Preliminary Results Year ended 31 May 2019 1 Preliminary Results - - PowerPoint PPT Presentation

1 Preliminary Results – Year ended 31 May 2015

Preliminary Results

Year ended 31 May 2019

Headlines

2

Headlines

• Revenue increas

eased ed by 1.9% % to £302.6m

• Underlyi

ying Operating ng Profit it* increas ased by 6% and margin in improv

• ved

ed to 3.3%

• Underlyi

ying EPS increas ased by 2.7%

• Exceptional

ional provision isions s of £8m for r Wolf and £8m for British sh Steel insolven lvencie ies

• Dispos
• sal of Brockwel

ell l Energy successfu sfull lly closed ed with a £5m gain

• Conditional

ional sale e of first st two developme ment plots s at Blindwells ls exchanged, worth over £10m

Preliminary Results – Year ended 31 May 2019

Underlying Operating Profit (FY18: £9.4m) Underlying EPS (FY18: 14.9p) Dividend Per Share (FY18: 7.2p) Net Debt (FY18: £30.8m)

£10.0m 15.3p 7.2p £17.9m

*Underlying Operating Profit is a key indicator by which the Board monitors financial performance and is defined by the Board as Operating Profit from continuing

• perations prior to exceptional items, amortisation and impairment of intangible assets and includes the Group’s share of the operating profit of its German associate

Major Events

3

Brockwell – The Group success ssfu full lly y sold Brockwel ell l Energy Limited, ed, resultin ing in a profit it on disposa sal l of £5m. The gross proceeds s of £21.7m m were applied to reduce short term debt. Potential ial £2m further er cash and profit it followin lowing finan ancial cial close at Westfi fiel eld by FY21. The Group expects to benefit in the future from m rental l income mes s from

• m the Westfie

ield ld EfW plant and windfar arms ms to be developed by Brockwel ell l on land assets s owned by Hargreav eaves. es. Wolf Minerals – One of the Group’s customers ceased trading in October, resulting in £5m Debt and WIP write off f and a further er £3m of redundancy, demobili lisa sation ion and other plant relat ated costs. s. Hargreave aves s is well position ioned ed to secure any restor

• ration

ion or other work which may arise se at the site in due course se. British Steel – Follow

• win

ing the decision ion to place British ish Steel into liquidat ation ion, the Group has made an £8m provision sion again inst st WIP , debtors, s, plant and employment liabil ilitie ities, s, £1m lower than initial ially ly estimat ated. The Group is continuin ing to work k for r the Offic icia ial l Receive ver r while the future of British ish Steel is determin ined.

Preliminary Results – Year ended 31 May 2019

Business overview

Gordon Banham, Chief Executive Officer

Distribution and Services – P&D

5

Outlook

• UK mining strategy continues to evolve;
• This will generate substantial cash inflows in FY21 and FY22 resulting from the unwind of the coal

stock and the disposal of surplus assets.

Preliminary Results – Year ended 31 May 2019

Estima mated d cash inflow

• w from evolution
• n of

mining g strategy gy:

£20m

UK Production and Distribution business stable

• Represents coal production and distribution, including HRMS

(German associate). FY19 Headlines

• Efficient mining operations throughout FY19;
• Transport operations profitable due to focus on waste sector.

Distribution and Services – P&D (HRMS)

6 Preliminary Results – Year ended 31 May 2019

HRMS trading down due to lower industrial activity in Germany FY19 Headlines

• Group’s share of UOP from HRMS was £3.3m (2018: £6.5m), reflecting reduced levels of German

industrial activity. Outlook

• Carbon Pulverisation Plant – Build is nearing

completion, trial production in autumn 2019, expected to breakeven in first year of operations, with sustainable growth expected in future years;

• Plant production capacity of 400kt, orders in place

for 70kt per annum, with trials with other customers in the steel and cement industries;

• HRMS working to increase visibility of future

earnings without committing further substantial capital.

• 5.0

10.0 15.0 20.0 25.0 30.0 35.0 FY17 FY18 FY19 FY20 FY21 FY22

UK Balance Sheet Exposure to HRMS

Actual Expected £m

Distribution and Services – Industrial Services

7

Industrial Services - UK

• HIS trading is focused on materials handling in industrial complexes;
• HIS to focus on expanding range of mechanical and electrical engineering services.

Outlook

• UK growth impacted by the British Steel insolvency, reducing revenue by £1m per month;
• UK outlook, excluding British Steel, remains stable with continued focus on contract selectivity.

Industrial Services – Hong Kong

• 34% growth in revenue in FY19 with broader range of engineering services;
• Successful award of 5 year China Light and Power contract, securing our position in the Hong Kong

market. Outlook

• Hong Kong business focused on organic growth and customer diversification.

Preliminary Results – Year ended 31 May 2019

Distribution and Services – Specialist Earthworks

8

Focus on Major Infrastructure projects

FY19 Headlines

• Legacy contracts now completed on site, final account discussions ongoing, £9.2m to recover.

Outlook

• Business is now focused only on Major Earthmoving projects, such as the recent works on the A14;
• A leading ECI consultancy adviser on major earthworks schemes;
• Secured supply position to major consortium on HS2;
• HS2 enabling works commenced on site in early June;
• Leading innovative solutions including the first driverless ADT.

Preliminary Results – Year ended 31 May 2019

Legacy

9

• Remaining assets relate solely to the operations at T
• wer Colliery;
• Further realisations expected in FY20.

Preliminary Results – Year ended 31 May 2019

60.1 34.5 28.6 12.8

• 10.0

20.0 30.0 40.0 50.0 60.0 70.0 May 16 May 17 May 18 May 19

Legacy asset profile

£m

Hargreaves Land

David Anderson, Group Property Director

Hargreaves Land

11

• Property identified as area for investment to deliver future growth;
• Goal is to be a property developer not a long term owner of investment properties;
• Focus on projects where limited speculative investment required and exits secured in advance;
• Current target areas continue to be the North of England and Scotland where Hargreaves Land is

already established;

• Aim to maintain broad multi-sector exposure across residential, industrial/logistics and specialist

retail, reflecting current market demand, through joint ventures and partnerships as appropriate;

• Further sales of non-strategic land, with £5m targeted for FY20;
• Typically, returns from investment in property development can take three years.

Preliminary Results – Year ended 31 May 2019

Reside dential plots s with planning conse sent:

4,700

Commercial and indu dustri rial space with planning g conse sent:

3.5 million sq ft

Value of non-st stra rategi gic property disp spos

• sals

s in year:

£11.8m

Hargreaves Land - Blindwells

12

Blindwells

• Conditional sale contracts valued

at over £10m exchanged with Bellway and Cruden;

• Both sales forecast to complete in

FY20;

• Second phase of residential plot

sales, totalling 13 acres, to be marketed in Q4 2019 with sales expected to complete in FY21;

• Blindwells forecast to continue to

be a significant revenue generator

• ver the next 10 years.

Preliminary Results – Year ended 31 May 2019

Reside denti tial plots ts with th planning conse sent: t:

1,600

Cruden en Homes Bellway lway Target Sept 19 Release lease

Hargreaves Land - Hatfield

13

Hatfield

• Post year end, Hargreaves entered into a 50:50

JV with regional developer Waystone on a 600 acre mixed use development in Doncaster;

• Planning permission granted for 3,100 homes,

1.5m sq ft of industrial, logistics and commercial development;

• Direct access to the national motorway network

via M18/M180 and adjacent established passenger rail station;

• Development of SCR funded £12m access road

commenced and due to complete in Q4 2020;

• Initial sales of residential plot sales targeted for

completion in 2021.

Preliminary Results – Year ended 31 May 2019

Hargreaves Land - Westfield

14

Westfield

• Unrestored former open cast mine with planning

permission for 1 million sq ft of industrial and warehousing space on 100 acres;

• Brockwell Energy working to the financial close of

the EfW plant at Westfield targeted for FY21;

• Successful financial close will trigger:
• £2m of contingent consideration receivable

from Brockwell sale;

• Signing of a long term lease at a

commercial rate with annual RPI linked rental uplifts;

• EfW to provide low cost heat and power to rest
• f site, encouraging other occupiers.

Preliminary Results – Year ended 31 May 2019

Brockwel well l EfW

• Financial Results

John Samuel, Group Finance Director

Income Statement

16

Year ended 31 May 2019 £m 2018 £m Movement % Revenue 302.6 297.1 +1.9% Unde derl rlying g Operating g Profit* 10.0 3.3% 9.4 3.2% +6.4% Net Interest st Expense (incl asso sociate interest st charge ge) (2.6) (2.9) Unde derl rlying g Profit Before T ax 7.4 2.4% 6.5 2.4% Exception

• nal Items,

s, Amortisation

• n and

d T ax on Assoc sociate (17.1) (6.0) (Loss ss)/pr )/profit before T ax (9.7) 0.5 T ax 1.6 0.7 Loss ss for the Period (8.1) 1.2 Discon

• ntinued

d Operation

• ns

3.5 (1.0) Loss ss for the period (4.6) 0.2 Unde derl rlying g EPS EPS 15.3p (25.7)p 14.9p 3.8p Divide dend d Per Share 7.2p 7.2p

*Underlying Operating Profit is a key indicator by which the Board monitors financial performance and is defined by the Board as Operating Profit from continuing

• perations prior to exceptional items, amortisation and impairment of intangible assets and includes the Group’s share of the operating profit of its German associate.

Preliminary Results – Year ended 31 May 2019

Adjustments to Underlying Operating Profit

17

Year ended 31 May 2019 £m 2018 £m Exceptional items – losses related to the insolvency of Wolf Minerals 8.1

• Exceptional items – losses related to the insolvency of British Steel

8.0

• Exceptional items - losses on legacy contracts & restructuring in C A Blackwell
• 3.9

Exceptional items – reversal of costs relating to mining operations

• (0.4)

Amortisation of intangible assets 0.1 0.9 T ax on German associate 0.9 1.6 Total 17.1 6.0

Preliminary Results – Year ended 31 May 2019

Overview by Business Segment

18

Underlying Operating Profit

£12.1m

(FY18: £12.9m)

£2.2m

(FY18: £2.1m)

£(4.3)m

(FY18: £(5.6)m)

Distribution & Services Hargreaves Land Corporate overhead

Underlying Operating Profit Underlying Operating Expense Revenue Underlying Operating Profit Revenue Underlying Operating Profit Year ended 31 May 2019 £m 2019 £m 2018 £m 2018 £m Produ duction

• n & Distri

ribu bution

• n

119.4 3.2 137.4 3.5 HRMS S (Germa many) y)

• 3.3
• 6.5

Indu dust stri rial Services 87.4 3.8 70.0 2.4 Specialist Earthwor

• rks

87.0 1.8 78.8 0.5 Hargr greaves ves Land 2.8 2.2 11.7 2.1 Inter divisi sion

• n/Cor

Corpor porate/Le Lega gacy 6.0 (4.3) (0.8) (5.6) T

• tal

302.6 10.0 297.1 9.4 Underlying operating margin 3.3% 3.2%

Preliminary Results – Year ended 31 May 2019

Balance Sheet and Asset Allocation

19

31 May 19 HRMS UK P&D HIS Earthworks Land Other May 19 May 18 Tangible FA's

• 20.6

6.4 14.8 12.9 0.8 55.5 65.8 Goodwill and Investments 23.5 6.3 1.3 3.4

• 34.5

33.1 Inventory

• 29.9
• 1.8

16.3

• 48.0

36.7 Other Working Capital

• (8.5)

(9.8) 8.3 3.3 1.3 (5.4) (4.9) Brockwell and Legacy Assets

• 12.8

12.8 36.2 Finance lease debt

• (4.2)

(1.2) (7.2)

• (12.6)

(7.6) Net bank debt and cash

• (5.3)

(5.3) (23.2) Total Capital Employed 23.5 44.1 (3.3) 21.1 32.5 9.6 127.5 136.1 .1 31 May 18 HRMS P&D HIS Earthwork

• rks

Land Other T

• tal

T

• tal Capital Employ
• yed

21.9 43.0 3.9 12.0 29.8 25.5 136.1 .1 Analysi sis of movement Net capex/d x/depr preciation

• n
• (5.9)

2.9 (4.9) (2.3) (0.1) (10.3) .3) Undi distri ribu buted share of earnings gs 1.6

• 1.6

Inventor tory/Wor

• rking capital

tal movement

• 8.4

(8.9) 16.4 5.0 (10.3) .3) 10.8 Realisation

• n of Brockwell and Legacy
• (23.4)

.4) (23.4) .4) Increase se in finance lease se debt

• (1.4)

(1.2) (2.4)

• (5.0)

Decrease se in net bank debt and d cash sh

• 17.9

17.9 T

• tal movement in net asse

sets 1.6 1.1 (7.2) 9.1 2.7 (15.9) .9) (8.6)

Preliminary Results – Year ended 31 May 2019

Balance Sheet and Asset Allocation

20 Preliminary Results – Year ended 31 May 2019

31 May 19 HRMS UK P&D HIS Earthworks Land Other May 19 Capital Employed 23.5 44.1 (3.3) 21.1 32.5 9.6 127.5 Underlying EBITDA 3.3 11.8 4.8 7.7 2.4 (3.9) 26.1

Capital Employed

• Capital invested in Hargreaves Land to

grow from 25% to 40% of total by May 2022, as investment in UK Production and Distribution and Earthworks declines. IFRS 16

• IFRS 16 applies for FY20 onwards. At 31

May 19 this would have had the effect of increasing the capital employed for the group by £6m. Impact on income statement is immaterial.

• 20%

0% 20% 40% 60% 80% 100% FY19 FY20 FY21 FY22

Forecast capital employed

UK P&D HRMS HIS Earthworks Legacy Land

Movement in Net Debt

21

Year ended 31 May 2019 2019 £m Net Debt at 1 June 2018 (30.8) Unde derl rlying g Operating g Profit 10.0 UOP from HRMS (3.3) Exception

• nal items

(16.1) Depreciation

• n

16.1 Profit on disp spos

• sal of fixed

d asse sets (4.4) Net capital expendi diture 3.8 New finance lease ses (12.3) Developme ment expendi diture at Blindw dwells (7.0) Working capital movements 15.2 Pensi sion

• n scheme

me contri ribu bution

• ns

(1.7) Interest st, , tax & divide dends ds (3.1) Discon

• ntinued

d operation

• n

15.7 Net Debt at 31 May 2019 (17.9)

Proceeds of disposal £21.7m Admin expenses £(7.4)m Current year investment £(0.2)m Cash from Belgian insurance £1.6m Mining £(5.8m) Plant £(£1.2)m Other £(1.4)m Disposals £12.2m Assets for Sale £9.0m Other working capital £6.2m

Preliminary Results – Year ended 31 May 2019

Interest £(1.1)m Tax £0.3m Dividend £(2.3m) HP £(12.6)m Bank debt £(5.3)m HP £(7.6)m Bank debt £(23.2)m

Group Strategy

Gordon Banham, Chief Executive Officer

Group Strategy for Value Creation

23

Coal mining Hargreaves Land

Cash Generation and Investment Distribution & Services Trading

Deliver growing trading profits, low future capital requirement

Shareholder Returns

Expected incremental annual HRMS dividend:

12.0p

per share commencing in FY21

• Realisation of cash from remaining

legacy assets and coal mining activities, estimated to be around £20m across FY21 and FY22;

• Associated investment into the

development and growth of Hargreaves Land.

• Organic development of Industrial

Services businesses, both in the UK and Asia;

• Trading in good margin speciality coal

markets within the UK, together with the waste transport business;

• Streamlined Specialist Earthworks

business to focus on major infrastructure projects only;

• Carbon pulverisation plant to provide

resilience to HRMS trading results;

• Board to maintain policy of progressive

dividend in line with underlying business growth;

• Repatriation of dividends received from

Germany expected to deliver incremental dividends to Shareholders to be payable to shareholders in FY22 and ongoing

Preliminary Results – Year ended 31 May 2019

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.

24 Preliminary Results – Year ended 31 May 2019