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 £15.5m.
As previously indicated, because of the cash generation associated with the slowdown in activity, HRMS has been able to return £8m 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 £7m 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 £2.0m 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 £2.0m 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 £18.5m 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 £7.6m, 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 £9m, materially lower than our original estimate of £15m. The Board expects to complete the transaction in early 2024, thereby eliminating annual deficit reduction payments of £1.8m.
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 £18.7m compared to £21.9m 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 £28.8m (£36.4m 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 £209.1m, underlying PBT of £23.0m and underlying earnings per share of 62.8p.
For further details:
| Hargreaves ServicesGordon Banham, Chief Executive OfficerStephen Craigen, Chief Financial Office | www.hsgplc.co.ukTel: 0191 373 4485 | |
| Walbrook PR (Financial PR & IR)Paul McManus / Louis Ashe-JepsonCharlotte Edgar | Tel: 020 7933 8780 or hargreavesservices@walbrookpr.comMob: 07980 541 893 / 07747 515 39307884 664 686 | |
| Singer Capital Markets (Nomad and Corporate Broker)Sandy Fraser | Tel: 020 7496 3000 | |