Preliminary results for the year ended 31 May 2013
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For Immediate Release |
24 September 2013 |
HARGREAVES SERVICES PLC
(the "Company" or the "Group" or "Hargreaves")
Preliminary results for the year ended 31 May 2013
Hargreaves Services plc (AIM: HSP), the UK's leading supplier of solid fuel and bulk material logistics, announces its preliminary results for the year ended 31 May 2013.
Highlights of the year
|
|
Year ended 31 May 2013 |
Restated Year ended 31 May 2012 |
Change % |
|
|
|
|
|
|
Continuing Revenue |
£843.3m |
£617.9m |
+36.5% |
|
Continuing Operating Profit |
£44.0m |
£48.9m |
-10.0% |
|
Continuing Underlying Operating Profit (1) |
£55.7m |
£53.4m |
+4.3% |
|
Continuing Profit Before Tax |
£43.1m |
£45.0m |
-4.2% |
|
Continuing Underlying Profit Before Tax (2) |
£52.2m |
£49.3m |
+5.9% |
|
Continuing Diluted EPS |
111.0p |
113.7p |
-2.4% |
|
Continuing Underlying Diluted EPS (2) |
134.6p |
125.0p |
+7.7% |
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Dividend (including proposed final dividend) |
20.5p |
17.8p |
+15.2% |
|
Net Debt (3) |
£77.9m |
£77.7m |
+0.3% |
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|
|
|
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· Strong performances from coal distribution business in the UK and from core material handling services business
· Coke trading operations remain exposed to significant steel sector volatility
· Underlying profit before tax from continuing operations increased by £2.9m from £49.3m to £52.2m
· Acquisition of surface mining assets of ATH Resources completed in May 2013 following successful £42m equity raise in April 2013
· Coal production underway at ATH sites and performing in line with plans
· Acquisition of assets from Scottish Coal completed post year end in July 2013, with steps underway to commence production at various sites
· Discontinued activities - Maltby closure and Belgium wind-down both progressing in line with expectations
· Net debt at year end broadly in line with expectations at £77.9m
· Recommended final dividend of 13.6p, an increase of 15.3% year on year
Commenting on the results, Chairman Tim Ross said:
"It has been both a challenging and rewarding year. Whilst the Group suffered setbacks at both Maltby and in Belgium, we have made significant strategic progress. Following a successful equity raise in April, the Group has accelerated the development of its surface mining business to become the key coal producer and distributor in the UK market."
(1) Continuing Underlying Operating Profit is stated excluding the amortisation of acquired intangibles and including share of profit in jointly controlled entities
(2) Continuing Underlying Profit Before Tax and EPS are stated excluding the amortisation of acquired intangibles
(3) Net debt comprises cash and cash equivalents, finance lease receivables, bank overdraft and other interest bearing loans and borrowings
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Hargreaves Services Gordon Banham, CEO Iain Cockburn, Finance Director
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0191 373 4485 |
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Buchanan Mark Court / Fiona Henson / Sophie Cowles
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0207 466 5000 |
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N+1 Singer Sandy Fraser / Nick Owen
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0845 213 1000 |
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Jefferies Hoare Govett Limited Sara Hale / Harry Nicholas |
0207 029 8000 |
Chairman's Statement
Results
The year ended 31 May 2013 was both challenging and rewarding for the Group. The closure of Maltby and the fraud in the Belgium business were both setbacks although they did not prevent the Group from making significant strategic progress. In contrast, the successful equity raise in April 2013 was well supported by our shareholders and other investors and allowed the Group to acquire surface mining assets from the former ATH Resources in May 2013 and from the former Scottish Resources Group in July 2013. The opportunity to develop the Hargreaves surface mining business has allowed the Group to take a significant strategic step forward in its UK business.
Underlying Profit Before Tax from Continuing Operations increased by £2.9m from £49.3m to £52.2m but the overall reported financial results show a net loss after the exceptional impact of the Maltby and Belgium losses of £49.6m. The increased Profit from Continuing Operations was underpinned by a strong performance from our UK coal distribution operations. In addition, the surface mining operations at Tower contributed significantly in the second half following the exceptionally wet weather during the first half of the year. It is reassuring to note that the strong performances at Tower and in our coal distribution business have continued into the current financial year. The core material handling operations in the Industrial Services Division grew again although profits for that segment were pulled down by significant shortfalls on two one-off biomass conversion contracts.The Transport Division and the Monckton coke operations also reported a solid year.
Underlying Diluted EPS from Continuing Operations increased by 7.7% from 125.0p to 134.6p. The overall loss per share, taking account of the exceptional impacts from the Discontinued Operations, was 166.7p per share, compared with Earnings per Share of 109.0p in the prior year.
Dividend
In view of the strong underlying performance from Continuing Operations the Board has confidence in recommending an increase of 15.3% in the final dividend from 11.8p to 13.6p. This will bring the dividend for the full year to 20.5p compared with 17.8p in the previous year, an overall increase of 15.2% for the year. The proposed final dividend will be paid on 12 December 2013 to all shareholders on the register at the close of business on 8 November 2013.
The Board believes that the Group's dividend cover remains conservative. The average dividend cover over the past three years has been set at between six and seven times. The closure of Maltby together with the expansion of the Group's surface mining activity reduces the capital intensity of the business and increases the stability and predictability of our operating cash flows. The Board has therefore set a target of increasing the dividend payout progressively over the next three years towards a dividend cover of around 4 times.
People
Our staff remain key to the business and once again I would like to thank them for their loyalty and hard work throughout a challenging year. The closure of Maltby was a difficult decision that we recognised would affect a large number of people both within and outside the Group. With the acquisition of assets from ATH we were pleased to be able to welcome over 200 new employees and we will be working hard to increase employment levels over the coming months as we seek to commence production and restoration activities at a number of other opencast sites.
Board
There were no changes to the Board during the year being reported. On 9 September, following the end of the year, Peter Gillatt resigned from his Non-Executive Director role on the Board and assumed a full time executive role as Managing Director of the Production Division. In this role Peter will run the Group's expanding surface mining operations. The search for a replacement Non-Executive Director is underway.
Outlook
Whilst there remain challenges ahead, particularly due to the uncertain economic climate and its knock-on effects on the major coal users in the power generation and steel sectors, we believe that the Group's resilience leaves it well positioned to deal with any further market volatility. The UK business, strengthened by the recent surface mining investments, provides a sound platform to look selectively at additional expansion opportunities. Recent trading in the UK has been encouraging and we remain confident of achieving expectations for further growth in the current financial year.
Tim Ross
Chairman
23 September 2013
Group Business Review
Key results
The results for the Group this year reflect significant further progress and changes in business mix. The Group reported revenues from continuing operations of £843.3m, an increase of £225.4m over the prior year. The reported loss after tax was £49.6m compared with a profit in the prior year of £30.8m. The loss this year arose due to the geological problems that led to the decision to close Maltby Colliery, combined with the fraud that led to the decision to close the operations in Belgium. The exceptional financial impact of these events offset an underlying profitable performance from the rest of the Group, which saw further growth across our operations. We have separated the results between those relating to Continuing Operations and those related to the Discontinued Operations of Maltby and Belgium. We comment on each of these in the Business and Operating review below. Before reviewing these performances, I will provide an update on the UK coal market and how developments and trends in this market are shaping our strategy for the Group.
Future for Coal in the UK
Based on Department of Energy & Climate Change ("DECC") statistics, the UK coal burn increased from 44m tonnes in the year ended 30 April 2011 to 61m tonnes in the year ended 30 April 2012. Coal continues to provide a significant portion of the electricity generated in the UK and contrary to the longer term trend, coal demand from power stations in the UK has been increasing recently, reflecting the cost effectiveness of coal compared with other energy sources such as gas.
We are often asked by investors for our view on future coal demand and although there are many views and opinions there are no reliable forecasts for future coal usage in the UK. There are however many obvious and well known factors which, over time, will drive an inevitable reduction in the amount of coal consumed in the UK. These include the following:
· A number of coal fired power stations have opted out of the Large Plant Combustion Directive ("LPCD") and are in the process of closing; all will be closed by the end of 2014. To put this into context, this affects some five power stations which in the year ended 30 April 2011 consumed only 5m tonnes (11%) of coal out of the total of 44m tonnes burnt in UK power stations in that year.
· For power stations that have implemented Flue Gas Desulphurisation technology to comply with the LPCD to permit operation beyond 2015, the next technology and investment hurdle for these remaining power stations is the implementation of technology to allow the nitrogen oxide emissions targets to be achieved. Stations have until 2020 to comply with this requirement. At this time, it is not clear which stations will undertake this investment and it is likely that many generators will be waiting to better understand the future energy landscape in the UK before making a commitment.
· The implementation of the carbon tax will penalise coal generation more than gas generation. The carbon tax will add significantly to the cost of coal consumed in power stations and will reduce the cost effectiveness of coal generation compared with generation from gas.
· The future price of coal relative to gas will also have an impact on the future demand for coal. Prices tend to be set by the international world markets and the future price of both coal and gas is uncertain. If the coal price including the cost of carbon taxes, rises relative to gas, generation load will shift to gas. If shale gas can be commercialised in the UK, or if US shale gas starts to export significant quantities at low cost, then this could indeed reduce the price of gas relative to coal and hence reduce demand for coal.
· The rate of implementation of renewable energy will also impact on the demand for energy from coal. Renewable generation is very expensive. Development is also lagging behind the DECC targets.
It is likely that many of these measures, particularly the carbon tax and the cost of renewable energy will have far reaching implications on the price of energy for both consumers and industry in the UK. Significant increases in that cost of generation may well place upward pressure on energy prices. Whist this may take some pressure off the generation industry it may also prompt future Governments to make policy changes which in turn could have significant implications for coal generation and the UK energy landscape more widely.
Our own view is that coal fired generation will remain an important element of the UK energy mix well into the second half of the 2020's and probably even beyond. We believe that forecasts of the rapid demise of coal usage in the UK are not well founded and depend on assumptions about the rate of additional new capacity being added, whether in renewable, gas or nuclear, that are simply unrealistic and will not occur.
Outside of electricity generation a number of markets influence the Group's activities. Coal demand from the steel sector is an increasingly important market for us as we commence the supply of meaningful quantities of coking coal and coal for PCI (pulverised coal injection). Demand from the domestic and commercial heating markets will undoubtedly decline over time, although the decline of these markets to date has been much slower than expected and may be further arrested if electricity prices rise. Demand for coal usage in other industrial processes, such as cement manufacture, is likely to continue and, importantly, will follow different economic cycles to those of electricity generation. Across these markets we see a continuing demand for coal for many years to come.
In summary, we believe that whilst overall demand in the UK is set to shrink over the coming years, the size of the coal market in the UK will be more than adequate to sustain our business for many years to come.
Strategic Priorities
Our strategy therefore remains unchanged. The production of indigenous coal fits our UK distribution model and offers significant synergies across the Group. This was a major driver of the Group's decision to acquire Maltby Colliery in 2007, and the recent investment in surface mining assets replaces Maltby as a source of indigenous coal. The transition from deep mining to surface mining delivers a significantly lower risk profile and lowers the capital intensity of the production operations. In the UK we aim to continue to be the leading independent importer and distributor of coal products to all markets requiring and using coal, and we will achieve that goal by reliably providing quality coal products at competitive prices. Our ability to source coals from international markets and serve a broad range of different coal markets differentiates us from other UK indigenous coal producers. The Group will continue to look for further expansion opportunities as consolidation in the market continues.
Whilst the UK continues to offer many attractions and much opportunity, we also remain committed to looking at opportunities to deploy our skills and competencies into international markets, where coal demand is forecast to increase for decades to come. In order to mitigate risks and optimise returns new markets are likely to be accessed initially on a service-led basis with capital deployed across a broader range of opportunities.
Commodity Prices
Commodity prices remain depressed. The current API2 coal price is approximately US$78, a reduction of around US$50 from the recent peak in 2011.
We have always adopted a business model where we attempt to eliminate or at least smooth the impact of changing commodity prices. In the Energy & Commodities business, where we buy and sell coal and coke, we will continue to minimise open positions in our trading activities through hedging or, more commonly, through the use of back-to-back purchase and sale contracts. This business model provides significant profit-protection when rapid or major price-changes are being experienced.
In the Production Division, with Maltby now closed, our key commodity price exposure to manage is in the new surface mining assets. Our strategy will be to sell firm production to our customers up to three years forward on a fixed price basis allowing us to hedge any key input cost. Where long term contracts are not available to protect the forward position we will use hedging instruments to ensure a fixed level of forward proceeds is secured. In contrast to deep mines, three years is usually sufficient to provide security and pay-back for the capital that is deployed into a new site, given that the life of a surface mine project is significantly shorter and the production plant can be readily transferred or sold.
As we move forward with surface mining we will ensure that any investment is underpinned by long term coal and fuel contracts. We will also ensure that we are optimally placed to bring on additional production streams. The Group is developing a broad and well managed development pipeline which will ensure that new incremental production can be brought on line quickly and flexibly. This creates a significant volume and profit upside opportunity should future coal prices rise, without exposing the Group to any downside risk should prices fall further.
Since the closure of Maltby, the only other material commodity exposure in the Group is at Monckton. Monckton sells most of its coke into niche markets such as ferro-alloy and soda ash production. Demand for Monckton coke has remained buoyant and continues to be strong, driven by the quality characteristics of the coke. We now manage this exposure by ensuring that coking coal input and coke output contracts are negotiated in tandem. Although this cannot guarantee a fixed margin, it is important to note that there continues to be a general correlation between the price of coking coal and coke itself. Historically a significant portion of Monckton's coke production has been sold on annual contracts. Current conditions in the coke markets are very poor with coke prices having fallen significantly during the last few weeks. Monckton currently benefits from a long term contract that will protect half of its output through to the end of 2015 but some customers are pressing for increased flexibility including shorter, quarterly contracts. Although this is undoubtedly a temporary feature, it does add risk to the normal management of margin as we approach the period of contract negotiations for calendar 2014 and we will continue to monitor prices very closely.
In contrast to Monckton, our coke trading activities in Europe are largely unaffected by movements in coke prices but instead are subject to greater sales volume volatility, upwards and downwards. Our coke trading activities largely serve the steel sector and trade a lot of blast furnace coke. The outlook for steel production in the UK and Europe in the short term remains uncertain.
Whilst the Group has made significant progress in reducing its volatility of earnings in its coal production, distribution and services businesses, the volatility in coke markets continues to present risk to the Group.
We are also cognisant that the difficult economic conditions are placing increasing pressure on many of our larger customers and counter-parties. We are particularly aware of counter-party and credit risks and continue to proactively manage these risks as best we can.
Health and Safety
The health and safety of employees, customers and the public are of the highest priority to the Board and management. We recognise the potentially hazardous nature of the work undertaken across all of our divisions and we are determined to ensure that we provide safe systems of work throughout our diverse range of operations.
I personally continue to take an active role as a Group health and safety champion, working alongside the health and safety team to drive high quality health and safety performance throughout the business, not just in terms of developing processes and systems, but in ensuring substance in terms of actions and culture to underpin the processes and systems.
The Group has health and safety management systems in place that are either internally or externally audited to the highest standard. We continue to manage health and safety at a divisional and business unit level, allowing the Group to identify trends and take account of the different operational environments in which we operate. Although we focus on safety at the business unit level, we have a Group health and safety manager to promote communication and coordination across the Group.
Health and safety statistics continue to be monitored at a divisional and business unit level, with regular main Board review, as well as pro-active health and safety strategies in place at each division. Areas identified where additional training or improved working practices would be beneficial are promptly addressed.
We are pleased to note that the accident rate, defined as the number of lost time accidents per 100,000 man hours worked, reduced by 31% in the year ended 31 May 2013 to 1.04 (year ended 31 May 2012: 1.5).
Strategic Outlook
The completion of the fundraising in April followed by the two acquisitions of Scottish surface mining assets further consolidated our position as the key coal producer and distributor in the UK market. The UK continues to be our core market and major profit generator. We are confident that our UK business model is robust and will continue to generate cash and profits even as coal burn reduces in the years to come. Our coal distribution business continues to be well positioned to add value and address the needs of niche markets effectively. We started the new financial year with coal production already underway in Scotland with the opportunity of commencing other mining and restoration projects.
As we enjoy the benefit of a strongly cash generative UK business, we will step up our efforts to identify opportunities to grow the business on both a UK and international basis, searching for opportunities where risk can be adequately managed and our services and skills can be deployed to create value.
Gordon Banham
Group Chief Executive
23 September 2013
Review of Operating Performance by Business Unit
Revenues from Continuing Operations for the full year increased by 36.5% from £617.9m to £843.3m, driven mainly by the Energy & Commodities Division which enjoyed a substantial increase in the volume of coal supplied to power stations and the steel sector. Underlying Group Operating profit from continuing operations increased by 4.3% from £53.4m to £55.7m. Reported continuing operating profit decreased from £48.9m to £44.0m reflecting the impacts of the one off impairment of goodwill and intangibles of £4.1m during the year. Underlying Group operating margin decreased from 8.6% to 6.6%, mainly reflecting a changing product mix in the Energy & Commodities Division, with a significant increase in low margin sales to power stations and the steel sector.
|
|
Production |
Energy & Commodities |
Transport |
Industrial Services |
Total |
|
Segment Continuing Operating profit/(loss) |
13,179 |
27,456 |
3,814 |
(477) |
43,972 |
|
Intangible amortisation/impairment |
131 |
4,152 |
197 |
3,505 |
7,985 |
|
Share of profit in jointly controlled entities (net of tax) |
2,364 |
209 |
- |
- |
2,573 |
|
Share of tax in jointly controlled entities |
1,071 |
60 |
- |
- |
1,131 |
|
Underlying Continuing Operating Profit |
16,745 |
31,877 |
4,011 |
3,028 |
55,661 |
|
Net financing costs - Continuing Operations |
(374) |
(1,550) |
(694) |
(864) |
(3,482) |
|
Underlying Continuing Profit before Tax |
16,371 |
30,327 |
3,317 |
2,164 |
52,179 |
|
|
Production |
Energy & Commodities |
Transport |
Industrial Services |
Total |
|
Segment Continuing Operating profit/(loss) |
16,597 |
25,921 |
3,674 |
2,755 |
48,947 |
|
Intangible amortisation/impairment |
- |
2,429 |
393 |
1,570 |
4,392 |
|
Share of profit in jointly controlled entities (net of tax) |
76 |
23 |
- |
- |
99 |
|
Underlying Continuing Operating Profit |
16,673 |
28,373 |
4,067 |
4,325 |
53,438 |
|
Net financing costs - Continuing Operations |
(500) |
(2,315) |
(749) |
(530) |
(4,094) |
|
Underlying Continuing Profit before Tax |
16,173 |
26,058 |
3,318 |
3,795 |
49,344 |
Energy & Commodities Division
Our Energy & Commodities Division encompasses the Group's solid fuel trading activities. These split into two broad categories. The first, Bulk Coal Supply, includes the supply of coal into power stations and steel works. This includes the lower margin markets for thermal coal, coking coal and coal supplied for the use of injection into the blast furnace PCI. The second, Speciality Coal, covers the supply of sized coals, low ash coals and coke products. These more specialised products, such as sized coals for the domestic and commercial heating markets, and industrial coals for customers in the cement and ferro-alloy sectors, continue to offer greater opportunity to add value to the product and hence generate higher margins.
The Energy & Commodities Division had another very strong year. Gross revenues increased by £173.0m from £412.0m to £585.0m, reflecting increased Bulk Coal sales volumes to power stations and steel works. Underlying operating profit increased by £3.5m from £28.4m to £31.9m driven largely by a strong performance in the UK where operating profit increased by £4.4m from £20.0m to £24.4m due to increased activity levels in the bulk coal markets. Following a difficult year in the coke markets, underlying operating profit attributable to our German operation reduced from £7.5m to £6.3m. Despite the headline reduction this represents a very strong performance given the backdrop of low volumes in the market.
The average profit per tonne and margin is influenced heavily by the product mix, most notably the difference between the lower margin sales of coal sold to power stations and the higher margin product sold into speciality markets. An increase in the proportion of lower margin power station coal sales relative to the higher margin speciality product saw overall operating profit per tonne sold decrease from £7.32 to £5.17 and the average divisional profit margin reduce from 6.9% to 5.4%.
Profit per tonne in the bulk coal market fell from £2.64 per tonne to £2.35 per tonne. This reduction was driven by the addition of lower margin coking coal sales into the steel sector. The average profit per tonne in the core power station markets remained fairly steady. . Average profit per tonne in the UK specialty markets increased slightly from £20.53 to £21.68. Profit per tonne in the European speciality markets reduced from £14.68 to £9.77 reflecting a challenging year in the coke markets in our German operation.
The table below provides a breakdown on volumes and margins within the Energy & Commodities Division. The comparatives in the table have been restated to remove the discontinued operations in Belgium.
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2013
|
UK Bulk |
UK Speciality |
UK Total |
European Speciality |
Total |
|
Tonnes Sold (000's) |
4,679 |
618 |
5,297 |
645 |
5,942 |
|
Operating profit per tonne (£) |
2.35 |
21.68 |
4.61 |
9.77 |
5.17 |
|
Operating profit from trading (£m) |
11.0 |
13.4 |
24.4 |
6.3 |
30.7 |
|
JCE & non-trading (£m) |
|
|
|
|
1.2 |
|
Total Segment Underlying Operating Profit (£m) |
|
|
|
|
31.9 |
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
Tonnes Sold (000's) |
2,609 |
638 |
3,247 |
511 |
3,758 |
|
Operating profit per tonne (£) |
2.64 |
20.53 |
6.16 |
14.68 |
7.32 |
|
Operating profit from trading (£m) |
6.9 |
13.1 |
20.0 |
7.5 |
27.5 |
|
JCE & non-trading (£m) |
|
|
|
|
0.9 |
|
Total Segment Underlying Operating Profit (£m) |
|
|
|
|
28.4 |
Note: Operating margin per tonne included profits on handling third-party product volumes through port operations.
UK - Bulk Coal Supply (Power Stations and Steel)
The Energy & Commodities business exceeded our targets for the last year due to high demand for coal from the UK power stations. This demand was driven by strong base load generation as generators took advantage of the price differential that coal enjoyed over gas during the year. It is pleasing to note that the high levels of demand have continued into the current financial year. The supply of low grade coals, including pond fines, continues to be an important driver for increased power station demands. The ability of the Group to reliably and efficiently blend such coals into the coal flows, either at the importation port or at the power station has been a key driver of this demand. Although only one million tonnes of pond fines remained at Maltby when the decision was taken to close the mine, the Group has since secured rights to a number of other sites including the Prince of Wales Colliery site from UK Coal. The Group estimates it has secured rights to approximately 4 million tonnes of pond fines in aggregate.
UK - Specialised Coal (Industrial & Domestic)
The Group was disappointed, but not surprised, when UK Coal announced its insolvency and re-structuring. This terminated the Group's supply contract with UK Coal, under which UK Coal had been contractually bound to supply around 270,000 tonnes of coal for the industrial and domestic markets. During the last 18 months UK Coal had been struggling to meet its obligations and the Group has taken measures to source sized coal from the international markets and more recently from other sources, including Hatfield Colliery. The acquisition of assets in Scotland should also provide an opportunity to diversify the Group's sources of supply and the Group will work hard to increase the level of potential supply from indigenous and international markets over the coming years.
As a result of the failure of UK Coal, we have impaired the remaining £1.6m of acquired intangible asset relating to the UK Coal supply agreement that was operating when the Group acquired UK Coal's 50% stake in Coal4Energy Limited in January 2009. The intangible asset associated with that contract was being amortised over the original duration of the contract which was due to run from May 2009 to May 2014.
Europe
Separate from our discontinued operations in Belgium, the German business performed well last year in very difficult coke markets. Demand from traditional customers in the steel sector was very low as many European steel makers struggled to balance their own coke production with low levels of steel production. The coke trading business benefited from a number of significant coke purchases from SSI at Redcar Steel works. Growing trading interest in the ferro-alloy markets provides an additional opportunity for the current financial year.
Elsewhere in Europe, the Group continued to develop its joint venture with Mir Trade AG, a large Russian coal producer, to build a power station supply operation in Europe. Thermal coal sales in the financial year to 31 May 2013 increased to 320k tonnes. This business continues to grow steadily and the Group will continue to support its development. Although the profit contribution remains small at £0.3m, if greater scale can be achieved, the opportunity to drive additional profits will arise.
Production Division
The Continuing Production Division results for the year ended 31 May 2013 encompassed the operations at Monckton, our own surface mining operations and our joint venture investment at Tower. The results also include the smaller non-core businesses of MR&R and Rocpower, neither of which were material contributors to the Division's results. Gross revenues from the Division's continuing operations increased by £13.5m from £89.7m to £103.2m while underlying continuing operating profit remained at £16.7m.
As anticipated, the Division delivered a very strong second half performance aided by a steady production rate at Tower Colliery following the poor weather encountered in the first half.
Monckton
The closure of Maltby necessitated sourcing coking coal for Monckton from international markets and we were able to source coal that was very similar to that of Maltby. Our subsequent testing and production has shown that the coke produced from this coal has very similar properties to that produced historically from Maltby coal and we believe that there will continue to be sustained demand for this type of coke.
Production at Monckton remained steady whilst revenues decreased by £3.3m from £56.4m to £53.1m. Coke sales fell by £4.5m from £54.1m to £49.6m, whilst by-product income fell by £0.5m to £4.1m through a combination of lower volumes and lower power prices.
Annual coke volumes sold fell by 25k tonnes from 261k tonnes to 236k tonnes in the year, due to a combination of slowing coke demand coupled with the effect of de-stocking experienced in the year ended 31 May 2012. Included within annual volumes were 51k tonnes of third party manufactured coke, sold in addition to Monckton's own manufactured product.
Surface Mining
The last financial year was significant for the Surface Mining business. In addition to completing the first full year of production at our joint venture operation at Tower in South Wales, the Group secured an equity fund raising in April of £42.3m (£40.7m after issue costs) to allow the Group to pursue the acquisition of assets from the liquidators of Aardvark (TMC) Limited (the main operating subsidiary of the former ATH Resources PLC) and Scottish Coal Company Limited (the main operating subsidiary of Scottish Resources Group Limited). The opportunities presented by these acquisitions are very exciting and will provide the Group the springboard to rapidly develop its surface mining operation, becoming the largest surface mining coal producer in the UK.
Acquisition of Assets from Aardvark TMC Limited
On 16 May 2013, Hargreaves acquired a number of assets related to the business of Aardvark (TMC) Limited ("Aardvark") for £10.4m. The acquisition process commenced with the purchase of the secured debt from Better Capital in March 2013 following extensive discussions with many of the key stakeholders of the former ATH group. We worked for two months with the management of Aardvark and other stakeholders to ensure continuity of operations following the liquidation of Aardvark.
As part of the transaction, ATH's interests in two active mining sites, Netherton and Duncanziemere were hived down into separate new companies (the "Hivecos") which will continue to be owned by Aardvark. The objective of these Hivecos will be to resolve outstanding restoration liabilities. Hargreaves has and continues to actively assist with the process of seeking an optimal solution in light of the level of funding available through continued mining activity at the sites and the existing restoration bonds.
Going forward Hargreaves has an exclusive option to purchase the shares in the Hivecos for a nominal sum. As and when the outstanding restoration issues on each site are resolved on commercially acceptable terms, Hargreaves will acquire the relevant Hiveco from Aardvark and fully integrate it into the Group. This will only happen after all planning permissions are in place and would be expected to take approximately between 3 and 12 months. In this interim period, it is expected that Hargreaves will continue to provide mining, coal marketing and restoration services to ensure the sites are held safely, restoration activities are commenced, and jobs are preserved.
The successful acquisition has secured over 200 jobs at Netherton and Duncanziemere, protecting employment in East Ayrshire and we are hopeful that we will soon be able to recruit additional personnel as we start operations at other sites. We expect to produce over 1 million tonnes of surface coal from the ATH sites during this financial year.
The Surface Mining business is working with various stakeholders to provide restoration activities at other sites including Glenmuckloch in Dumfries and Galloway and we are optimistic that both mining and restoration projects at other sites will be commenced before the end of this financial year.
As part of the transaction Hargreaves assisted with the formation of the Scottish Mines Restoration Trust ("SMRT"). This trust has been established as an independent charity to help address outstanding legacy restoration issues. Following the acquisition of ATH, Hargreaves made a donation to the SMRT of £1.1m.
Post Balance Sheet Event - Acquisition of Assets from Scottish Coal Company Limited
Following an intensive period of due diligence we announced on 5 July 2013 the completion of a transaction to acquire certain assets from the joint liquidators of Scottish Coal Company Limited ("Scottish Coal") for £8.4m.
The transaction was complex and initially involved the acquisition of a property portfolio of approximately 30,000 acres together with unencumbered plant and equipment. The property interests include Scottish Coal's rights and interests in various wind farm projects that were being progressed through design and planning. Scottish Coal will share in any near-term profits realised on the wind farms.
Hargreaves intends to progress the wind farm projects, together with one specific development property, as a joint venture with the SMRT, to provide a future potential income stream to the Trust. The Group does not currently intend to take these projects beyond the realisation of the design and planning stages.
As part of the transaction, Scottish Coal's interests in five former active mining sites, most notably at Broken Cross and House of Water were hived down into separate new companies (the "Hivecos") which will continue to be owned by Scottish Coal. This structure was similar to that used for the Aardvark transaction. The key difference to the Aardvark transaction was that operations at all sites ceased when Scottish Coal was liquidated. Like the Aardvark Hiveco's, the objective of these Hivecos will be to resolve outstanding restoration liabilities. Hargreaves is actively assisting with the process of seeking an optimal solution in light of the level of funding available through continued mining activity at the sites and the existing restoration bonds.
It is our intention to resume operations to support revised mining and restoration plans as quickly as possible and Hargreaves expects to bring approximately 1 million tonnes of production capacity on line in the current financial year. Hargreaves will acquire the necessary plant and equipment to support the target of one million tonnes of production and would expect to invest between £12m and £15m of capital expenditure. Significant efforts are underway to achieve this goal.
As with the Aardvark transaction, Hargreaves has an exclusive option to purchase the shares in the Hivecos for a nominal sum. As and when the outstanding restoration issues on each site are resolved on commercially acceptable terms, Hargreaves will acquire the relevant Hiveco from Scottish Coal and fully integrate it into the Group. This will only happen after all planning permissions are in place and would be expected to take approximately 12 months. In this interim period, it is expected that Hargreaves will continue to provide mining, coal marketing and restoration services to ensure the sites are held safely, restoration activities are commenced, and workers are re-employed.
It is inevitable given the rapid growth of the business that we would reach a stage where our acquisitions exceeded the technical thresholds laid down in the Enterprise Act 2002 and would give rise to a dialogue with the Office of Fair Trading ("OFT"). In anticipation of this next stage in our growth and following this transaction, Hargreaves voluntarily approached the OFT to commence a dialogue on competition issues relating to any further consolidation opportunities that may arise in the coal sector in the UK. The Group will continue to work closely with the OFT to ensure there are no competition concerns in the UK coal market during this period of consolidation and uncertainty.
Tower Joint Venture
The Tower project contributed £8.3m of underlying operating profit to the Production Division during the year through a combination of our 35% share of TRL's profit, profit made by Hargreaves Surface Mining and management charges.
This was the first full year of production after operations at the site commenced just before the start of the last financial year. The first six months of operations were significantly hampered by exceptional rainfall. The weather improved in the second half and higher production levels were achieved. Total sales of 574k tonnes were split 179k tonnes in the first half and 395k tonnes in the second half of the year.
Strong production levels have been maintained since the end of the year. We remain confident that the site will deliver coal in the average ratio that was planned and expected. Off-take from two steel plants that were interested in buying PCI grade coal from Tower have been delayed. As a result we will continue to focus on production of coal to support the RWE contract.
Other Surface Mining
Outside of the Tower project we were also pleased to announce the receipt of planning permission for our first wholly owned small surface mine. The site at Well Hill in Northumberland, our first mine in England, is expected to produce 130k tonnes and as anticipated and announced at the interim results we expect coaling to commence within the next month. We remain on track to fulfil our previous target of getting an additional two sites into the planning process before the end of this financial year.
Surface Mining Reserves
Following the activity of the last 12 months the Group has significantly progressed its pipeline of potential mining sites. The sites targeted in the UK will continue to be smaller sites with a typical mining life of between two and four years. After careful consideration we have decided that the most informative way to provide guidance on reserves is to focus on "Proven Reserves."
Proven Reserves are defined as reserves where, in the opinion of management, sufficient drilling has been undertaken to form an opinion with reasonable certainty on the quality and quantity of coal that would be available from that site. Before capital is committed to a site, Hargreaves' internal assessment of coal reserves, coal quality, overburden ratios and mining plans will be independently reviewed and confirmed by independent external consultants.
As planning permission is a key process and control, Proven Reserves will be analysed into three categories
(1) "With Planning Permission" are reserves where all the necessary planning permissions are in place to operate the site
(2) "In Planning Process" are reserves where planning applications have been submitted
(3) "Pre-planning" are reserves where land rights have been secured and the process for submitting a planning preparation is underway. This category would most typically include sites where the typical 12 month Environmental Impact Assessment is underway.
We have elected not to report Probable Reserves, even where property rights have been secured, as they are deemed to be too early stage having still to undergo both proving and planning. We have not elected to adopt JORC reporting regime on the grounds of cost and the greater flexibility to present reserves in the way we consider is most informative to the reader in terms of understanding the development of the pipeline.
As the surface mining business grows and evolves we will review the presentation of information on a regular basis.
Proven Reserves (million tonnes)
|
|
With Planning Permission |
In Planning Process |
Pre- Planning |
Total |
|
|
|
|
|
|
|
Joint Venture |
5.8 |
|
|
5.8 |
|
Former ATH Operating Sites |
1.5 |
|
|
1.5 |
|
Former Scottish Coal Operating Sites |
|
3.0 |
|
3.0 |
|
Other Operating Sites |
0.1 |
|
|
0.1 |
|
Other Sites |
|
1.8 |
12.0 |
13.8 |
|
|
|
|
|
|
|
Total |
7.4 |
4.8 |
12.0 |
24.2 |
Of the 24.1 million tonnes of proven reserves, 0.1 million tonnes are at Hargreaves owned sites.
Other Continuing Activities
The Group continues to provide management services and support to Hatfield Colliery Limited from Maltby Colliery Limited. In light of recent production challenges at Hatfield, Hargreaves has elected to waive management fees at this time. The coal produced by Hatfield continues to be marketed by the Energy & Commodities Division. The ongoing commercial arrangement is currently being reviewed as operations at Maltby are wound down.
Following the landslip in February 2013, the rail link at Hatfield Colliery re-opened in July 2013. Network Rail has indicated that it intends to bring a claim against, among others, Maltby Colliery Limited and Hargreaves Services plc. However, no claim has been issued and it is therefore unclear as to the basis on which a claim may be brought by Network Rail and the remedy which may be sought. It is intended that any claim will be vigorously defended by both Maltby Colliery Limited and Hargreaves Services plc, and we are currently working with our insurers and solicitors. In the circumstances, the Board does not feel that any provision for a claim or costs is necessary based on the facts available at this time.
Industrial Services Division
Revenues increased by £68.6m from £80.7m to £149.3m. This significant increase in revenue was mainly due to two large biomass conversion projects undertaken during the last financial year. These, together with other non-recurring contracts and projects generated an additional £37.1m of revenue.
The core material handling operations enjoyed another year of growth that saw revenues increase from £64.7m to £96.2m. Operating profits for the core material handling business increased from £3.6m to £5.0m. The revenue increase in the core business benefitted from a full year of revenues from the contracts that were won in the preceding year in the steel sector. In the steel sector, the division is in the process of tendering a number of other significant contracts. The Division has continued to perform well in the power generation sector, although we have seen cost and competitive pressures rising in the UK power generation market. We continue to be encouraged by interest from overseas operators and the Division is working on a number of tenders in overseas countries. We are pleased to note that the division won its first maintenance contracts in Hong Kong last year with China Light and Power and is awaiting the results of a major tender to outsource core material handling services.
This strong performance from the core Industrial Services business was adversely impacted by a poor result on the biomass conversion projects, offset by contributions from other non-recurring contracts. This, along with a disappointing performance in our engineering services business where some restructuring costs have been incurred, reduced the profitability of the division by £2.7m resulting in a fall in overall underlying divisional operating profit from £4.3m to £3.0m.
We are pleased to note that one of the two biomass conversion projects has now been completed. The second major project is ongoing and is expected to complete in the next quarter. These contracts have placed significant pressures on our engineering services business and whilst they have been problematic and loss making, we have remained committed to delivering a quality solution. We have reviewed the lessons learnt on these projects and decided before the end of the year not to pursue further contracts of this nature, resulting in impairment to goodwill of £2.5m. Accordingly we have scaled back our engineering services business unit to focus on small scale projects undertaken in support of the core material handling business. We would expect this decision to reduce the future volatility of earnings in the division.
Transport Division
Overall the Transport Division performed well last year. The Transport Division's gross revenues increased by £5.4m from £77.3m to £82.7m reflecting a strong year from the Bulk fleet. Underlying operating profit reduced by £0.1m to £4.0m (2012: £4.1m). The Bulk fleet exceeded our internal expectations having benefitted from higher than normal coal shipments as power stations increased their coal burn and rebuilt coal stocks. The Tanker fleet had a quieter year following the loss of the Petroplus contract. By the end of the year the Tanker fleet had successfully re-positioned itself and we would expect Tankers to deliver a stronger performance in this financial year.
Discontinued Operations
Discontinued operations incurred a loss of £81.8m net of tax during the year. This overall result reflects a loss of £59.8m in Maltby and a loss of £22m in Belgium, including both the exceptional write off and the trading loss.
Maltby
Following consultation with employees and trade union representatives, the decision to proceed with the mothballing of Maltby colliery on health and safety, geological and financial grounds was announced on 17 December 2012. The timing of the decision to mothball the mine means that the results of the underground operations at Maltby have been classified within discontinued operations in the current and prior year.
The mothballing process has progressed well with a reported loss (including closure costs) of £59.8m net of tax incurred in the year ended 31 May 2013 were in line with plan. These costs included the operating loss to the point of decision to mothball the mine, redundancy costs, closure and settlement costs to the end of the year, and non cash write offs relating to plant and equipment, development costs and other related assets.
The sale of the methane assets to Alkane Energy, announced on 22 May 2013, allowed the Group to achieve its target asset realisation for the year ended 31 May 2013. Hargreaves received an initial payment of £5.5m in cash in May 2013 and this will be followed during the year ending 31 May 2014 by a further £2m payable six months after the mine shafts have been filled and capped as part of Maltby's planned closure and restoration programme.
The process to sell the remainder of the plant and equipment is ongoing, and the closure and restoration programme remains on track to be completed during the current financial year. At this stage we have not made any changes to our estimates of the amounts recoverable from the sale of equipment. We do however note that the mining equipment markets remain subdued.
Overground operations at Maltby continue to trade and surface coal fines remaining amount to approximately one million tonnes and the harvesting and processing of these reserves will continue. Further, Maltby will continue to provide mining management services to Hatfield Colliery Limited.
The loss of jobs at Maltby is very regrettable. The Group, management and unions worked together closely to minimise the inevitable socio-economic impacts. In this regard, great efforts continue to be made to find alternative jobs for as many of the workforce as possible.
Belgium
The fraud in our Belgium business, which was set up as a joint venture in 2008, was an extremely disappointing development. Following the work that has been done we remain confident that we have accurately estimated the direct financial impact of the fraud. The net loss is reported at £17.3m net of tax before any potential recovery from those involved in perpetrating the fraud.
A detailed review of stock quantities and qualities was completed to assess the true value of the book stock and a significant misstatement in the value of the stock was identified. We also reviewed all other balance sheet values and identified those that were also fraudulently reported. Finally we reviewed the contract position and identified the quantity and value of coal that needed to be purchased to allow us to complete the delivery of valid and genuine customer contracts. This provided us with a high degree of confidence in our estimate of the impact.
As previously stated, significant detailed work has been ongoing to ensure all necessary and appropriate steps are undertaken to achieve the maximum possible recovery.
We have also previously stated that we are confident that no such issues exist in other parts of the Group. To provide additional confidence, PricewaterhouseCoopers were engaged to carry out a detailed forensic investigation into certain balance sheet items in the German business. This forensic investigation identified no issues or concerns.
The Belgian business has been closed before the year end and consequently, in addition to the exceptional write off relating to the fraud, the trading loss of £4.7m in the year has also been included within the discontinued operations result.
Iain Cockburn
Group Finance Director
Gordon Banham
Group Chief Executive
23 September 2013
Financial review
Results Overview
Revenue from continuing operations for the year ended 31 May 2013 increased by 36.5% from £617.9m to £843.3m. Underlying operating profit from continuing operations increased by 4.3% from £53.4m to £55.7m which generated an increase in underlying profit before taxation of £2.9m from £49.3m to £52.2m. Reported profit before taxation decreased from £45.0m to £43.1m generating continuing diluted earnings per share of 111.0p (2012: 113.7p).
Discontinued operations incurred a loss of £81.8m net of tax during the year, resulting in an overall loss for the year of £49.6m (2012: £30.8m profit).
Revenue
Revenue for the year ended 31 May 2013 totalled £843.3m (2012: £617.9m), an increase of 36.5%. The Energy and Commodities Division revenue grew by 42.0% from £412.0m to £585.0m and was the key driver behind the growth in Group revenue, reflecting excellent power station demand and volumes. There was also a significant increase in revenue in our Industrial Services division from £80.7m to £149.3m; growth in our core material handling business generated £31.5m of this increase with the balance generated largely by the two biomass conversion projects undertaken during the year.
Operating Profit
The Group reported a decrease in operating profit from £48.9m to £44.0m, largely due to the one-off impairment of goodwill and intangibles of £4.1m during the year relating to the Coal4Energy business within our Energy and Commodities division and the downsizing of AJS, our Engineering Services business within the Industrial Services division.
Pleasingly, the Group reported an improvement in underlying operating profit from £53.4m to £55.7m, a 4.3% increase year on year. This result reflects the strength of the underlying business. The Production division remains strong, performing in line with expectations. The Energy and Commodities division, exceeded our expectations, reflecting an excellent year in the UK coal business where record volumes were achieved.
Interest
Net financing costs on continuing operations incurred during the year totalled £3.5m compared with £4.1m for the previous year. Higher net debt levels due to trading opportunities were offset by interest income from jointly controlled entities of £0.8m.
Taxation
The UK mainstream corporation tax rate reduced from 24% to 23% in April 2013 giving an average mainstream rate of 23.83%. The effective rate of taxation on continuing operations for the Group for the year ended 31 May 2013 was 27.3% (2012: 27.5%) with the higher rate on profit in our European business combined with the non-deductible nature of the goodwill impairments being the key reasons for the lower reduction versus the drop in mainstream UK Corporation tax rate.
Dividend
The Board has proposed a final dividend of 13.6 pence (2012: 11.8 pence) bringing the dividend for the full year to 20.5 pence (2012: 17.8 pence), an increase of 15.2% in the total dividend for the year. The proposed dividend is covered 6.6 times by underlying diluted earnings (2012: 7.0 times).
Pension Liability
Both Monckton and Maltby continue to operate unfunded concessionary fuel schemes and Maltby continues to operate its two defined benefit pension schemes. The combined liability of all the schemes has decreased over the year from £6.0m to £3.6m due to a net actuarial gain of £0.7m and deficit contributions of £1.7m during the year. There is a curtailment event as a result of the closure at Maltby but this has not resulted in a curtailment gain or charge as the rate of salary increase is equal to inflation and there are not a significant number of early retirements.
Earnings Per Share
Continuing basic earnings per share for the year were 112.5 pence (2012: 116.7 pence) and continuing diluted earnings per share were 111.0 pence (2012: 113.7 pence). Underlying diluted earnings per share, after adding back amortisation and the one-off impairment of acquired intangibles and goodwill, increased by 7.7% from 125.0 pence to 134.6 pence.
Discontinued Operations
The Group's discontinued operations made a loss of £81.8m after tax during the year. These losses relate to events at Maltby and in Belgium and the associated results have been reclassified as Discontinued in the current and prior year. In addition, certain related assets have been reclassified in the balance sheet as 'assets held for resale'.
Following the discovery of a fraud in our Belgium subsidiary in early December 2012, a post tax exceptional charge of £17.3m was recorded during the year. This charge relates to the write off of numerous balance sheet items including inventory and receivables. Whilst the overstatement appears to have arisen from the inception of the business in 2008, due to the intricacies of the fraud and the lack of documentation for many of these transactions, it is not possible to allocate the write off to specific accounting periods with any precision and it has therefore been accounted for in full in the current year.
In addition to the above exceptional write off, the trading result of Belgium, an operating loss of £4.7m, was classified as a discontinued operation during the year.
Also within Discontinued Operations is the impact of the mothballing of the underground operations at Maltby colliery during December 2012. The post tax loss during the year was £59.8m, in line with previous guidance, including the operating loss up to the point of decision to mothball the mine, redundancy costs, closure costs and non-cash write offs relating to plant and equipment, development costs and other related assets.
Operating Cash Flow
Net cash flow from continuing operating activities generated a cash inflow of £21.2m during the year, an increase of £2.3m on the previous year. This was driven by a strong continuing profit during the year offset by investment in working capital.
Working capital requirements consumed an additional £26.5m during the year. Taking into account the write offs in Belgium and at Maltby, inventory levels in the continuing business increased by £23.2m during the year. This increase in inventory was driven by significant purchases of coke towards the end of the financial year for sale in the first half of the current financial year. We also saw the UK coal business unwind its forward purchased coal, as anticipated at the interim results, which offset the overall increase. Group inventory days (measured against forward purchases) reduced by 21 days from 98.0 as at 31 May 2012 to 77.0 as at 31 May 2013, reflecting the overall net reduction in total Group inventory balances due to the significant write offs at Maltby and in Belgium.
Trade and other receivables increased by £34.3m during the year in line with the significant growth in activity in the Group. Group debtor days reduced by 5 days from 27.0 days to 22.0 days continuing to reflect the efficient cash cycle of the Energy and Commodities division, the most significant contributor to the growth. In addition, amounts advanced to the Tower joint venture increased by £0.7m from £22.4m at 31 May 2012 to £23.1m at 31 May 2013.
An increase in trade and other payables of £31.0m also reflects the growth in the business, and in particular the E&C business, as mentioned above. Resultant Group creditor days reduced by 19 days from 37.0 days to 18 days in line with the working capital cycle in the Energy and Commodities division.
After interest payments of £2.7m and income tax payments in the year of £9.9m, resultant net cash from continuing operating activities during the year was £21.2m compared to £19.0m in the previous year.
The discontinued operations at Maltby and in Belgium resulted in a net cash outflow from operating activities of £45.8m during the year. At Maltby, the cash outflow was driven by the significant operating loss and cash outflow up to the point of the decision to mothball the mine, and also the subsequent closure, settlement and redundancy costs following that decision. The write offs relating to the plant and equipment, development costs and other related assets at Maltby were non-cash. In Belgium, whilst the exceptional write off was non-cash, the funding of the operating loss resulted in a further cash outflow.
Combining continuing and discontinued operating activities resulted in an overall net cash outflow from operating activities of £24.6m for the Group during the year.
Capital Expenditure
Total capital expenditure for the year was £16.7m (2012: £33.2m) including £6.2m relating to discontinued operations, a significant reduction on the prior year, reflecting the mothballing of Maltby during the year. Of the capital expenditure, £8.2m was financed through finance leases.
Following the mothballing of Maltby, the rebased continuing depreciation charge for the year was £8.3m, a significant reduction on the prior year total of £20.6m (which included £12.9m relating to the now discontinued activities).
Taking into account the capital expenditure at Maltby during the year, net cash from investing activities in discontinued operations of £4.2m was generated. This was largely achieved on the sale by Maltby of certain coal mine methane assets to Alkane Energy plc in May 2013 for £5.5m. This was an initial payment and a further £2.0m is payable six months after the mine shafts have been filled and capped as part of Maltby's planned closure and restoration programme. It is anticipated that these tasks will be completed during the year ending 31 May 2014.
Financing Activities
Net cash inflow from financing activities in continuing operations was £37.5m, an increase of £15.4m from the £22.1m reported in the prior year.
During the year, the Group utilised an additional £10m of its banking facilities and made payments of £3.8m against finance lease liabilities. Dividend payments made during the year amounted to £5.4m.
In April 2013, the Group completed a successful fund raising in the amount of £40.7m, net of £1.6m of issue costs resulting in the issue of 5.46m new shares.
Net cash from financing activities in discontinued operations resulted in a cash outflow of £5.4m (2012: £8.2m) relating to the repayment of finance lease liabilities during the year.
Net Debt
Group net debt, comprising cash and cash equivalents, bank overdraft and other interest-bearing loans and borrowings was £77.9m at 31 May 2013, an increase of £0.2m from the £77.7m reported at 31 May 2012. Net debt as a ratio of net assets of the Group at 31 May 2013 was 66% compared to 57% at 31 May 2012.
Borrowings and Facilities
During the year, the Group was financed by a mixture of cash flows from operations, trade credit, short-term borrowings, longer-term borrowings and finance leases. Operating leases are used in conjunction with asset financing to balance the flexibility afforded by asset ownership and the efficient use of capital.
The Group continues to operate comfortably within its banking covenants. The key covenants on the revolving credit facility are interest cover and leverage, measured as a ratio of net debt to EBITDA. As at 31 May 2013 interest cover was 12.6 times, comfortably above the covenant minimum of 4 times and leverage was 1.5 times, comfortably below the maximum 2.5 times permitted.
The European business continues to operate on a facility of £55m (€65m) from Commerzbank. At the end of the year the net debt drawn on this facility was £33.7m.
Capital Management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern, whilst maximising the return to shareholders. The capital structure of the Group consists of debt, which includes borrowings, cash and cash equivalents, and equity attributable to equity holders of the parent, comprising capital, reserves and retained earnings.
The capital structure is reviewed regularly by the Group's Board of Directors and the Group's policy is to maintain gearing at levels appropriate to the business. The Board principally reviews gearing determined as a proportion of debt to earnings before interest, tax and depreciation. The Board also takes consideration of gearing determined as the proportion of net debt to total capital. It should be noted that the Board reviews gearing taking careful account of the working capital needs and flows of the business. In the trading businesses, where working capital cycles are regular, predictable and generally less than 90 days, the Board is comfortable to maintain higher levels of debt and gearing as measured against EBITDA.
Summary of Net Debt
|
|
2013 £000 |
2012 £000 |
|
Cash and cash equivalents |
(61,435) |
(45,852) |
|
Bank overdraft |
42,476 |
31,215 |
|
Revolving credit facility |
83,632 |
73,076 |
|
Finance lease liabilities |
15,500 |
16,398 |
|
Promissory note facility |
- |
5,025 |
|
Hire purchase receivable |
(2,276) |
(2,192) |
|
|
77,897 |
77,670 |
Going Concern
The Group has considerable financial resources together with long-term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
Iain Cockburn
Group Finance Director
23 September 2013
Consolidated Statement of Comprehensive Income
for year ended 31 May 2013
|
Continuing activities |
Note |
|
Restated |
|
Revenue |
2 |
843,298 |
617,924 |
|
Cost of sales |
|
(756,930) |
(533,974) |
|
Gross profit |
|
86,368 |
83,950 |
|
Other operating income |
|
355 |
723 |
|
Administrative expenses - Impairment of goodwill and intangible assets |
|
(4,131) |
- |
|
Other administrative expenses |
|
(38,620) |
(35,726) |
|
Operating profit |
|
43,972 |
48,947 |
|
Financial income |
|
831 |
660 |
|
Financial expenses |
|
(4,313) |
(4,754) |
|
Share of profit in jointly controlled entities (net of tax) |
|
2,573 |
99 |
|
Profit before tax |
2 |
43,063 |
44,952 |
|
Income tax expense |
3 |
(10,933) |
(12,345) |
|
Profit for the year from continuing operations |
|
32,130 |
32,607 |
|
Discontinued operations |
|
|
|
|
Loss for the year from discontinued operations |
6 |
(81,757) |
(1,800) |
|
(Loss)/profit for the year |
|
(49,627) |
30,807 |
|
|
|
|
|
|
Other comprehensive income/(expense) |
|
|
|
|
Foreign exchange translation differences |
|
530 |
(2,201) |
|
Effective portion of changes in fair value of cash flow hedges |
|
(8,086) |
3,068 |
|
Actuarial gains and losses on defined benefit pension plans |
|
655 |
(3,274) |
|
Tax recognised on other comprehensive income/(expense) |
3 |
1,718 |
(6) |
|
Other comprehensive expense for the year, net of tax |
|
(5,183) |
(2,413) |
|
Total comprehensive (expense)/income for the year |
|
(54,810) |
28,394 |
|
|
|
|
|
|
(Loss)/profit attributable to: |
|
|
|
|
Equity holders of the company |
|
(46,438) |
29,455 |
|
Non-controlling interest |
|
(3,189) |
1,352 |
|
(Loss)/profit for the year |
|
(49,627) |
30,807 |
|
|
|
|
|
|
Total comprehensive income attributable to : |
|
|
|
|
Equity holders of the company |
|
(51,640) |
27,310 |
|
Non-controlling interest |
|
(3,170) |
1,084 |
|
Total comprehensive (expense)/income for the year |
|
(54,810) |
28,394 |
|
|
|
|
|
|
Basic earnings per share (pence) |
4 |
(166.68) |
109.00 |
|
Diluted earnings per share (pence) |
4 |
(166.68) |
106.12 |
|
Basic earnings per share from continuing operations (pence) |
4 |
112.53 |
116.73 |
|
Diluted earnings per share from continuing operations (pence) |
4 |
110.96 |
113.65 |
|
Non-GAAP measures |
4 |
|
|
|
Basic underlying earnings per share (pence) |
4 |
136.52 |
128.43 |
|
Diluted underlying earnings per share (pence) |
4 |
134.63 |
125.04 |
4
4
4
4
4
4
Consolidated Balance Sheet
at 31 May 2013
|
|
|
2013 |
2012 |
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
|
60,070 |
98,340 |
|
Intangible assets |
|
19,149 |
29,831 |
|
Investments in jointly controlled entities |
|
2,719 |
140 |
|
Investments in subsidiary undertakings |
|
- |
- |
|
Derivative financial instruments |
|
37 |
- |
|
Deferred tax assets |
|
4,108 |
- |
|
|
|
86,083 |
128,311 |
|
Current assets |
|
|
|
|
Assets held for sale |
|
14,997 |
- |
|
Inventories |
|
96,193 |
112,027 |
|
Derivative financial instruments |
|
3,216 |
6,051 |
|
Trade and other receivables |
|
149,558 |
114,779 |
|
Cash and cash equivalents |
|
61,435 |
45,852 |
|
|
|
325,399 |
278,709 |
|
Total assets |
|
411,482 |
407,020 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Other interest-bearing loans and borrowings |
|
(92,686) |
(82,405) |
|
Retirement benefit obligations |
|
(3,640) |
(5,969) |
|
Provisions |
|
(7,620) |
(9,282) |
|
Derivative financial instruments |
|
(3,150) |
(3,258) |
|
Deferred tax liabilities |
|
- |
(3,482) |
|
|
|
(107,096) |
(104,396) |
|
Current liabilities |
|
|
|
|
Bank overdraft |
|
(42,476) |
(31,215) |
|
Other interest-bearing loans and borrowings |
|
(6,446) |
(12,094) |
|
Trade and other payables |
|
(117,841) |
(100,462) |
|
Income tax liabilities |
|
(9,344) |
(20,117) |
|
Provisions |
|
(2,285) |
- |
|
Derivative financial instruments |
|
(7,664) |
(2,375) |
|
|
|
(186,056) |
(166,263) |
|
Total liabilities |
|
(293,152) |
(270,659) |
|
Net assets |
|
118,330 |
136,361 |
|
|
|
2013 |
2012 |
|
Equity attributable to equity holder of the parent |
|
|
|
|
Share capital |
|
3,296 |
2,709 |
|
Share premium |
|
73,208 |
32,105 |
|
Other reserves |
|
211 |
211 |
|
Translation reserve |
|
(872) |
(1,383) |
|
Merger reserve |
|
1,022 |
1,022 |
|
Hedging reserve |
|
(5,692) |
525 |
|
Capital redemption reserve |
|
1,530 |
1,530 |
|
Retained earnings |
|
47,265 |
97,804 |
|
|
|
119,968 |
134,523 |
|
Non-controlling interest |
|
(1,638) |
1,838 |
|
Total equity |
|
118,330 |
136,361 |
Consolidated Statement of Changes in Equity
for year ended 31 May 2013
|
|
Share capital |
Share premium |
Translation reserve |
Hedging reserve |
Other reserves |
Capital redemption reserve |
Merger reserve |
Retained earnings |
Total parent equity |
Non-controlling interest |
Total equity |
|
Balance at 1 June 2011 |
2,683 |
31,490 |
550 |
(1,759) |
211 |
1,530 |
1,022 |
74,158 |
109,885 |
4,765 |
114,650 |
|
Total comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
- |
- |
29,455 |
29,455 |
1,352 |
30,807 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation differences |
- |
- |
(1,933) |
- |
- |
- |
- |
- |
(1,933) |
(268) |
(2,201) |
|
Effective portion of changes in fair value of cash flow hedges |
- |
- |
- |
3,068 |
- |
- |
- |
- |
3,068 |
- |
3,068 |
|
Actuarial gains and losses on defined benefit pension plans |
- |
- |
- |
- |
- |
- |
- |
(3,274) |
(3,274) |
- |
(3,274) |
|
Tax recognised on other comprehensive income |
- |
- |
- |
(784) |
- |
- |
- |
778 |
(6) |
- |
(6) |
|
Total other comprehensive income |
- |
- |
(1,933) |
2,284 |
- |
- |
- |
(2,496) |
(2,145) |
(268) |
(2,413) |
|
Total comprehensive income for the year |
- |
- |
(1,933) |
2,284 |
- |
- |
- |
26,959 |
27,310 |
1,084 |
28,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners recorded directly in equity |
|
|
|
|
|
|
|
|
|
|
|
|
Issue of shares |
26 |
615 |
- |
- |
- |
- |
- |
- |
641 |
- |
641 |
|
Equity settled share-based payment transactions |
- |
- |
- |
- |
- |
- |
- |
1,332 |
1,332 |
- |
1,332 |
|
Dividends |
- |
- |
- |
- |
- |
- |
- |
(4,428) |
(4,428) |
(3,642) |
(8,070) |
|
Total contributions by and distributions to owners |
26 |
615 |
- |
- |
- |
- |
- |
(3,096) |
(2,455) |
(3,642) |
(6,097) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in ownership interests |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of non-controlling interest without a change in control |
- |
- |
- |
- |
- |
- |
- |
(217) |
(217) |
(369) |
(586) |
|
Total transactions with owners |
26 |
615 |
- |
- |
- |
- |
- |
(3,313) |
(2,672) |
(4,011) |
(6,683) |
|
Balance as at May 2012 |
2,709 |
32,105 |
(1,383) |
525 |
211 |
1,530 |
1,022 |
97,804 |
134,523 |
1,838 |
136,361 |
|
|
Share capital |
Share premium |
Translation reserve |
Hedging reserve |
Other reserves |
Capital redemption reserve |
Merger reserve |
Retained earnings |
Total parent equity |
Non-controlling interest |
Total equity |
|
Balance at 1 June 2012 |
2,709 |
32,105 |
(1,383) |
525 |
211 |
1,530 |
1,022 |
97,804 |
134,523 |
1,838 |
136,361 |
|
Total comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
- |
- |
- |
- |
- |
- |
- |
(46,438) |
(46,438) |
(3,189) |
(49,627) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation differences |
- |
- |
511 |
- |
- |
- |
- |
- |
511 |
19 |
530 |
|
Effective portion of changes in fair value of cash flow hedges |
- |
- |
- |
(8,086) |
- |
- |
- |
- |
(8,086) |
- |
(8,086) |
|
Actuarial gains and losses on defined benefit pension plans |
- |
- |
- |
- |
- |
- |
- |
655 |
655 |
- |
655 |
|
Tax recognised on other comprehensive income |
- |
- |
- |
1,869 |
- |
- |
- |
(151) |
1,718 |
- |
1,718 |
|
Total other comprehensive expense |
- |
- |
511 |
(6,217) |
- |
- |
- |
504 |
(5,202) |
19 |
(5,183) |
|
Total comprehensive expense for the year |
- |
- |
511 |
(6,217) |
- |
- |
- |
(45,934) |
(51,640) |
(3,170) |
(54,810) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners recorded directly in equity |
|
|
|
|
|
|
|
|
|
|
|
|
Issue of shares |
587 |
41,103 |
- |
- |
- |
- |
- |
- |
41,690 |
- |
41,690 |
|
Equity settled share-based payment transactions |
- |
- |
- |
- |
- |
- |
- |
514 |
514 |
- |
514 |
|
Dividends |
- |
- |
- |
- |
- |
- |
- |
(5,119) |
(5,119) |
(306) |
(5,425) |
|
Total contributions by and distributions to owners |
587 |
41,103 |
- |
- |
- |
- |
- |
(4,605) |
37,085 |
(306) |
36,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in ownership interests |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of non-controlling interest without a change in control |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Total transactions with owners |
587 |
41,103 |
- |
- |
- |
- |
- |
(4,605) |
37,085 |
(306) |
36,779 |
|
Balance as at May 2013 |
3,296 |
73,208 |
(872) |
(5,692) |
211 |
1,530 |
1,022 |
47,265 |
119,968 |
(1,638) |
118,330 |
Consolidated Cash Flow Statement
for year ended 31 May 2013
|
|
|
|
Restated |
|
Cash flows from operating activities |
|
|
|
|
Profit for the year from continuing operations |
|
32,130 |
32,607 |
|
Adjustments for: |
|
|
|
|
Depreciation |
|
8,345 |
7,682 |
|
Amortisation and impairment of goodwill and intangible assets |
|
7,985 |
4,392 |
|
Net finance expense |
|
3,482 |
4,094 |
|
Share of profit in jointly controlled entities |
|
(2,573) |
(99) |
|
Profit on sale of property, plant and equipment |
|
(355) |
(723) |
|
Equity settled share-based payment expenses |
|
307 |
1,090 |
|
Income tax expense |
|
10,933 |
12,345 |
|
Translation of non-controlling interest |
|
19 |
(269) |
|
|
|
60,273 |
61,119 |
|
|
|
|
|
|
Change in inventories |
|
(23,231) |
(6,064) |
|
Change in trade and other receivables |
|
(34,253) |
(46,100) |
|
Change in trade and other payables |
|
30,951 |
17,991 |
|
Change in provisions and employee benefits |
|
35 |
(135) |
|
|
|
33,775 |
26,811 |
|
|
|
|
|
|
Interest paid |
|
(2,688) |
(2,986) |
|
Income tax paid |
|
(9,868) |
(4,860) |
|
|
|
|
|
|
Net cash from continuing operating activities |
|
21,219 |
18,965 |
|
Net cash from discontinued operating activities |
|
(45,801) |
10,062 |
|
Net cash from operating activities |
|
(24,582) |
29,027 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Proceeds from sale of property, plant and equipment |
|
1,289 |
2,354 |
|
Acquisition of subsidiaries, net of cash acquired |
|
- |
(2,940) |
|
Acquisition of property, plant and equipment |
|
(6,954) |
(9,329) |
|
|
|
|
|
|
Net cash from investing activities in continuing operations |
|
(5,665) |
(9,915) |
|
Net cash from investing activities in discontinued operations |
|
4,225 |
(13,050) |
|
Net cash from investing activities |
|
(1,440) |
(22,965) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds from the issue of share capital (net of directly attributable expenses) |
|
41,690 |
641 |
|
Payment of finance lease liabilities |
|
(3,754) |
(4,496) |
|
Dividends paid |
|
(5,425) |
(8,070) |
|
Proceeds from promissory notes (net of expenses) |
|
(5,025) |
5,025 |
|
Proceeds from revolving credit facility |
|
10,000 |
28,974 |
|
|
|
|
|
|
Net cash from financing activities in continuing operations |
|
37,486 |
22,074 |
|
Net cash from financing activities in discontinued operations |
|
(5,390) |
(8,230) |
|
Net cash from financing activities |
|
32,096 |
13,844 |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
6,074 |
19,906 |
|
Cash and cash equivalents as 1 June |
|
14,637 |
(6,751) |
|
Effect of exchange rate fluctuations on cash held |
|
(1,752) |
1,482 |
|
Cash and cash equivalents at 31 May |
|
18,959 |
14,637 |
1. Basis of preparation and status of financial information
The financial information set out above has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU (Adopted IFRSs).
The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 May 2013 or 2012. Statutory accounts for 2012 have been delivered to the Registrar of Companies, and those for 2013 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 auditors 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.
In accordance with IFRS 5, the comparative figures within the statement of comprehensive income and cash flow statement have been restated to reflect the impact on prior period results of the operations that were discontinued in the current financial year (note 6).
These results were approved by the Board of Directors on 23 September 2013.
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 Production, Energy & Commodities, Transport and Industrial Services. A short description
of these sectors is as follows:
• Production: produces coal and coke and also recycles tyres for customers throughout the UK and Europe;
• Energy & Commodities: provides coal, coke, minerals, smokeless fuel and biomass products to a range of industrial, wholesale and public sector
energy consumers;
• Transport: provides bulk logistics to UK customers; and
• Industrial Services: provides quality assured contract management services to the power generation, utilities, chemicals, minerals and steel industries.
These segments are combinations of subsidiaries and divisions, have separate management teams and offer different products and services. These 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 operating profit, which is reconciled to profit before tax in the tables below:
|
|
Production |
Energy & Commodities |
Transport |
Industrial Services |
Total |
|
Revenue |
|
|
|
|
|
|
Total revenue |
103,189 |
585,022 |
82,686 |
149,276 |
920,173 |
|
Inter-segment revenue |
(15,884) |
(38,691) |
(11,536) |
(10,764) |
(76,875) |
|
Revenue from external customers |
87,305 |
546,331 |
71,150 |
138,512 |
843,298 |
|
|
|
|
|
|
|
|
Underlying operating profit |
16,745 |
31,877 |
4,011 |
3,028 |
55,661 |
|
Amortisation of intangibles/goodwill |
(131) |
(4,152) |
(197) |
(3,505) |
(7,985) |
|
Taxation on jointly controlled entities |
(1,071) |
(60) |
- |
- |
(1,131) |
|
Net financing costs |
(374) |
(1,550) |
(694) |
(864) |
(3,482) |
|
Profit before taxation |
15,169 |
26,115 |
3,120 |
(1,341) |
43,063 |
|
Depreciation charge |
(1,706) |
(622) |
(3,212) |
(2,805) |
(8,345) |
|
Capital expenditure |
8,566 |
1,340 |
2,343 |
4,467 |
16,716 |
|
Net assets |
|
|
|
|
|
|
Segment assets |
92,494 |
198,293 |
27,882 |
36,749 |
355,418 |
|
Segment liabilities |
(25,192) |
(110,805) |
(17,330) |
(25,490) |
(178,817) |
|
Segment net assets |
67,302 |
87,488 |
10,552 |
11,259 |
176,601 |
|
Jointly controlled entities |
2,439 |
280 |
- |
- |
2,719 |
|
Segment net assets including share of jointly controlled entities |
69,741 |
87,768 |
10,552 |
11,259 |
179,320 |
|
Unallocated net assets |
|
|
|
|
(60,990) |
|
Total net assets |
|
|
|
|
118,330 |
Unallocated net assets include goodwill and intangibles (£19.1m), revolving credit facility (£83.6m), cash and cash equivalents (£12.6m), derivative financial instruments (£7.6m), deferred tax asset (£4.1m) and other corporate items (£9.6m).
|
Restated |
Production |
Energy & Commodities |
Transport |
Industrial Services |
Total |
|
Revenue |
|
|
|
|
|
|
Total revenue |
89,698 |
412,012 |
77,326 |
80,722 |
659,758 |
|
Inter-segment revenue |
(13,129) |
(15,739) |
(10,034) |
(2,932) |
(41,834) |
|
Revenue from external customers |
76,569 |
396,273 |
67,292 |
77,790 |
617,924 |
|
|
|
|
|
|
|
|
Underlying operating profit |
16,673 |
28,373 |
4,067 |
4,325 |
53,438 |
|
Amortisation of intangibles/goodwill |
- |
(2,429) |
(393) |
(1,570) |
(4,392) |
|
Net financing costs |
(500) |
(2,315) |
(749) |
(530) |
(4,094) |
|
Profit before taxation |
16,173 |
23,629 |
2,925 |
2,225 |
44,952 |
|
Depreciation charge |
(1,491) |
(730) |
(3,551) |
(1,910) |
(7,682) |
|
Capital expenditure |
21,178 |
2,427 |
4,055 |
5,547 |
33,207 |
|
Net assets |
|
|
|
|
|
|
Segment assets |
129,988 |
150,666 |
28,447 |
22,134 |
331,235 |
|
Segment liabilities |
(52,573) |
(86,809) |
(17,177) |
(17,949) |
(174,508) |
|
Segment net assets |
77,415 |
63,857 |
11,270 |
4,185 |
156,727 |
|
Jointly controlled entities |
76 |
64 |
- |
- |
140 |
|
Segment net assets including share of jointly controlled entities |
77,491 |
63,921 |
11,270 |
4,185 |
156,867 |
|
Unallocated net assets |
|
|
|
|
(20,506) |
|
Total net assets |
|
|
|
|
136,361 |
Unallocated net assets include goodwill and intangibles (£29.8m), revolving credit facility (£73.1m), cash and cash equivalent (£24.3m) derivative financial instruments (£0.4m) and other corporate items (£1.9m).
Information About Key Customers
Included in revenue is an amount of £146,699,000 (2012: £82,371,000) arising from sales to the Group's largest customer, relating to the Energy and Commodities and Industrial Services divisions.
The following table analyses revenue by significant category:
|
|
|
Restated |
|
Sale of goods |
575,225 |
446,676 |
|
Rendering of services |
268,073 |
171,248 |
|
|
843,298 |
617,924 |
Geographical Information
|
|
2013 |
2012 |
||
|
|
UK £000 |
Overseas |
UK |
Overseas |
|
Revenue |
740,459 |
102,839 |
508,862 |
109,062 |
|
Non-current assets |
81,567 |
371 |
127,203 |
1,108 |
3 Taxation
Recognised in the Statement of Comprehensive Income
|
|
|
Restated |
|
Current tax expense |
|
|
|
Current year |
11,775 |
11,867 |
|
Adjustments for prior years |
(555) |
(404) |
|
Foreign tax - current year |
1,026 |
1,588 |
|
Current tax expense |
12,246 |
13,051 |
|
|
|
|
|
Deferred tax credit |
|
|
|
Origination and reversal of temporary differences |
(1,699) |
(419) |
|
Adjustment for prior years |
467 |
26 |
|
Reduction in tax rate |
(81) |
(313) |
|
Deferred tax credit |
(1,313) |
(706) |
|
|
|
|
|
Tax expense in income statement (excluding share of tax of equity accounted investees) |
10,933 |
12,345 |
|
Share of tax of equity accounted investees |
1,131 |
25 |
|
Total tax expense from continuing operations |
12,064 |
12,370 |
Recognised in Other Comprehensive Income
|
|
2013 |
2012 |
|
Deferred tax income/(expense) |
|
|
|
Effective portion of changes in fair value of cash flow hedges |
1,869 |
(784) |
|
Actuarial gains and losses on defined benefit pension plans |
(151) |
778 |
|
|
1,718 |
(6) |
Reconciliation of Effective Tax Rate
|
|
2013 |
2013 |
2012 |
2012 |
|
Profit for the year from continuing operations |
|
32,130 |
|
32,607 |
|
Total tax expense (including tax on equity accounted investees) |
|
12,064 |
|
12,370 |
|
Profit excluding taxation from continuing operations |
|
44,194 |
|
44,977 |
|
|
|
|
|
|
|
Tax using the UK corporation tax rate of 23.83% (2012: 25.67%) |
23.83% |
10,532 |
25.67% |
11,545 |
|
Effect of tax rates in foreign jurisdictions |
0.64% |
284 |
0.78% |
354 |
|
Unrecognised tax losses |
0.65% |
286 |
(0.19%) |
(85) |
|
Non-deductible expenses |
2.54% |
1,122 |
2.58% |
1,159 |
|
Reduction in tax rate on deferred tax balances |
(0.18%) |
(81) |
(0.50%) |
(225) |
|
(Over)/under provided in prior years |
(0.18%) |
(79) |
(0.84%) |
(378) |
|
|
|
|
|
|
|
Effective tax rate and total tax expense |
27.30% |
12,064 |
27.50% |
12,370 |
The UK corporation tax rate reduced to 23% on 1 April 2013, giving an effective base rate of 23.83% (2012: 25.67%).
Factors That May Affect Future Current and Total Tax Charges
The March 2013 budget announced that the main rate of corporation tax will further reduce to 20% by 1 April 2015 in addition to the planned reduction to 21% by 2014 previously announced in the December 2012 Autumn Statement. These changes were not substantively enacted during the year and are therefore not included in the figure above.
4 Earnings Per Share
|
|
2013 |
2012 |
||
|
|
Continuing and discontinued |
Continuing |
Continuing and discontinued |
Continuing |
|
Ordinary shares |
|
|
|
|
|
Basic earnings per share |
(166.68)p |
112.53p |
109.00p |
116.73p |
|
Diluted earnings per share |
(166.68)p |
110.96p |
106.12p |
113.65p |
The calculation of earnings per share is based on the (loss)/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.
|
|
2013 |
2012 |
||
|
|
Continuing and discontinued |
Continuing |
Continuing and discontinued |
Continuing |
|
(Loss)/profit for the year attributable to equity holders (£000) |
(46,438) |
31,351 |
29,455 |
31,543 |
|
Weighted average number of shares |
27,860,668 |
27,860,668 |
27,022,535 |
27,022,535 |
|
Basic earnings per share |
(166.68)p |
112.53p |
109.00p |
116.73p |
The calculation of diluted earnings per share is based on the profit for the year and the weighted average number of ordinary shares in issue in the year adjusted for the dilutive effect of the share options outstanding (effect on weighted average number of shares is 392,241 (2012: 732,494); effect on earnings per ordinary share is nil (2012: 2.88p) as there is no dilutive effect when a loss is made. Effect on continuing earnings per ordinary share is 1.57p (2012: 3.08p)
|
|
2013 |
2012 |
||
|
|
Continuing and discontinued |
Continuing |
Continuing and discontinued |
Continuing |
|
(Loss)/profit for the year attributable to equity holders (£000) |
(46,438) |
31,351 |
29,455 |
31,543 |
|
Weighted average number of shares |
28,252,909 |
28,252,909 |
27,755,029 |
27,755,029 |
|
Basic earnings per share |
(166.68)p |
110.96p |
106.12p |
113.65p |
Underlying and basic diluted earnings per share is calculated on the same weighted average number of shares in the tables above, and on underlying profit after tax, as reconciled below:
|
|
2013 |
2012 |
|
Profit for the year attributable to equity holders from continuing operations |
31,351 |
31,543 |
|
Amortisation/impairment of intangibles/goodwill |
7,985 |
4,392 |
|
Tax effect of amortisation |
(1,299) |
(1,230) |
|
|
|
|
|
Underlying profit after tax |
38,037 |
34,705 |
5. Dividends
The aggregate amount of dividends comprises:
|
|
2013 |
2012 |
|
Final dividends paid in respect of prior year but not recognised as liabilities in that year (11.8 pence per share (2012: 10.4p)) |
3,222 |
2,803 |
|
Interim dividends paid in respect of the current year (6.9 pence per share (2012: 6.0p)) |
1,897 |
1,625 |
|
|
5,119 |
4,428 |
|
|
|
|
|
Proposed dividend (13.6 pence per share (2012: 11.8p)) |
4,483 |
3,196 |
The proposed dividend has not been included in liabilities as it was not approved before the year end.
6 Discontinued operations
The Group's discontinued operations made a loss of £81.8m after tax during the year. These losses relate to events at Maltby and in Belgium and the associated results have been reclassified as Discontinued in the current and prior year. In addition, certain related assets have been reclassified in the balance sheet as 'assets held for sale'. An analysis of the result of discontinued operations is as follows:
|
|
2013 |
2012 |
|
Revenue |
37,148 |
70,338 |
|
Direct depreciation |
(7,756) |
(12,873) |
|
Cost of sale - Belgium exceptional item |
(18,710) |
- |
|
Impairment of property, plant and equipment |
(24,845) |
- |
|
Inventory write down |
(19,426) |
- |
|
Other direct cost of sales |
(49,832) |
(46,483) |
|
Gross (loss)/profit |
(83,421) |
10,982 |
|
|
|
|
|
Other operating income |
2,403 |
113 |
|
Impairment of goodwill |
(2,727) |
- |
|
Administrative expenses |
(14,401) |
(10,563) |
|
Operating (loss)/profit |
(98,146) |
532 |
|
|
|
|
|
Finance expense |
(2,235) |
(2,366) |
|
Loss before tax of discontinued operations |
(100,381) |
(1,834) |
|
|
|
|
|
Tax |
18,624 |
34 |
|
|
|
|
|
Loss for the year from discontinued operations |
(81,757) |
(1,800) |
During the year, the discontinued operations contributed the following to the group's cash flows:
|
|
2013 |
2012 |
|
Operating cash flows |
(45,801) |
10,062 |
|
Investing cash flows |
4,225 |
(13,050) |
|
Financing cash flows |
(5,390) |
(8,230) |
|
Total cash flows |
(46,966) |
(11,218) |
The major classes of assets directly attributable to discontinued operations are:
|
|
|
£000 |
£000 |
|
Intangible assets |
|
|
|
|
Opening NBV |
|
2,727 |
|
|
Impairment of intangible assets |
|
(2,727) |
|
|
Carrying value of intangible assets |
|
|
- |
|
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
Cost transferred to held for sale |
|
87,657 |
|
|
Accumulated depreciation transferred to held for sale (pre impairment) |
|
(49,542) |
|
|
NBV transferred to held for sale |
|
38,115 |
|
|
NBV of assets disposed |
|
(3,535) |
|
|
Impairment of assets held for sale |
|
(24,845) |
|
|
Carrying value of property, plant and equipment held for sale |
|
|
9,735 |
|
|
|
|
|
|
Other non-current assets |
|
|
5,262 |
|
|
|
|
|
|
Total assets held for sale |
|
|
14,997 |
This information is provided by RNS
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