REG - Hargreaves Servs PLC - Trading Update, Notice of Results, Dividend Payout

Hargreaves ServicesAnnouncement

21/12/2023 07:15

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RNS Number : 5366X  Hargreaves Services PLC  21 December 2023

Hargreaves Services plc

("Hargreaves" or the "Group")

 

Trading Update, Notice of Interim Results and Enhanced Dividend Payout

 

Hargreaves Services plc (AIM: HSP), a diversified group delivering services to
the industrial and property sectors, provides the following update on trading
ahead of reporting its interim results for the six months ended 30 November
2023.

 

Hargreaves Raw Material Services GmbH ("HRMS") (German Joint Venture)

As communicated at the time of the full year results trading conditions in
HRMS were expected to be subdued. However, the combined impact of reduced
commodity prices and an economic slowdown in Germany is proving to be more
marked than anticipated, especially so in the current quarter within the
ferrous waste recycling activities. As a result, the Board now expects that
HRMS will record a net loss in the first half and that the full year profit
after tax contribution from HRMS will be approximately one quarter of that
originally expected and materially lower than the contribution in the
comparative period of £15.5m.

 

As previously indicated, because of the cash generation associated with the
slowdown in activity, HRMS has been able to return £8m of surplus cash to the
Group, which was received in November 2023. In view of the substantial
accumulated distributable reserves on the HRMS Balance Sheet and management's
assessment of the likely average level of profitability of the business across
the cycle, the Board has agreed with the management of HRMS that an annual
distribution of £7m is sustainable for the foreseeable future and will become
a regular cash receipt for the Group from the joint venture.

 

Services

The Services business had a strong first half to the year. The Board
anticipates reporting a growth in Profit before Tax on the comparative interim
period after adjusting for the £2.0m one-off gain on asset disposal
recognised in the first half of the last financial year. Services profits for
the full year are expected to be circa £2.0m higher than previously expected.
Much of this improvement is due to the volume of activity at HS2 and other
earthmoving activities, with activity in this segment expected to remain at
elevated levels throughout calendar year 2024.

 

Hargreaves Land

In line with trends experienced across the broader market, sales activity
within Hargreaves Land has softened in recent months. However, in August 2023
the business exchanged contracts with Avant Homes for the sale of 20 acres of
serviced residential land for a total consideration of £18.5m payable in four
instalments over three years. The transaction is expected to complete in
January 2024 underpinning the business unit's contribution in the financial
year.

 

The Board is also pleased to announce the sale of the Group's interest in the
Energy from Waste plant at the Westfield development site for cash
consideration of £7.6m, in line with management expectations. The sale
represents eight acres of the 50 acres available at Westfield. This
demonstrates the ability of Hargreaves Land to create, deliver and realise
value from the Group's land development sites.

 

The period has also seen good progress with the permitting, development and
commissioning of the Group's portfolio of renewable energy land assets, with
the first package of assets likely to go to market in the financial year
ending 31 May 2025.

 

Pension scheme

The Group is making good progress with the buy-out of the Group's defined
benefit pension schemes, with direct discussions underway with potential
insurers to take on the liability. Current indications suggest that the cost
of closing out the Group's obligations under the scheme will be no higher than
£9m, materially lower than our original estimate of £15m. The Board expects
to complete the transaction in early 2024, thereby eliminating annual deficit
reduction payments of £1.8m.

 

Return of capital to shareholders

As a result of the positive cashflow impact of the impending buy-out of the
pension scheme and the expected additional sustainable annual cash receipt
from HRMS, the Board intends, subject to unforeseen circumstances to increase
the annual dividend payable to shareholders to 36p per share, representing an
increase of over 70% on the prior year dividend of 21p. It is the intention of
the Board to pay 50% of this dividend at the interim stage, with the remaining
50% as a final dividend. The timetable for payment of the interim dividend
will be set out within the interim results statement.

 

Balance Sheet

On 30 November 2023, the Group had cash and cash equivalents of £18.7m
compared to £21.9m at 31 May 2023, reflecting continued investment into the
Blindwells development ahead of expected receipts in the second half. The
Group also had leasing debt totaling £28.8m (£36.4m on 31 May 2023).

 

Commenting on the Trading Update, Group Chair Roger McDowell said: "The
Services business has continued to be a key growth driver for Hargreaves, with
its strong revenue base providing the Group with a robust underpinning to
trading. The slowdown in activity at HRMS has been more pronounced than we had
previously anticipated, but has facilitated an increase in cash returned to
the Group. This, coupled with the impending buy out of the Group's defined
benefit pension scheme obligations at a much lower cost than previously
indicated, has allowed the Board to signal a substantial increase in the
full-year dividend. With further opportunities to return cash to our
shareholders on the horizon from the realisation of our renewables portfolio,
and additional growth opportunities, the Group is well-positioned to deliver
long term sustainable returns."

 

Notice of Interim Results

 

The Board expects to report its interim results for the six months ended 30
November 2023 on Wednesday 24 January 2024. Details of the analyst and
investor meetings which will accompany the results will be provided in due
course.

 

The Company considers that market expectations prior to the release of this
announcement for the year ending 31 May 2024 are revenues of £209.1m,
underlying PBT of £23.0m and underlying earnings per share of 62.8p.

 

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 Office

 Walbrook PR (Financial PR & IR)      Tel: 020 7933 8780 or 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)                Tel: 020 7496 3000

 Sandy Fraser

 

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, 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.

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