REG - Hargreaves Servs PLC - Preliminary results
27/07/2022 07:00
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RNS Number : 8207T Hargreaves Services PLC 27 July 2022
HARGREAVES SERVICES PLC
("Hargreaves" or the "Group")
Results for the year ended 31 May 2022
Hargreaves Services plc (AIM: HSP), a diversified group delivering key
services to the industrial and property sectors, announces its results for the
year ended 31 May 2022. The Group has delivered very strong results and
developed a strong platform from which to create, deliver and realise value
for shareholders.
KEY FINANCIAL RESULTS
Year ended 31 May 2022 2021
Revenue* £177.9m £204.8m
Underlying Profit Before Tax ("UPBT")** £32.7m £21.2m
Profit from joint ventures £28.2m £17.7m
Profit Before Tax from continuing operations £34.5m £14.4m
Basic earnings per share 113.8p 50.8p
Basic underlying EPS from continuing operations* 103.2p 70.7p
Proposed Final Dividend 5.6p 4.5p
Proposed Additional Dividend 12.0p 12.0p
Cash and cash equivalents*** £13.8m £28.3m
Net (Debt)/Cash (including leasing debt) (£4.6m) £16.5m
Net Assets £183.1m £144.3m
Net Assets per Share 563p 447p
* Revenue reduced following exit from coal activities in 2021, while like-for
like Services revenue increased by 18.7% to £162.8m (2021: £137.2m)
** The basis of Underlying Profit Before Tax and basic underlying EPS is set
out in Note 7
*** Excludes £15m loan made to HRMS, £12m of which was repaid in July
.
HIGHLIGHTS
· UPBT improved materially to £32.7m (2021: £21.2m), including
£28.2m (2021: £17.7m) contribution from joint ventures
o German joint venture contributed £27.3m (2021: £13.6m) benefitting from:
§ Very strong commodity market conditions
§ DK Recycling sustainable cost reductions and operational improvements
· Services UPBT increased to £7.6m from £5.1m as HS2 contract
progresses
· Hargreaves Land momentum continues:
o Further sales delivered at Blindwells
o £50m of conditional contracts exchanged at Unity JV
o Renewable energy land portfolio records first rental incomes
· Balance sheet free of bank debt
· Net assets increased by 26.9% to £183.1m (2021: £144.3m)
· Final dividend of 5.6p (2021: 4.5p) proposed, an increase of 24.4%
· Additional dividend of 12p (2021: 12p) proposed, funded by dividend
to be received from HRMS
Commenting on the preliminary results, Chairman Roger McDowell said: "The
Board has a clear, strategic investment proposition from which to create,
deliver and realise shareholder value. These results, which include the
highest level of profit recorded in seven years, illustrate the Group's
agility in taking advantage of market conditions whilst also delivering
strong, underlying and sustainable profits. The Board is alive to current
economic issues and our balance sheet strength will serve the Group well in a
period of challenging global economic outlook."
CEO video Q&A
Analyst meeting & investor presentation
A briefing for analysts will be held via Zoom at 9.30am this morning,
Wednesday 27 July 2022. Please contact Walbrook PR on 020 7933 8780 or at
hargreavesservices@walbrookpr.com (mailto:hargreavesservices@walbrookpr.com)
for further information.
A live presentation relating to the Company's Preliminary Results via the
Investor Meet Company platform will be given by management on Thursday 28
July 2022 at 4:30pm GMT. Investors can sign up to Investor Meet Company for
free and add to meet Hargreaves Services via:
https://www.investormeetcompany.com/hargreaves-services-plc/register-investor
(https://www.investormeetcompany.com/hargreaves-services-plc/register-investor)
A presentation recording on the financial results and business outlook
delivered by management will be made available on the Company's website later
today, here: https://www.hsgplc.co.uk/investors.aspx
(https://www.hsgplc.co.uk/investors.aspx) .
Enquiries:
Hargreaves Services www.hsgplc.co.uk (http://www.hsgplc.co.uk)
Gordon Banham, Group Chief Executive Tel: 0191 373 4485
John Samuel, Group Finance Director
Walbrook PR (Financial PR & IR) Tel: 020 7933 8780 or hargreavesservices@walbrookpr.com
(mailto:hargreavesservices@walbrookpr.com)
Paul McManus/Lianne Applegarth/
Mob: 07980 541 893/07584 391 303/
Louis-Ashe-Jepson
07747 515 393
Singer Capital Markets (Nomad and Joint Corporate Broker) Tel: 020 7496 3000
Sandy Fraser/Justin McKeegan/Rachel Hayes
Investec (Joint Corporate Broker) Tel: 020 7597 5970
Sara Hale/David Anderson/Shalin Bhamra
Chairman's Statement
Roger McDowell, Group Chairman
Introduction
The Group performed strongly throughout the financial year achieving a 54.2%
increase in underlying profit before tax ("UPBT")* of £32.7m (2021: £21.2m).
We have seen strong growth in both our Services business, which has been
buoyed by the commencement of the HS2 contract, and the Group's investment in
the German Joint Venture ("HRMS"). Hargreaves Land continued to progress its
major developments at Blindwells and the Unity Joint Venture whilst also
seeing the first incomes arise from its renewable asset land portfolio which
promises so much potential future value. Profit before tax from continuing
operations was £34.5m (2021: £14.4m). Basic underlying earnings per share
from continuing operations* have increased to 103.2p compared to 70.7p in the
prior year. Basic earnings per share was 113.8p (2021: 50.8p).
On behalf of the Board, I would like to thank everyone at Hargreaves for their
hard work, dedication and passion, without which the Group would not be what
it is today. Over the last few years the Group has undertaken a dramatic
strategic transformation, which is now creating, delivering and beginning to
realise substantially increased shareholder value.
Continuing
momentum
This year the Group has built strong momentum in all three business areas of
Services, Hargreaves Land and HRMS.
The Services business has started work in earnest on the major earthmoving
project at HS2, which has led to a growth in UPBT. I am also pleased to see
the expansion of our mechanical and electrical engineering capabilities, as
demonstrated by our appointment to two major engineering contracts on HS2
collectively worth over £18m. Further environmentally positive business
initiatives have been undertaken including the remediation of over 100 acres
of previously unusable former mining land in Scotland.
Strategic progress has also been seen within Hargreaves Land. Further sales
have been completed and exchanged at Blindwells and the wider pipeline looks
strong with the conditional exchange of contracts for the development and sale
of the first logistics units at the Unity Joint Venture near Doncaster due to
complete over the coming years. The Group's value creation from its renewable
land assets has also taken a big step forward in the year as Brockwell Energy
announced they had achieved financial close on their Energy from Waste plant,
which is under construction on our Westfield site. The first windfarm is now
under construction by BayWa AG on our site at Dalquhandy. The creation of
value from our renewable asset land portfolio over the next few years is an
exciting prospect.
The HRMS team continues to demonstrate its ability to be agile in an
ever-changing commodities market, which has allowed them to take advantage of
recent favourable pricing to deliver an excellent profit for the year,
following a very strong performance in the prior year. Whilst the current
result is pleasing, I am more excited by the underlying and sustainable
improvements made in the steel recycling business, DK Recycling und Roheisen
GmbH ("DK"). Since acquisition by HRMS in 2019, the management team has
implemented improvements to operating processes and administrative functions
which should deliver a sustainable improvement of around €10m per annum
compared to their pre-acquisition performance. DK contributed approximately
43% of the HRMS result for the year.
Cash and leasing debt
The Group remains free from any bank debt and held net cash of £13.8m on 31
May 2022, compared to £28.3m in the prior year. This reduction is due to the
decision to loan £15m to HRMS to enable them to capitalise on the current
trading conditions. I am pleased to see that this funding provided to our
Joint Venture has helped to deliver substantial returns. £12m of this loan
was repaid in July 2022. Notwithstanding this, cash generated from operations
has been primarily invested into Hargreaves Land assets and leased plant and
equipment, principally for the HS2 contract.
The only debt held by the Group relates to specific leasing debts for the
acquisition of fixed assets. At the year end this borrowing stood at £18.4m,
which is an increase of £6.6m when compared to 31 May 2021 due to the initial
investment required to mobilise the HS2 earthmoving contract within Services.
Dividend
The Group paid an interim dividend of 2.8p, which represented a 3.7% increase
year on year. The continued strong performance of the Group throughout the
remainder of the year has enabled the Board to announce an increase of nearly
25% to the final dividend, which is proposed to be 5.6p (2021: 4.5p). This
brings the underlying full year dividend to 8.4p (2021: 7.2p) representing an
overall increase of 16.7%.
In addition to the final dividend of 5.6p, the Board is also proposing an
additional dividend of 12.0p per share (2021: 12.0p) in relation to dividends
to be received from previously undistributed profits at HRMS. Combined this
brings the total dividend for the year ended 31 May 2022 to 20.4p (2021:
19.2p).
If approved at the Annual General Meeting, the final dividend of 5.6p and the
additional dividend of 12.0p will be paid on 31 October 2022 to all
shareholders on the register at the close of business on 23 September 2022.
The shares will become ex-dividend on 22 September 2022.
Environmental, social and governance ("ESG")
The Group has established a cross-business working group ("ESG Group") which
is focussed on identifying the risks and opportunities arising from climate
change and other social and governance matters. The ESG Group reports directly
into the Audit and Risk Committee and contains representatives from each
aspect of the business. I am pleased to see the high levels of engagement in
this group and the fact that the drive for sustainability is coming from all
parts of the Group.
Hargreaves has taken significant strides in the last year to develop our
Employee Assistance Programme and train our mental health first aiders. The
well-being of our employees is essential in delivering value to all of our
stakeholders. We have also established a dedicated Corporate Social
Responsibility fund for supporting local charities and activities in which our
employees are actively involved.
Strategy and Shareholder Value
The Group remains focussed on its strategy to create, deliver and realise
value for shareholders through the three core businesses of Services,
Hargreaves Land and HRMS.
Create
The commencement of the major earthmoving contract at HS2 and the growing
mechanical and electrical capabilities of the Services business have enabled
opportunities for the Group to create value for Shareholders. The Hargreaves
Land team are creating substantial shareholder value through the development
of the renewable energy land portfolio and HRMS continues to create value
through its ability to adapt to market conditions.
Deliver
The Services business has secured over 50 term contracts and framework
agreements and is focussed on their successful delivery. The long term land
development assets at Blindwells and Unity are continuing to deliver returns
as we are now seeing regular revenues and profit generation. The delivery of
value from the renewable land portfolio will increase steadily over the next
few years. The transformation of the operations within DK, part of HRMS, is
now delivering recurring and more sustainable returns, enabling the base level
of profitability to be increased within HRMS.
Realise
We are increasing the underlying full year dividend by 16.7% to 8.4p in
recognition of the successful delivery of the value created within the Group.
Additionally, the value within HRMS continues to be repatriated to
shareholders via the additional 12.0p annual dividend. The Board is confident
that this increase is sustainable and fairly reflects the value that is being
delivered within the Group. Further value realisation opportunities remain in
the forefront of the Board's considerations.
Outlook
The Group now has significant momentum, which has resulted in the highest UPBT
for the Group in seven years. The Balance Sheet remains free from bank debt
and third party security and provides a strong platform for growth allowing
the Group to remain agile to opportunities. Our net tangible assets now stand
at £178.3m (2021: £139.5m) representing 548p per share (2021: 432p).
The Board is acutely aware of the uncertainties in current global economic
outlook and has strategies in place to mitigate the challenges of UK
inflation. HRMS is also taking steps to plan for potential threats to German
energy supplies. The Board has great confidence in the strategy and
expectations for the Group's financial performance heading into the year
ending 31 May 2023.
Roger McDowell
Chairman
26 July 2022
* The basis of Underlying profit before tax and basic underlying EPS is set
out in Note 7.
Group Business Review
Gordon Banham, Group Chief Executive
CHIEF EXECUTIVE'S REVIEW
£'m Services Hargreaves Land HRMS Central Costs Total
Revenue (2022) 162.8 15.1 - - 177.9
Revenue (2021) 193.0 11.8 - - 204.8
Underlying Profit/(Loss) before Tax* (2022) 7.6 2.1 27.3 (4.3) 32.7
Underlying Profit/(loss) before Tax* (2021) 5.1 6.3 13.6 (3.8) 21.2
Profit before tax from continuing operations (2022) 9.4 2.1 27.3 (4.3) 34.5
Profit before tax from continuing operations (2021) (1.7) 6.3 13.6 (3.8) 14.4
* The basis of Underlying Profit Before Tax is set out in Note 7.
Services
The Services business recorded a reduction in revenue from £193.0m to
£162.8m due to the decision taken in the prior year to cease all material
coal activities, which accounted for £55.8m in the year ended 31 May 2021.
Like for like Services revenue has grown from £137.2m to £162.8m, an
increase of 18.7%. This growth has predominantly come from the major
earthmoving contract on HS2, which commenced during the year.
The business unit delivered a UPBT of £7.6m, representing a growth of nearly
50% over the prior year. Whilst much of this improvement is delivered by the
HS2 contract, operating margins have also improved across the business unit
from 2.6% to 4.7%, reflecting the move away from the low margin coal
activities.
In my previous report, I highlighted two specific contracts, which were on the
horizon and I would like to provide an update on both of them.
HS2
I am pleased to report that the major earthmoving contract with the EKFB
Consortium on HS2 has begun well. We now have over 350 people working on the
project, with almost 300 items of plant being put to work. In addition to the
earthmoving activities, we have also developed a solution to reduce the carbon
emissions on the project through the installation of an overland conveyor
system to remove excess material from site, which will eliminate over 78,000
lorry movements amounting to over 700,000 miles. This will not only reduce the
carbon emissions through less miles driven, but also reduce the noise
pollution for local residents.
Hemerdon
Following the listing of Tungsten West plc ("TW") on AIM in October 2021, we
received the first of eight annual payments of £1m relating to maintaining
our capability at site. TW announced in April 2022 that it intended to pause
their development plan for the site and evaluate alternative approaches. A
further announcement was made by TW on 19 July 2022 which indicates that TW
plans to commence production in the first half of calendar year 2023. TW
states that it has to put further funding in place to achieve this. Whilst
this news does mean that any growth that was expected to come from the
commencement of mining activities may be delayed, the Group remains in a
strong contractual position with security over the mineral rights. The Group
remains in close contact with TW.
Profitability within Services has remained weighted to the second half of the
year, however, in the coming year this is likely to level out as the works
undertaken on HS2 provide greater profitability in the summer months, reducing
the seasonality.
With over 50 framework and term contracts in place and approximately 75% of
next year's revenue secured, the Services business has resilience to the
current inflationary pressures. Most term contracts include a form of price
escalation, particularly in relation to fuel increases for our logistics
operations. The main HS2 contract is a defined cost plus fee arrangement so
that increases in defined costs will be recovered. With inflation in the UK
rising to over 7% in the second half of the last financial year, the business
has seen the benefit of these clauses in the contracts in mitigating the
impact of such risks.
Our mechanical, electrical and civils capabilities were enhanced on 7 July
2022 by the acquisition for £750,000 in cash of SBU Limited and its
subsidiary S&B Utilities Limited ("SBU"). SBU has long standing framework
contracts with Yorkshire Water and Severn Trent Services together with a very
recent appointment with Northumbrian Water. The business, which has annual
revenue of around £4m and over 40 employees, will strengthen our business
offering in the utilities sector.
Hargreaves Land
Hargreaves Land recorded revenue of £15.1m (2021: £11.8m) and a Profit
before tax of £2.1m (2021: £6.3m) for the year. This reduction of £4.2m in
profitability is due to the timing of sales at the Unity Joint Venture, near
Doncaster. In April 2021, the Unity Joint Venture completed a material sale to
a national retailer, which was several months ahead of the original plan. This
sale pulled forward £4.1m of profit into the year ended 31 May 2021, which
has led to the reduction recorded in 2022.
Further progress has been made at Unity, with the exchange of contracts
announced in February 2022 for the conditional sale of a total of 29 acres to
Aver Property and the development of two logistics units for £50m
consideration. Completion is expected to occur over the next 24 months. The
Unity Joint Venture is independently funded from Hargreaves.
During the year, the business has completed a further sale at Blindwells. A
12.9 acre plot was sold to Persimmon in January 2022 for a total consideration
of £9.6m, which is payable in three annual instalments. In February, the
Group announced the exchange of contracts with Ogilvie Homes for the sale of a
4.6 acre plot, which is expected to complete in the next financial year. This
demonstrates continuing progress within the Blindwells development, which
welcomed its first residents in the financial year. The site remains a long
term, regular annual profit stream for Hargreaves Land, with approximately 120
acres still remaining to be sold within Phase 1. The first phase is expected
to be developed out by 2031 with Phase 2, known as Greater Blindwells,
comprising approximately 1,000 acres progressing through the local plan
process with a planning allocation for up to 8,000 homes expected to be
secured before 2030.The Group has an effective 25% share of the land in this
second phase.
An exciting development within Hargreaves Land has been the increasing
momentum behind the Group's renewable energy land assets. The Group's former
subsidiary, Brockwell Energy Limited, achieved financial close on their Energy
from Waste plant at Westfield, Fife, which provided an immediate £2m of
deferred consideration from the original sale of the business. Additionally,
Brockwell entered into a 35-year minimum term index linked lease, which will
deliver annual rental income of £0.4m following the construction of the plant
which is expected to take about three years.
This marks the first significant income relating to the Group's renewable
energy land portfolio, which in addition to Westfield includes options over
land with wind farm developers needed to produce 580 MWs of power on various
long-term agreements, which are expected to begin delivering value over the
next 24 months. This represents more than 2% of the UK's total installed wind
power capacity in 2021*. This is a particularly exciting area for Hargreaves
Land and represents an opportunity to create substantial value for the Group.
Hargreaves Land acts solely as a landlord in this area and does not undertake
any construction work or ownership of the energy generating assets themselves.
HRMS
HRMS contributed £27.3m (2021: £13.6m) to the Group's Profit before Tax.
This represents an increase of 110% and demonstrates the continuing strong
performance that was seen from HRMS in the second half of the previous year.
The traditional trading business has seen a substantial increase in volumes of
minerals traded, which has accompanied the increase in commodity prices seen
over the past 18 months. The trading team at HRMS have always been skilled at
maximising opportunities whilst minimising the risk profile taken. This has
been highlighted in the current year's result.
The performance by the trading team has been complemented by the significant
turn around in the profitability of the steel waste recycling business, DK.
Prior to acquisition by HRMS in December 2019, this business was loss making.
Since then, the management team has introduced a number of measures which have
led to an approximate €10m of sustainable improvement in profitability. In
addition to this sustainable improvement, DK has also benefited from high
commodity prices, in particular zinc and pig iron, which have augmented the
result.
The third aspect of HRMS is the Carbon Pulverisation Plant. The plant is fully
operational and producing 100kt of pulverised product per annum, which
represents around 25% of the plant's full capacity. The facility delivered a
break even result in the year, which is in line with the prior year result. It
is not expected to move into profitability until the year ending 31 May 2024
whilst economic uncertainties persist in German industrial markets as a result
of the war in Ukraine.
HRMS mitigates against its exposure to commodity prices by both hedging
forward sales positions and by ensuring that it does not enter into open
trading positions so that purchases of commodities are back to back with
secured sales. DK is considering the installation of a liquid gas tank to
provide resilience in the event of a gas supply shortage although only small
quantities of gas are used in the production process.
Summary
This year has been one of real momentum, particularly within Services and
Hargreaves Land, whilst HRMS continues to demonstrate its ability to
capitalise on market opportunities.
I am particularly pleased with the resilience of the Services business, given
the challenges faced by many businesses regarding cost inflation and supply
chain difficulties. Hargreaves Land continues to deliver long term and
recurring profits from the two flagship projects at Blindwells and Unity,
whilst developing an exciting pipeline of opportunities, not least of which is
the renewable energy land portfolio. Finally, the sustainable improvements
made at DK have highlighted the ability of the management team to identify and
take advantage of opportunities, which can deliver substantial value.
Hargreaves has undertaken significant changes over recent years and I believe
we have navigated the challenges which have arisen well. The business has a
strong, debt-free balance sheet and I look to the future with optimism.
Gordon Banham
Group Chief Executive
26 July 2022
*Source:
https://www.statista.com/statistics/421861/wind-power-capacity-in-the-united-kingdom
Consolidated Statement of Profit and Loss
and Other Comprehensive Income
for the year ended 31 May 2022
Continuing operations Note 2022 2021
£000 £000
Revenue 2 177,908 204,796
Cost of sales (148,458) (181,453)
Gross profit 29,450 23,343
Other operating income 1,298 3,821
Administrative expenses (24,520) (29,234)
Operating profit/(loss) 6,228 (2,070)
Analysed as:
Operating profit (before exceptional items and impairment charges) 4,474 4,751
Exceptional items 3 1,754 (2,186)
Impairment of intangible assets - (4,635)
Operating profit/(loss) 6,228 (2,070)
Finance income 823 646
Finance expenses (770) (1,882)
Share of profit in joint ventures (net of tax) 28,200 17,680
Profit before tax 34,481 14,374
Taxation 4 347 2,032
Profit for the year from continuing operations 34,828 16,406
Discontinued operations
Profit for the year from discontinued operations 5 2,000 -
Profit for the year 36,828 16,406
Other comprehensive income/expense
Items that will not be reclassified to profit or loss
Gain in defined benefit pension schemes 5,955 1,956
Tax recognised on items that will not be reclassified to profit or loss (1,488) (319)
Items that are or may be reclassified subsequently to profit or loss
Foreign exchange translation differences 313 (1,806)
Effective portion of changes in fair value of cash flow hedges 41 136
Tax recognised on items that are or may be reclassified subsequently to profit (8) (25)
or loss
Share of other comprehensive income of joint ventures, (net of tax) 3,070 -
Other comprehensive income/(expense) for the year, net of tax 7,883 (58)
Total comprehensive income for the year 44,711 16,348
Note 2022 2021
£000 £000
Profit/(loss) attributable to:
Equity holders of the Company 37,040 16,426
Non-controlling interest (212) (20)
Profit for the year 36,828 16,406
Total comprehensive income attributable to:
Equity holders of the Company 44,923 16,368
Non-controlling interest (212) (20)
Total comprehensive income for the year 44,711 16,348
Basic earnings per share (pence) 6 113.80 50.84
Diluted earnings per share (pence) 6 110.44 49.38
Continuing basic earnings per share (pence) 6 107.62 50.84
Diluted continuing basic earnings per share (pence) 6 104.44 49.38
Non-GAAP Measures
Basic underlying earnings per share from continuing operations (pence)* 6 103.23 70.66
Diluted underlying earnings per share from continuing operations (pence)* 6 100.18 68.64
* See Alternative Performance Measures in Note 7
Group Balance Sheet
at 31 May 2022
2022 Restated*
£000 2021
£000
Non-current assets
Property, plant and equipment 9,938 13,806
Right-of-use assets 22,062 13,776
Investment property 8,298 7,607
Intangible assets including goodwill 4,824 4,824
Investments in joint ventures 58,383 31,187
Deferred tax assets 11,063 10,084
Trade receivables 4,224 _-
Retirement benefit surplus 10,382 2,911
129,174 84,195
Current assets
Other financial assets - 2
Inventories 30,476 27,168
Trade and other receivables 88,574 78,260
Income tax asset - 59
Contract assets 6,752 1,720
Cash and cash equivalents 13,773 28,303
139,575 135,512
Total assets 268,749 219,707
Non-current liabilities
Other interest-bearing loans and borrowings (11,045) (8,586)
Retirement benefit obligations (2,703) (2,867)
Provisions* (2,344) (3,087)
Deferred tax liabilities (1,920) -
(18,012) (14,540)
Current liabilities
Other interest-bearing loans and borrowings (7,326) (3,179)
Trade and other payables* (50,727) (49,611)
Provisions* (9,440) (8,038)
Income tax liability (108) -
Other financial liabilities - (43)
(67,601) (60,871)
Total liabilities (85,613) (75,411)
Net assets 183,136 144,296
2022 2021
£000 £000
Equity attributable to equity holders of the Parent
Share capital 3,314 3,314
Share premium 73,972 73,955
Other reserves 211 211
Translation reserve (1,819) (2,132)
Merger reserve 1,022 1,022
Hedging reserve 318 285
Capital redemption reserve 1,530 1,530
Share-based payment reserve 2,029 1,680
Retained earnings 102,781 64,441
183,358 144,306
Non-controlling interest (222) (10)
Total equity 183,136 144,296
*Upon review of the prior year accruals balance it was identified that a
number of items should have been classified as provisions. As such a
restatement has been undertaken during the year. The impact is an increase in
provisions of £3,723,000 and a corresponding reduction in trade and other
payables. There is no impact on opening reserves.
Consolidated Statement of Changes in Equity
Share capital £000 Share premium £000 Translation reserve Hedging reserve Other reserves £000 Capital redemption reserve Merger reserve £000 Share- Retained earnings £000 Total Parent equity Non-controlling interest Total equity £000
£000 £000 £000 based payment reserve £000 £000
£000
At 1 June 2020 3,314 73,955 (326) 174 211 1,530 1,022 1,462 48,703 130,045 10 130,055
Total comprehensive income/(expense) for the year
Profit/(loss) for the year - - - - - - - - 16,426 16,426 (20) 16,406
Other comprehensive income/(expense) - - (1,806) 111 - - - - 1,637 (58) - (58)
Total comprehensive income/(expense) for the year - - (1,806) 111 - - - - 18,063 16,368 (20) 16,348
Transactions with owners recorded directly in equity
Equity-settled share-based payment transactions - - - - - - - 218 - 218 - 218
Dividends paid - - - - - - - - (2,325) (2,325) - (2,325)
Total contributions by and distributions to owners - - - - - - - 218 (2,325) (2,107) - (2,107)
At 31 May 2021 3,314 73,955 (2,132) 285 211 1,530 1,022 1,680 64,441 144,306 (10) 144,296
Share capital £000 Share premium £000 Translation reserve Hedging reserve Other reserves £000 Capital redemption reserve Merger reserve £000 Share- Retained earnings £000 Total Parent equity Non-controlling interest Total equity £000
£000 £000 £000 based payment reserve £000 £000
£000
At 1 June 2021 3,314 73,955 (2,132) 285 211 1,530 1,022 1,680 64,441 144,306 (10) 144,296
Total comprehensive income/(expense) for the year
Profit/(loss) for the year - - - - - - - - 37,040 37,040 (212) 36,828
Other comprehensive income - - 313 33 - - - - 7,537 7,883 - 7,883
Total comprehensive income/(expense) for the year - - 313 33 - - - - 44,577 44,923 (212) 44,711
Transactions with owners recorded directly in equity
Issue of shares - 17 - - - - - - - 17 - 17
Equity-settled share-based payment transactions - - - - - - - 349 - 349 - 349
Dividends paid - - - - - - - - (6,237) (6,237) - (6,237)
Total contributions by and distributions to owners - 17 - - - - - 349 (6,237) (5,871) - (5,871)
At 31 May 2022 3,314 73,972 (1,819) 318 211 1,530 1,022 2,029 102,781 183,358 (222) 183,136
Consolidated Cash Flow Statement
2022 Restated*
£000 2021
£000
Cash flows from operating activities
Profit for the year from continuing operations 34,828 16,406
Adjustments for:
Depreciation and impairment of property, plant and equipment and right-of-use 8,666 6,562
assets
Impairment of goodwill and intangible assets - 4,635
Net finance (income)/expense (53) 1,236
Share of profit in joint ventures (net of tax) (28,200) (17,680)
Profit on sale of property, plant and equipment, investment property and (1,298) (3,667)
right-of-use assets
Equity-settled share-based payment expenses 349 218
Income tax (credit) (347) (2,032)
Contributions to defined benefit pension schemes (2,002) (2,039)
Translation of non-controlling interest and investments 202 -
12,145 3,639
Change in inventories (3,308) 36,841
Change in trade and other receivables (19,256) 2,012
Change in trade and other payables* 903 5,545
Change in provisions and employee benefits* 1,000 (1,489)
(8,516) 46,548
Interest received/(paid) 34 (1,194)
Income tax (paid) (44) (127)
Net cash (outflow)/inflow from operating activities (8,526) 45,227
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 801 3,125
Proceeds from sale of investment property 1,407 5,040
Proceeds from sale of right of use assets 78 753
Acquisition of property, plant and equipment (1,479) (2,727)
Acquisition of investment property (1,070) (390)
Acquisition of right of use assets (163) -
Dividends received from joint ventures 3,917 -
Net cash inflow from investing activities in continuing operations 3,491 5,801
Net cash inflow from investing activities in discontinued operations 2,000 -
Net cash inflow from investing activities 5,491 5,801
Cash flows from financing activities
Principal elements of lease payments (5,531) (6,085)
Dividends paid (6,237) (2,325)
Repayment of Group banking facilities - (32,000)
Net cash outflow from financing activities (11,768) (40,410)
Net (decrease)/increase in cash and cash equivalents (14,803) 10,618
Cash and cash equivalents at 1 June 28,303 18,499
Effect of exchange rate fluctuations on cash held 273 (814)
Cash and cash equivalents at 31 May 13,773 28,303
*Upon review of the prior year accruals balance it was identified that a
number of items should have been classified as provisions. As such a
restatement has been undertaken during the year. The impact is an increase in
provisions of £3,723,000 and a corresponding reduction in trade and other
payables. There is no impact on opening reserves
Notes
1 Basis of preparation and status of financial information
The financial information set out above has been prepared and approved by the
Directors in accordance with the recognition and measurement criteria of
international accounting standards in conformity with the requirements of the
Companies Act 2006.
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 31 May 2022 or 31 May 2021. Statutory
accounts for 2021 have been delivered to the Registrar of Companies, and those
for 2022 will be delivered in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include a reference
to any matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these consolidated financial
statements.
The Group has restated the 31 May 2021 balance sheet and cash flow statement
due to a review of the prior year accruals balance where it was identified
that a number of items should have been classified as provisions. As such a
restatement has been undertaken during the year. A third balance sheet has not
been presented as the impact of the restatement is not considered to be
qualitatively material to users of the accounts and all balances as at the
opening balance sheet day are disclosed within the relevant notes.
Going concern
The Group's financing is not dependent on bank borrowings, however the Group
has a £12m invoice discounting facility which is currently undrawn.
Notwithstanding that, a rigorous review of cash flow forecasts including
testing for a range of challenging downside sensitivities has been undertaken.
These sensitivities include testing without utilising the invoice discounting
facility. Mitigating strategies to these sensitivities considered by the Board
exclude any remedies which are not entirely within the Group's control. As a
result, and after making appropriate enquiries including reviewing budgets and
strategic plans, the Directors have a reasonable expectation that both the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, the Board continues to
adopt the going concern basis in preparing the Annual Report and Accounts.
These results were approved by the Board of Directors on 26 July 2022.
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 Services, Hargreaves Land,
Unallocated and HSEL.
• Services: Provides materials handling, mechanical and electrical
engineering, land restoration, logistics and bulk earthmoving into the energy,
environmental, infrastructure and industrial sectors.
• Hargreaves Land: The development and realisation of value from the
land portfolio including rental income from investment properties and the
share of profit of the Unity joint venture.
• Unallocated: The corporate overhead contains the central functions
that are not devolved to the individual business units.
• Hargreaves Services Europe ("HSEL"): The Group's share of its German
joint venture, which includes HRMS and DK.
These segments are combinations of subsidiaries and joint ventures. They have
separate management teams and provide different products and services. The
four operating segments are also reportable segments.
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 profit/(loss) before tax, which is reconciled to profit/(loss)
before tax in the tables below:
Services Hargreaves Unallocated HSEL Total
2022 Land 2022 2022 2022
£000 2022 £000 £000 £000
£000
Revenue
Total revenue 163,800 15,100 - - 178,900
Intra-segment revenue (992) - - - (992)
Revenue from external customers 162,808 15,100 - - 177,908
Operating profit/(loss) (before exceptional items) 8,011 1,211 (4,748) - 4,474
Share of profit in joint ventures (net of tax) - 858 - 27,342 28,200
Net finance (expense)/income (468) 58 463 - 53
Exceptional items (see Note 3) 1,754 - - - 1,754
Profit/(loss) before taxation from continuing operations 9,297 2,127 (4,285) 27,342 34,481
Taxation (see Note 4) 3,343 (3,546) 550 - 347
Profit/(loss) after taxation 12,640 (1,419) (3,735) 27,342 34,828
Depreciation and impairment charge (8,344) (100) (222) - (8,666)
Capital expenditure (13,507) (1,165) (154) - (14,826)
Net assets/(liabilities)
Segment assets 79,155 62,505 68,706 - 210,366
Segment liabilities (70,104) (7,391) (8,118) - (85,613)
Segment net assets 9,051 55,114 60,588 - 124,753
Joint ventures - 4,836 - 53,547 58,383
Total net assets 9,051 59,950 60,588 53,547 183,136
Unallocated net assets of £60.6m include cash and cash equivalents of
£13.8m, deferred tax asset of £11.1m, amounts due from Jointly Controlled
Entities of £29.3m, a net pension asset of £7.7m, deferred tax liability of
£1.9m and other corporate items (£0.6m asset).
Services Hargreaves Unallocated HSEL Total
2021 Land 2021 2021 2021
£000 2021 £000 £000 £000
£000
Revenue
Total revenue 194,600 11,800 - - 206,400
Intra-segment revenue (1,604) - - - (1,604)
Revenue from external customers 192,996 11,800 - - 204,796
Operating profit/(loss) (before exceptional items and impairment) 6,691 2,530 (4,470) - 4,751
Share of profit in joint ventures (net of tax) - 4,069 - 13,611 17,680
Net finance (expense)/income (1,614) (338) 716 - (1,236)
Impairment of intangibles (4,635) - - - (4,635)
Exceptional items (see Note 3) (2,186) - - - (2,186)
Profit/(loss) before taxation from continuing operations (1,744) 6,261 (3,754) 13,611 14,374
Taxation (see Note 4) 591 (114) 1,555 - 2,032
Profit/(loss) after taxation (1,153) 6,147 (2,199) 13,611 16,406
Depreciation charge (6,135) (103) (323) - (6,561)
Capital expenditure* (5,011) (1,215) (216) - (6,442)
Net assets/(liabilities)
Segment assets 77,900 55,820 54,800 - 188,520
Segment liabilities (60,078) (6,990) (8,343) - (75,411)
Segment net assets 17,822 48,830 46,457 - 113,109
Joint ventures - 4,051 - 27,136 31,187
Total net assets 17,822 52,881 46,457 27,136 144,296
* Upon review of the prior year segmental capital expenditure disclosure it
was identified that this note only included capital expenditure relating to
property, plant, and equipment. As such a restatement has been undertaken
during the year to show total capital expenditure of property, plant, and
equipment, right of use assets and investment properties. There is no other
impact on the financial statements.
Unallocated net assets of £46.5m include cash and cash equivalents of
£28.3m, deferred tax asset of £10.1m, amounts due from Jointly Controlled
Entities of £14.5m, VAT liability of £3.8m and other corporate items (£2.6m
liability).
3 Exceptional Items
The Group incurred one exceptional item in each year as follows:
2022 2021
£000 £000
Exceptional item in Cost of sales
Losses on legacy contracts in C.A. Blackwell (Contracts) Limited - (2,186)
Total exceptional item in Cost of sales - (2,186)
Exceptional item in Administrative expenses
Release of accrual relating to a liability from the year ended 31 May 2015 1,754 -
Total exceptional item in Administrative expenses 1,754 -
Total 1,754 (2,186)
In the year ending 31 May 2022, an aged accrual dating from the year ended 31
May 2015 totalling £1,754,000 was released as the potential for payment had
lapsed due to time.
In the year ending 31 May 2021, further losses were recognised on the legacy
contracts within C.A. Blackwell (Contracts) Limited resulting in costs of
£2,186,000.
4 Taxation
Recognised in the Income Statement
2022 2021
£000 £000
Current tax
Current year 212 57
Adjustments for prior years (4) 8
Current tax expense 208 65
Deferred tax
Origination and reversal of temporary timing differences 1,542 764
Impact of increase in tax rate - (2,736)
Adjustments for prior years (2,097) (125)
Deferred tax credit (555) (2,097)
Tax credit in Income Statement (excluding share of tax of equity accounted (347) (2,032)
investees)
The deferred tax adjustment in respect of prior years of £2,097,000 relates
to losses assumed to be utilised in the previous year, which were ultimately
retained.
Recognised in Other Comprehensive Income
2022 2021
£000 £000
Deferred tax expense
Effective portion of changes in fair value of cash flow hedges (8) (25)
Remeasurements of defined benefit pension schemes (1,488) (319)
(1,496) (344)
Reconciliation of Effective Tax Rate
2022 2021
£000 £000
Profit for the year from continuing operations 34,828 16,406
Total tax credit (347) (2,032)
Profit before taxation from continuing operations 34,481 14,374
Tax using the UK corporation tax rate of 19.00% (2021: 19.00%) 6,551 2,731
Effect of tax rates in foreign jurisdictions 37 (143)
Tax effect of joint ventures (5,194) (2,586)
Previously unrecognised tax losses 136 (92)
Non-deductible expenses 407 894
Impact of change in tax rates - (2,736)
Other temporary trading differences (183) 17
Adjustment in respect of previous periods (2,101) (117)
Effective total tax credit (347) (2,032)
The UK corporation tax rate has been 19.00% for the duration of the financial
year (2021: 19.00%).
Factors That May Affect Future Current and Total Tax Charges
Following the March 2021 budget, the corporate tax rate will increase from 19%
to 25% with effect from 1 April 2023. The deferred tax balances at 31 May 2022
and 31 May 2021 have been calculated based on the rate substantively enacted
at the balance sheet date of 25%.
5 Discontinued Operations
All discontinued operation results are attributable to equity holders. The
Group's discontinued operations made a profit of £2,000,000 (2021: £nil)
after tax during the year.
The profit from discontinued operations represents the contingent
consideration received following the disposal of Brockwell Energy Limited
("Brockwell"). The Company disposed of the whole of its shareholding in
Brockwell on 19 October 2018 with contingent consideration of £2m which was
received in the year ending 31 May 2022. There are no remaining balances
relating to this matter.
2022 2021
£000 £000
Proceeds from disposal of subsidiary 2,000 -
Profit before tax of discontinued operations 2,000 -
Current tax charge - -
Profit for the year from discontinued operations 2,000 -
6 Earnings per Share
The calculation of earnings per share ("EPS") is based on the profit for the
year attributable to equity holders and on the weighted average number of
shares in issue and ranking for dividend in the year.
2022 2021
Earnings EPS DEPS Earnings EPS DEPS
£000 Pence Pence £000 Pence Pence
Underlying earnings per share from continuing operations 33,407 103.23 100.18 22,832 70.66 68.64
Exceptional items, fair value adjustments and impairment (net of tax) 1,421 4.39 4.26 (6,406) (19.82) (19.26)
Continuing basic earnings per share 34,828 107.62 104.44 16,426 50.84 49.38
Discontinued operations 2,000 6.18 6.00 - - -
Basic earnings per share 36,828 113.80 110.44 16,426 50.84 49.38
Weighted average number of shares 32,362 33,347 32,312 33,262
The calculation of weighted average number of shares includes the effect of
own shares held of 611,118 (2021: 827,150).
The calculation of diluted earnings per share ("DEPS") is based on the profit
for the year and the weighted average number of ordinary shares in issue in
the year. The potentially dilutive effect of the share options outstanding
(effect on weighted average number of shares) is 985,056 (2021: 950,750);
effect of basic earnings per ordinary share in the current year is 3.36p
(2021: 1.46p). Effect on underlying earnings per ordinary share is 3.05p
(2021: 2.02p). Effect on discontinued operations per ordinary share for 2022
is 0.18p (2021: nil).
7 Alternative Performance Measures Glossary
This report provides alternative performance measures ("APMs"), which are not
defined or specified under the requirements of International Financial
Reporting Standards. The Board believes that these APMs provide readers with
important additional information on the business.
Alternative Performance Measure Definition and Purpose
Underlying profit before tax ("UPBT") Represents the profit before tax from continuing operations prior to
exceptional items, fair value adjustments and impairment of intangible assets,
and, in accordance with International Accounting Standards, including the
Group's share of the post-tax profit of its German joint venture. This measure
is consistent with how the business measures performance and is reported to
the Board.
2022 2021
£000 £000
Profit before tax from continuing operations 14,374
34,481
Exceptional items (see Note 3) 2,186
(1,754)
Impairment of intangible assets and goodwill - 4,635
Underlying Profit before Tax 32,727 21,195
Basic underlying earnings per share Profit attributable to the equity holders of the Company from continuing
operations prior to exceptional items 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.
See Note 6.
EBITDA EBITDA is defined as profit before tax from continuing operations prior to
charges for depreciation and impairment and interest and excludes the share of
profit from jointly controlled entities and gains and losses on the sale of
fixed assets.
2022 2021
£'000 £'000
Profit before tax from continuing operations 34,481 14,374
Depreciation and impairment 8,666 6,562
Impairment of goodwill - 4,635
Net finance (income)/expense (53) 1,236
Share of profit in joint ventures (net of tax) (28,200) (17,680)
(Profit) on sale of fixed assets (1,298) (3,667)
EBITDA 13,596 5,460
Net Debt/(cash) Represents the net position of the Group's cash and loan balances including
leases. Calculated as follows:
2022 2021
£000 £000
Cash and cash equivalents 13,773 28,303
Non-current interest-bearing loans and borrowings (11,045) (8,586)
Current interest bearings loans and borrowings (7,326) (3,179)
Net (debt)/cash (4,598) 16,538
Net Asset Value per share Represents the Net Asset value of the Group divided by the number of shares in
issue less those shares held in treasury. Calculated as follows:
2021
2022
Total shares in issue 33,138,756 33,138,756
Less shares in treasury (611,118) (827,150)
Shares for calculation 32,527,638 32,311,606
Net Asset Value per Balance Sheet £183,136,000 £144,296,000
Net Asset Value per share £5.63 £4.47
Net Debt/(cash)
Represents the net position of the Group's cash and loan balances including
leases. Calculated as follows:
2022
£000
2021
£000
Cash and cash equivalents
13,773
28,303
Non-current interest-bearing loans and borrowings
(11,045)
(8,586)
Current interest bearings loans and borrowings
(7,326)
(3,179)
Net (debt)/cash
(4,598)
16,538
Net Asset Value per share
Represents the Net Asset value of the Group divided by the number of shares in
issue less those shares held in treasury. Calculated as follows:
2022
2021
Total shares in issue
33,138,756
33,138,756
Less shares in treasury
(611,118)
(827,150)
Shares for calculation
32,527,638
32,311,606
Net Asset Value per Balance Sheet
£183,136,000
£144,296,000
Net Asset Value per share
£5.63
£4.47
8 Posting of Report & Accounts
The Group confirms that the annual report and accounts for the year ended 31
May 2022 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
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