Preliminary Results

RNS Number : 4313W

Hargreaves Services PLC

01 August 2018

 

For immediate release

1 August 2018

HARGREAVES SERVICES PLC

(the "Group" or "Hargreaves")

Preliminary Results for the year ended 31 May 2018

Hargreaves Services plc (AIM: HSP), a diversified group delivering key services to the industrial and property sectors, announces its preliminary results for the year ended 31 May 2018.

KEY FINANCIAL RESULTS

Year ended 31 May	2018		2017
Revenue		£297.1m	£342.7m
Operating (Loss)/Profit		£(1.4)m	£1.4m
Underlying Operating Profit*		£9.4m	£11.0m
Profit Before Tax		£0.5m	£4.7m
Basic EPS from continuing operations		3.8p	17.8p
Underlying basic EPS from continuing operations		14.9p	19.8p
Final Dividend		4.5p	4.5p
Net Debt		£30.8m	£15.7m
Net Assets		£136.1m	£137.9m
Net Assets per Share		424p	432p

* Underlying Operating Profit is stated prior to exceptional items, the amortisation and impairment of intangible assets and including the Group's share of operating profit in associates and joint ventures.

HIGHLIGHTS

·    Underlying trading satisfactory and in line with management expectations

·    Distribution & Services Underlying Operating Profit margin up to 4.6% (2017: 4.3%)

·    Independent property valuation confirms £20m market value uplift and a further £28m development value uplift

·    Total property valuation uplift equates to 129p per share

·    Good progress continues to be made on the development of the Blindwells project

·   £29m Legacy assets to realise, down from £66m two years ago, with the majority to be realised by 31 May 2019

·    Disposal of Brockwell Energy, treated as a Discontinued Operation, well advanced

·    Roger McDowell becomes Chairman, 1 August 2018

·    Final dividend maintained at 4.5p; full year dividend of 7.2p (2017: 7.2p)

Commenting on the preliminary results, retiring Chairman David Morgan said: "The Group is delivering against its strategic objectives. As revenues from traditional markets decline, operational focus is on risk management and margin improvement. Value realisation from the Group's Property and Energy assets is continuing with exclusivity granted to a purchaser for the Energy portfolio and sale completion expected in the next few months. Independent property valuations confirm the latent value in the Group's property portfolio. Legacy asset realisation should be substantially completed by 31 May 2019. The Board looks forward to an improvement in cash generation and underlying operating profits."

Analyst meeting

A meeting for analysts will be held at 10.00am this morning, 1 August 2018, at the offices of Buchanan,

107 Cheapside, London EC2V 6DN. Please contact Buchanan on 020 7466 5000 for further information.

Enquiries:

Hargreaves Services plc Gordon Banham, Chief Executive Officer John Samuel, Group Finance Director	0191 373 4485
Buchanan (Financial PR) Mark Court  / Sophie Wills / Henry Wilson	020 7466 5000
N+1 Singer (NOMAD and Joint Corporate Broker) Sandy Fraser / Rachel Hayes	020 7496 3000
Investec (Joint Corporate Broker) Sara Hale / Helene Comitis	020 7597 4000

 

Chairman's Statement

David Morgan, Group Chairman

Introduction

I am pleased to report on the progress of Hargreaves in the year ended 31 May 2018. It was a year during which the Board continued to deliver its strategy of simplification of the Group, with the on-going disposal of Legacy and non-core assets and a focus on core activities in Distribution & Services and Property. Hargreaves is well positioned to deliver value from its chosen markets where appropriate margins and returns on capital can be achieved. Underlying trading for the year has been satisfactory and in line with management expectations.

Results

Revenue from continuing operations was £297.1m (2017: £342.7m). £40.9m of this reduction, which was in line with expectations, arises within the Distribution & Services business. Additionally, there was a reduction of £12.5m in revenue from the sale of Legacy assets during the year.

Underlying Operating Profit from continuing operations for the year was lower than the comparative period at £9.4m (2017: £11.0m). The reduction is attributable to Distribution & Services which recorded Underlying Operating Profit of £12.9m (2017: £13.7m). Underlying Operating Profit is defined by the Board as Operating Profit prior to exceptional items, amortisation and impairment of intangible assets and includes the Group's share of the operating profit of its German associate. The Board uses this measure as a Key Indicator in assessing the financial performance of the Group throughout the year and believes that its disclosure benefits readers of these financial statements. Further information on the trading performance of the businesses is given in the Chief Executive Officer's Business Review.

Operating profit prior to exceptional items improved by 17% to £2.1m (2017: £1.8m). After accounting for £3.5m (2017: £0.5m) of exceptional items, principally attributable to the legacy contracts in Specialist Earthworks and associated restructuring costs, operating loss under IFRS was £1.4m (2017: profit of £1.4m). After net financial expenses of £1.3m (2017: £2.1m) and accounting for the share of post-tax profits of the German associate of £3.2m (2017: £5.5m), the consolidated profit before tax was £0.5m (2017: £4.7m). Basic underlying earnings per share from continuing operations were 14.9p (2017: 19.8p) and 3.8p (2017: 17.8p) on a reported basis.

Brockwell Energy Limited

As previously announced, the Board has entered into exclusive negotiations with one party to acquire Brockwell Energy Limited, the holding company for the Group's Energy business. Completion of the disposal is expected to occur within the next few months. The decision to dispose of the whole of the Group's investment in Brockwell was reached as the Board considered that a minority position would not provide the Group with sufficient influence over the development of the business. Consequently, Brockwell Energy Limited is reported as a Discontinued Operation within these results.

Net Debt

As previously indicated, net debt of £30.8m (2017: £15.7m) was approximately £7m higher than expected due to the timing of a legacy land asset disposal, in respect of which contracts were exchanged after the year end. The underlying increase of approximately £8m was primarily due to an increased investment of £4.3m in Brockwell Energy Limited and £3.5m of exceptional items. Although net debt may increase further in the first half of this financial year primarily due to planned increases in working capital including at Blindwells, a substantial reduction is forecast by the year end as Legacy assets are expected to be realised in the second half.

The Group has recently renegotiated its banking facilities and has put a two-year agreement in place with its bankers which provides appropriate operational headroom without committing the Group to excess unnecessary facilities and associated non-utilisation costs.

Dividend

The Board is recommending an unchanged final dividend of 4.5p (2017: 4.5p) per ordinary share thus maintaining the full year dividend at 7.2p (2017: 7.2p). This will be paid on 2 November 2018 to all shareholders on the register at the close of business on 21 September 2018. The shares will become ex-dividend on 20 September 2018.

People

The Board would like to thank each of our employees for their efforts which are the foundation of the Group's ability to deliver returns for our shareholders. The Group employs over 2,000 people and each of them plays their part in its achievements.

Board Changes

On 2 January 2018, Iain Cockburn stepped down as Group Finance Director to take up the role of Chief Financial Officer of Brockwell Energy Limited on a full-time basis. Iain was succeeded on that date by John Samuel, formerly Group Finance Director at Renew Holdings plc. Additionally, Kevin Dougan retired from the Board on 1 December 2017. We also recently announced the recruitment of David Anderson who will join the Board no later than 1 December 2018 as Group Property Director.

Additionally, Peter Jones has informed the Board of his intention not to seek re-election at the Annual General Meeting to be held on 30 October 2018. The Board will commence a process to appoint a further non-executive Director shortly.

As previously announced, I will be resigning from the Board immediately following these results and will be succeeded by Roger McDowell, who joined the Board on 11 May 2018. In the short period I have been working with Roger, it is clear to me that his experience will prove to be of great benefit to the Board in developing the Group's strategy and delivering shareholder value.

Strategy

In April 2016, the Board announced three key strategic objectives. First, to report an Underlying Operating Profit from the Distribution & Services business in excess of £10m by the year ending 31 May 2018. This has been achieved in each of the years ended 31 May 2017 and 2018.

Secondly, to create more than £35m of value from the Property & Energy portfolio by 2021. As at 31 May 2018, whilst only £8.5m has been realised in cash from the Property portfolio to date, this does not reflect the progress that has been made and the work to realise further value continues. A key element of the value realisation from the Property & Energy portfolio is the disposal of Brockwell Energy Limited on which I have commented above.

Finally, to generate £60m of cash from the realisation of Legacy assets. To date, £31.4m of Legacy asset sales has been recorded and the net book value of the remaining legacy assets is £28.6m, compared with £39.6m one year ago. Further substantial Legacy asset realisations are expected in the second half of this financial year.

Following a review of the prospects for each of the Group's activities, the Board has determined that the strategy to deliver sustainable and growing profits from its core trading businesses in Distribution & Services whilst optimising investment to grow its Property business remains valid. This strategy sits alongside converting the value of those assets which have limited growth potential for the Group into cash in a controlled manner. The Board will continue to consider the best ways of deploying that cash for optimal shareholder return as the financial year progresses.

Within Distribution & Services, the Board believes that medium term revenue growth and near-term margin improvement can be forthcoming in both the Industrial Services and Specialist Earthworks business units whilst the UK Production & Distribution business is stable and cash generative. The Industrial Services business does not require substantial capital investment and the Specialist Earthworks business, whilst capital asset intensive, only requires committing to that investment with respect to secured contractual positions. The investment by the Group's German associate, Hargreaves Raw Materials Services GmbH ("HRMS") in a Carbon Pulverisation Plant will provide both improved resilience for the existing European trading business and additional growth opportunities.

The Board regards the Property business, known as Hargreaves Land, as an important area for future growth and aims to strengthen its resources to generate greater medium and longer-term value. We are excited by the recent recruitment of David Anderson as Group Property Director and we look forward to David joining the Board and furthering the momentum in Hargreaves Land. The successful development of the Blindwells site will be a key example that the Group can realise the substantial latent value within the existing land portfolio as well as demonstrating that the Group has the skills to bring substantial development opportunities to market successfully.

Outlook

The Group enters the 2018/19 financial year in a healthy financial position with further surplus asset realisation plans well advanced. The Group has impetus and ambition to grow its businesses in those sectors where it has a strong market position.  The Board looks forward to an improving financial performance from the Group both in terms of cash generation and underlying operating profits and margins. 

David Morgan

Chairman

31 July 2018

 

Group Business Review

Gordon Banham, Group Chief Executive Officer

Distribution & Services

The Distribution & Services business recorded revenue of £280.7m (2017: £321.6m).The reduction in revenue was due to lower levels of activity in Production & Distribution (£16.2m) and in Specialist Earthworks (£29.8m), partially offset by increased revenue in Industrial Services of £4.6m. £5.5m (2017: £15.1m) of Specialist Earthworks revenue was attributable to legacy contracts which are recorded as exceptional.

Underlying Operating Profit was £12.9m (2017: £13.7m). When eliminating revenue arising from exceptional contracts, margins at this level improved to 4.7% from 4.5%. The slight fall in Underlying Operating Profit was due to a £1.9m reduction in the contribution from Specialist Earthworks and a £2.3m reduction in that from HRMS. It should be noted that the contribution from HRMS in the 2017 financial year was particularly high. These reductions were offset by strong results from UK Production & Distribution, up £2.8m, and Industrial Services, up £0.6m. On an IFRS basis, this business segment recorded an Operating Profit of £6.9m (2017: £10.0m), with the reduction being due to the £3.5m charge for exceptional items.

Further information on the performance of each business within this segment is given below.

Production & Distribution

During the second half of the year, the Logistics and Coal Production & Distribution businesses were brought under a unified management structure realising an initial £0.3m of annualised overhead savings.

Revenue was £137.4m (2017: £153.6m), primarily due to lower volumes of low margin thermal coal being traded. Underlying Operating Profit increased by 5.3% to £10.0m (2017: £9.5m). The UK operations contributed £3.5m of this (2017: £0.7m), a marked improvement over the prior year. Our UK coal production and processing sites in Scotland continue to yield a high proportion of speciality coals, pricing of which has been strong. Favourable trading conditions in the speciality coal market are continuing into the new financial year. The Maxibrite domestic briquette business has now completed its conversion to a cold cure process which is already delivering lower production costs. Additionally, the Logistics business returned to profitability albeit on lower revenue as the business focused on contract selectivity.

HRMS contributed £6.5m (2017: £8.8m) to Underlying Operating Profit as it continued to trade well. As a speciality commodity trading business, the results of HRMS are subject to fluctuations depending upon market conditions. As previously reported, HRMS is constructing a Carbon Pulverisation Plant in Duisburg, Germany, to add resilience and greater predictability to future trading prospects. Construction work is well underway, and the plant is expected to become operational by the end of the first half of calendar year 2019.

Industrial Services

Revenue increased by 7.0% to £70.0m (2017: £65.4m) with Underlying Operating Profit up by 33.3% at £2.4m (2017: £1.8m). Margins improved to 3.4% (2017: 2.8%). Whilst modest revenue growth was achieved in the UK, our international operations, which are primarily based in Hong Kong, grew by 19% and recorded an Underlying Operating Profit of £0.7m (2017: £0.3m loss). The Hong Kong business has quadrupled in size since 2015 and continues to broaden the range of services it can provide to its clients. The South African business broke even after suffering a £0.9m loss in 2017. The UK business is focused on margin improvement as it transitions gradually from mainly supporting coal fired power stations and broadens its customer base. The forward order book and term contract positions held by the Industrial Services business mean that its budget revenue for the next financial year is almost fully secured.

Specialist Earthworks

The Specialist Earthworks business recorded revenue of £78.8m (2017: £108.6m) and an Underlying Operating Profit of £0.5m (2017: £2.4m). Activity levels have decreased as a result of greater contract selectivity and risk mitigation, together with lower revenue arising from the three legacy civils contracts. The business is engaged on completing its general civil engineering contractual commitments, including those relating to legacy contracts, and on agreeing associated final accounts. These contracts have been either loss making or at low margins and appropriate provisions have been made against their expected outcomes.

The C. A. Blackwell business has two principal current contracts which support the forward outlook, being the A14 bulk earthworks project and the contract mining activity at the Hemerden tungsten mine in Devon. Future business opportunities with similar operational and contractual characteristics to the A14 are being pursued and I am pleased to report that C. A. Blackwell has been selected as a strategic partner to one of the major contractor consortia for two sections of earthworks on the HS2 rail project. Over the next several months the parties will collaborate to determine the value and programming of the work. Regarding the contract at the Hemerdon tungsten mine, which is operated by Wolf Minerals Limited ("Wolf"), the Board notes Wolf's statement issued to the London Stock Exchange on 30 July 2018. It sets out Wolf's financing arrangements which are expected to be sufficient to support Wolf's short-term working capital requirements until 28 October 2018, during which time Wolf will undertake a strategic review of its funding arrangements.

The Specialist Earthworks business has continued to manage to completion three legacy civils contracts inherited from the acquisition of C. A. Blackwell. These contracts reported £5.5m (2017: £15.1m) of revenue and incurred operating losses of £3.4m in the year (2017: £3.4m), which are recorded as exceptional. All of these contracts are now completed on site with only small demobilisation or defects corrections activities remaining. Full provision has been made for all expected losses. An additional exceptional charge of £0.5m has been recorded which relates to restructuring costs within C. A. Blackwell.

As reported in November 2017, the Group is pursuing a claim against the vendors of C. A. Blackwell for breach of warranty. The matter is being progressed through an ongoing legal process.

Hargreaves Land

Hargreaves Land, the Group's Property business, contributed £11.7m (2017: £3.4m) of revenue and an Operating Profit of £2.1m (2017: £1.8m). Property revenue was principally derived from the sale of land where the time and cost of investment to realise the longer term potential development value is not warranted.

At the major Blindwells site near Edinburgh, we are well advanced in discussions with a number of residential developers and will shortly commence the construction of key infrastructure for the site. £1.6m was invested in the site during the year, which is included in Inventory in the Group balance sheet. As a result of those discussions, the Company is continuing to consider the best site remediation and development plan to realise maximum value over the medium and long term. It is expected that the first block of land, which will accommodate around fifty houses, will become available for a developer to take ownership around the end of this calendar year.

The Company plans to release two or three blocks of land per annum as they become ready for developers. The site development plan for phase one will take between ten and fifteen years and provides an ongoing stream of revenue and profit which will underpin the Property business, including the sale of land for approximately 1,600 homes. The second phase, known as Greater Blindwells, now has approval in principle to be allocated through the local development plan to be adopted formally later this year. This phase would result in an additional 900 homes to be built on land owned by the Group.

In August 2017, we reported that the independent Red Book valuation of our property assets had been completed providing a market value of £49m and a development value of £83m compared with a book value at 31 May 2017 of £31m. The following table includes the results of an updated independent valuation carried out at this financial year end which shows that the valuations remain valid.

Approximately £12m of properties (by book value) have been identified as non-strategic and the Group continues to pursue their disposal in an orderly fashion. Of these non-strategic properties, contracts for sale were exchanged after the year end for £7.7m at book value. The balance of properties to be retained either generate an income for the Group through rental, are used in Group operations or are being held for development. No properties have been added to the portfolio during the year. It should be noted that properties included at £2.8m in the opening market value of £49.4m actually realised £6.4m in sales achieved during the year, £1m more than the estimated development value.

		Acreage	Book Value	Market Value		Development Value
Category			£m	£m		£m
31 May 2017:
Residential		446	£6.3	£19.3		£37.4
Commercial/Industrial		3,351	£11.4	£13.5		£25.4
Operational/Agricultural/Low Grade		10,471	£10.7	£10.8		£12.8
Energy		4,282	£2.4	£5.8		£7.3
Total		18,550	£30.8	£49.4		£82.9
Movements in the year ended 31 May 2018:
Properties disposed in the year		(884)	(£3.6)	(£2.8)		(£5.4)
Capitalised spend and revaluations		-	£2.9	£3.4		£0.5
31 May 2018:
Residential		589	£8.4	£21.9		£37.7
Commercial/Industrial		3,297	£9.0	£12.0		£21.2
Operational/Agricultural/Low Grade		10,346	£10.5	£12.3		£14.5
Energy		3,434	£2.2	£3.8		£4.6
Total		17,666	£30.1	£50.0		£78.0

The definitions of the valuation methodologies used are set out below:

Development Value

Development value has been calculated by independent valuers using the residual method of valuation. This involves estimating the gross development value of the property using market derived yield and future income stream parameters, deducting gross development costs and applying an appropriate level of risk premium to reflect uncertainties such as market and planning outcomes.

Market Value

Market value has been calculated by independent valuers in accordance with the Royal Institution of Chartered Surveyors Valuation - Professional Standards and represents the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing.

The Board considers that market value is a better indication than book value of the amount of the Group's capital that is tied up in each specific asset. The difference between the market value and the development value represents the risk-adjusted value creation opportunity on each property. The Board assesses and monitors the likely time and cost required to realise the development value and evaluates the return that is available from holding and developing each property. If the return is not appropriate, then the property is disposed of as quickly as is practical.

The uplift to market value represents 62p per share and to development value a further 87p per share, which in total would add 149p to the share price were these valuations reflected.

.

Legacy Asset Realisations

During the period, sales of Legacy Assets amounted to £4.7m (2017: £17.2m) with no Operating Profit being recorded (2017: £0.1m).

At 31 May 2016, £65.8m of legacy assets were identified and at 31 May 2017 £39.6m of those remained to be disposed. During the year, £6m has been realised and a further £5m, which is a land asset, has been reclassified into inventory leaving a residual £28.6m. This comprises loans due from the Tower Joint Venture of £17.2m and £11.4m of surplus plant and machinery. The Tower Joint Venture surface mine site restoration is expected to be completed by the end of the 2018 calendar year. This will enable the sale of the plant used in this major earthworks operation, which is managed by C.A. Blackwell, creating the funds to repay the majority of the loan due from the joint venture company in the second half of the 2018/19 financial year. Other surplus plant realisations are ongoing and by the year end, the Board expects there to be a material reduction in the value of legacy assets left to realise.

Group

The process for simplifying the Group's structure and reducing both operational and overhead costs is ongoing at both Group level and within the business units. During the last financial year, over 70 employees left the Group providing over £4.2m of annualised overhead salary savings and further reductions in the cost base will be implemented during the current financial year. It is important to deliver these cost reductions alongside implementing improved business processes to ensure that the Group delivers its services in the most effective and efficient manner. These processes are also aimed at positioning the business units to deliver growth in sectors and markets where the Group has a strong set of skills and experience and where appropriate margins and returns on capital can be achieved.

Brockwell Energy Limited

During the year the total capitalised expenditure on development projects in Brockwell Energy Limited amounted to £4.3m (2017: £4.2m). The carrying value of Brockwell is £7.7m (2017: £3.5m) which has been reclassified as an Asset Held for Sale in the Group Balance Sheet. A loss of £1.0m (2017: £0.5m) has been shown as the loss from a Discontinued Operation in the Statement of Profit and Loss. There was no revenue recorded in Brockwell (2017: £0.2m). The Group is committed to funding the costs of Brockwell until completion of the sale process.

David Morgan

On behalf of myself and all of his Board colleagues, I would like to take this opportunity to record my thanks to David Morgan who has acted as a Director of the Company since 2012 and as Chairman since October 2015. David's advice and wisdom has served the Company very well throughout his tenure in times which have raised very material challenges. We will miss his contribution at the Board and wish David very well in the future.

Summary

Each of the Group's businesses within Distribution & Services has been repositioning itself to deliver greater shareholder value and the new financial year will see that process continue. All of the businesses are profitable, and each has robust processes for the management of risk and return. Each has differing market opportunities which the Board reviews regularly, managing the allocation of capital accordingly.

Gordon Banham

Group Chief Executive Officer

31 July 2018

 

Consolidated Statement of Profit and Loss
and Other Comprehensive Income 

For the year ended 31 May 2018

Continuing operations		2018 £000	Represented* 2017 £000
Revenue		297,119	342,706
Cost of sales		(266,746)	(309,826)
Gross profit		30,373	32,880
Other operating (expense)/income		(185)	4,803
Administrative expenses		(31,564)	(36,332)
Operating (loss)/profit		(1,376)	1,351
Analysed as:
Operating profit (before exceptional items)		2,108	1,821
Exceptional items - Cost of sales		(3,025)	(3,566)
Exceptional items - Administrative expenses		(459)	3,096
Exceptional items		(3,484)	(470)
Operating profit (after exceptional items)		(1,376)	1,351
Financial income		626	922
Financial expenses		(1,937)	(3,014)
Share of profit in associates and joint ventures (net of tax)		3,175	5,487
Profit before tax		488	4,746
Taxation		693	569
Profit for the year from continuing operations		1,181	5,315
Discontinued operations
Loss for the year from discontinued operations		(1,000)	(533)
Profit for the year		181	4,782
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurements of defined benefit pension schemes		(857)	(544)
Tax recognised on items that will not be reclassified to profit or loss		120	36
Items that are or may be reclassified subsequently to profit or loss
Foreign exchange translation differences		(22)	2,594
Effective portion of changes in fair value of cash flow hedges		1,123	349
Tax recognised on items that are or may be reclassified subsequently to profit or loss		(192)	(63)
Other comprehensive income for the year, net of tax		172	2,372
Total comprehensive income for the year		353	7,154

		2018 £000	2017 £000
Profit attributable to:
Equity holders of the Company		229	5,138
Non-controlling interest		(48)	(356)
Profit for the year		181	4,782
Total comprehensive income/(expense) attributable to:
Equity holders of the Company		401	7,510
Non-controlling interest		(48)	(356)
Total comprehensive income for the year		353	7,154
Basic earnings per share (pence)		0.72	16.14
Diluted earnings per share (pence)		0.71	15.93
Basic earnings per share from continuing operations (pence)		3.84	17.81
Diluted earnings per share from continuing operations (pence)		3.82	17.58
Non GAAP Measures
Basic underlying earnings per share from continuing operations (pence)		14.90	19.79
Diluted underlying earnings per from share continuing operations (pence)		14.79	19.53

* Comparative figures have been represented to reflect the discontinued operation under IFRS 5, as explained in Note 1.

 

Balance Sheet

at 31 May 2018

			Group
			2018 £000	2017 £000
Non-current assets
Property, plant and equipment			53,777	63,664
Investment property			11,909	12,124
Intangible assets			11,121	12,389
Investments in associates and joint ventures			10,116	6,917
Other financial assets			-	7
Deferred tax assets			3,814	2,844
			90,737	97,945
Current assets
Assets held for sale			16,660	5,040
Inventories			34,652	29,147
Other financial assets			1,044	139
Trade and other receivables			122,215	121,657
Cash and cash equivalents			16,110	27,817
			190,681	183,800
Total assets			281,418	281,745
Non-current liabilities
Other interest-bearing loans and borrowings			(4,434)	(38,587)
Retirement benefit obligations			(4,395)	(5,103)
Provisions			(2,682)	(5,344)
Other financial liabilities			(30)	(12)
			(11,541)	(49,046)
Current liabilities
Other interest-bearing loans and borrowings			(42,460)	(4,965)
Trade and other payables			(89,800)	(88,958)
Provisions			(1,523)	(600)
Other financial liabilities			(7)	(249)
			(133,790)	(94,772)
Total liabilities			(145,331)	(143,818)
Net assets			136,087	137,927
			Group
			2018 £000	2017 £000
Equity attributable to equity holders of the parent
Share capital			3,314	3,314
Share premium			73,955	73,955
Other reserves			211	211
Translation reserve			(1,010)	(988)
Merger reserve			1,022	1,022
Hedging reserve			1,155	224
Capital redemption reserve			1,530	1,530
Share based payment reserve			1,043	936
Retained earnings			54,886	57,694
			136,106	137,898
Non-controlling interest			(19)	29
Total equity			136,087	137,927

 

Statements of Changes in Equity

for year ended 31 May 2018

Group	Share capital £000	Share premium £000	Translation reserve £000	Hedging reserve £000	Other reserves £000	Capital redemption reserve £000	Merger reserve £000	Share based payment reserve £000	Retained earnings £000	Total parent equity £000	Non-controlling interest £000	Total equity £000
At 1 June 2016	3,314	73,955	(3,582)	(62)	211	1,530	1,022	465	54,117	130,970	385	131,355
Total comprehensive income for the year
Profit/(loss) for the year	-	-	-	-	-	-	-	-	5,138	5,138	(356)	4,782
Other comprehensive income/(expense)
Foreign exchange translation differences	-	-	2,594	-	-	-	-	-	-	2,594	-	2,594
Effective portion of changes in fair value of cash flow hedges	-	-	-	349	-	-	-	-	-	349	-	349
Remeasurements of defined benefit pension schemes	-	-	-	-	-	-	-	-	(544)	(544)	-	(544)
Tax recognised on other comprehensive income	-	-	-	(63)	-	-	-	-	36	(27)	-	(27)
Total other comprehensive income/(expense)	-	-	2,594	286	-	-	-	-	(508)	2,372	-	2,372
Total comprehensive income/(expense) for the year	-	-	2,594	286	-	-	-	-	4,630	7,510	(356)	7,154
Transactions with owners recorded directly in equity
Equity settled share-based payment transactions	-	-	-	-	-	-	-	471	-	471	-	471
Dividends paid	-	-	-	-	-	-	-	-	(1,053)	(1,053)	-	(1,053)
Total contributions by and distributions to owners	-	-	-	-	-	-	-	471	(1,053)	(582)	-	(582)
At 31 May 2017	3,314	73,955	(988)	224	211	1,530	1,022	936	57,694	137,898	29	137,927

Group	Share capital £000	Share premium £000	Translation reserve £000	Hedging reserve £000	Other reserves £000	Capital redemption reserve £000	Merger reserve £000	Share based payment reserve £000	Retained earnings £000	Total parent equity £000	Non-controlling interest £000	Total equity £000
At 1 June 2017	3,314	73,955	(988)	224	211	1,530	1,022	936	57,694	137,898	29	137,927
Total comprehensive income for the year
Profit/(loss) for the year	-	-	-	-	-	-	-	-	229	229	(48)	181
Other comprehensive income/(expense)
Foreign exchange translation differences	-	-	(22)	-	-	-	-	-	-	(22)	-	(22)
Effective portion of changes in fair value of cash flow hedges	-	-	-	1,123	-	-	-	-	-	1,123	-	1,123
Remeasurements of defined benefit pension schemes	-	-	-	-	-	-	-	-	(857)	(857)	-	(857)
Tax recognised on other comprehensive income	-	-	-	(192)	-	-	-	-	120	(72)	-	(72)
Total other comprehensive income/(expense)	-	-	(22)	931	-	-	-	-	(737)	172	-	172
Total comprehensive income/(expense) for the year	-	-	(22)	931	-	-	-	-	(508)	401	(48)	353
Transactions with owners recorded directly in equity
Equity settled share-based payment transactions	-	-	-	-	-	-	-	107	-	107	-	107
Dividends paid	-	-	-	-	-	-	-	-	(2,300)	(2,300)	-	(2,300)
Total contributions by and distributions to owners	-	-	-	-	-	-	-	107	(2,300)	(2,193)	-	(2,193)
At 31 May 2018	3,314	73,955	(1,010)	1,155	211	1,530	1,022	1,043	54,886	136,106	(19)	136,087

 

Cash Flow Statements 

for year ended 31 May 2018

		Group
		2018 £000	Represented*2017 £000
Cash flows from operating activities
Profit for the year from continuing operations		1,181	5,315
Adjustments for:
Depreciation and impairment of property, plant and equipment		12,936	14,850
Impairment of investment properties		621	-
Amortisation and impairment of goodwill and intangible assets		880	315
Net finance expense		1,311	2,092
Share of profit in associates and joint ventures (net of tax)		(3,175)	(5,487)
Loss/(profit) on sale of property, plant and equipment		185	(1,716)
Equity settled share-based payment expenses		107	471
Income tax credit		(693)	(569)
Contributions to defined benefit pension schemes		(1,829)	(1,516)
Translation of non-controlling interest and investments		(24)	(373)
		11,500	13,382
Change in inventories		10,976	17,828
Change in trade and other receivables		(2,984)	2,271
Change in trade and other payables		(387)	6,608
Change in provisions and employee benefits		(1,475)	1,478
		17,630	41,567
Net interest paid		(905)	(1,306)
Income tax received/(paid)		1,127	(6,994)
Net cash inflow from continuing operating activities		17,852	33,267
Net cash (outflow)/inflow from operating activities in discontinued operations		(1,017)	217
Net cash inflow from operating activities		16,835	33,484
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		1,001	5,282
Acquisition of subsidiaries (net of cash acquired)		-	(248)
Acquisition of investment property		(469)	-
Acquisition of property, plant and equipment		(20,758)	(15,782)
Net cash outflow from investing activities in continuing operations		(20,226)	(10,748)
Net cash outflow from investing activities in discontinued operations		(4,309)	(4,189)
Net cash outflow from investing activities		(24,535)	(14,937)
Cash flows from financing activities
Payment of finance lease liabilities		(5,461)	(8,612)
Dividends paid		(2,300)	(1,053)
Proceeds from/(repayment of) Group banking facilities		3,800	(2,500)
Net cash outflow from financing activities		(3,961)	(12,165)
Net (decrease)/increase in cash and cash equivalents		(11,661)	6,382
Cash and cash equivalents at 1 June		27,817	21,161
Effect of exchange rate fluctuations on cash held		(46)	274
Cash and cash equivalents at 31 May		16,110	27,817

* Comparative figures have been represented to reflect the discontinued operation under IFRS 5, as explained in Note 1.

1. Basis of preparation and status of financial information

The financial information set out above has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU (Adopted IFRSs).

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 May 2018 or 31 May 2017. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by was of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The accounting policies set out in the Group's statutory accounts, unless otherwise stated, been applied consistently to all periods presented. The Board has determined that the Energy business is to be disposed and so in accordance with IFRS 5, the disposal group has been treated as an Asset Held for Sale and the comparative figures have been represented in the Income Statement. The impact of this change in accounting treatment is set out in Note 5.

These results were approved by the Board of Directors on 31 July 2018.

2.  Segmental Information

The following analysis by industry segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are regularly reviewed by the Board of Directors (the Chief Operating Decision Maker as defined by IFRS 8) to assess performance and make strategic decisions about allocation of resources.

The sectors distinguished as operating segments are Distribution & Services, Property, Legacy and Corporate. The segments have been changed during this year, following the reclassification of Energy as a discontinued business. The comparative period has been restated accordingly.

·      Distribution & Services: Provides coal distribution, including mining operations, materials handling and contracting services and logistics to a range of industrial, wholesale and public sector customers. The business unit also provides earth moving and infrastructure services across the UK and trades in plant and machinery.

·      Property: The development and realisation of value from the land portfolio including rental income from investment properties.

·      Legacy: The realisation of surplus assets which are not associated with the continuing operations into cash in a timely manner, whilst obtaining full value.

·      Corporate: The corporate overhead contains the central functions that are not devolved to the individual business units.

These segments are combinations of subsidiaries, jointly controlled entities and associates. They have separate management teams and provide different products and services. The four operating segments are also reportable segments.

Underlying Operating Profit is defined by the Board as Operating Profit prior to exceptional items, amortisation and impairment of intangible assets and includes the Group's share of the operating profit of its German associate.

The segment results, as reported to the Board of Directors, are calculated under the principles of IFRS. Performance is measured on the basis of underlying operating profit/(loss), which is reconciled to profit/(loss) before tax in the tables below:

Continuing operations	Distribution & Services 2018 £000	Property 2018 £000	Legacy 2018 £000	Corporate 2018 £000	Total 2018 £000
Revenue
Total revenue	286,188	11,730	4,706	-	302,624
Intra-segment revenue	(5,505)	-	-	-	(5,505)
Revenue from external customers	280,683	11,730	4,706	-	297,119
Underlying operating profit/(loss)	12,872	2,085	46	(5,554)	9,449
Amortisation and impairment of intangibles	(880)	-	-	-	(880)
Taxation on associates and joint ventures	(1,632)	-	-	-	(1,632)
Exceptional items	(3,484)	-	-	-	(3,484)
Operating profit/(loss) including share of associate	6,876	2,085	46	(5,554)	3,453
Interest on associates and joint ventures					(1,654)
Net financing costs					(1,311)
Profit before taxation					488
Depreciation charge	(12,019)	(467)	-	(450)	(12,936)
Capital expenditure	(23,421)	(5,545)	-	(295)	(29,261)
Net assets/(liabilities)
Segment assets	203,256	34,115	28,547	5,384	271,302
Segment liabilities	(93,634)	(6,492)	-	(45,205)	(145,331)
Segment net assets/(liabilities)	109,622	27,623	28,547	(39,821)	125,971
Associates and joint ventures					10,116
Total net assets					136,087

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

Continuing operations	Distribution & Services 2017 £000	Represented*Property & Energy 2017 £000	Legacy 2017 £000	Corporate 2017 £000	Represented*Total 2017 £000
Revenue
Total revenue	327,601	3,356	17,214	554	348,725
Intra-segment revenue	(6,019)	-	-	-	(6,019)
Revenue from external customers	321,582	3,356	17,214	554	342,706
Underlying operating profit/(loss)	13,695	1,845	101	(4,613)	11,028
Amortisation of intangibles	(315)	-	-	-	(315)
Taxation on associates and joint ventures	(2,873)	-	-	-	(2,873)
Exceptional items	(470)	-	-	-	(470)
Operating profit/(loss) including share of associate	10,037	1,845	101	(4,613)	7,370
Interest on associates and joint ventures					(532)
Net financing costs					(2,092)
Profit before taxation					4,746
Depreciation charge	(11,128)	(644)	-	(423)	(12,195)
Capital expenditure	(14,756)	(5,319)	-	(378)	(20,453)
Net assets/(liabilities)
Segment assets	202,924	28,791	40,090	3,023	274,828
Segment liabilities	(98,464)	(7,099)	(5,560)	(32,695)	(143,818)
Segment net assets/(liabilities)	104,460	21,692	34,530	(29,672)	131,010
Associates and joint ventures					6,917
Total net assets					137,927

*Comparative figures have been represented as explained in note 1.

Corporate net assets include Group banking facilities liability (£32.3m), cash and cash equivalents (£0.7m liability), derivative financial instruments (£0.1m liability), deferred and corporation tax balances (£4.3m asset) and other corporate items (£0.9m liability).

3   Exceptional items

The Group incurred a number of exceptional items in the year relating to the C. A. Blackwell subsidiary, additionally the Group has written back an element of the mining cost impairment taken in the prior year due to favourable changes in market conditions:

	2018 £000	2017 £000
Reversal of impairment loss on receivables due from Tower Colliery Ltd	-	2,000
Credit/(cost) associated with early closure of certain mining operations	410	(1,874)
Net losses on legacy contracts in C. A. Blackwell	(3,435)	(3,380)
Impairment of Property, Plant and Equipment	-	(2,277)
Cash recovery from discontinued operation	-	1,096
Historic plant rebate	-	3,280
Liquidator dividend	-	796
Other restructuring costs relating to C. A. Blackwell	(459)	(111)
Total	(3,484)	(470)

4   Taxation

Recognised in the Income Statement

	2018 £000	Represented*2017 £000
Current tax
Current year	469	325
Adjustments for prior years	(173)	(1,230)
Current tax expense/(credit)	296	(905)
Deferred tax Origination and reversal of temporary timing differences	(712)	191
Adjustments for prior years	(277)	67
Reduction in tax rate	-	78
Deferred tax (credit)/charge	(989)	336
Tax credit in income statement (excluding share of tax of equity accounted investees)	(693)	(569)
Share of tax of equity accounted investees	1,632	2,873
Total tax expense from continuing operations	939	2,304

*Comparative figures have been represented as explained in note 1.

Recognised in Other Comprehensive Income

	2018 £000	2017 £000
Deferred tax (expense)/income
Effective portion of changes in fair value of cash flow hedges	(192)	(63)
Remeasurements of defined benefit pension schemes	120	36
	(72)	(27)

Reconciliation of Effective Tax Rate

	2018 £000	2017 £000
Profit for the year from continuing operations	1,181	5,315
Total tax expense (including share of tax of equity accounted investees)	939	2,304
Profit excluding taxation from continuing operations	2,120	7,619
Tax using the UK corporation tax rate of 19.00% (2017: 19.83%)	403	1,511
Effect of tax rates in foreign jurisdictions	741	1,276
Unrecognised tax losses	(508)	-
Non-deductible expenses	753	598
Reduction in tax rate on deferred tax balances	-	78
Adjustment in respect of previous periods	(450)	(1,159)
Effective tax rate and total tax expense	939	2,304

The current tax adjustment in respect of prior years relates to the refund of taxes received from HMRC following the carry back of losses.

The UK corporation tax rate reduced to 19% on 1 April 2017, giving an effective base rate of 19.00% (2017: 19.83%).

Factors That May Affect Future Current and Total Tax Charges

The UK corporation tax rate reduced from 20% to 19% (effective from 1 April 2017) and remained at 19% for the tax year beginning 1 April 2018. On 16 March 2016 it was announced that the main rate of UK Corporation Tax would reduce further to 17% on 1 April 2020. This change was substantively enacted on 6 September 2016. This will reduce the Group's current tax charge accordingly. The deferred tax balances at 31 May 2018 have been calculated based on the rate of 17%, the rate substantively enacted at the Balance Sheet date.

5      Discontinued Operations and Assets Held for Sale

All discontinued operation results are attributable to equity holders.

The Group is in advanced discussion to dispose of its investment in Brockwell Energy Limited as announced on 8 June 2018, meaning that the Group will no longer continue with Energy as a business stream. As such, this business unit has been classified as discontinued, and the associated assets have been classified as held for sale, with the results for the comparative period represented accordingly. The Group's discontinued operations made a loss of £1,000,000 (2017: £533,000) after tax during the year.

	2018 £000	2017 £000
Revenue	-	163
Gross profit	-	163
Other operating income	-	67
Administrative expenses	(1,144)	(888)
Loss before tax of discontinued operations	(1,144)	(658)
Current tax credit	91	125
Deferred tax credit	53	-
	144	125
Loss for the year from discontinued operations	(1,000)	(533)

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

Assets Held for Sale	2018 £000	2017 £000
Property, plant and equipment - Land and Buildings	8,433	-
Property, plant and equipment - Other	9,016	5,040
Goodwill	383	-
Other current assets	138	-
Other current liabilities	(1,310)	-
Total assets held for sale	16,660	5,040

 

6      Earnings per Share

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

	2018			Represented* 2017
	Earnings	EPS	DEPS	Earnings	EPS	DEPS
	£000	Pence	Pence	£000	Pence	Pence
Underlying earnings per share from continuing operations	4,764	14.90	14.79	6,301	19.79	19.53
Exceptional items and amortisation (net of tax)	(3,535)	(11.06)	(10.97)	(630)	(1.98)	(1.95)
Continuing basic earnings per share	1,229	3.84	3.82	5,671	17.81	17.58
Discontinued operations	(1,000)	(3.12)	(3.11)	(533)	(1.67)	(1.65)
Basic earnings per share	229	0.72	0.71	5,138	16.14	15.93
Weighted average number of shares		31,981	32,214		31,842	32,267

*Comparative figures have been represented as explained in note 1.

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

Underlying EPS from continuing operations

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

7   Posting of Report & Accounts

The Group confirms that the annual report and accounts for the year ended 31 May 2018 will be posted to shareholders as soon as practicable and a copy will be made available on the Group's website:

www.hsgplc.co.uk

 

END

 

 

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