Hargreaves Services plc Preliminary Results Year ended 31 May 2018 - - PowerPoint PPT Presentation

SLIDE 1

Preliminary Results

Year ended 31 May 2018

Hargreaves Services plc

SLIDE 2

Results and Outlook

• Overall

ll underlyin ing perfor

• rman

mance e in line with managem emen ent expectation ions

• Distribu

ribution ion & Service ces s underlyi ying operati ating margin in improve ved to 4.6% % (2017: 4.3%) %)

• Full year

r dividend maintain ained ed at 7.2p

• Property

y marke ket value e £20m m uplift, worth 62p per share

• £28m addition

ional al development nt value uplift worth h a furthe her r 87p per share implyin ing total l of 573p per share

• Cash realisa

isation ion from

• m Legacy assets

s progress ssin ing

• Spin off

f of Brockwel ell l Energy expected to achieve ve finan ancia ial l close se within the next few months

• Underlying operating profit is a key indicator by which the Board monitors financial performance and 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.

*

Highlights

2

Underlying Operating Profit*

£9.4m

(FY17: £11.0m) Underlying EPS

14.9p

(FY17: 19.8p) Dividend Per Share

7.2p

(FY17: 7.2p) Net Assets

£136.1m

Equivalent to 424p per share

Preliminary Results – year ended 31 May 2018

SLIDE 3

Strategy & Operations

Gordon Banham, Chief Executive Officer

SLIDE 4

Good Progress on Strategic Goals

4

Distribution & Services Energy & Property Legacy

Underlying Operating Profit:

£10m - £15m

Incremental Value Generation:

£35m - £50m

Legacy Assets:

£29mremaining

• Achieved

d in 2017 financial year and sustained d in 2018

• Impr

prov

• ved

d underlying g operating g margi gins

• UK coal business

ss focuse sed d on speciality coal

• Logist

stics s returns to profitabi bility

• Specialist

st Earthwor

• rks

s appointed as strategi gic partner on HS2

• Industr

strial Services s focused d on core compet petencies s in the UK and Hong g Kong

• Red Book valuation
• n in July 2018

ascribed bed market value of £50m m and a develop

• pme

ment value of £78m

• £20m

m market value uplift to book value

• Non-str

strategi gic site realisations s ongoi

• ing
• Sale of first

st develop

• pment plot
• t at

Blindw dwells now expected d around the end

• f 2018
• David

d Anderson

• n recruited

d as Group

• up

Prop

• perty Director
• r
• Broc
• ckwell Energy

gy spin-of

• ff process

ss well advanced

• £31m cash

sh realisati sation

• n since 31 May

2016 2016

• £17.2m

.2m T

• wer

r joint venture loan

• £11.5m

.5m surpl plus plant and d stock

• Furth

ther r plant t realisati tion

• n of £6m post

period d end

Preliminary Results – year ended 31 May 2018

SLIDE 5

5 Preliminary Results – year ended 31 May 2018

Production & Distribution

Market condi dition

• ns

s remain favou

• ura

rabl ble

Specialist Earthworks

Focus s on contract selectivity and d risk mitiga gation

• n

Industrial Services

Growth and improved d margins

• Speciality coal price resilient
• Stron
• ng

g yield of speciality coal from House se of Water r mine

• UK UOP up to £3.5m (FY17 £0.7m)
• German assoc

sociate UOP £6.5m (FY17 £8.8m)

• Logist

stics s busi siness ss merged into

• CPD and

d return rned d to profit

• Revenue reduced

d to £78.8m .8m (FY17 £108.6m .6m) ) due to contra ract selectivity

• Legacy civils contra

racts s incurr rred further r loss sses s but now near completion

• n
• £3.9m

m of exception

• nal losse

ses s recorded re legacy contracts

• Revenue up 7% to £70m

m (FY17 £65.4m) .4m)

• UOP up 33% to £2.4m (FY17 £1.8m)
• Operating

g margin improv

• ved

d to 3.4% (FY17 2.7%)

• Hong

g Kong g up 23% to £20.4m .4m (FY17 £16.6m) .6m)

• Intern

rnation

• nal profitabl

ble at £0.7m m (FY17 £0.3m m loss ss)

Operating Performance – Distribution & Services

SLIDE 6

Hargreaves Raw Materials Services – German Associate

6

German associate continues to trade well

• Good tradin

ing continued althou

• ugh lower than very stron
• ng FY

FY17 17

• £6.5m UOP

UOP (FY17 17: £8.8m) m)

• €27

27m investme ment in in Carbon

• n Pulverisa

isation

• n Plant – funding in

in place and constru ruction ion started

• €15

15m Funding via via German an regional al governme ment and German man banking ng relat ation ionsh ships ips

• No

No material rial impact ct on

• n UK

UK banking arra rangeme ments and no no changes to to security ity

• CPP to

to provide ide consist sten ent material rial avail ilab abil ility ity adding resili lien ence to to future tradin ing

• Plant to

to be be operati ationa

• nal early

ly in in FY FY20 20

Preliminary Results – year ended 31 May 2018

SLIDE 7

Investment in HRMS

7

Hargreaves Services plc

• Original

nal €10 10m interest st bearin ing loan with €5m guaran antee – relates to to HRMS worki king ng capital al faci cili litie ies

• New €3m interest

st bearin ing loan an for investme ment in in Carbon

• n Pulverisa

risation ion Plant

• €10

10m HS HS plc retain ined ed profits its held on

• n HRMS balan

ance ce sheet to to fund Carb rbon

• n Pulverisa

risation ion Plant

• Divide

idends to to be be resumed in in FY FY21 21

• By

By FY FY23 23, UK UK exposure returns to to pre Carb rbon

• n Pulverisa

risation ion Plant project ct level HRMS Management

• €3m loans to

to fund Carbon

• n Pulverisa

isation ion Plant

• €2m manageme

ment nt retain ined ed profit its held on

• n HRMS balance

ce sheet to to fund Carbon

• n Pulverisa

isation ion Plant

Preliminary Results – year ended 31 May 2018

Hargreaves Services plc is supporting HRMS alongside management

SLIDE 8

8 Preliminary Results – Year ended 31 May 2018

Independent Red Book valuation has confirmed Development Value of £78m for portfolio of property with a combined book value of £30m

Category Book Value £m Market Value £m Development Value £m Residential 8.4 21.9 37.7 Commercial / Industrial 9.0 12.0 21.2 Operational/Agricultural/Low Grade 10.5 12.3 14.5 Energy 2.2 3.8 4.6 T

• tal

30.1 50.0 78.0 Non-strategic land to be sold (12.0) (12.0) (15.0) Developabl ble land 18.1 38.0 63.0

* Includes land held under short and long leasehold, and land controlled and operated under an option to buy

RICS valuation basis assuming arms length sale on date of valuation Residual valuation basis – market derived forward income less risk premium and costs

• Difference between Market

Value and Development Value = risk adjusted value creation

• pportunity
• The Board assesses and

monitors the forecast time and cost required to realise Development Value on each property

• Seek to realise Market Value of

property as quickly as practical if return is not appropriate

Property Valuation

SLIDE 9

Financial Results

John Samuel, Group Finance Director

SLIDE 10

Income Statement

10

Year ended 31 May 2018 £m 2017 £m Revenue 297.1 346.3 Unde derl rlying g Operating g Profit 9.4 3.2% 11.0 3.2% Net Interest st Expense (includi ding German assoc sociate) (2.9) (2.6) Exception

• nal Items,

s, Amortisation

• n and

d T ax on Assoc sociate (6.0) (3.7) Profit before T ax 0.5 4.7 T ax 0.7 0.6 Profit for the Period 1.2 5.3 Unde derl rlying g EPS Reported d EPS 14.9p 3.8p 19.8p 17.8p Divide dend d Per Share 7.2p 7.2p

Preliminary Results – year ended 31 May 2018

• Underlying operating profit is a key indicator by which the Board monitors financial performance and 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.

SLIDE 11

Adjustments to Underlying Operating Profit

11 Preliminary Results – year ended 31 May 2018

Year ended 31 May 2018 £m 2017 £m Exceptional items – losses on legacy contracts & restructuring in C A Blackwell 3.9

• Exceptional items - other
• (1.5)

Exceptional items – reversal of costs relating to mining operations (0.4) 1.9 Amortisation of intangible assets 0.9 0.3 T ax on German associate 1.6 2.9 Total 6.0 3.6

Note: In the comparative period losses on legacy contracts in C A Blackwell were accounted for in a fair value adjustment to goodwill

SLIDE 12

Overview by Business Segment

12

Underlying Operating Profit

£12.9m

(FY17: 13.7m)

£2.1m

(FY17: £1.8m)

£0.0m

(FY17: £0.1m)

Distribution & Services Property Legacy

Underlying Operating Profit Underlying Operating Profit Revenue Underlying Operating Profit Revenue Underlying Operating Profit Year ended 31 May 2018 £m 2018 £m 2017 £m 2017 £m Produ duction

• n & Distri

ribu bution

• n

137.4 10.0 153.6 9.5 Indu dust stri rial Services 70.0 2.4 65.4 1.8 Specialist Earthwor

• rks

78.8 0.5 108.6 2.4 Inter divisi sion

• n

(5.5)

• (6.0)
• Distri

ribu bution

• n & Services

s T

• tal

280.7 12.9 321.6 13.7 Unde derl rlying g operating margi gin 4.6% 4.3%

Preliminary Results – year ended 31 May 2018

UK £3.5m (2017 £0.7m) HRMS £6.5m (2017: £8.8m)

SLIDE 13

Balance Sheet

13 Preliminary Results – year ended 31 May 2018

May-18 HRMS UK P&D HIS Earthworks Property Other May 18 May 17 Tangible FA's

• 26.5

3.5 18.6 16.3 0.9 65.8 70.7 Goodwill and Investments 21.9 6.3 1.5 3.4

• 33.1

27.8 Inventory

• 17.7
• 5.1

13.8

• 36.7

25.6 Working Capital

• (0.6)

0.1 (3.2) (0.3) (0.9) (4.9) (8.7) Legacy Assets

• 28.5

28.5 34.5 Brockwell

• 7.7

7.7 3.6 Net Debt

• (30.8)

(30.8) (15.7) Net Assets 21.9 49.9 5.2 23.9 29.8 5.4 136.1 137.8 .8 Underlying Operating Profit 6.5 3.5 2.4 0.5 2.1 (5.6) 9.4 ROCE 29.6% 7.0% 47.7% 2.1% 7.0% n/a 6.9% May May-17 17 HRMS P&D HIS Earth thwork works Property ty Other T

• tal

T

• tal Capital Employ
• yed

15.8 48.3 6.8 11.0 32.4 23.5 137.8 .8 Unde derl rlying g Operating g Profit 8.8 0.7 1.8 2.4 1.8 (4.5) 11.0 ROCE 55.6% 1.5% 26.3% 21.8% 5.6% n/a 8.0% Inc/(Dec) in Capital Employed 6.1 1.6 (1.6) 12.9 (2.6) (18.1) (1.7)

SLIDE 14

Cash Flow and Net Debt

14

Year ended 31 May 2018 £m Net Debt at 1 June 2017 (15.7) Unde derl rlying g Operating g Profit 9.4 UOP from HRMS (6.5) Exception

• nal items

(3.5) Depreciation

• n and impairmen

rment 13.5 Net capital expendi diture (18.7) Capex x on invest stme ment property (1.5) New finance lease ses (5.1) Pensi sion

• n scheme

me contri ribu bution

• ns

(1.8) Invest stme ment in Blindw dwells (1.6) Working capital movements 8.1 T axa xation

• n refund

1.1 Interest st & divide dends ds (3.2) Invest stme ment in & loss ss incurred d in Brockwell Energy gy Ltd (Discon

• ntinued)

d) (5.3) Net Debt at 31 May 2018 (30.8)

Preliminary Results – year ended 31 May 2018

Plant £17.6m HGVS £2.2m Maxibrite £1.3m Other £2.6 Inventory £12.6m Debtors (£3.0m) Provisions £(1.5m)

SLIDE 15

Summary & Outlook

Gordon Banham, Chief Executive Officer

SLIDE 16

Summary of Operations

16

DISTRIBUTION & SERVICES

• Marke

ket condition ions s for CPD in UK remain ain favou voura rable

• HRMS transit

sition ionin ing to more sustain ainab able le earni nings ngs profil ile

• Legacy contra

racts s in C A Blackw kwell ll nearly ly completed – profitab able le major

• r term contra

ract cts s ongoing

• Industrial

rial Servic ices es deliverin ring growth and improv

• vin

ing margin ins PROPERTY

• Red Book valuat

uation ion confirms firms £20m m uplift to marke ket value e and £48m m uplift to developme ment value ENERGY

• Brockwe

well ll Energy y spin-off ff well advanc nced ed – finan ancial cial close se expected within the next few months

Group strategy remains to deliver growing profits from Distribution & Services whilst optimising investment in Property to create value

Preliminary Results – year ended 31 May 2018

SLIDE 17

Outlook

17

• Further

r progress ss again inst st key strat ategic ic objectiv ives es

• Healthy

hy balance ce sheet – book value e of net asse sets s equivale lent to 424p per share

• Property

y marke ket value e adds 62p per share

• Develop

lopment nt value uplift adds a furthe her r 87p per share implyin ing total l of 573p per share

• Legacy asset reali

lisa sations

• ns expected to reduce net debt materially

rially by 31 May 2019

• Board anticip

ipat ates s further er improve

• vemen

ent in underlyi ying operati ating profit its and margin ins

Board remains focused on delivering shareholder value

Preliminary Results – year ended 31 May 2018

SLIDE 18

Disclaimer

• No representation or warranty, expressed or implied, is made or given by or on behalf of Hargreaves Services plc (the

“Company”) or any of its directors or any other person as to the accuracy, completeness or fairness of the information contained in this presentation and no responsibility or liability is accepted for any such information.

• This presentation does not constitute an offer of securities by the Company and no investment decision or transaction in the

securities of the Company should be made on the basis of the information contained in this presentation.

• The presentation contains certain information (for example, financial information and internal trading data) which the

Company’s management believes may assist in understanding the performance of the Hargreaves Services plc group (the “Group”). None of the information in the presentation has been audited.

• This presentation may include or imply statements or information that are, or may be deemed to be, "forward‐looking

statements". These forward‐looking statements may use forward‐looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will“ or "should". By their nature, forward‐looking statements involve risks and uncertainties and recipients are cautioned that any such forward‐looking statements are not guarantees of future

• performance. The Company's and the Group’s actual results and performance may differ materially from the impression created

by the forward‐looking statements or any other information in this presentation.

• The Company undertakes no obligation to update or revise any information contained in this presentation, except as may be

required by applicable law and regulation.

• Nothing in this presentation is intended to be, or intended to be construed as, a profit forecast or a guide as to the

performance, financial or otherwise, of the Company or the Group whether in the current or any future financial year.

• This presentation and its contents are confidential and should not be distributed, published or reproduced (in whole or in part)
• r disclosed by recipients to any other person.

18 Preliminary Results – year ended 31 May 2018