


 


 




Effective portion of changes in fair value of cash flow hedges


(192)


(63)




Remeasurements of defined benefit pension schemes


120


36




 


(72)


(27)




 
Reconciliation of Effective Tax Rate
 




 


2018
£000


2017
£000




Profit for the year from continuing operations


1,181


5,315




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


939


2,304




 


 


 




Profit excluding taxation from continuing operations


2,120


7,619




 


 


 




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


403


1,511




 


 


 




Effect of tax rates in foreign jurisdictions


741


1,276




Unrecognised tax losses


(508)


-




Non-deductible expenses


753


598




Reduction in tax rate on deferred tax balances


-


78




Adjustment in respect of previous periods


(450)


(1,159)




 


 


 




Effective tax rate and total tax expense


939


2,304




 
The current tax adjustment in respect of prior years relates to the refund of taxes received from HMRC following the carry back of losses.
 
The UK corporation tax rate reduced to 19% on 1 April 2017, giving an effective base rate of 19.00% (2017: 19.83%).
 
Factors That May Affect Future Current and Total Tax Charges
The UK corporation tax rate reduced from 20% to 19% (effective from 1 April 2017) and remained at 19% for the tax year beginning 1 April 2018. On 16 March 2016 it was announced that the main rate of UK Corporation Tax would reduce further to 17% on 1 April 2020. This change was substantively enacted on 6 September 2016. This will reduce the Group's current tax charge accordingly. The deferred tax balances at 31 May 2018 have been calculated based on the rate of 17%, the rate substantively enacted at the Balance Sheet date.
 
 
 
 
5      Discontinued Operations and Assets Held for Sale
 
All discontinued operation results are attributable to equity holders.
 
The Group is in advanced discussion to dispose of its investment in Brockwell Energy Limited as announced on 8 June 2018, meaning that the Group will no longer continue with Energy as a business stream. As such, this business unit has been classified as discontinued, and the associated assets have been classified as held for sale, with the results for the comparative period represented accordingly. The Group's discontinued operations made a loss of £1,000,000 (2017: £533,000) after tax during the year.
 
 




 


2018
£000


2017
£000




Revenue


-


163




Gross profit


-


163




Other operating income


-


67




Administrative expenses


(1,144)


(888)




Loss before tax of discontinued operations


(1,144)


(658)




 


 


 




Current tax credit


91


125




Deferred tax credit


53


-




 


144


125




Loss for the year from discontinued operations


(1,000)


(533)




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




Assets Held for Sale


2018
£000


2017
£000




Property, plant and equipment - Land and Buildings


8,433


-




Property, plant and equipment - Other


9,016


5,040




Goodwill


383


-




Other current assets


138


-




Other current liabilities


(1,310)


-




Total assets held for sale


16,660


5,040




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




 


 
2018


Represented*
2017




 


Earnings


EPS


DEPS


Earnings


EPS


DEPS




 


£000


Pence


Pence


£000


Pence


Pence




 


 


 


 


 


 


 




Underlying earnings per share from continuing operations


4,764


14.90


14.79


6,301


19.79


19.53




Exceptional items and amortisation (net of tax)


(3,535)


(11.06)


(10.97)


(630)


(1.98)


(1.95)




Continuing basic earnings per share


1,229


3.84


3.82


5,671


17.81


17.58




 


 


 


 


 


 


 




Discontinued operations


(1,000)


(3.12)


(3.11)


(533)


(1.67)


(1.65)




Basic earnings per share


229


0.72


0.71


5,138


16.14


15.93




 


 


 


 


 


 


 




Weighted average number of shares


 


31,981


32,214


 


31,842


32,267




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




Underlying EPS from continuing operations


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




 
7   Posting of Report & Accounts
 
The Group confirms that the annual report and accounts for the year ended 31 May 2018 will be posted to shareholders as soon as practicable and a copy will be made available on the Group's website:
www.hsgplc.co.uk
 




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