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

Hargreaves Services plc Preliminary Results Year ended 31 May 2018

Highlights Underlying Underlying Dividend Per Share Net Assets Operating Profit* EPS £9.4m 14.9p 7.2p £136.1m (FY17: 7.2p) (FY17: £11.0m) (FY17: 19.8p) Equivalent to 424p per share Results and Outlook Overall ll underlyin ing perfor orman 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 om 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. 2 Preliminary Results – year ended 31 May 2018 *

Strategy & Operations Gordon Banham, Chief Executive Officer

Good Progress on Strategic Goals Distribution & Services Energy & Property Legacy Underlying Operating Profit: Incremental Value Generation: Legacy Assets: £10m - £15m £35m - £50m £29m remaining £31m cash sh realisati sation on since 31 May Achieved d in 2017 financial year and Red Book valuation on in July 2018 • • • 2016 2016 sustained d in 2018 ascribed bed market value of £50m m and a develop opme ment value of £78m £17.2m .2m T ower r joint venture loan Impr prov oved d underlying g operating g margi gins • • £20m m market value uplift to book value • UK coal business ss focuse sed d on speciality £11.5m .5m surpl plus plant and d stock • • coal Non-str strategi gic site realisations s ongoi oing • Furth ther r plant t realisati tion on of £6m post • Logist stics s returns to profitabi bility Sale of first st develop opment plot ot at • • period d end Blindw dwells now expected d around the end Specialist st Earthwor orks s appointed as • of 2018 strategi gic partner on HS2 David d Anderson on recruited d as Group oup • Industr strial Services s focused d on core • Prop operty Director or compet petencies s in the UK and Hong g Kong Broc ockwell Energy gy spin-of off process ss well • advanced 4 Preliminary Results – year ended 31 May 2018

Operating Performance – Distribution & Services Specialist Earthworks Production & Distribution Market condi dition ons s remain favou oura rabl ble Focus s on contract selectivity and d risk mitiga gation on Speciality coal price resilient Revenue reduced d to £78.8m .8m (FY17 £108.6m .6m) ) due to contra ract • • selectivity Stron ong g yield of speciality coal from House se of Water r mine • Legacy civils contra racts s incurr rred further r loss sses s but now near • UK UOP up to £3.5m (FY17 £0.7m) • completion on German assoc sociate UOP £6.5m (FY17 £8.8m) • £3.9m m of exception onal losse ses s recorded re legacy contracts • Logist stics s busi siness ss merged into o CPD and d return rned d to profit • Industrial Services Growth and improved d margins Revenue up 7% to £70m m (FY17 £65.4m) .4m) • UOP up 33% to £2.4m (FY17 £1.8m) • Operating g margin improv oved d to 3.4% (FY17 2.7%) • Hong g Kong g up 23% to £20.4m .4m (FY17 £16.6m) .6m) • Intern rnation onal profitabl ble at £0.7m m (FY17 £0.3m m loss ss) • 5 Preliminary Results – year ended 31 May 2018

Hargreaves Raw Materials Services – German Associate German associate continues to trade well Good tradin ing continued althou ough lower than very stron ong FY FY17 17 • £6.5m UOP UOP (FY17 17: £8.8m) m) • € 27 27m investme ment in in Carbon on Pulverisa isation on 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 on 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 onal early ly in in FY FY20 20 • 6 Preliminary Results – year ended 31 May 2018

Investment in HRMS Hargreaves Services plc is supporting HRMS alongside management 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 on Pulverisa risation ion Plant • € 10 10m HS HS plc retain ined ed profits its held on on HRMS balan ance ce sheet to to fund Carb rbon on 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 on Pulverisa risation ion Plant project ct level • HRMS Management € 3m loans to to fund Carbon on Pulverisa isation ion Plant • € 2m manageme ment nt retain ined ed profit its held on on HRMS balance ce sheet to to fund Carbon on Pulverisa isation ion Plant • 7 Preliminary Results – year ended 31 May 2018

Property Valuation Independent Red Book valuation has confirmed Development Value of £78m for portfolio of property with a combined book value of £30m Difference between Market • Market Development Value and Development Value Book Value Value Value = risk adjusted value creation Category £m £m £m opportunity Residential 8.4 21.9 37.7 The Board assesses and • Commercial / Industrial 9.0 12.0 21.2 monitors the forecast time and cost required to realise Operational/Agricultural/Low Grade 10.5 12.3 14.5 Development Value on each Energy 2.2 3.8 4.6 property T otal 30.1 50.0 78.0 Seek to realise Market Value of • Non-strategic land to be sold (12.0) (12.0) (15.0) property as quickly as practical Developabl ble land 18.1 38.0 63.0 if return is not appropriate * Includes land held under short and long leasehold, and land controlled and operated under an option to buy Residual valuation basis – RICS valuation basis assuming market derived forward income arms length sale on date of less risk premium and costs valuation 8 Preliminary Results – Year ended 31 May 2018

Financial Results John Samuel, Group Finance Director

Income Statement Year ended 31 May 2018 2017 £m £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 onal Items, s, Amortisation on 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 14.9p 19.8p Reported d EPS 3.8p 17.8p 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 prior to • exceptional items, amortisation and impairment of intangible assets and includes the Group’s share of the operating profit of its German associate. 10 Preliminary Results – year ended 31 May 2018

Adjustments to Underlying Operating Profit 2018 2017 Year ended 31 May £m £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 11 Preliminary Results – year ended 31 May 2018

Overview by Business Segment Distribution & Services Property Legacy Underlying Operating Profit Underlying Operating Profit Underlying Operating Profit £12.9m £2.1m £0.0m (FY17: 13.7m) (FY17: £1.8m) (FY17: £0.1m) Underlying Underlying Revenue Operating Profit Revenue Operating Profit Year ended 31 May 2018 2018 2017 2017 £m £m £m £m Produ duction on & Distri ribu bution on 137.4 10.0 153.6 9.5 Indu dust stri rial Services 70.0 2.4 65.4 1.8 Specialist Earthwor orks 78.8 0.5 108.6 2.4 Inter divisi sion on (5.5) - (6.0) - Distri ribu bution on & Services s T otal 280.7 12.9 321.6 13.7 Unde derl rlying g operating margi gin 4.6% 4.3% UK £3.5m (2017 £0.7m) HRMS £6.5m (2017: £8.8m) 12 Preliminary Results – year ended 31 May 2018