REG - Hargreaves Servs PLC - Interim results
24/01/2024 07:00
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RNS Number : 6601A Hargreaves Services PLC 24 January 2024
HARGREAVES SERVICES PLC
(the "Group", the "Company" or "Hargreaves")
Interim Results for the six months ended 30 November 2023
Strong period for Services with revenue and margin improvements; Interim
dividend increased six-fold.
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 2023.
As anticipated the slowdown in performance within HRMS, combined with the
progress on the pension buy out, has facilitated a material increase in the
interim dividend in both absolute and percentage terms, whilst the Services
business, with over 60 term and framework contracts, has delivered another
period of solid underlying growth.
KEY FINANCIAL RESULTS Unaudited Unaudited
Six Months ended Six Months ended
30 Nov 2023 30 Nov 2022
Revenue £110.2m £116.5m
EBITDA* £12.3m £12.9m
Profit before tax ("PBT")** £2.7m £18.7m
EPS 5.2p 52.2p
Interim Dividend 18.0p 3.0p
Cash and cash equivalents £18.7m £18.1m
Leasing debt £28.8m £30.6m
Net Asset Value £197.5m £196.2m
Net Assets per Share 605p 603p
* EBITDA is calculated as Operating Profit after adding back depreciation and
amortisation.
** PBT decrease reflects the reduction in contribution from HRMS, timing of
sales in Land and impact of a one off gain in the prior period
HIGHLIGHTS
• Group revenue reduced by £6.3m due to several post period end completions
within Hargreaves Land.
• Services revenue rose by 1.6%, supported by over 60 term and framework
contracts.
• Decrease in PBT due to reduction in contribution from HRMS and timing of sales
completions within Hargreaves Land.
• Receipt of £8m cash from investment in HRMS in the period, with cash returns
from HRMS now expected to remain around £7m per annum (up from £4m).
• Cash of £18.7m, compared to £18.1m at Nov 2022 with investment in Land
assets being offset by additional cash receipt from HRMS.
• Interim dividend increased six-fold following an increase in cash receipts
from HRMS and imminent elimination of annual payments to service the pension
scheme liability.
OUTLOOK
• Services has over 90% of revenues secured under contract for the year ending
31 May 2024, cementing its continued delivery of sustainable and reliable
profits into the future.
• Stronger outlook for HRMS with changes to gate fees and the impact of EU
sanctions on pig iron expected to give a significant improvement to
profitability in the second half and FY25.
• Land poised to deliver its best ever full year result with several post-period
end completions secured.
Commenting on the interim results, Group Chair Roger McDowell said: "I am
delighted we continue to deliver value for our shareholders through a
substantial increase in the interim dividend. This demonstrates not only the
value created by the strategic initiative set out at the year end to remove
the pension liability but also the recurring revenue stream generated by the
Group's Services business unit underpinned by the substantial cash returns
from our German joint venture and good prospects for Land.
"We are optimistic about the outlook for the business in the second half as
Services continues to provide a robust underpinning to trading with over 90%
of revenue already secured for the financial year. We anticipate positive
pricing in Germany in the second half and Land is poised to deliver its best
ever full year performance."
Investor presentation
Gordon Banham, Group Chief Executive, Stephen Craigen, Chief Financial Officer
and David Anderson, Group Property Director, will provide a live presentation
on the Company's interim results via the Investor Meet Company platform today
at 4:30pm GMT.
For further details:
Hargreaves Services www.hsgplc.co.uk (http://www.hsgplc.co.uk/)
Gordon Banham, Chief Executive Officer Tel: 0191 373 4485
Stephen Craigen, Chief Financial Officer
Walbrook PR (Financial PR & IR) Tel: 020 7933 8780 or hargreavesservices@walbrookpr.com
(mailto:hargreavesservices@walbrookpr.com)
Paul McManus, Louis Ashe-Jepson,
Mob: 07980 541 893 / 07747 515 393
Charlotte Edgar
07884 664 686
Singer Capital Markets (Nomad and Corporate Broker)
Sandy Fraser, Phil Davies, Sam Butcher Tel: 020 7496 3000
About Hargreaves Services plc (www.hsgplc.co.uk (http://www.hsgplc.co.uk/) )
Hargreaves Services plc is a diversified group delivering services to the
industrial and property sectors, supporting key industries within the UK and
South East Asia. The Company's three business segments are Services,
Hargreaves Land and an investment in a German joint venture, Hargreaves Raw
Materials Services GmbH ("HRMS"). Services provides critical support to many
core industries including Energy, Environmental, UK Infrastructure and certain
manufacturing industries through the provision of materials handling,
mechanical and electrical contracting services, logistics and major
earthworks. Hargreaves Land is focused on the sustainable development of
brownfield sites for both residential and commercial purposes. HRMS trades in
specialist commodity markets and owns DK Recycling und Roheisen GmbH ("DK"), a
specialist recycler of steel waste material. Hargreaves is headquartered in
County Durham and has operational centres across the UK, as well as in Hong
Kong and a joint venture in Duisburg, Germany.
CHAIR'S STATEMENT
Introduction
The six-month period to 30 November 2023 has been a time of contrasts across
our three business segments, yet the Board is confident the overall trend
leans solidly towards the positive. We have seen the momentum within our
Services business continue, with increased earthmoving and engineering
activity driving growth in both revenue and margin. Sales within Hargreaves
Land have been slow, impacted by the wider property market. However, with
several post period end completions we remain confident that Land is poised to
deliver its best full year result to date. Whilst HRMS has delivered a loss
for the period driven by the difficult economic circumstances in Germany and a
low point in the cycle, we have started to see an increase in cash return from
the joint venture and have visibility of a return to profitability in the
second half.
Strategic Progress
The Board outlined two areas of strategic focus in the Annual Report and
Accounts for the year ended 31 May 2023. They were the plan to realise value
from the Group's renewable energy land assets over the next five years and to
progress the buy out of the Group's defined benefit pension scheme. I am
pleased to report several developments with each of these strategic
initiatives, as detailed below.
Renewable Energy Land Assets
The team continues to prepare the Group's renewable energy land assets into
suitable portfolios for realisation in the medium term. We have seen good
progress on the permitting, development and commissioning of the underlying
assets by the third-party operators. The timing of portfolio asset sales will
be determined by the commencement of energy production as the team look to
optimise the realisation values. Notwithstanding this, we expect to go to
market with the first package of assets for sale in the year ending 31 May
2025.
Pension Scheme
Considerable headway has also been made on the project to buy out the Group's
defined benefit pension scheme, which will remove the requirement to pay an
ongoing £1.8m per annum to support the deficit. Our most recent estimate is
that the cash cost to buy out the scheme will be no more than £9m with the
payment expected to be made in the first half of calendar year 2024 out of
existing cash reserves.
This action means that the Group will no longer be required to make annual
payments to the scheme and all benefit payments will be managed by the
insurer. I am pleased to confirm that once the payment has been made the main
objective to cease annual contributions into the scheme will be achieved and
it is this annual cash flow saving that has been used to support the increase
in the sustainable dividend to our shareholders.
Results
Revenue for the Group decreased by 5.4% to £110.2m (2022: £116.5m) due to
several sales within Hargreaves Land completing post period end. This resulted
in a reduction in revenue from £8.7m to £0.7m for Hargreaves Land. The
Group's PBT also decreased from £18.7m to £2.7m. Much of this can be
attributed to the reduction in contribution from HRMS, as had been
anticipated, and the impact of a £2m one-off gain in the first half of the
prior year. EBITDA was £12.3m (Nov 2022: £12.9m), the reduction on the
comparative period being due to the timing of sales within Hargreaves Land. As
a result of this timing and the profile of activity with HRMS, we expect the
second half of the year to be much stronger than the first.
Services Underlying Growth
Whilst the Group has seen a reduction in both revenue and PBT compared to the
six months ended 30 November 2022, this masks the strong performance of the
Services business, which is less impacted by the timing of individual events.
EBITDA attributable to the Services business has increased to £15.9m (2022:
£13.9m) reflecting the robust and resilient nature of the 60+ term and
framework contracts in place.
The business remains unaffected by recent announcements regarding the future
of the HS2 project, in particular the cancellation of the Northern leg between
Birmingham and Manchester, as this phase had not been contracted and our
forecasts had not included this aspect of the scheme. The Services project
pipeline remains diverse, with limited reliance on the success of one specific
scheme.
Cash return from HRMS
As expected, it has been a slower start to the year for HRMS than we have
observed in recent times. The substantial profits that it has been able to
generate over the last two years were not expected to be sustainable and the
Board always anticipated that profit levels would reduce once commodity prices
softened.
As highlighted in previous updates, the reduction in activity and commodity
prices has been reflected in reduced working capital consumption, resulting in
a cash release by HRMS. The Group received an £8m distribution from HRMS
during the first half (2022: £4m) and we expect the cash repatriation from
Germany to be sustainable at no less than £7m per annum. This cash inflow
will be used to support the substantial increase in the interim dividend.
Cash and debt
As at 30 November 2023 the Group held cash of £18.7m compared with £21.9m on
31 May 2023 (Nov 2022: £18.1m). This decrease is due, in part, to the
continued investment in Land assets ahead of contracted sales.
The only debt held by the Group is leasing debt for specific plant items which
was £28.8m at 30 November 2023 (Nov 2022: £30.6m). This decrease reflects
the regular leasing payments to reduce the liability in the ordinary course of
business.
Dividend
In line with the announcement made on 21 December 2023, due to the progress
made with the buy out of the pension scheme liability, combined with the
additional sustainable cash receipt from HRMS the Board is confirming an
historic six-fold increase in the interim dividend. The interim dividend of
18.0p (2022: 3.0p) reflects the cash generative nature of the Group and the
continued expectation of recurrent cash returns from HRMS. The 18.0p interim
dividend represents 50% of the Board's expected full year dividend.
The interim dividend will be paid on 11 April 2024 to shareholders on the
register on 22 March 2024.
Outlook
The first half of the year has seen solid progress on our two key strategic
goals, resulting in a substantial increase in the return of value to
shareholders. The Group continues to trade in line with market expectations
(as refreshed in December 2023). The Services business has continued to
demonstrate its reliable and resilient earnings stream. Whilst it was a
subdued first half of the year for Hargreaves Land, the sales expected to
complete in the second half of the year leave that business unit in a strong
position to deliver its best ever full year results. We anticipate a gradual
recovery in Germany from the low point in the first half and the additional
sustainable cash receipt from HRMS means we are also well placed to realise
long-term value for our shareholders.
Roger McDowell
Chairman
24 January 2024
CHIEF EXECUTIVE'S REVIEW
£'m Services Land HRMS Central Costs Total
Revenue (Nov 2023) 109.5 0.7 - - 110.2
Revenue (Nov 2022) 107.8 8.7 - - 116.5
Profit/(loss) before tax (Nov 2023) 7.8 (1.0) (1.9) (2.2) 2.7
Profit/(loss) before tax (Nov 2022) 8.5 1.6 10.8 (2.2) 18.7
Services
The Services business delivered first half revenues of £109.5m (2022:
£107.8m) and a PBT of £7.8m (2022: £8.5m). The growth in revenue is due to
increased earthmoving activities and additional engineering works on certain
contracts.
The comparative period includes a non-recurring gain of £2m relating to asset
realisations. There is no such gain in the results to 30 November 2023. As
such, the like-for-like comparison is a PBT of £7.8m with a comparative
result of £6.5m. This represents an improvement in the net margin from 6.0%
to 7.1%. Much of this improvement in margin has been due to the increased
activities at HS2, accompanied by further enabling works at the Sizewell C
nuclear project.
As has been the case in previous years, the full year result for Services is
likely to be weighted towards the first six months of the financial year. This
is due to the earthmoving season predominantly taking place during the first
half, as well as the annual £1m receipt from Tungsten West being received in
June 23.
The Services business continues to deliver good-quality, resilient, recurring
profits and remains focused on delivering services to our four key market
sectors: Energy; Environmental; Industrial; and Infrastructure.
Contract Security
The Services business continues to be the main driver of performance within
the Group, holding over 60 term and framework contracts with high quality
customers giving excellent visibility of revenue. The period has seen further
contract successes, in particular the award and commencement of a three-year
materials handling contract at Port of Tyne.
The largest single contract within the Group is the earthmoving contract for
EKFB on HS2, which is now in its second full year of operation. This has been
a key driver for growth over the past couple of years and the Board expects
there to be at least another two full earthmoving seasons of full-scale
activity. Looking forward, focus for the Group remains on securing positions
on Lower Thames Crossing and Sizewell C. During the period, the Group has been
awarded a number of contracts for essential enabling works at Sizewell C,
which places Hargreaves in the best possible position to be able to secure the
main contract for earthmoving when it is tendered.
Engineering Capability
The Group has had a lot of success in building and developing its capability
in mechanical engineering. The first half of the year has seen the successful
commissioning of a five-section conveyor solution, which has materially
reduced the carbon emissions on our section of HS2. Additionally, the team is
nearing completion of a significant Lime Silo and Dosing Plant for the Skanska
Costain Strabag Joint Venture ("SCS"). Both of these schemes represent
material projects, and the business is well placed to secure further projects
of this kind.
Whilst inflation has abated somewhat in recent months, it remains relatively
high and has been so through the period. The Group's contractual positions
have continued to protect it from margin erosion, as demonstrated by the
substantial increase in underlying margin within Services.
Services remains the core generator of revenue and cash flow for the Group.
With a secure book of recurring contracted revenue, the business is in a
strong position to deal with the ongoing economic and political uncertainties.
Hargreaves Land
Land
Hargreaves Land recorded revenue of £0.7m (2022: £8.7m) and a loss before
tax of £1.0m (2022: profit of £1.6m). The variation in both revenue and
profit before tax is due to the timing of sales at Blindwells. Whilst the
comparative period saw the completion of a plot sale at Blindwells, no such
completion occurred in the six months to 30 November 2023, in part due to the
trends experienced in the general property markets. However, the underlying
activity within the business unit has been high in terms of developing
opportunities.
Preparatory works have been completed to enable the sale of a previously
exchanged 20-acre plot to Avant Homes, which is expected to complete before
the end of January 2024. The deal will see the Group receive total proceeds of
£18.5m payable in four instalments over three years.
The Unity Joint Venture saw the completion of the construction of a forward
funded 191,000 sq ft logistics unit ahead of programme. Additionally, terms
have been agreed for the sale of two plots to McDonalds and Starbucks, which
further demonstrates the desirability of this key location.
In December 2023, Hargreaves Land completed the sale of the Energy from Waste
(EfW) ground lease investment at Westfield in Scotland for consideration of
£7.6m. The sale represents the disposal of eight acres out of the 50
available developed acres at Westfield, allowing for future sales to occur at
the site.
Finally, contracts have been exchanged in December 2023 on a 28-acre site at
Maltby, Rotherham for the sale of 185 residential plots for gross proceeds of
£4.9m.
Renewables
The Group's renewable energy land assets have continued to be a core focus for
the business, with realisations expected to be in excess of £25m once they
are sufficiently mature. At present 210MW of wind assets are operational on
land owned by the Group.
It is expected that this will increase to over 930MW of operational wind
assets and battery storage by the end of calendar year 2025, with a further
2,165MW of wind, solar and battery assets beyond 2025 subject to agreed terms
and exchange of contracts. We have seen a significant increase in the appetite
for battery storage in recent months, with 1,495MW of further opportunities
added to the pipeline since our Annual Report and Accounts in August 2023.
The first tranche of renewable energy land asset sales is being prepared to go
to market in FY25. This is likely to include around 400MW of wind assets,
which should be sufficiently mature by that stage.
HRMS
HRMS recorded a post-tax loss of £1.9m (2022: profit of £10.8m) for the six
months ended 30 November 2023. This substantial reduction has been driven by a
number of contributing factors. First, the principal market for the business
is Germany, which is currently in a technical recession and has seen many of
the joint venture's clients operate on reduced shift patterns, therefore
requiring lower levels of raw materials. Subsequently this has impacted HRMS'
trading activities.
Second, zinc prices have dropped to around €2,500 per tonne compared to
highs of over €4,000 in the previous period. Zinc is a key output of the
steel waste recycling process within DK, a subsidiary of HRMS. Whilst 60% of
the zinc output is hedged, the reduction in spot prices realised on the
remaining 40% has put pressure on the result.
Third, pig iron prices have been very low during the period whilst coke
pricing (a key input) has remained high. This disparity between pig iron and
coke pricing reflects the absence of an embargo on imports into Europe of
Russian pig iron, suppressing the sales price of pig iron whilst coke pricing
has been supported by an embargo on Russian product.
Despite the headwinds encountered by the joint venture during the first half
of the financial year, there are two key factors that give confidence for a
turnaround. First, the 12th package of sanctions against Russia, which was
recently announced by the EU, includes the restriction of "steel-making raw
materials", including pig iron. This is expected to result in an increase in
pig iron selling prices achievable by DK.
Second, a key input of the pig iron production at DK is steel waste dusts. DK
charges a gate fee for accepting the dusts, which it then recycles into pig
iron and zinc. Many of the suppliers of steel dusts are on long term
contracts, however, several are up for renewal and renegotiation in 2024 and
there is expectation that many will see substantial increases in the gate fee.
The Board believes that these changes alone will be sufficient to return the
joint venture to profitability during the second half of the financial year.
The reduction in trading activity has reduced working capital consumption,
leading to an increased cash receipt from HRMS of £8m (2022: £4m) in the
first half of the financial year. As reported on 21 December 2023, the
management of HRMS has agreed to maintain this level of cash return to the
Group for the foreseeable future. The Board has confidence in the
sustainability of this cash flow, at no less than £7m per annum, to the Group
based on the future likely base level of profitability from the trading
activities within HRMS, which are not linked to the steel waste recycling
activities.
ESG
The Group continues to make positive strides with regard to ESG and has
recently appointed its first Head of ESG. This appointment will spearhead the
Group's efforts to minimise our impact on the environment whilst also
championing our ESG credentials, which will be crucial to unlocking new
opportunities for Hargreaves.
Furthermore, the Group was awarded the prestigious HS2 EKFB sustainability
award for the second year running as a recognition of our efforts to reduce
carbon emissions through our Plant Idle Time campaign.
Summary
The Services business' low capital model has continued to improve margin and
grow underlying profitability through efficient contract management and
engineering innovation. With over 90% of revenues secured under contract for
the year ending 31 May 2024, the Services business can continue to deliver
sustainable and reliable profits into the future.
Hargreaves Land has not been immune to the difficulties in the UK property
market, however, this was expected and the post-period end completion of the
Westfield EfW ground lease and the exchange of contracts at Maltby demonstrate
the value in the underlying portfolio, as well as the ability of the team to
realise these opportunities for shareholders. The outlook is also positive,
with Hargreaves Land poised to deliver its best ever full year result.
Whilst the trading performance of HRMS has been disappointing, the
confirmation of an increased cash flow from HRMS is very welcome and will be
used to support the increased dividend to shareholders. The changes to gate
fees and the impact of the recently announced EU sanctions on Russian pig iron
imports are in combination expected to result in a significant improvement in
the profitability of HRMS in FY25.
Overall, I remain optimistic about the value creation potential within the
Group and, with no bank debt on the Balance Sheet, I firmly believe there are
substantial opportunities to optimise and realise further value for
shareholders in the coming years.
Gordon Banham
Group Chief Executive
24 January 2024
Condensed Consolidated Statement of Profit and Loss and Other Comprehensive
Income
for the six months ended 30 November 2023
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 November 30 November 31
May
2023 2022 2023
Note £000 £000 £000
Revenue 110,171 116,475 211,459
Cost of sales (88,943) (94,782) (172,402)
Gross profit 21,228 21,693 39,057
Other operating income - 2,844 4,918
Administrative expenses (16,127) (16,561) (32,178)
Operating profit 5,101 7,976 11,797
Finance income 818 504 1,612
Finance expense (1,473) (823) (2,565)
Share of (loss)/profit in joint ventures (net of tax) (1,714) 11,053 16,311
Profit before tax 2,732 18,710 27,155
Taxation 5 (1,035) (1,562) 771
Profit for the period 1,697 17,148 27,926
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Remeasurements of defined benefit pension plans - - (4,645)
Tax recognised on items that will not be reclassified to profit or loss - - 1,161
Items that are or may be reclassified subsequently to profit or loss
Foreign exchange translation differences 528 1,406 1,130
Share of other comprehensive income of joint ventures (net of tax) - - 1,912
Other comprehensive income/(expense) for the period, net of tax 528 1,406 (442)
Total comprehensive income for the period 2,225 18,554 27,484
Profit attributable to:
Equity holders of the company 1,706 16,962 27,915
Non-controlling interest (9) 186 11
Profit for the period 1,697 17,148 27,926
Total comprehensive income for the period attributable to:
Equity holders of the company 2,234 18,368 27,473
Non-controlling interest (9) 186 11
Total comprehensive income for the period 2,225 18,554 27,484
GAAP measures
Basic earnings per share (pence) 7 5.22 52.15 85.85
Diluted earnings per share (pence) 7 5.14 51.09 84.13
Condensed Consolidated Balance Sheet
as at 30 November 2023
Unaudited Unaudited Audited
30 November 30 November 31 May
2023 2022 2023
Note £000 £000 £000
Non-current assets
Property, plant and equipment 10,822 10,392 10,861
Right of use assets 34,157 35,305 39,815
Investment property 15,267 13,672 14,074
Intangible assets including goodwill 5,589 5,949 5,685
Investments in joint ventures 9 73,226 70,541 74,282
Deferred tax assets 14,214 9,657 14,753
Trade receivables - 4,224 -
Retirement benefit surplus 9,111 11,467 8,474
162,386 161,207 167,944
Current assets
Inventories 44,192 33,872 39,302
Trade and other receivables 82,474 86,109 71,609
Contract assets 5,058 6,081 5,114
Cash and cash equivalents 18,718 18,102 21,859
150,442 144,164 137,884
Total assets 312,828 305,371 305,828
Non-current liabilities
Other Interest-bearing loans and borrowings (13,874) (17,460) (20,839)
Retirement benefit obligations (2,839) (2,666) (2,902)
Provisions (3,829) (5,898) (4,120)
Deferred tax liabilities (3,853) (2,419) (3,417)
(24,395) (28,443) (31,278)
Current liabilities
Other Interest-bearing loans and borrowings (14,913) (13,140) (15,511)
Trade and other payables (64,545) (58,792) (47,427)
Provisions (11,268) (8,844) (10,467)
Income tax liability (212) - (154)
(90,938) (80,776) (73,559)
Total liabilities (115,333) (109,219) (104,837)
Net assets 197,495 196,152 200,991
Condensed Consolidated Balance Sheet (continued)
as at 30 November 2023
Unaudited Unaudited Audited
30 November 30 November 31 May
2023 2022 2023
£000 £000 £000
Equity attributable to equity holders of the parent
Share capital 3,314 3,314 3,314
Share premium 73,982 73,972 73,972
Other reserves 211 211 211
Translation reserve (161) (413) (689)
Merger reserve 1,022 1,022 1,022
Hedging reserve 318 318 318
Capital redemption reserve 1,530 1,530 1,530
Share-based payment reserve 2,540 2,216 2,388
Retained earnings 114,959 114,018 119,136
197,715 196,188 201,202
Non-controlling interest (220) (36) (211)
Total equity 197,495 196,152 200,991
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 November 2022
Share capital Share premium Translation reserve Hedging reserve Other reserves Capital redemption reserve Merger reserve Share-based payment reserve Retained earnings Total parent equity Non-controlling interest Total Equity
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Balance at 1 June 2022 3,314 73,972 (1,819) 318 211 1,530 1,022 2,029 102,781 183,358 (222) 183,136
Total comprehensive income for the period
Profit for the period - - - - - - - - 16,962 16,962 186 17,148
Other comprehensive income
Foreign exchange translation differences - - 1,406 - - - - - - 1,406 - 1,406
Total other comprehensive income - - 1,406 - - - - - - 1,406 - 1,406
Total comprehensive income for the period - - 1,406 - - - - - 16,962 18,368 186 18,554
Transactions with owners recorded directly in equity
Equity settled share-based payment transactions - - - - - - - 187 - 187 - 187
Dividends paid - - - - - - - - (5,725) (5,725) - (5,725)
Total contributions by and distributions to owners - - - - - - - 187 (5,725) (5,538) - (5,538)
Balance at 30 November 2022 3,314 73,972 (413) 318 211 1,530 1,022 2,216 114,018 196,188 (36) 196,152
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 November 2023
Share capital Share premium Translation reserve Hedging reserve Other reserves Capital redemption reserve Merger reserve Share-based payment reserve Retained earnings Total parent equity Non-controlling interest Total Equity
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Balance at 1 June 2023 3,314 73,972 (689) 318 211 1,530 1,022 2,388 119,136 201,202 (211) 200,991
Total comprehensive income/(expense) for the period
Profit/(loss) for the period - - - - - - - - 1,706 1,706 (9) 1,697
Other comprehensive income
Foreign exchange translation differences - - 528 - - - - - - 528 - 528
Total other comprehensive income - - 528 - - - - - - 528 - 528
Total comprehensive income/(expense) for the period - - 528 - - - - - 1,706 2,234 (9) 2,225
Transactions with owners recorded directly in equity
Issue of shares - 10 - - - - - - - 10 - 10
Equity settled share-based payment transactions - - - - - - - 152 - 152 - 152
Dividends paid - - - - - - - - (5,883) (5,883) - (5,883)
Total contributions by and distributions to owners - 10 - - - - - 152 (5,883) (5,721) - (5,721)
Balance at 30 November 2023 3,314 73,982 (161) 318 211 1,530 1,022 2,540 114,959 197,715 (220) 197,495
Condensed Consolidated Cash Flow Statement
for the six months ended 30 November 2023
Unaudited Unaudited
six months six months Audited
ended ended year ended
30 November 30 November 31
May
2023 2022 2023
£000 £000 £000
Cash flows from operating activities
Profit for the period 1,697 17,148 27,926
Adjustments for:
Depreciation and impairment of property, plant and equipment and right-of-use 7,128 4,932 14,570
assets
Net finance expense 655 319 953
Amortisation of intangible assets 96 - 175
Share of loss/(profit) in joint ventures (net of tax) 1,714 (11,053) (16,311)
Profit on sale of property, plant and equipment, investment property and - (2,844) (4,718)
right-of-use assets
Equity settled share-based payment expense 152 187 359
Income tax expense/(credit) 1,035 1,562 (771)
Contributions to defined benefit pension schemes (589) (1,170) (2,426)
Retranslation of foreign denominated assets and liabilities (122) 31 482
11,766 9,112 20,239
Change in inventories (4,890) (3,398) (8,827)
Change in trade and other receivables (10,889) 4,314 23,290
Change in trade and other payables 17,156 6,622 (4,563)
Change in provisions and employee benefits 509 2,867 2,713
13,652 19,517 32,852
Interest received 818 504 1,127
Interest paid (1,585) (775) (2,192)
Income tax received/(paid) 2 28 (281)
Net cash inflow from operating activities 12,887 19,274 31,506
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 110 4,565 6,565
Proceeds from sale of investment property - 146 266
Proceeds from sale of ROU assets 12 54 81
Acquisition of property, plant and equipment (1,466) (1,730) (3,442)
Acquisition of investment property (770) (5,377) (5,783)
Acquisition of right of use assets - (54) (85)
Payment for acquisition of subsidiaries, net of cash acquired - (1,447) (1,447)
Net cash outflow from investing activities (2,114) (3,843) (3,845)
Cash flows from financing activities
Principal elements of lease payments (8,027) (5,519) (12,721)
Dividends paid (5,883) (5,725) (6,701)
Net cash outflow from financing activities (13,910) (11,244) (19,422)
Net (decrease)/increase in cash and cash equivalents (3,137) 4,187 8,239
Cash and cash equivalents at the start of the period 21,859 13,773 13,773
Effect of exchange rate fluctuations on cash held (4) 142 (153)
Cash and cash equivalents at the end of the period 18,718 18,102 21,859
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 2023 and the comparative
figures for the six months ended 30 November 2022 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 UK-adopted international accounting 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 2023.
There are no 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 2023, as
described in those financial statements.
3. Status of financial information
The comparative figures for the financial year ended 31 May 2023 are not the
Group's statutory consolidated financial statements for that financial year.
The statutory financial accounts for the financial year ended 31 May 2023 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 2023. The
Directors have reviewed financial forecasts and are satisfied that the Group
has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, the Group continues to adopt the going
concern basis in preparing the condensed consolidated interim financial
information.
5. Taxation
UK income tax for the period is charged at 25% (2022: 19%). The effective tax
rate, after removing the impact of joint ventures is 23.3% (2022: 20.4%),
representing an estimate of the annual effective rate for the full year to 31
May 2024. This rate is lower than the standard rate of UK income tax due to
the impact of overseas tax which applies a lower tax rate.
6. Dividends
The final dividend of 6.0p and additional dividend of 12.0p per ordinary
share, proposed in the 2023 Annual Report and Accounts and approved by the
shareholders at the Annual General Meeting on 25 October 2023, was paid on 30
October 2023.
The directors have proposed an interim dividend of 18.0p per share (2022:
3.0p) which will be paid on 11 April 2024 to shareholders on the register at
the close of business on 22 March 2024. 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.
7. Earnings per share
Six months ended 30 November 2023 Six months ended 30 November 2022 Year ended 31 May 2023
Unaudited Unaudited Audited
Earnings EPS DEPS Earnings EPS DEPS Earnings EPS DEPS
£000 Pence Pence £000 Pence Pence £000 Pence Pence
Basic earnings per share 1,706 5.22 5.14 16,962 52.15 51.09 27,926 85.85 84.13
Weighted average number of shares (000's)
32,659 33,217 32,528 33,200 32,528 33,193
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 558,000 (2022: 672,000), the effect on basic
earnings per ordinary share is 0.08p (2022: 1.06p).
8. 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. HRMS represents the Groups share of its
German joint venture, which includes Hargreaves Services Europe Limited which
is the parent company of HRMS and DK.
Services Hargreaves Land Unallocated HRMS Total
Unaudited Unaudited Unaudited Unaudited Unaudited
30 November 30 November 30 November 30 November 30 November
2023 2023 2023 2023 2023
£000 £000 £000 £000 £000
Revenue
Total revenue 110,327 673 - - 111,000
Intra-segment revenue (829) - - - (829)
Revenue from external customers 109,498 673 - - 110,171
Operating profit/(loss) 8,913 (1,284) (2,528) - 5,101
Share of profit/(loss) in joint ventures (net of tax) - 173 - (1,887) (1,714)
Net finance (expense)/income (1,092) 108 329 - (655)
Profit/(loss) before tax 7,821 (1,003) (2,199) (1,887) 2,732
Services Hargreaves Land Unallocated HRMS Total
Unaudited Unaudited Unaudited Unaudited Unaudited
30 30 30 30 30
November November November November November
2022 2022 2022 2022 2022
£000 £000 £000 £000 £000
Revenue
Total revenue 108,000 8,700 - - 116,700
Intra-segment revenue (225) - - - (225)
Revenue from external customers 107,775 8,700 - - 116,475
Operating profit/(loss) 9,147 1,331 (2,502) - 7,976
Share of profit in joint ventures (net of tax) - 242 - 10,811 11,053
Net finance (expense)/income (642) 28 295 - (319)
Profit/(loss) before tax 8,505 1,601 (2,207) 10,811 18,710
9. Investments in joint ventures
Tower Regeneration Limited Hargreaves Services Europe Limited Waystone Hargreaves LLP Interests in immaterial joint ventures Total
£000 £000 £000 £000 £000
At 1 June 2023 - 68,607 5,751 (76) 74,282
Group's share of (loss)/profit in joint ventures (net of tax) - (1,887) 173 - (1,714)
Exchange differences - 646 - 12 658
At 30 November 2023 - 67,366 5,924 (64) 73,226
10. Condensed consolidated interim financial
information
The condensed consolidated interim financial information was approved by the
Board of Directors on 24 January 2024. 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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