Preliminary Results Year ended 31 May 2020 1 Headlines Underlying - - PowerPoint PPT Presentation

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Preliminary Results Year ended 31 May 2020 1 Headlines Underlying - - PowerPoint PPT Presentation

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Preliminary Results Year ended 31 May 2020 1 Headlines Underlying Net Debt Underlying* Final Dividend Profit before Tax* EPS Per Share (incl IFRS 16) 4.9m 19.9p 4.5p 28.1m (FY19: 15.3p) (FY19: 6.4m) (FY19: 4.5p) (FY19:

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SLIDE 1

Preliminary Results Year ended 31 May 2020

1

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SLIDE 2

Headlines

2

Headlines

  • Business

s traded resili liently ly through Covid-19 except for completion ion delays s in Hargreav eaves es Land

  • Revenue decreas

ased to £222.2m (FY19: £302.6m) m) due to expected reduction ions s in Earthwo works rks

  • Underlyi

ying EPS increas ased by 30%

  • Net debt slightly

ly higher than a year ago due to increas ases s in inventor

  • ry
  • Final

l dividend unchanged after r interim im cancell lled as Covid-19 precau aution ion

  • Coal

l mining ceased in July, exceptiona

  • nal provisio

sion of £4.1m

  • £25m condition

ional al contra ract exchange nged at Unity JV for r commercia ial l developme ment

Preliminary Results – Year ended 31 May 2020

Underlying Profit before Tax* (FY19: £6.4m) Underlying* EPS (FY19: 15.3p) Final Dividend Per Share (FY19: 4.5p) Net Debt (incl IFRS 16) (FY19: £24.5m)

£4.9m 19.9p 4.5p £28.1m

*Underlying Profit before Tax is defined by the Board as Profit before Tax prior to exceptional items, amortisation and impairment of intangible assets and includes the Group’s share of the post-tax profit of its German joint

venture excluding fair value gain on acquisition.

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SLIDE 3

What we do…

3

Distribution and Services Industrial Services

Service ices provided: ed:

  • Bulk mater

erials ials handli ling

  • Invent

ntor

  • ry logis

istics ics

  • Mechanical

hanical and elec ectric ical l engine ineerin ering

  • Acce

cess ss servic ices es Indus ustrie ies s suppor

  • rted:

ed:

  • Power

er genera eration ion

  • Steel

el manufac factur ure

  • Port operation

ions

  • Other

er indus ustrial ial comple lexes es Geographi hical cal focus us:

  • UK

UK

  • South East

st Asia ia

Production and Distribution

Service ices provided: ed:

  • Sourcin

cing, , procur urem emen ent and supply ly of

  • f

coal l product ucts

  • Bulk haulag

lage e of

  • f waste

e product ucts Indus ustrie ies s suppor

  • rted:

ed:

  • Cement

nt and brick ck product uction ion (coal) l)

  • Sugar refine

inerie ies s (coal) l)

  • Indus

ustrial ial building lding heating ing and heritage e rail l (coal) l)

  • Waste

e disposal sposal (Trans nspor

  • rt)
  • Medical

ical wast ste e (Trans nspor

  • rt)

Geographi hical cal focus us:

  • UK – Trans

nspor

  • rt focus

used in Northe hern n England land

Specialist Earthworks

Service ices provided: ed:

  • Major
  • r line

near earthw hwork

  • rks

s contract ctor

  • r
  • ECI advice

ce on major infrast struc uctur ure Indus ustrie ies s suppor

  • rted:

ed:

  • Major
  • r UK infrast

struct ucture ure proje ject cts, s, examp mple les include: lude:

  • A14 bypass

ss

  • Heathrow

hrow Termina minal l 5

  • Olympic

ic Park

  • HS2

HS2 Geographi hical cal focus us:

  • UK

UK

Preliminary Results – Year ended 31 May 2020

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SLIDE 4

Major Events

4

Coal Mining – Eff ffic icie ient mining has enabled us to accele lera rate the closu sure of our surfa face e coal l mining activi vitie ies.

  • s. This leads

s to £4.1m exceptiona

  • nal

l closu sure costs s and changes the Hargreav eaves s coal l business ss to a tradin ing model only, supportin ing critical ical industrie ries s with essential ial speciality ality coal. l. Drakelands Restoration – Follow

  • win

ing the collaps lapse of Wolf Minerals als in October r 2018, the Group acquir ired ed variou ious s freehold

  • ld and lease

sehold

  • ld propertie

ies s includin ing the assign ignme ment of the minera ral l lease se at the tungsten mine in Devon n through its subsidiar iary y Dra rakela lands s Restor

  • ration

ion Limited (DRL) RL). The Group sold DRL to Tungsten West Limited on 29 November r 2019 for £2.8m. The benefits s of the deal to Hargreave eaves s Group are:

  • £2.4m profit on disposal of DRL;
  • Ten-year Mining Services Contract (MSC), with a minimum annual fee of £1m for eight years commencing Nov 2021;
  • Advance payment terms on the MSC – reducing the risk of future credit exposure.

British Steel – Following Jingye Group’s purchase of British Steel in March 2020, £1.4m of redundancy provisio sion has been releas

  • ased. Work is continui

uing at a simil ilar ar level to before liquidati ation

  • n.

Preliminary Results – Year ended 31 May 2020

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SLIDE 5

Business overview

Gordon Banham, Chief Executive Officer

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SLIDE 6

Distribution and Services – Production and Distribution

6

Outlook and strategy

  • UK mining has now ended. The demand for essential speciality coal to

support certain critical industries such as cement, brick and sugar will continue and Hargreaves will move towards a lower capital trading model, initially selling down inventory and then using externally sourced coal to satisfy demand

  • This will generate substantial cash inflows in FY21 and FY22 resulting from

the unwind of the coal inventory and the disposal of surplus assets

  • Transport operations to consolidate position within waste sector and in

particular medical waste with minimal capital investment

Operating g profit:

£4.3m

Increase of 34%

Trading Headlines

  • Solid trading conditions in the UK, with UOP growth of 34%

predominantly driven by improvements in waste transportation

Preliminary Results – Year ended 31 May 2020

Margin:

3.9%

Improved from 2.7%

Estima mated d cash inflow

  • w from cessation
  • n of

mining: g:

£30m

Major Customers

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SLIDE 7

Distribution and Services – Industrial Services

7 Preliminary Results – Year ended 31 May 2020

Trading Headlines

  • Revenue flat at £86.4m (FY19: £87.4m)
  • UK revenue grew by 3% to £59.6m (FY19: £57.9m)
  • Overseas revenue down by 9% to £26.8m (FY19:

£29.5m) due to Covid-19

  • Operating profit up 11% to £4.3m (FY19: £3.8m)
  • Operating margin improved to 5.0% (FY19: 4.3%)

Outlook and strategy

  • UK business continues to focus on growth of mechanical and electrical

engineering services to complement materials handling

  • Good visibility of UK revenue for next financial year
  • Hong Kong team focused on organic growth through service and customer

diversification

2.7 3.7 1.1 0.6

  • 0.5

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 May 19 May 20

Industrial Services Underlying Operating Profit

UK International

Major Customers

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SLIDE 8

Distribution and Services – Specialist Earthworks

8

Focus on Major Infrastructure projects

FY20 Headlines

  • Legacy contracts now completed on site
  • Three major final account discussions ongoing, £11.5m to recover, with one almost finalised
  • Major linear earthworks A14 programme completed and settled ahead of budget

Outlook

  • Business is now focused solely on major earthmoving projects
  • A leading earthworks consultancy adviser on major infrastructure schemes
  • Preferred supplier position to Kier/Eiffage/Ferrovial/BAM consortium on HS2
  • Contract negotiations started but precise timing of mobilisation remains uncertain
  • HS2 heave trial works on site
  • Leading innovative solutions including the first driverless ADT

Preliminary Results – Year ended 31 May 2020

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SLIDE 9

Specialist Earthworks – HS2

9 Preliminary Results – Year ended 31 May 2020

7 Key Infrastructure Packages Allocated to 4 Major Consortia

  • Area South (S1 and S2) - SCS JV (Skanska, Costain, Strabag)
  • Euston and Northolt Tunnels and Approaches
  • Area Central (C1, C2, C3)
  • 2 Consortia
  • C1 - Align JV (Bouygues Travaux Publics, VolkerFitzpatrick, Sir Robert McAlpine)
  • North Portal Chiltern Tunnels to Brackley – EKFB JV (Eiffage, Kier, Ferrovial,

BAM) 35kms of overground earthworks

  • Brackley to South Portal of Long Itchington Wood Green Tunnel
  • Area North (N1 and N2)
  • BBV JV (Balfour Beatty, VINCI)
  • Long Itchington Wood Green Tunnel to Birmingham
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SLIDE 10

Specialist Earthworks - HS2 - C2/C3 Section

10 Preliminary Results – Year ended 31 May 2020

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SLIDE 11

Investment in Hargreaves Raw Material Services GmbH

11

The Board has supported HRMS in developing an integrated speciality minerals trading and manufacturing business serving German steel, cement and other industries HRMS is 49% owned by Hargreaves but Hargreaves is entitled to 86% of the economic benefit HRMS will be an annualised €300m+ integrated business

  • €100m+ speciality minerals trading (coke, speciality ores, pig iron)
  • 400kt capacity Carbon Pulverisation Plant
  • €100m+ steel industry waste recycling plant (DK Recycling und Roheisen GmbH) acquired in December for €1

Preliminary Results – Year ended 31 May 2020

DK acquired by HRMS in December 2019 for €1

  • World’s largest recycler of ferrous waste material from the steel industry
  • Recycles waste into pig iron
  • DK is independently financed and ringfenced with no recourse to either HRMS or the Group
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SLIDE 12

Investment in Hargreaves Raw Material Services GmbH

12

Results and Outlook

  • Post tax trading profit £1.6m (2019: £1.5m)
  • Carbon Pulverisation Plant – Construction completed,

producing product for DK, trials with other customers in the steel and cement industries expected in the autumn but Covid-19 impact on German industry creates uncertainty

  • DK broken even since acquisition

Preliminary Results – Year ended 31 May 2020

5 10 15 20 25 30 35 May-19 May-20

Investment in HRMS

Loan Retained earnings PCG

£’m May 20 20 May 19 19

Capital employed 74.9 58.2 Borrowings (55.9) (42.6) Net Assets 18 18.9 .9 15 15.6 .6

  • External borrowings comprise:
  • £15m against fixed assets, including the CPP
  • £40.9m against trade debtors and inventory
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SLIDE 13

Hargreaves Land

David Anderson, Group Property Director

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SLIDE 14

Hargreaves Land – Business model

14

Acquisition

Opportunity Adding value Realising Reinvest

Options Partnerships Planning Site infrastructure

Commercial development (forward funding)

Commercial plot sales Residential plot sales Focus on adding value to strategically identified land through promotion to successful planning permissions and where appropriate development of commercial land and implementation of site infrastructure Land Promotion

Preliminary Results – Year ended 31 May 2020

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SLIDE 15

Hargreaves Land

15 Preliminary Results – Year ended 31 May 2020

  • Primary impact of the

pandemic was the cessation of construction activity in Scotland, delaying the completion of primary infrastructure works on Blindwells and corresponding sales to housebuilders beyond the 2020 financial year end.

  • Significant new contracts

exchanged on commercial developments in Doncaster and Bridlington, with GDV of £43 million, forecast to begin contributing to profits in FY21 and beyond.

  • Sales of non strategic

land continued without significant disruption. Further sales have continued to exchange since the 2020 year end.

4,700 Residential Plots with Planning Permission

With 800 plots subject to agreed terms or under contract for sale Planning permission for 4 million sq ft of logistics and industrial space with 800,000 sq ft under contract. Residential Commercial Non Strategic Land

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SLIDE 16

Hargreaves Land - Blindwells

16 Preliminary Results – Year ended 31 May 2020

Planning permission for 1,600 residential units with a further 1,500 units provisionally allocated on adjoining owned land.

  • £8m invested in site infrastructure in the year
  • Construction work suspended for 3 months from late March

2020 due to Covid-19

  • Work on site recommenced late June 2020
  • Phase 1 plot sale to Cruden Homes now forecast for first half of
  • FY21. Detailed planning permission granted
  • Phase 2 plot sale to Bellway reprogrammed to complete in

second half of FY21. Detailed planning permission granted

  • Phase 3 plot sale subject to agreed terms with another leading

housebuilder with lawyers instructed. Completion now forecast in FY22 following completion of plot remediation and initial infrastructure

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SLIDE 17

Hargreaves Land – Unity, Doncaster

  • 50:50 JV with regional developer Waystone Developments Ltd

exchanged June 2019

  • 650 acre site with a mixed use planning permission for logistics,

industrial, retail and residential uses

  • Construction of primary link road access well advanced and

now expected to be completed by May 2021

  • First significant commercial sale contract exchanged for the sale
  • f a 32 hectare plot to a national retailer for over £25m
  • Conditional only on the construction of a new access road and

services for which planning permission is expected shortly

  • Construction work expected to have commenced by September

2020 with sale completing in summer 2021

  • Good level of interest being progressed from both commercial
  • ccupiers and residential developers

Planning permission for:

2 million sq ft of logistics/industrial space 60,000 sq ft of retail space 3,100 residential plots

Preliminary Results – Year ended 31 May 2020

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SLIDE 18

Hargreaves Land – Case Study

18 Preliminary Results – Year ended 31 May 2020

BRIDLINGTON RETAIL PARK

  • 45,000 sq ft retail warehouse development
  • GDV of £10.6m
  • Pre-let to Lidl and B&M Retail
  • Detailed planning permission expected to be granted in August

2020

  • Forward funding of the project underway
  • Construction work targeted to commence in October 2020 and be

completed in June 2021

  • T
  • tal equity investment by Hargreaves Land £500,000 with forecast

return of 15% on total costs

Example of a low capital “turnkey” project:

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SLIDE 19

Hargreaves Land - Summary

19 Preliminary Results – Year ended 31 May 2020

  • Strategic goal to be a Property Developer, not a Property Investor
  • Looking to exploit opportunities whilst restricting capital investment
  • T

arget return of >15% on project capital employed

  • Substantial existing land portfolio with market value in excess of book value
  • Existing projects moving forward following Covid-19 delays
  • Occupier demand from both the commercial and residential sectors recovering following the

pandemic

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SLIDE 20
  • Financial Results

John Samuel, Group Finance Director

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SLIDE 21

Income Statement

21

Year ended 31 May 2020 £m 2019 £m Revenue 222.2 302.6 Unde derl rlying g Operating g Profit 4.6 2.1% 6.6 2.2% Share of post tax x profit in German joint venture* 1.6 1.5 Net Interest st Expense (1.3) (1.7) Unde derl rlying g Profit Before T ax** x** 4.9 2.2% 6.4 2.1% Exception

  • nal Items,

s, Amortisation

  • n and

d Fair Value Gains (2.7) (16.2) Profit/(Los (Loss)be s)befor

  • re T

ax 2.2 (9.8) T ax 2.1 1.6 Profit/(Los (Loss) s) for the Period 4.3 (8.2) Discon

  • ntinued

d Operation

  • ns
  • 3.5

Profit/ t/(Lo (Loss) s) for the period 4.3 (4.7) Unde derl rlying g EPS EPS 19.9p 13.4p +30% 15.3p (25.7)p Divide dend d Per Share 4.5p 7.2p

* Current year £1.6m excludes £0.6m fair value gain on acquisition by Joint Venture **Underlying Profit before Tax is defined by the Board as Profit before Tax prior to exceptional items, amortisation and impairment of intangible assets and includes the Group’s share

  • f the post-tax profit of its German joint venture excluding fair value gains on acquisition.

Preliminary Results – Year ended 31 May 2020

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SLIDE 22

Adjustments to Underlying Profit Before Tax

22

Year ended 31 May 2020 £m 2019 £m Exceptional items – losses related to the insolvency of Wolf Minerals

  • (8.1)

Gain on disposal of Drakelands Restoration 2.4

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

1.4 (8.0) Exceptional items - losses on legacy contracts in C A Blackwell (1.4)

  • Exceptional items – closure of mining operations

(4.1)

  • Amortisation or impairment of intangible assets

(1.6) (0.1) Fair value gain on acquisition by German associate 0.6

  • Total

(2.7) (16.2)

Preliminary Results – Year ended 31 May 2020

slide-23
SLIDE 23

Overview by Business Segment

23

Underlying Operating Profit

£8.5m

(FY19: £8.8m)

£6.2m

(FY19: £2.8m)

£(3.7)m

(FY19: £(4.4)m)

Distribution & Services Hargreaves Land Corporate Overhead

Revenue from non-strategic land sales Underlying Operating Expense Revenue Underlying Operating Profit Revenue Underlying Operating Profit Year ended 31 May 2020 £m 2020 £m Margin 2019 £m 2019 £m

Margin

Produ duction

  • n & Distri

ribu bution

  • n

109.3 4.3 119.4 3.2 Indu dust stri rial Services 86.4 4.3 87.4 3.8 Specialist t Earth thwor works 20.3 (0.1) 87.0 1.8 Distribution & Services 216.0 8.5 3.9% 293.8 8.8 3.0% Hargr greaves ves Land 6.2 (0.2) 2.8 2.2 Inter divisi sion

  • n/Cor

Corpor porate/Le Lega gacy

  • (3.7)

6.0 (4.4) Total 222.2 4.6 302.6 6.6

Preliminary Results – Year ended 31 May 2020

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SLIDE 24

Transport £7.6m CPD £6.2m

Balance Sheet and Asset Allocation

24

31 May 20 HRMS UK P&D HIS Earthworks Land Other May 20 May 19 Tangible FA’s (incl ROU assets)

  • 13.8

5.7 8.3 12.3 0.5 40.6 55.5 Goodwill and Investments 25.8 4.6 1.3 3.6

  • 35.3

34.5 Inventory

  • 40.0
  • 24.0
  • 64.0

48.0 Other working capital

  • (6.4)

0.9 3.5 20.0 0.3 18.3 7.4 Finance lease debt

  • (5.8)

(3.7) (4.9) (0.2)

  • (14.6)

(12.6) Net bank debt and cash

  • (13.5)

(13.5) (5.3) Total Capital Employed 25.8 46.2 4.2 10.5 56.1 (12.7) 130.1 127.5 7.5 31 May 19 HRMS MS P&D HIS Earthwork

  • rks

Land Other T

  • tal

T

  • tal Capital Employ
  • yed

23.5 44.1 (3.3) ) 21.1 .1 32.5 9.6 127.5 7.5 Analysi sis of movement Net capex/d x/depr preciation

  • n
  • (6.8)

(0.7) 7) (6.5) (0.6) (0.3) (14.9) .9) Undi distri ribu buted share of earnings gs 1.6

  • 1.6

Impairm rment of Goodw dwill 0.6 (1.6) .6)

  • (1.0)

.0) Inventor

  • ry/W

y/Wor

  • rking capital movement

0.1 12.1 .1 10.7 .7 (6.4) 4) 24.4 (13.8 .8) 27.1 .1 Increase se in finance lease se debt

  • (1.6)

.6) (2.5) 2.3 (0.2)

  • (2.0)

Decrease se in net bank debt and d cash sh

  • (8.2)

(8.2) T

  • tal movement in net asse

sets 2.3 2.1 7.5 (10.6 .6) 23.6 (22.3) .3) 2.6

Preliminary Results – Year ended 31 May 2020

slide-25
SLIDE 25

Balance Sheet and Asset Allocation

25 Preliminary Results – Year ended 31 May 2020

31 May 20 HRMS UK P&D HIS Earthworks Land Other May 20 Capital Employed 25.8 46.2 4.2 10.5 56.1 (12.7) 130.1 Underlying EBITDA 5.3 16.2 8.9 1.9

  • (3.1)

23.9

Capital Employed

  • Planned reduction in capital employed in

P&D as coal stocks unwind and business transitions to trading model

  • HIS, Earthworks and Europe expected to

retain a broadly consistent funding requirement over next three years

  • Investment into Hargreaves Land over

three years as business seeks to gain critical mass

  • 10

20 30 40 50 60 70 May 20 May 23

Capital Employed

P&D HIS Earthworks Europe Property

slide-26
SLIDE 26

Interest £1.1m Tax £0.3m Dividend £1.4m

Movement in Net Debt

26

Sales proceeds £12.2m Mining additions £(1.2)m Other P&M £(1.9)m Leases £(19.1)m Bank debt £(5.4)m Leases £(14.6)m Bank debt £(13.5)m

Preliminary Results – Year ended 31 May 2020

British Steel £(3.4)m Other £(4.5)m Mining assets £6.5m ROU assets £6.0m Other P&M £6.8m

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SLIDE 27

Group Strategy

Gordon Banham, Chief Executive Officer

slide-28
SLIDE 28

Group Strategy for Value Creation and Delivery

28

Coal mining Hargreaves Land

Cash Generation & Investment Distribution & Services Trading

Deliver growing trading profits, low future capital requirement

Expected incremental annual HRMS dividend:

12.0p

per share to be paid in FY22

  • Realisation of cash from

cessation of coal mining activities, estimated to be £30m across FY21 and FY22

  • Associated investment into

the development and growth of Hargreaves Land to achieve critical mass

  • Progress on bringing

forward projects capable of delivering returns in excess

  • f 15% on capital employed
  • 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 HS2 and other major infrastructure projects

  • nly
  • Board to maintain policy of

progressive dividend in line with underlying profit growth

  • Repatriation of dividends

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

Preliminary Results – Year ended 31 May 2020

Investment in German Joint Venture Shareholder Return Dividend Stream

Integrated €300m business supporting German manufacturing industry

  • HRMS Trading business has

consistently delivered profits

  • Carbon Pulverisation Plant

with capacity to provide 400kt annually to replace brown lignite coal as power source for German industry

  • DK Recycling unique steel

waste recycling process has annual revenue capacity in excess of €100m

slide-29
SLIDE 29

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 laws and regulations.

  • 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.

29 Preliminary Results – Year ended 31 May 2020