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RNS Number : 5366X
Hargreaves Services PLC
21 December 2023
Hargreaves Services plc
("Hargreaves" or the "Group")
Trading Update, Notice of Interim Results and Enhanced Dividend
Payout
Hargreaves Services plc (AIM: HSP), a diversified group
delivering services to the industrial and property sectors,
provides the following update on trading ahead of reporting its
interim results for the six months ended 30 November 2023.
Hargreaves Raw Material Services GmbH ("HRMS") (German Joint
Venture)
As communicated at the time of the full year results trading
conditions in HRMS were expected to be subdued. However, the
combined impact of reduced commodity prices and an economic
slowdown in Germany is proving to be more marked than anticipated,
especially so in the current quarter within the ferrous waste
recycling activities. As a result, the Board now expects that HRMS
will record a net loss in the first half and that the full year
profit after tax contribution from HRMS will be approximately one
quarter of that originally expected and materially lower than the
contribution in the comparative period of GBP15.5m.
As previously indicated, because of the cash generation
associated with the slowdown in activity, HRMS has been able to
return GBP8m of surplus cash to the Group, which was received in
November 2023. In view of the substantial accumulated distributable
reserves on the HRMS Balance Sheet and management's assessment of
the likely average level of profitability of the business across
the cycle, the Board has agreed with the management of HRMS that an
annual distribution of GBP7m is sustainable for the foreseeable
future and will become a regular cash receipt for the Group from
the joint venture.
Services
The Services business had a strong first half to the year. The
Board anticipates reporting a growth in Profit before Tax on the
comparative interim period after adjusting for the GBP2.0m one-off
gain on asset disposal recognised in the first half of the last
financial year. Services profits for the full year are expected to
be circa GBP2.0m higher than previously expected. Much of this
improvement is due to the volume of activity at HS2 and other
earthmoving activities, with activity in this segment expected to
remain at elevated levels throughout calendar year 2024.
Hargreaves Land
In line with trends experienced across the broader market, sales
activity within Hargreaves Land has softened in recent months.
However, in August 2023 the business exchanged contracts with Avant
Homes for the sale of 20 acres of serviced residential land for a
total consideration of GBP18.5m payable in four instalments over
three years. The transaction is expected to complete in January
2024 underpinning the business unit's contribution in the financial
year.
The Board is also pleased to announce the sale of the Group's
interest in the Energy from Waste plant at the Westfield
development site for cash consideration of GBP7.6m, in line with
management expectations. The sale represents eight acres of the 50
acres available at Westfield. This demonstrates the ability of
Hargreaves Land to create, deliver and realise value from the
Group's land development sites.
The period has also seen good progress with the permitting,
development and commissioning of the Group's portfolio of renewable
energy land assets, with the first package of assets likely to go
to market in the financial year ending 31 May 2025.
Pension scheme
The Group is making good progress with the buy-out of the
Group's defined benefit pension schemes, with direct discussions
underway with potential insurers to take on the liability. Current
indications suggest that the cost of closing out the Group's
obligations under the scheme will be no higher than GBP9m,
materially lower than our original estimate of GBP15m. The Board
expects to complete the transaction in early 2024, thereby
eliminating annual deficit reduction payments of GBP1.8m.
Return of capital to shareholders
As a result of the positive cashflow impact of the impending
buy-out of the pension scheme and the expected additional
sustainable annual cash receipt from HRMS, the Board intends,
subject to unforeseen circumstances to increase the annual dividend
payable to shareholders to 36p per share, representing an increase
of over 70% on the prior year dividend of 21p. It is the intention
of the Board to pay 50% of this dividend at the interim stage, with
the remaining 50% as a final dividend. The timetable for payment of
the interim dividend will be set out within the interim results
statement.
Balance Sheet
On 30 November 2023, the Group had cash and cash equivalents of
GBP18.7m compared to GBP21.9m at 31 May 2023, reflecting continued
investment into the Blindwells development ahead of expected
receipts in the second half. The Group also had leasing debt
totaling GBP28.8m (GBP36.4m on 31 May 2023).
Commenting on the Trading Update, Group Chair Roger McDowell
said: "The Services business has continued to be a key growth
driver for Hargreaves, with its strong revenue base providing the
Group with a robust underpinning to trading. The slowdown in
activity at HRMS has been more pronounced than we had previously
anticipated, but has facilitated an increase in cash returned to
the Group. This, coupled with the impending buy out of the Group's
defined benefit pension scheme obligations at a much lower cost
than previously indicated, has allowed the Board to signal a
substantial increase in the full-year dividend. With further
opportunities to return cash to our shareholders on the horizon
from the realisation of our renewables portfolio, and additional
growth opportunities, the Group is well-positioned to deliver long
term sustainable returns."
Notice of Interim Results
The Board expects to report its interim results for the six
months ended 30 November 2023 on Wednesday 24 January 2024. Details
of the analyst and investor meetings which will accompany the
results will be provided in due course.
The Company considers that market expectations prior to the
release of this announcement for the year ending 31 May 2024 are
revenues of GBP209.1m, underlying PBT of GBP23.0m and underlying
earnings per share of 62.8p.
For further details:
Hargreaves Services www.hsgplc.co.uk
Gordon Banham, Chief Executive Officer Tel: 0191 373 4485
Stephen Craigen, Chief Financial Office
Walbrook PR (Financial PR & Tel: 020 7933 8780 or hargreavesservices@walbrookpr.com
IR) Mob: 07980 541 893 / 07747 515 393
Paul McManus / Louis Ashe-Jepson 07884 664 686
Charlotte Edgar
Singer Capital Markets (Nomad and Corporate Tel: 020 7496 3000
Broker)
Sandy Fraser
About Hargreaves Services plc ( www.hsgplc.co.uk )
Hargreaves Services plc is a diversified group delivering
services to the industrial and property sectors, supporting key
industries within the UK and South East Asia. The Company's three
business segments are Services, Hargreaves Land and an investment
in a German joint venture, Hargreaves Raw Materials Services GmbH
(HRMS). Services provides critical support to many core industries
including Energy, Environmental, UK Infrastructure and certain
manufacturing industries through the provision of materials
handling, mechanical and electrical contracting services, logistics
and major earthworks. Hargreaves Land is focused on the sustainable
development of brownfield sites for both residential and commercial
purposes. HRMS trades in specialist commodity markets and owns DK
Recycling, a specialist recycler of steel waste material.
Hargreaves is headquartered in County Durham and has operational
centres across the UK, as well as in Hong Kong and a joint venture
in Duisburg, Germany.
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