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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hargreaves Services Plc | LSE:HSP | London | Ordinary Share | GB00B0MTC970 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 2.00 | 0.36% | 562.00 | 562.00 | 580.00 | 580.00 | 560.00 | 560.00 | 26,946 | 16:35:26 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Sanitary Services, Nec | 211.46M | 27.92M | 0.8510 | 6.82 | 190.26M |
TIDMHSP
RNS Number : 3690N
Hargreaves Services PLC
08 August 2017
For Immediate Release 8 August 2017
HARGREAVES SERVICES PLC
("Hargreaves", the "Company" or the "Group")
Preliminary results for the year ended 31 May 2017
Hargreaves Services plc (AIM: HSP), a diversified group delivering key projects and services to the infrastructure, energy and property sectors, announces its preliminary results for the year ended 31 May 2017.
Key Financials
Hot Features
Premium
Year
Year ended ended
31 May 31 May Change
2017 2016 %
Continuing Revenue GBP342.9m GBP340.7m 0.6
Continuing Operating Profit
before Exceptionals(1) GBP1.2m GBP5.2m (76.9)
Continuing Operating Profit
after Exceptionals GBP0.7m GBP(7.2)m 109.7
Continuing Underlying Operating
Profit(2) GBP9.8m GBP4.6m 113.0
Net Exceptional Costs GBP(0.5)m GBP(12.4)m (96.0)
Continuing Profit/(Loss)
Before Tax GBP4.1m GBP(10.6)m 138.7
Continuing Underlying Profit
Before Tax(3) GBP7.7m GBP3.0m 156.7
Continuing Diluted EPS 15.9p (30.0)p 153.0
Continuing Underlying Diluted
EPS(3) 17.9p 5.6p 219.6
Dividend (including proposed
final dividend) 7.2p 2.3p 213.0
Net Debt(4) GBP15.7m GBP32.3m (51.4)
Highlights
-- Excellent progress toward stated strategic targets for operating profit, value creation from property and the conversion of legacy assets into cash
o The Group has delivered Continuing Underlying Operating Profit of GBP9.8m, an increase of 113% on the prior year
o The Development value of the property portfolio shows GBP52.1m of potential unrealised gain on independent Red Book basis
o Strong progress in the orderly realisation of legacy assets into cash, including the agreement to sell the surplus underground mining equipment
-- Strong performance in trading operations in Germany compensated for legacy contract issues in Earthworks and a challenging final quarter for Logistics
-- Continental European steel and specialised carbon markets remain buoyant, offering long term potential for investment and improved visibility and resilience of forward earnings
-- Planning permission secured for Blindwells, a major new town development close to Edinburgh
-- Brockwell Energy established to develop value from the Group's energy projects and assets without recourse to the Group's balance sheet
-- Realisation of GBP25.5m of legacy assets into cash with an additional GBP3.2m of underground mining assets contracted for sale post year end
-- The Net Asset Value per share excluding any unrealised property gains as at 31 May 2017 was GBP4.32 per share
-- Focus on simplification continues
-- Final dividend of 4.5 pence in line with the Group's 40% pay-out ratio target, bringing proposed full year dividend to 7.2p, a 213% increase on prior year
(1) Continuing Operating Profit before Exceptionals is stated before net exceptional costs of GBP470,000 (2016: GBP12,378,000).
(2) Continuing Underlying Operating Profit is stated excluding the net exceptional costs, the amortisation of acquired intangibles and impairment of goodwill and including share of profit in associates and joint ventures before tax.
(3) Continuing Underlying Profit before Tax and Continuing Underlying Diluted EPS are stated excluding the net exceptional costs, the amortisation and impairment of acquired intangibles.
(4) Net debt comprises cash and cash equivalents, bank overdrafts and other interest bearing loans and borrowings.
Commenting on the results, Hargreaves Chairman David Morgan said:
"These results demonstrate the excellent progress made by the Group over the last year. The achievement of our Group profit target was a positive step forward, which we believe marks a real turning point for the Group. The independent property valuation exercise provides further confidence about the longer term value that we aim to create from our property portfolio. Whilst challenges remain to be overcome in some of our businesses, we are on track to achieve or over-acheive the three key strategic goals we set ourselves in 2016. We will continue to be careful in managing capital allocation and risk as we move forward."
Analyst meeting
A meeting for analysts will be held at 10.00am this morning, 8 August 2017, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. Please contact Buchanan on 020 7466 5000 for further information.
Hargreaves Services plc Gordon Banham, CEO Iain Cockburn, Finance Director 0191 373 4485 Buchanan (Financial PR) Mark Court / Sophie Cowles 0207 466 5000 N+1 Singer (NOMAD and Joint Corporate Broker) Sandy Fraser / Nick Owen 020 7496 3000 Investec (Joint Corporate Broker) Sara Hale / Rob Baker 020 7597 4000
CHAIRMAN'S STATEMENT
Results
Underlying operating profit increased from GBP4.6m to GBP9.8m reflecting a strong performance in our German trading business. Underlying profit before tax increased from GBP3.0m to GBP7.7m. Underlying Diluted EPS from Continuing Operations increased by 220% from 5.6p to 17.9p reflecting the benefit of a reduced tax charge stemming from the utilisation of tax losses. Although the Group experienced challenges in its Logistics and Earthworks businesses last year, this was offset by our other businesses that outperformed. The achievement of our Group profit target was a positive step forward which we believe marks a real turning point for the Group. Net debt decreased from GBP32.3m to finish the year at GBP15.7m, helped by excellent progress in realising cash through the legacy assets disposal programme. Operating profit after exceptionals increased to a profit of GBP0.7m, compared with a loss of GBP7.2m in 2016. Reported profit before tax improved from a loss of GBP10.6m to a profit of GBP4.1m.
Strategy
In April 2016, we set ourselves three key strategic objectives as we came out of our extensive restructuring exercise. These were to:
1. Achieve an underlying operating profit from our Distribution and Services Division of between GBP10m and GBP15m before Group overheads by FY18;
2. Create between GBP35m and GBP50m of value from the Property and Energy portfolio over a five year period; and
3. Generate GBP60m of cash from the realisation of legacy assets.
I am pleased to report we are confident that the Group remains on track to achieve these targets and in the case of the underlying operating profit, this has been achieved a year ahead of target.
The Group businesses generated an underlying operating profit of GBP14.4m before Group overheads of GBP4.6m. This performance places the Group comfortably at the top end of the GBP10m-GBP15m target range we set ourselves a year earlier than planned in April 2016. We have also taken the first steps to reduce Group overhead which fell from GBP6.4m in the prior year to GBP4.6m. Challenges in the civil engineering operations of Blackwell have hastened our decision to curtail these activities. The Board remains committed to developing opportunities in the earthworks sector but has instigated the wind-down of legacy civils contracts.
The period saw the completion of the first independent valuation of the Group's property portfolio. This valuation, which is discussed in more detail in the Group Business Review, highlights the opportunity to develop significant value from our extensive land portfolio. Pleasingly, as well as identifying a significant increase in the Group's Net Asset Value the exercise also suggests that we are on a trajectory to achieve the GBP35-GBP50m value creation goal within our targeted timeframe.
The successful development of the Energy projects portfolio has led to the establishment of Brockwell Energy Limited ('Brockwell Energy'), recognising the need and value of seeking third party capital. This highlights both our discipline to manage capital deployment and our desire to continue to focus and simplify the Group.
We are also very pleased with the progress that has been made in the realisation of legacy assets into cash. The solid financial platform we have maintained has allowed us to conduct this process in an orderly manner, helping us to take the time to realise full value for the assets. At the end of last year the carrying value of our net legacy assets was GBP60m, at the end of May 2017 this had reduced to GBP34.5m with disposals realising over GBP25m in line with the balance sheet valuation.
In summary, excellent progress has been made in repositioning the Group but we also recognise that we must continue to refine our strategy and this is discussed in more detail in the Group Business Review.
Dividend
The Board proposes a final dividend of 4.5p, consistent with the targeted 40% pay-out ratio. If approved at the Annual General Meeting, this will result in a dividend for the full year of 7.2p compared with 2.3p in the previous year, an increase of 213%. The proposed final dividend will be paid on 20 October 2017 to all shareholders on the register at the close of business on 22 September 2017.
People
I would like to thank our staff for another year of service and support. The Group has been a challenging place to work over the past few years and the Board thanks the staff for their continuing loyalty through this difficult period. Last year we highlighted the efforts and achievements of the Hong Kong team. Despite some setbacks and key project deferrals which were out of their control, the Hong Kong business delivered a strong profit last year along with further progress. This year it is the German team that merits significant mention, having delivered an excellent result that has underpinned the Group's performance. Our thanks to them and all of the rest of the Hargreaves team who not only helped us exceed the profit targets that we set ourselves at the start of the year, but who also delivered the progress across our property and legacy asset portfolios that have set us on track to achieve our strategic targets in these important areas.
Board
On 14 June 2017, we announced the formation of Brockwell Energy and Iain Cockburn's desire to assume the role of CFO of Brockwell Energy. We are continuing a process to find a successor and Iain will remain in place until a replacement is found. Although Iain has not yet left the Board, I would like to note our appreciation for the help and support he has provided the Group through times of growth and times of challenge. He has been a driving force in the Group and we look forward to seeing the value that he will help create in Brockwell Energy.
Summary
This has been a good year in which we have made excellent progress towards our strategic goals. Strong performances from Germany and Industrial Services, combined with the significant development gains across the Property and Energy portfolio, have more than offset weak performances in the Earthworks and Logistics operations, highlighting the benefit of a diversified portfolio of activities. That said, following the dramatic changes we have seen in our markets, we remain committed to our strategy of simplification, focusing on those opportunities that we believe can deliver strong long term growth and returns. We will continue to refine our strategy, carefully assessing risks and driving improved performance, returns and cash generation from our businesses.
David Morgan
Chairman
7 August 2017
GROUP BUSINESS REVIEW
Results
We are pleased with the performance of the Group for 2017, in particular the excellent progress towards achieving all three of the key strategic goals we set for ourselves in April 2016. We have exceeded the profit targets that we set ourselves for the year delivering an underlying operating profit of GBP9.8m an increase of 113% on the prior year outturn of GBP4.6m. The Group reported a profit before tax of GBP4.1m, compared with a loss of GBP10.6m in 2016. The strategic and operational performance of the Group is reviewed in more detail below.
Distribution & Services
The strong performance in Germany ensured that the Coal Distribution division as a whole exceeded its profit target. Our German trading associate was the star performer in the portfolio last year. Germany contributed GBP8.4m before tax to underlying operating profits, far exceeding the targets we had set for the business at the start of the year. Before we progress, I would like to acknowledge the skill shown by the German management team and their staff in delivering this excellent performance. Strong trading discipline and favourable market conditions combined to present the opportunity for investment, increasing the size of the team to support higher trading volumes. We have always noted that the business is agile, benefitting from a low fixed capital and overhead base, and can respond quickly to changing market conditions. The business will however continue to take a conservative approach to forecasting in light of lack of trading visibility as we look at opportunities to make the income streams more resilient and predictable.
The underlying operating profit for the UK coal business was GBP0.7m, which was slightly below our expectations largely due to the impact of another mild and disappointing winter. In light of this we accelerated some further restructuring in the UK coal distribution businesses during the year, and paved the way for investment to replace the Maxibrite production line with a new cold-cure process that will significantly reduce the future briquette production costs.
The Earthworks division, which now incorporates all of the Group's substantial plant operations, reported an underlying operating profit of GBP2.4m. Although this is an increase from the prior period (2016: GBP1.9m), it was below our expectations by approximately GBP1.0m. The prior year result only included the five months to 31 May 2016 following the acquisition of CA Blackwell in January 2016. The shortfall against our underlying operating profit expectations was due to challenges on a number of legacy contracts tendered to deliver projects for a fixed price.
The three problematic contracts, which we first reported on in December 2016, have resulted in an exceptional charge in the year of GBP3.4m after utilising fair value provisions of GBP2.7m arising on the remeasurement of goodwill. This represents a material loss of value. Although positive progress has been made with these and other legacy contracts, a number of challenging contractual positions remain. The Blackwell business has already made senior management changes to improve the quality of the management team. The Group continues to consider all potential contractual and other remedies to mitigate the losses we have incurred since the acquisition.
With the financial structures, warranty protections and escrow arrangements that were put in place, the Group was careful to create conditions conducive to turning around the business whilst protecting the Group from the impact of legacy claims and other issues. Since acquiring the business we have provided measured support to deal with problematic contracts, improve the quality of the management team and help the business refocus around its core competencies. We have made it clear to management that the Group's appetite to provide support for new contracts will be based on assessment of future risk and return. The Group's equity share of net assets in the Blackwell group was GBP1.2m as at 31 May 2017.
In spite of these challenges we believe the Blackwell acquisition can provide core skills and contracts in the mining, quarrying and heavy earthworks sector that, when synergised with the Groups' skills, plant fleet and financial resources, can offer value creation opportunities. Given the problems that have been encountered, we have made it clear that it is our desire to see the Earthworks business cease tendering for large and complex fixed price contracts and focus on lower risk mining, quarrying and bulk earthworks contracts of a cost-plus, target cost or re-measure basis where they have a compelling core competence to estimate and tender. This is noted below as one of our four key strategic goals for the current financial year.
On a more positive note, the Industrial Services business reported an underlying operating profit of GBP1.8m. This was in line with our expectations, but lower than the GBP3.6m reported in the prior year following the closure of Redcar Steelworks and the general downturn in steel activity levels. As reported in February, we experienced delays in starting a major project in Hong Kong. Despite this Hong Kong delivered good growth with revenue and underlying operating profits of GBP16.6m and GBP0.6m respectively, compared with GBP11.0m and GBP0.3m in the prior year. The UK business performed well during the year and exceeded our target, compensating for the contract delays and any softness in other international operations.
The Logistics business reported a break-even result at the underlying operating profit level, a reduction of GBP1.1m from the prior year. This was a significantly behind expectations with the drop off in performance particularly pronounced in the final two months of the year. The market for the logistics business has been difficult reflecting increased competition and soft volumes which created significant challenges towards the end of the year. A programme is already underway to re-shape the operation and reduce overhead costs.
Property & Energy
I am very pleased to report that the first independent Red Book valuation of our property assets has been completed. We have conducted the valuations on two different bases - a "market value" and the assets' "development value". This exercise has confirmed our confidence in the significant potential value gain available from developing the property portfolio and offers a clear view of what the value creation opportunity is. The total development value of the portfolio has been independently estimated at GBP83m, a GBP52m premium to the current book value of GBP31m. The valuation process also set out a "market value"; an independent estimate of the value that would be obtained from the immediate sale of the property, taking account of both market values and liquidity. The market value of the entire portfolio has been estimated at GBP49m, a premium of GBP18m against the book value of GBP31m. We will update the property valuation annually on a comparable basis.
The definitions of these methodologies are very important and we would urge investors to consider these carefully.
Development Value
Development value has been calculated by the independent valuers using the residual method of valuation. The residual method of valuation involves estimating the gross development value of the property using market derived yield and future income stream parameters, deducting gross development costs and applying an appropriate level of risk premium to reflect uncertainties such as market and planning outcomes.
Market Value
Market value has been calculated by the independent valuers in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation - Professional Standards, and represents the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing.
Important Note on Definitions of "Development Value" and "Market Value"
There is small proportion of the property portfolio for which the market and development value has not been obtained from external valuers and has been derived via other means. Such means include:
-- The property is currently under offer, has been sold on an open market basis post period end, or is currently being actively marketed for sale at approximately book value (1.6% of total development value);
-- The property has been recently purchased by the Group on an open market basis and is therefore deemed to be recorded at development value (0.6% of total development value);
-- The property is deemed materially insignificant to the overall Group portfolio and development value is deemed by the directors to be materially consistent with the current book value (2.2% of total development value).
We believe that the Group is on track to achieve our strategic goal of GBP35-GBP50m value creation target. The publication of both measures will assist investors in better understanding progress and future opportunity. We will also use these respective measures to carefully inform our property strategy on a site by site basis and help us to logically and rigorously manage capital allocation.
In this regard, the market value is a better indication than book value of the amount of the Group's capital that is tied up in each specific asset. The difference between the market value and the development value represents the risk-adjusted value creation opportunity on each property. It is our task to assess and monitor the likely time required to achieve the development value, and hence calculate the rate of return that is available from holding and developing each property. If that return on investment falls below our threshold we will seek to dispose of a property as quickly as is practical.
The table below provides a segmentation of the property portfolio by acreage and value.
Category *Acreage **Book Market Value Development
Value GBPm Value
GBPm GBPm
------------------------------ --------- ------- ------------- ------------
Residential 446 6.3 19.3 37.4
------------------------------ --------- ------- ------------- ------------
Commercial/Industrial 3,351 11.4 13.5 25.4
------------------------------ --------- ------- ------------- ------------
Operational/Agricultural/Low
Grade 10,471 10.7 10.8 12.8
------------------------------ --------- ------- ------------- ------------
Energy 4,282 2.4 5.8 7.3
------------------------------ --------- ------- ------------- ------------
Total 18,550 30.8 49.4 82.9
------------------------------ --------- ------- ------------- ------------
* Includes land held under short and long leasehold, and land under an option to buy
**Book value is stated net of any site specific restoration provisions
The table above highlights the importance that energy projects will play in delivering value from a significant segment of the property portfolio. The Group's property portfolio contains 4,282 acres of low grade land. Much of this land is ideally suited to the development of onshore wind and without the development of onshore wind, there is little potential to create significant value in these land holdings. The development and delivery of large-scale wind projects by Brockwell Energy offers the Group the potential for significant long term rental streams to be generated from this portion of the land portfolio. The energy from waste and solar projects being developed by Brockwell Energy provide a catalyst for the development of the extensive and well-positioned commercial/industrial Westfield site in Fife. The master-planning exercise that is being conducted will deliver outline planning permission for the industrial and energy project development of the site. The energy projects will encourage further site development through the opportunity to offer highly competitive heat and power to other industrial tenants.
The key operational focus for the year was to deliver a successful outcome on the planning permission for Blindwells, which was received and announced in March 2017. The development of the Blindwells site is well underway and represents the most significant opportunity for the Group. The first plot sale is a key strategic target for this financial year. Success at Blindwells will help us translate a significant portion of the development value increment into the market value.
Legacy Assets
In the year ended 31 May 2017 we slightly exceeded our own expectation as excellent progress has been made in the realisation of cash from legacy assets. We realised GBP25.5m of cash with a further GBP5.5m of cash receipts contracted but outstanding as at 31 May 2017. The target remains to realise the remaining assets into cash, as soon as possible, over the next 24 months without any need for further impairment charges.
Legacy stocks of coal and coke were fully contracted and largely cleared during the year. The improved funding position at the Tower joint venture facilitated the repayment of GBP5.6m of loans in the year and as we have seen some improvement in market for heavy plant markets and we currently see more potential for the early realisation of surplus plant. This will not only help to accelerate the run out of our own surplus plant but may present an opportunity for earlier repayments of the Tower loans, of which the Group remains confident of full recovery.
We were very pleased to announce the agreement for the sale of the underground mining equipment for GBP5.5m of which GBP1.0m cash has already been received. The remaining balance is anticipated to be received early in the second half of the current financial year. The consideration achieved is in excess of book value of these assets.
The table below summarises the legacy asset position.
Asset Category 31 May 2017 31 May 2016
GBPm GBPm
-------------------- ------------ ------------
Property, Plant
and Equipment 7.9 9.0
-------------------- ------------ ------------
Assets Held
for Sale 5.0 5.0
-------------------- ------------ ------------
Inventory 3.6 20.4
-------------------- ------------ ------------
Trade and Other
Receivables 23.1 31.3
-------------------- ------------ ------------
Total Legacy
Assets 39.6 65.7
-------------------- ------------ ------------
Retirement Benefit
Obligation (5.1) (5.7)
-------------------- ------------ ------------
Net Legacy Assets 34.5 60.0
-------------------- ------------ ------------
We have also booked two non-cash adjustments to Legacy assets. The improved trading and forecast run-out position at Tower allowed us to reverse the impairment of the GBP2.0m receivable that we took an exceptional charge for in the year ended 31 May 2016. We have taken the reversal of the impairment as exceptional income in the year ended 31 May 2017. Secondly, in light of OFGEM's recent decision on embedded benefits and diesel generation that affect our mothballed diesel engines and switchgear that was formerly operated by Rocpower, we have taken an exceptional charge of GBP2.3m to fully impair the legacy Rocpower assets. The net effect of these impairment adjustments was a charge of GBP0.3m.
We remain committed to managing the Maltby pension scheme over the long term. Given the relative immaturity of the scheme, the optimal strategy is to continue to service the scheme and hence, going forward we will no longer report the retirement benefit obligation in the Legacy category, but will instead sit in the Corporate balance sheet.
STRATEGY - CONTINUED SIMPLIFICATION AND FOCUS
Whilst significant progress has been made in simplifying the Group and its strategy, the business remains complex and this creates challenges for stakeholders and investors and increases the amount of overhead required to manage the Group. As the markets in which we operate adjust to the changes that have taken place in and around the coal sector, we also find that the longer term growth prospects and the balance between risk and return also evolve. The table below summarises the current Group activities.
Current Designation Core Core Non-Core
-------------------- ----------------------- ------------------ ------------------
Logistics Property
Activities Industrial European Coal Energy Projects
Services Distribution
UK Coal Distribution
& Mining Earthworks
-------------------- ----------------------- ------------------ ------------------
Growth/Value Limited Growth Sustainable High Growth/High
Potential Growth Capital
-------------------- ----------------------- ------------------ ------------------
Strategy Optimise for Focus for Long Spin-off
Cash Generation Term Development
-------------------- ----------------------- ------------------ ------------------
The development of Energy projects has the potential to create significant value and growth. However, such projects also require significant amounts of capital and expertise to deliver and therefore we have decided that they are not core to the Group and are better developed in a separate entity. As announced in June, we have formed a new company, Brockwell Energy Limited ("Brockwell Energy") and have identified spinning Brockwell Energy out of the Group as one of our four key strategic objectives for this current year. This is discussed in more detail below.
Following the restructuring of the last few years, we have categorised the remaining businesses as core. Looking at the core businesses, as we refine and update our strategy to take account of changing market conditions, we will further segment the Core activities into two categories according to longer term growth prospects.
In this regard, as shown, we regard Property and European Coal Distribution as offering good long term growth and value creation prospects. We categorise UK Coal Distribution, Earthworks, Logistics and Industrial Services as currently offering more limited growth opportunities. In terms of strategy we will prioritise management attention and capital allocation to Property and European Coal Distribution where the value creation opportunity is considered greatest.
Although the other core businesses offer lower growth potential they do all offer good cash generation opportunity. Whilst we see the need and opportunity to deploy some capital expenditure into the UK Coal Distribution and Logistics businesses in the short term to protect or improve their market position, we see the longer term capital requirement from these businesses as limited and therefore we will seek to ration capital and run these operations to maximise long term cash generation.
Continuing to narrow the core focus of the Group will help us better target capital allocation and create more opportunity. This in turn will also help us to reduce the level of overhead required to support these activities, both in the businesses and at the Group level.
FOUR KEY STRATEGIC GOALS FOR 2018
Looking at the current financial year ending 31 May 2018, we have set ourselves four key strategic goals. These are:
1. Energy - Deliver a successful spin-off of Brockwell Energy 2. Germany - Grow and improve resilience of European Coal Distribution profits 3. Property - Deliver the first plot sale at Blindwells 4. Earthworks - Re-focus around core competencies
Strategic Goal No 1 - Energy - Deliver a successful spin-off of Brockwell Energy
The decision to form Brockwell Energy and seek to raise capital and spin it off from the Group has been taken for several reasons:
-- The development of such projects requires significant capital. It is easier to raise such capital from specialist energy investors if the investment proposition is focused and does not include the portfolio of other interests owned by the Group;
-- The separation of Brockwell Energy recognises that energy project development is not the Group's core competence. The appointment of Alex Lambie as Brockwell Energy's CEO, recognises the need for leadership that has expertise and experience operating and investing in the energy markets;
-- The spin-off of the portfolio will avoid further complexity being added to the Group at a time when continuing simplification is a key goal;
-- The Group retains the opportunity to invest and retain a degree of interest in the value of the energy portfolio through an equity participation in Brockwell Energy;
-- Aside from any potential carried interest, the Group would be a significant beneficiary of the development and delivery of wind and other energy projects on its property portfolio through Brockwell Energy.
The successful spin-off of the Brockwell Energy business will be closely tied to the ongoing development of the Earl's Gate project. As we announced in June 2017, we have signed a memorandum of understanding under which the UK Green Investment Bank will take a 50% equity stake in the project alongside the Group through Brockwell Energy in the coming financial year. Our respective teams are working well together. A successful and timely financial close on the Earl's Gate project will greatly assist the Group and Brockwell Energy in furthering our ambitions and spin-off.
Strategic Goal No 2 - Germany - Grow and improve resilience of European Coal Distribution profits
Whilst the Group maintains a strong position in the UK coal markets, the opportunities to trade carbon related products in the UK are limited by the accelerated decline in heavy industry in the UK. Whilst we are confident that the specialist UK coal markets will continue to provide opportunity for profit and cash generation, the industrial markets are mature and declining. The investment we are planning at Maxibrite will be the last significant foreseeable investment for the UK Coal Distribution business. This GBP2.5m investment will provide Maxibrite with a market leading cold-cure press manufacturing facility allowing it to compete aggressively on cost in the lucrative home heating markets where cost is increasingly the most important market driver.
In contrast, the industrial coal markets in Germany and Europe remain strong and resilient, with major players investing in capacity for the long term. Having weathered the challenging conditions of the last few years the German business has delivered an outstanding trading result last year. The challenge with a pure trading business is visibility of forward earnings. We have always taken a conservative approach when forecasting forward earnings, even when the German business had the benefit of trading around production assets such as Monckton Coke Works that were owned by the Group. Our second key strategic goal for FY18 will be to look for opportunities to continue to grow the underlying scale of the German business and to improve the resilience of its profit stream.
Strategic Goal No 3 - Property - Deliver first plot sale at Blindwells
The GBP83m Red Book valuation of the entire property portfolio is a clear vindication of our decision to hold and develop the property portfolio over the last few years. The Blindwells site remains a key development focus. The granting of planning permission in March represented a significant milestone and allows us to move into the phase of working towards the first realisation.
We are working with experienced industry leading advisors to ensure that the strategy to develop the site optimises long term value. Our plan remains to develop the basic site infrastructure before selling the site in parcels to housebuilding specialists. The style and quality of the first Blindwells plot to be sold and developed is a key factor in optimising the longer term value of the entire site. Our third key strategic goal for this financial year will be to achieve a first land sale of optimal style and design.
Strategic Goal No 4 - Earthworks - Re-focus around core competencies
The Group remains committed to winning and supporting the delivery of major bulk earthworks projects such as the A14, Hemerdon and HS2. The risk profile of such projects is attractive and justifies the Group to selectively deploy its balance sheet strength and extensive heavy plant resources to win and support such contracts. The Group will not support the tendering of any further major "design and build" or lump sum contracts. We have set ourselves the objective of working with Blackwell management to re-focus on lower risk cost-plus, target cost and re-measure contracts. The objective to win new business will include the finalisation of the A14 contract and our first contracts on the HS2 project. HS2 is set to be the largest earthworks contracting opportunity since the establishment of the UK motorway network. We believe that the Group, drawing on the skills and credentials of CA Blackwell, is well positioned to win significant business.
Shareholder Value
As we manage these strategic goals we will remain focused on shareholder value. As our track record demonstrates, we will continue to carefully evaluate the optimal deployment of any cash that we realise from the sale of legacy assets or from the liberation of capital from non-core businesses. We remain open to considering investment in core businesses where a strong return can be generated or to return capital to shareholders through dividends, special dividends or share-buy backs. As always, we will be careful to maintain a strong balance sheet position with an appropriate level of leverage.
Outlook
The outlook for the Group is more positive than it has been for some time. In the past few years we have explained to our stakeholders the need to re-position our activities to deal with the challenges we have faced. After several difficult years, we are now talking about repositioning to seize opportunity and maximise value creation.
The independent valuation of the property portfolio demonstrates clearly the intrinsic value of the Group. We are seeing an improvement in the market for heavy plant which adds to our optimism around realising cash and value from our extensive plant fleet. The commencement of HS2 offers our substantially re-profiled Earthworks operation an exciting opportunity to win flagship and game-changing contracts. The performance in Germany highlights the potential offered by the buoyant European heavy industrial markets, especially if we can find a strategy that delivers steadier and more predictable profits.
Our finances remain in robust shape, thanks in a large part to the prudent financial management by our finance director, Iain Cockburn. The net assets at the end of the year were GBP137.9m or GBP4.32 per share. Including the market value premium of the property portfolio that would increase to GBP4.91 per share. The GBP83m development valuation creates an obvious opportunity to lift the net asset value further.
Gordon Banham
Group Chief Executive
7 August 2017
REVIEW OF OPERATING PERFORMANCE BY BUSINESS UNIT
Review of Performance
Revenues from Continuing Operations increased during the year by GBP2.2m from GBP340.7m to GBP342.9m, reflecting the first full year of results from our Specialist Earthworks Division following the acquisition of CA Blackwell Group in January 2016, which offset the reduction in revenues from coal sales and Industrial Services activities following the closure of Redcar Steelworks and a number of coal fired power stations during the prior year.
Underlying Group Operating Profit from Continuing Operations for the year increased by GBP5.2m from GBP4.6m to GBP9.8m. Underlying Profit Before Tax increased by GBP4.7m to GBP7.7m compared with GBP3.0m in the prior year, reflecting our German associate performing significantly ahead of management expectations in favourable trading conditions, which more than offset some softness in UK coal and logistics markets and the effect of the run-down of legacy civil engineering contracts. Reported Profit Before Tax of the Group increased by GBP14.7m from a loss of GBP10.6m to a profit of GBP4.1m after exceptional costs. Exceptional costs reduced by GBP11.9m from a net exceptional charge of GBP12.4m reported in the prior year to a net exceptional charge of GBP0.5m. These are outlined in more detail in the Financial Review below.
The commentary below reflects the continuing underlying performance of the four Divisions.
Distribution Property
& Services &Energy Legacy Corporate Total
2017 2017 2017 2017 2017
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- ------------ -------- ------- --------- -------
Segment Operating Profit/(Loss)
after Exceptionals 4,457 (1,252) 101 (2,613) 693
Net exceptional costs 192 2,278 - (2,000) 470
Intangible amortisation/impairment 315 - - - 315
Share of profit in jointly
controlled entities (net of
tax) 5,487 - - - 5,487
Share of tax in associates
and jointly controlled entities 2,873 - - - 2,873
----------------------------------- ------------ -------- ------- --------- -------
Underlying Operating Profit/(Loss) 13,324 1,026 101 (4,613) 9,838
Net financing costs (1,942) (644) - 494 (2,092)
----------------------------------- ------------ -------- ------- --------- -------
Underlying Profit/(Loss) before
Tax 11,382 382 101 (4,119) 7,746
----------------------------------- ------------ -------- ------- --------- -------
Distribution Property
& Services & Energy Legacy Corporate Total
2016 2016 2016 2016 2016
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------ ------------ --------- ------- --------- -------
Segment Continuing Operating
Profit/(Loss) after Exceptionals 1,545 (363) - (8,355) (7,173)
Net exceptional costs 10,378 - - 2,000 12,378
Intangible amortisation/impairment 584 - - - 584
Share of loss in jointly controlled
entities (net of tax) (1,792) - - - (1,792)
Share of tax in associates
and jointly controlled entities 628 - - - 628
------------------------------------ ------------ --------- ------- --------- -------
Underlying Continuing Operating
Profit/(Loss) 11,343 (363) - (6,355) 4,625
------------------------------------ ------------ --------- ------- --------- -------
Net financing costs - Continuing
Operations (1,577) (345) - 290 (1,632)
Underlying Continuing Profit/(Loss)
before Tax 9,766 (708) - (6,065) 2,993
------------------------------------ ------------ --------- ------- --------- -------
DISTRIBUTION AND SERVICES
Coal Distribution
The activities of the division include our distribution and trading activities in the UK and Germany. The UK operation encapsulates our coal distribution business, our last mining project at the House of Water site in East Ayrshire and our Maxibrite coal briquetting operation. Our German business operates through our associate operation, Hargreaves Raw Material Services GmbH ("HRMS"). HRMS trade and distribute coal, coke, ferro alloys and pig iron, acting as a broker or bulk-breaker and, most importantly, avoids taking commodity price risks wherever practical.
The table below shows the breakdown of underlying operating profit within the Coal Distribution Division by key activity.
2017 2016
--------------------------------- ----- -----
UK Coal Distribution Operations
(GBP'000) 0.7 2.8
--------------------------------- ----- -----
Germany (Associate) (GBP'000) 8.4 1.8
--------------------------------- ----- -----
Total 9.1 4.6
--------------------------------- ----- -----
Following our recent restructuring, from the start of the year commencing 1 June 2016, results from our Property and Energy business and from activities at the Tower project in South Wales are no longer shown in the Coal Division. With Property and Energy having become material activities, from 1 June 2016 they have been reported in a separate segment and are reported on below. The Tower project and its related income streams, having moved into its restoration phase, are managed by and reported in the Specialist Earthworks Division. The cash run out of loans to the Tower joint venture continue to be reported in our Legacy Assets Realisation segment.
UK Coal Distribution revenues fell from GBP148.6m to GBP109.9m reflecting a GBP38.7m reduction in metallurgical coal sales following the Group's exit from those markets in the UK in response to the closure of Redcar steelworks. The Underlying Operating Profit generated from UK Coal Distribution fell from GBP2.8m to GBP0.7m due to a combination of the withdrawal from metallurgical coal trading and softness in speciality markets.
The volume of UK third party bulk trading increased from 602,000 tonnes to 709,000 tonnes. The increase in trading volume was due to the sale of 140,000 tonnes of legacy coal stocks to two coal fired power stations to meet their demands during the winter period. The legacy coal volumes fulfilled part of the demand from generators and were supplemented by production from the House of Water surface mine and imports from Russia.
Sales of speciality coal into domestic and industrial markets have increased from 556,000 to 836,000 mainly due to growth in cement and export market volumes and strategic trading arrangements with indigenous third-party producers. Whilst competition and customer buying habits continue to apply pressure to margins, the trading team has been successful in protecting market share. The Group continues to benefit from a strong position in the supply chain for domestic and industrial markets. Volumes traded from the Group's Maxibrite briquetting facility in Wales were subject to increased competition from lower cost products manufactured using a "cold cure" process.
As disclosed previously, the Group retains coaling options and planning permissions over a number of sites, representing reserves of approximately 4.1 million tonnes. Following another year of significant decline in UK coal-fired generating capacity and a consequent further erosion of potential future demand, the Group has taken the decision to take an exceptional charge and fully impair the balance sheet value of these options. Management notes that the balance of UK generating capacity remains subject to a range of uncertain factors which may yet result in a transitory recovery in power station coal demand. Whilst there is no current expectation for such a recovery in demand, the coal reserves would provide a potentially valuable option for the Group should that situation change in the future.
The Group's 86% share of Operating Profit from our German associate increased from GBP1.8m in the prior year to GBP8.4m in the year ended 31 May 2017. After tax this results in a profit of GBP5.5m being recognised in respect of the German associate. The European operation generated revenue of GBP134m from the trading of 578,000 tonnes of product compared with GBP89m from 652,000 tonnes in the prior year. This performance reflected favourable market conditions in key continental markets that were skilfully exploited by the German trading team. Increased sales volumes of high margin pig iron and ferro alloys were also achieved following the expansion of the local team to target those markets. Whilst the European business is an associate and therefore its assets and liabilities are not consolidated into the Group's results, it should also be noted that the increased trading levels have been supported by greater borrowing capacity following the renegotiation of credit lines with two major German banks.
As the HRMS business grows in scale and the Group considers opportunities to help improve the resilience of revenues and profits, consideration will be given to the appropriateness of consolidating the results and balance sheet.
Specialist Earthworks
The Specialist Earthworks business contributed its first full year of profits following the acquisition of CA Blackwell part way through the prior financial year. The division reported Underlying Operating Profit of GBP2.4m on revenues of GBP122.1m for the year ended 31 May 2017 compared with Underlying Operating Profit of GBP1.9m on revenues of GBP64.1m. The performance was below expectations as the Division focused on the effective management and resolution of a number of problematic pre-acquisition contracts. Included in exceptional expenses is a net charge of GBP3.4m in respect of three problematic pre-acquisition contracts. No benefit has been taken for any losses that could potentially be recovered under warranty claims against the sellers. Further provisions have been made in respect of loss making contracts and the Directors believe that such provisions adequately cover the Group's commercial exposures against other known loss making contracts. Additionally, the business recognised a GBP3.3m amount receivable in respect of an historic plant maintenance claim, this has been included within exceptionals. After the net exceptional expense, the Specialist Earthworks business reported an operating profit of GBP2.3m.
Progress on the key A14 contract in the year ended 31 May 2017 was encouraging, with enabling works on two sections of the GBP1.5 billion road improvement scheme having commenced and full deployment on the project expected during the next financial year.
Activities have continued at the Hemerdon tungsten mine operated by Wolf Minerals with both parties benefiting from a variation made to the existing contract arrangements during the year. Whilst the customer continues to tackle operational challenges relating to the processing facility at the mine, the Group was encouraged by the recent increase in funding provided by the financers of the project, which provides visibility over at least the next six months of operation at the mine.
Our activities in South Wales at the Tower surface mining project have been brought under the direct management of the Specialist Earthworks Division. The profits generated from the contract to supply and operate the heavy earth moving equipment at Tower are included in the results of the Division. The onsite activities transitioned during the year from mining to restoration as the final shipment of coal was sent by train to Aberthaw Power Station in March 2017. Whilst the performance of the joint venture is not reported in the Group's results since the investment in the project was impaired during the year ended 31 May 2016, a significant increase in the international benchmark coal price and favourable exchange rate movements benefited the revenues and cash flows generated by the joint venture. The Group was also pleased to reach agreement with its joint venture partners on a variation to the terms for the supply of labour and plant to the site. The variation includes a reduction in the margin charged by the Group alongside an optimised operating plan intended to protect the market value of the joint venture's plant fleet and, therefore, improve the cash outturn of the project and the Group's visibility and confidence over the full recovery of its legacy loan balances with Tower.
Industrial Services
The performance of the Industrial Services Division was in line with expectations and represented a significant reduction on the prior financial year due to the closure of Redcar steelworks and a number of coal fired power stations. Total revenue generated by the division reduced from GBP81.6m to GBP65.4m, producing underlying operating profit of GBP1.8m compared with GBP3.6m in the prior year. Activity levels in the UK showed a slower rate of decline than expected, supported by maintenance outages as some generators continued to invest in their assets. Group activities in the UK steel sector continued to decline with the notice of pending cessation of the Industrial Services contract at Port Talbot following on from the demise of Redcar Steelworks twelve months earlier.
The rate of growth in Hong Kong was behind target following the delay of a major project which has still not commenced. Year on year growth in the Group's operations in Hong Kong continued with an increase in revenues of 51% on the prior year. Whilst the timing delay on the new major project was disappointing, there was pleasing progress elsewhere as the Group was invited to supplement the core contract at Castle Peak Power Station with additional services.
Total revenue by destination market
GBPm FY15 FY16 FY17 ------ ----- ---- ---- UK 120.9 67.1 46.5 Hong Kong 5.4 11.0 16.6 Other 1.5 3.5 2.3 ------ ----- ---- ---- Total 127.8 81.6 65.4 ------ ----- ---- ----
Logistics
The Logistics Division had another challenging year, particularly in the final quarter as a highly competitive market and pressure on subcontractor margins resulted in a downturn in performance. Revenues for the operation fell from GBP54.5m to GBP48.0m with Underlying Operating Profit reducing from GBP1.2m to GBP0.1m. The significant decline reflects the challenges faced by the business as it transitions from its previous focus on large and predictable volumes of coal movement to an operation targeted at transporting a greater diversity of materials and routes in the waste, construction and biomass sectors. The management team has recently been bolstered in order to adapt to these new demands and a series of steps to reduce costs, improve efficiency and update commercial terms are being implemented.
PROPERTY AND ENERGY
The Property and Energy teams generated an Underlying Operating Profit of GBP1.0m for the year ended 31 May 2017 which was in line with management expectations. Operating loss of GBP0.4m generated in the prior year from the Group's Property and Energy activities was reported within the Coal Distribution Division as shown in the table above. The result reflects profit generated on disposals of sundry properties with no significant long term strategic potential and fair value gains recognised following the exercise of options on newly restored areas of former mining sites at House of Water and Broken Cross. The business also incurred an exceptional cost in respect of the impairment of the property and plant at Commonside Lane of GBP2.3m. After exceptional items, the Property and Energy businesses reported an operating loss of GBP1.3m.
The Property team has been expanded to 11 and we now have in place the resource and access to skills to deliver progress towards our strategic targets. A particular area of focus for the Property team was the Blindwells project in East Lothian where the granting of planning permission as announced in March 2017 represented an important milestone. The timing of the Blindwells planning decision was delayed compared to our original expectations and consequently no plot sales were made during the year ended 31 May 2017, with the first realisations now expected in the current financial year. This is one of our four key strategic goals for the current financial year.
The progress made in the development of the Group's energy projects portfolio was reflected in the decision announced on 14 June 2017 to create a new wholly owned subsidiary, Brockwell Energy, to oversee the development and potential spin-off of the Group's energy project interests. Significant development activity was undertaken in the year in relation to the Earl's Gate Combined Heat and Power (CHP) plant project at Grangemouth and the Energy from Waste project at Westfield in Fife. An acceleration in development activity primarily in relation to the Earl's Gate project as it moves towards financial close, is expected to result in the balance sheet value of the Energy portfolio increasing by November 2017 from its current value of GBP4.1m. Plans for the Group's 400MW portfolio of potential onshore wind schemes have also progressed, including an agreement of property options to enable a single 300MW scheme, the construction of which would deliver significant environmental restoration benefits. It is believed that this will be the largest single scheme in the UK.
SAFETY, HEALTH AND THE ENVIRONMENT
Our vision is to create an environment where all employees can work with zero harm to them. To achieve this, the Group takes a proactive approach to Safety, Health and the Environment and remains committed to the highest practicable standards of safety and health management and the minimisation of adverse environmental impacts.
The Board ensures that Health and Safety issues for employees, customers and the public are of foremost concern in all Group activities. The Group Chief Executive, supported by external advice, is charged with overall responsibility. All divisions have formulated safety management systems. We continue with the programme to achieve OHSAS 18001 Occupation Health and Safety Assessment Series for health and safety management systems and ISO 14000 environmental management.
During the year, we continued to strengthen our approach to behavioural safety training, with emphasis on raising the awareness and understanding of our supervisory staff, who form the "front line" in delivering our standards within the workplace. This is being achieved through internal safety champions and external accredited training providers.
We have also developed our Senior Manager Safety Engagement Programme to deliver leadership across our operating sites. This Programme is led by the Board members and involves all senior managers undertaking site based safety visits, engaging directly with the workforce to discuss issues that impact on them. This Programme has proved to be effective in delivering a consistent approach across the Group and will continue to be a cornerstone of our safety strategy.
It is pleasing to note that our safety performance improved slightly during the year, as measured by Lost Time Incident Frequency Rate ("LTIFR"). This follows the previous year where a slight deterioration occurred reflecting the pressures created by the transition for the Group, with a number of operating units closing and others downsizing their workforce. Notwithstanding the improvement in the year, we have set a 5% improvement in performance for the current year.
Iain Cockburn
Group Finance Director
Gordon Banham
Group Chief Executive
7 August 2017
FINANCIAL REVIEW
Revenue
The Group has enjoyed a more stable period of trading following the turbulent conditions in prior periods. Revenues increased year on year from GBP340.7m to GBP342.9m reflecting a first full year of trading from the Blackwell acquisition in the Earthworks Division which offset lower revenues in the Coal Distribution and Industrial Services divisions.
Operating Profit and Margins
Underlying Operating Profit increased by 113% to GBP9.8m from GBP4.6m. This increase is largely attributable to the exceptional performance of the German trading associate, due to some favourable market conditions and the ability of the management team to move quickly and capitalise on trading opportunities. The strong performance in Germany more than offset soft trading in the UK coal trading business following another mild winter.
The year to 31 May 2017 is the first full year of operations within the Earthworks division following the acquisition of CA Blackwell in the prior year. The division delivered an Underlying Operating Profit of GBP2.4m. Whilst this represented an increase of GBP0.5m, it was lower than management's expectations as the prior year only included five months of operations. The reduction in profit levels is a result of the challenges across a number of contracts.
The Logistics business had a GBP0.1m Underlying Operating Profit compared to a prior year Underlying Operating Profit of GBP1.2m. This reduction reflected challenges in the market place through increased competition and pricing pressures.
The first full year of Property and Energy trading as a separate division has seen a significant improvement in the divisional Underlying Operating Profit, growing from a loss of GBP0.4m to a profit of GBP1.0m. The Group has also reported the result obtained from the realisation of legacy assets into cash, which has delivered a cash inflow of GBP25.5m and a profit before tax of GBP0.1m.
Reported Group Continuing Operating Profit before exceptional costs decreased from GBP5.2m to GBP1.2m whilst Continuing Profit before Tax improved from a loss of GBP10.6m to a profit of GBP4.1m reflecting the strong performance of the German associate and the substantial reduction in the level of exceptional costs from GBP12.4m to GBP0.5m. Continuing operating profit after exceptionals improved from a loss of GBP7.2m to a profit of GBP0.7m.
Goodwill
The Group completed the acquisition of CA Blackwell in January 2016. Following experience within the business, the Group re-measured the goodwill on acquisition in respect of two legacy contracts, where it became clear in the first half of the year that further work and defect rectification would be required due to circumstances that existed prior to acquisition. Consequently, an increase of GBP2.7m was recognised in goodwill in the first half of the year. This brings goodwill associated with the acquisition to GBP3.6m. The Board remains comfortable with the carrying value of the revised goodwill amount.
Exceptional Costs
As the Group continues to restructure and simplify its operations, a number of items of non-recurring income and cost have arisen during the year, particularly as the Group settles many of its legacy positions. As such, there is a net exceptional charge of GBP0.5m in the year, which is a reduction of GBP11.9m from GBP12.4m in the prior year.
2017
Exceptional credits/(charges) GBP000
---------------------------------------------- -------
Reversal of impairment of investment and
other assets relating to the Tower project 2,000
Cost associated with early closure of certain
mining operations (1,874)
Net losses on Legacy contracts in Blackwell (3,380)
Impairment of Property, Plant and Equipment (2,277)
Cash recovery from discontinued operation 1,096
Historic plant rebate 3,280
Liquidator dividend 796
Other simplification costs (111)
Total (470)
---------------------------------------------- -------
The exceptional items include a number of one-off credits that the Group has secured in the year, including successful conclusion to an historic mining plant claim relating to a repair and maintenance contract, resulting in a recovery of GBP3.3m. Additionally, following the impairment of certain Tower related balances in the prior year, the Group has reversed the impairment of a GBP2.0m receivable following the improvement in future cash forecasts of the project, leading to an expected full repayment of outstanding loans.
This is offset by the write-off of several mine development assets on potential locations that the Group is no longer pursuing following the strategic decision to reduce exposure to coal. The only remaining mine development costs on the balance sheet at 31 May 2017 was GBP0.3m (excluding the IFRIC 20 stripping asset and mine development assets) relating to the ongoing House of Water mining operation that is being amortised over the remaining five years of forecast mine life.
The net GBP3.4m exceptional loss within the Earthworks business relates to losses on three specific legacy contracts. These contracts are largely complete by the year end and no further material downside is anticipated. Although challenges remain with other continuing civil engineering contracts as noted in the Group Business Review, the Group is actively exiting civil engineering activity to focus on synergising skills in bulk earthworks with the Group's plant fleet. The net position of GBP3.4m includes the release of GBP2.7m of fair value accruals made at the interim following the revision of the goodwill on acquisition.
The impairment of property, plant and equipment relates to the property and plant at Commonside Lane, the former Rocpower site. This was impaired by GBP2.3m down to a notional amount, following OFGEMs decision to review and subsequently significantly reduce the TRIAD support regime, which significantly impacted the future earnings potential of the site.
The Group was also pleased to receive the first GBP1.1m recovery of cash relating to the historic losses in Belgium which ceased operations in the year ended 31 May 2013 and a dividend received out of a liquidation, which exceeded the balance sheet position by GBP0.8m.
Interest
In the year to 31 May 2017, continuing net finance expenses for the Group increased by GBP0.5m from GBP1.6m to GBP2.1m, predominantly due to the reduction in interest receivable from our Associates and Jointly Controlled Entities as indebtedness and interest rates were reduced.
Taxation
The income tax credit for the year is GBP0.7m compared with a tax credit of GBP1.1m for the year ended 31 May 2016; including the share of tax of equity accounted investees of GBP2.9m (2016: GBP0.6m) this results in a total tax charge of GBP2.2m (2016: credit of GBP0.5m). Whilst this charge represents a reported effective tax rate for the Group of 31.3% (2016: 4.6%), this rate is significantly affected by the impact of the German underlying tax rate. After taking into account the impact of the overseas tax rates, the underlying effective rate is 13.0% (2016: 7.4%) reflecting the benefit of prior year tax recoveries arising from utilisation of tax losses.
Dividend
The Board is proposing a final dividend of 4.5p per share (2016: 0.6p), bringing the dividend for the full year to 7.2p per share (2016: 2.3p). This represents an increase of 213% on the prior year that is in line with the improved profit performance of the Group. This dividend level reflects a pay-out ratio of 40% (2016: 40%) of underlying diluted earnings per share. The proposed final dividend will be paid on 20 October 2017 to all shareholders on the register at the close of business on 22 September 2017.
Pensions
Our former deep mining operation at Maltby Colliery was a member of two defined benefit pension schemes. Whilst our operations at the mine have ceased, the obligation to fund the schemes remains within the Group, and the Directors remain committed to funding the schemes.
In addition to the two industry wide defined benefit pension schemes, Maltby Colliery also operates an unfunded concessionary fuel scheme. The combined liability of both elements as at 31 May 2017 is GBP5.1m, decreased from GBP5.7m at 31 May 2016. Contributions in the year of GBP1.5m (2016: GBP1.2m) have been offset by interest and expenses of GBP0.4m (2016: GBP0.3m) and a net re-measurement loss of GBP0.5m (2016: GBP1.0m).
Earnings per Share
Reported basic earnings per share increased from a loss of 33.0p to a profit of 16.1p reflecting the significant improvement in the trading result of the Group. Underlying diluted earnings per share increased by 220% from 5.6p to 17.9p. The weighted average diluted number of shares remained steady at 32.3m. The Group did not undertake any further share buy-backs during the year.
Net Debt
Net debt reduced by GBP16.6m from GBP32.3m at 31 May 2016 to GBP15.7m at 31 May 2017 reflecting positive progress in the realisation of legacy assets.
Group net assets increased from GBP131m at 31 May 2016 to GBP138m at 31 May 2017. Gearing (measured as net debt compared with net assets) at the end of May 2017 was 12%, compared with 25% at 31 May 2016.
Net cash flow from continuing operating activities before interest and tax generated a cash inflow of GBP41.8m during the year. Net cash flow from operating activities before interest, tax and working capital was GBP14.2m.
The Group has successfully realised a significant proportion of its Legacy assets into cash and this is the key driver behind the GBP27.6m positive working capital movement. Included within the movement are Legacy inventory realisations of GBP16.8m and the first significant repayment of the loans to the Tower joint venture of GBP5.6m. Aside from the Legacy unwind, the underlying working capital position has remained relatively consistent.
Tax payments in the year included GBP5.2m in respect of a disclosable tax planning scheme implemented in 2011. Following this payment the Group has no further cash payment obligations in relation to the scheme. The prior year accounts had made provision for this payment, therefore there was no impact on the income statement for the year ended 31 May 2017. The Group and its advisors, KPMG remain confident that the scheme was sound and lawful.
Gross cash on capital expenditure was GBP20.0m (2016: GBP15.1m) was offset by disposal proceeds of GBP5.3m (2016: GBP1.6m). Net capital expenditure in the financial year was GBP14.7m (2016: GBP13.5m). This included an investment of GBP1.4m in the Group's Energy portfolio, as well as GBP3.9m spent on the development of several of the Group's key Property projects. In addition to this further additions have been made within the Plant fleet totalling GBP6.0m and a further investment of GBP3.3m in the House of Water mine development assets.
The proceeds from disposal relate mainly to the disposal of surplus yellow plant, from which the Group was able to generate net profits of GBP1.8m.
The Group acquired the share capital of Tru Green Limited in March 2017 resulting in cash outflow of GBP0.2m. The business included net debt of GBP0.4m at the date of purchase. This acquisition will sit within the existing Industrial Services division.
The Group paid dividends totalling GBP1.1m, comprising of the prior year final dividend of 0.6p and the current year interim dividend of 2.7p.
Movement in Net Debt
2017 2016
Item GBPm GBPm
----------------------------------------------- ------ ------
Net cash from operating activities before
interest, tax and working capital movements 14.2 14.9
Movement in working capital 27.6 5.3
----------------------------------------------- ------ ------
Cash from operating activities before interest
and tax 41.8 20.2
Interest payable (1.3) (4.0)
Taxation payable (7.0) (6.7)
Net capital expenditure (14.7) (13.5)
New finance leases (0.5) (3.5)
Business combinations (0.6) (13.7)
Dividends received - 0.8
Dividends paid (1.1) (6.9)
Purchase of own shares - (0.6)
Discontinued cash flows - (3.4)
----------------------------------------------- ------ ------
Total movement in net debt 16.6 (31.3)
----------------------------------------------- ------ ------
Capital Management and Bank Facilities
The capital structure of the Group consists of debt, which includes borrowings, cash and cash equivalents, and equity attributable to equity holders of the parent, comprising capital, reserves and retained earnings.
The capital structure is reviewed regularly by the Group's Board of Directors in light of the Group's policy of maintaining gearing at levels appropriate to the business. The Board principally reviews gearing determined as a proportion of debt to earnings before interest, tax and depreciation. The Board also takes consideration of gearing determined as the proportion of net debt to total capital. It should be noted that the Board reviews gearing taking careful account of the working capital needs and flows of the business.
The Group's current UK banking arrangements consists of a GBP70m borrowing base facility ("BBF") and a GBP40m revolving credit facility ("RCF"). The arrangement was concluded with a three bank group comprising of HSBC, Lloyds and Barclays and is committed through to August 2018. The structure was designed to provide a greater degree of flexibility for the Group in financing working capital. Although the Group's RCF is subject to a Debt:EBITDA leverage covenant maximum of only 2:1, the Group's BBF facility sits outside the leverage test and leverage test parameters as it is secured against the underlying working capital assets.
Summary of Net Debt
2017 2016
GBP000 GBP000
------------------- -------- --------
Cash and
cash equivalents (27,817) (21,161)
Interest
bearing
borrowings 35,275 37,593
Finance
lease liabilities 8,277 15,906
------------------- -------- --------
Net Debt 15,735 32,338
------------------- -------- --------
Going Concern
The Group has considerable financial resources together with long-term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
Iain Cockburn
Group Finance Director
7 August 2017
Consolidated Statement of Profit and Loss and Other Comprehensive Income
for year ended 31 May 2017
2017 2016
Continuing operations Note GBP000 GBP000
--------------------------------------------- ---- --------- ---------
Revenue 2 342,868 340,665
Cost of sales (309,832) (299,764)
--------------------------------------------- ---- --------- ---------
Gross profit 33,036 40,901
Other operating income 4,870 265
Administrative expenses (37,213) (48,339)
--------------------------------------------- ---- --------- ---------
Operating profit/(loss) 693 (7,173)
Analysed as:
Operating profit (before exceptional
costs) 1,163 5,205
Exceptional costs - Cost of sales (3,566) (3,473)
Exceptional costs - Administrative
expenses 3,096 (8,905)
--------------------------------------------- ---- --------- ---------
Exceptional costs (470) (12,378)
Operating profit/(loss) (after exceptional
costs) 693 (7,173)
--------------------------------------------- ---- --------- ---------
Financial income 1,766 1,153
Financial expenses (3,858) (2,785)
Share of profit/(loss) in associates
and joint ventures (net of tax) 5,487 (1,792)
--------------------------------------------- ---- --------- ---------
Profit/(loss) before tax 4,088 (10,597)
Taxation 3 694 1,082
--------------------------------------------- ---- --------- ---------
Profit/(loss) for the year from continuing
operations 4,782 (9,515)
Discontinued operations
Result/(loss) for the year from discontinued
operations - (940)
--------------------------------------------- ---- --------- ---------
Profit/(loss) for the year 4,782 (10,455)
--------------------------------------------- ---- --------- ---------
Other comprehensive income/(expense)
Items that will not be reclassified
to profit or loss
Remeasurements of defined benefit
pension plans (544) (1,098)
Tax recognised on items that will
not be reclassified to profit or loss 36 181
Items that are or may be reclassified
subsequently to profit or loss
Foreign exchange translation differences 2,594 149
Effective portion of changes in fair
value of cash flow hedges 349 1,119
Tax recognised on items that are or
may be reclassified subsequently to
profit or loss (63) (40)
--------------------------------------------- ---- --------- ---------
Other comprehensive income for the
year, net of tax 2,372 311
--------------------------------------------- ---- --------- ---------
Total comprehensive income/(expense)
for the year 7,154 (10,144)
--------------------------------------------- ---- --------- ---------
2017 2016
Note GBP000 GBP000
------------------------------------------- ---- ------- --------
Profit/(loss) attributable to:
Equity holders of the Company 5,138 (10,498)
Non-controlling interest (356) 43
------------------------------------------- ---- ------- --------
Profit/(loss) for the year 4,782 (10,455)
------------------------------------------- ---- ------- --------
Total comprehensive income/(expense)
attributable to:
Equity holders of the Company 7,510 (10,187)
Non-controlling interest (356) 43
------------------------------------------- ---- ------- --------
Total comprehensive income/(expense)
for the year 7,154 (10,144)
------------------------------------------- ---- ------- --------
Basic earnings per share (pence) 4 16.14 (32.96)
Diluted earnings per share (pence) 4 15.93 (32.96)
Basic earnings per share from continuing
operations (pence) 4 16.14 (30.01)
Diluted earnings per share from continuing
operations (pence) 4 15.93 (30.01)
------------------------------------------- ---- ------- --------
Non GAAP Measures
Basic underlying earnings per share
from continuing operations (pence) 18.12 5.70
Diluted underlying earnings per share
continuing operations (pence) 17.88 5.63
------------------------------------------- ---- ------- --------
Consolidated Balance Sheet
at 31 May 2017
Group
--------------------
Restated
2017 2016
Note GBP000 GBP000
------------------------------- -------------------------------------- --------- ---------
Non-current assets
Property, plant and equipment 63,664 68,095
Investment property 12,124 5,126126
Intangible assets 12,389 12,223
Investments in associates
and joint ventures 6,917 1,043
Other financial assets 7 -
Deferred tax assets 2,844 3,207
----------------------------------------------------------------------- --------- ---------
97,945 89,694
---------------------------------------------------------------------- --------- ---------
Current assets
Assets held for sale 5,040 5,040
Inventories 29,147 46,983
Other financial assets 139 32
Trade and other receivables 121,657 117,310
Cash and cash equivalents 27,817 21,161
----------------------------------------------------------------------- --------- ---------
183,800 190,526
---------------------------------------------------------------------- --------- ---------
Total assets 281,745 280,220
----------------------------------------------------------------------- --------- ---------
Non-current liabilities
Other interest-bearing
loans and borrowings (38,587) (46,098)
Retirement benefit obligations (5,103) (5,699)
Provisions (5,344) (4,189)
Other financial liabilities (12) (66)
----------------------------------------------------------------------- --------- ---------
(49,046) (56,052)
---------------------------------------------------------------------- --------- ---------
Current liabilities
Other interest-bearing
loans and borrowings (4,965) (7,401)
Trade and other payables (88,958) (77,844)
Income tax liabilities - (6,271)
Provisions (600) (867)
Other financial liabilities (249) (430)
----------------------------------------------------------------------- --------- ---------
(94,772) (92,813)
---------------------------------------------------------------------- --------- ---------
Total liabilities (143,818) (148,865)
----------------------------------------------------------------------- --------- ---------
Net assets 137,927 131,355
----------------------------------------------------------------------- --------- ---------
Group
-----------------
Restated
2017 2016
GBP000 GBP000
--------------------------- ------- --------
Equity attributable to
equity holders of the
parent
Share capital 3,314 3,314
Share premium 73,955 73,955
Other reserves 211 211
Translation reserve (988) (3,582)
Merger reserve 1,022 1,022
Hedging reserve 224 (62)
Capital redemption reserve 1,530 1,530
Retained earnings 58,630 54,582
---------------------------- ------- --------
137,898 130,970
Non-controlling interest 29 385
---------------------------- ------- --------
Total equity 137,927 131,355
---------------------------- ------- --------
Consolidated Statement of Changes in Equity
for year ended 31 May 2017
Capital Total
Share Share Translation Hedging Other redemption Merger Retained parent Non-controlling Total
capital premium reserve reserve reserves reserve reserve earnings equity interest equity
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- -------- --------------- --------
Balance at 1
June 2015 3,314 73,955 (3,731) (1,141) 211 1,530 1,022 72,999 148,159 342 148,501
Total
comprehensive
income for the
year
Loss for the
year - - - - - - - (10,498) (10,498) 43 (10,455)
Other
comprehensive
income/(expense)
Foreign exchange
translation
differences - - 149 - - - - - 149 - 149
Effective portion
of changes in
fair value of
cash flow hedges - - - 1,119 - - - - 1,119 - 1,119
Remeasurements
of defined
benefit
pension plans - - - - - - - (1,098) (1,098) - (1,098)
Tax recognised
on other
comprehensive
income - - - (40) - - - 181 141 - 141
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- -------- --------------- --------
Total other
comprehensive
expense - - 149 1,079 - - - (917) 311 - 311
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- -------- --------------- --------
Total
comprehensive
income/(expense)
for the year - - 149 1,079 - - - (11,415) (10,187) 43 (10,144)
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- -------- --------------- --------
Transactions
with owners
recorded
directly in
equity
Equity settled
share-based
payment
transactions - - - - - - - 520 520 - 520
Dividends paid - - - - - - - (6,924) (6,924) - (6,924)
Purchase of own
shares - - - - - - - (598) (598) - (598)
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- -------- --------------- --------
Total
contributions
by and
distributions
to owners - - - - - - - (7,002) (7,002) - (7,002)
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- -------- --------------- --------
Balance at 31
May 2016 3,314 73,955 (3,582) (62) 211 1,530 1,022 54,582 130,970 385 131,355
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- -------- --------------- --------
Capital Total
Share Share Translation Hedging Other redemption Merger Retained parent Non-controlling Total
capital premium reserve reserve reserves reserve reserve earnings equity interest equity
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- ------- --------------- -------
Balance at 1
June 2016 3,314 73,955 (3,582) (62) 211 1,530 1,022 54,582 130,970 385 131,355
Total
comprehensive
income for the
year
Profit/(loss)
for the year - - - - - - - 5,138 5,138 (356) 4,782
Other
comprehensive
income/(expense)
Foreign exchange
translation
differences - - 2,594 - - - - - 2,594 - 2,594
Effective portion
of changes in
fair value of
cash flow hedges - - - 349 - - - - 349 - 349
Remeasurements
of defined
benefit
pension plans - - - - - - - (544) (544) - (544)
Tax recognised
on other
comprehensive
income - - - (63) - - - 36 (27) - (27)
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- ------- --------------- -------
Total other
comprehensive
income/(expense) - - 2,594 286 - - - (508) 2,372 - 2,372
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- ------- --------------- -------
Total
comprehensive
income/(expense)
for the year - - 2,594 286 - - - 4,630 7,510 (356) 7,154
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- ------- --------------- -------
Transactions
with owners
recorded
directly in
equity
Equity settled
share-based
payment
transactions - - - - - - - 471 471 - 471
Dividends paid - - - - - - - (1,053) (1,053) - (1,053)
Total
contributions
by and
distributions
to owners - - - - - - - (582) (582) - (582)
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- ------- --------------- -------
Balance at 31
May 2017 3,314 73,955 (988) 224 211 1,530 1,022 58,630 137,898 29 137,927
------------------ ------- ------- ----------- ------- -------- ---------- ------- -------- ------- --------------- -------
Consolidated Cash Flow Statement
for year ended 31 May 2017
Group
------------------
2017 2016
GBP000 GBP000
--------------------------------- -------- --------
Cash flows from operating
activities
Profit/(loss) for the
year from continuing operations 4,782 (9,515)
Adjustments for:
Depreciation 11,333 9,261
Impairment of property,
plant and equipment 2,655 -
Depreciation of mining
assets 862 7,263
Amortisation and impairment
of goodwill and intangible
assets 315 1,026
Net finance expense 2,092 1,632
Share of (profit)/loss
in associates and joint
ventures (net of tax) (5,487) 1,792
Impairment of investment
in subsidiaries and joint
venture - 4,302
Profit on sale of property,
plant and equipment (1,783) (265)
Equity settled share-based
payment expenses 471 520
Income tax credit (694) (1,082)
Translation of non-controlling
interest and investments (373) (5)
---------------------------------- -------- --------
14,173 14,929
Change in inventories 17,828 15,541
Change in trade and other
receivables 2,178 10,696
Change in trade and other
payables 7,641 (21,775)
Change in provisions and
employee benefits (38) 754
---------------------------------- -------- --------
41,782 20,145
Interest paid (1,306) (4,011)
Income tax paid (6,994) (6,702)
---------------------------------- -------- --------
Net cash from continuing
operating activities 33,482 9,432
Net cash from operating
activities in discontinued
operations - (3,156)
---------------------------------- -------- --------
Net cash from operating
activities 33,482 6,276
---------------------------------- -------- --------
Cash flows from investing
activities
Proceeds from sale of
property, plant and equipment 5,284 1,613
Dividends received - 839
Acquisition of subsidiaries
(net of cash acquired) (248) (4,110)
Acquisition of property,
plant and equipment (19,971) (15,075)
---------------------------------- -------- --------
Net cash from investing
activities (14,935) (16,733)
---------------------------------- -------- --------
Cash flows from financing
activities
Payment of finance lease
liabilities (8,612) (6,591)
Payment of other loan
balances - (2,890)
Dividends paid (1,053) (6,924)
Purchase of own shares - (598)
(Repayment of)/proceeds
from Group banking facilities (2,500) 5,000
---------------------------------- -------- --------
Net cash from financing
activities in continuing
operations (12,165) (12,003)
Net cash from financing
activities in discontinued
operations - (282)
---------------------------------- -------- --------
Net cash from financing
activities (12,165) (12,285)
---------------------------------- -------- --------
Net increase/(decrease)
in cash and cash equivalents 6,382 (22,742)
Cash and cash equivalents
at 1 June 21,161 43,853
Effect of exchange rate
fluctuations on cash held 274 50
---------------------------------- -------- --------
Cash and cash equivalents
at 31 May 27,817 21,161
---------------------------------- -------- --------
1. Basis of preparation and status of financial information
The financial information set out above has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU (Adopted IFRSs).
The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 May 2017 or 31 May 2016. Statutory accounts for 2016 have been delivered to the Registrar of Companies, and those for 2017 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
These results were approved by the Board of Directors on 7 August 2017.
2. Segmental Information
The following analysis by industry segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are regularly reviewed by the Board of Directors (the Chief Operating Decision Maker as defined by IFRS 8) to assess performance and make strategic decisions about allocation of resources.
The sectors distinguished as operating segments are Distribution & Services, Property & Energy, Legacy and Corporate. As described in more detail in the prior year accounts the segments have been changed during this year, reflecting the changes experienced within the business, as the Group continues to transition away from coal. The comparative period has been restated accordingly.
-- Distribution & Services: Provides coal distribution, including mining operations, handling and contracting services and logistics to a range of industrial, wholesale and public sector customers. The division also provides earth moving and infrastructure services across the UK.
-- Property & Energy: The development and realisation of value from our extensive land portfolio through a variety of property and energy projects.
-- Legacy: The realisation of legacy coal and coke assets into cash, the division is focused on turning the historic assets into cash in a timely manner, whilst obtaining full value.
-- Corporate: The corporate overhead contains the central functions that are not devolved to the individual business units.
These segments are combinations of subsidiaries, jointly controlled entities and associates. They have separate management teams and provide different products and services. The four operating segments are also reportable segments.
Transactions between divisions are carried out at rates that do not give a competitive advantage to a particular division of the Group.
The segment results, as reported to the Board of Directors, are calculated under the principles of IFRS. Performance is measured on the basis of underlying operating profit/(loss), which is reconciled to profit/(loss) before tax in the tables below:
Property
Distribution &
& Services Energy Legacy Corporate Total
2017 2017 2017 2017 2017
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------------- ------------ -------- ------- --------- ---------
Revenue
Total revenue 322,088 3,581 17,283 554 343,506
Inter-segment revenue (638) - - - (638)
------------------------------------------ ------------ -------- ------- --------- ---------
Revenue from external customers 321,450 3,581 17,283 554 342,868
------------------------------------------ ------------ -------- ------- --------- ---------
Underlying operating profit/(loss) 13,324 1,026 101 (4,613) 9,838
Amortisation of intangibles (315)
Taxation on associates and
joint ventures (2,873)
Net financing costs (2,092)
------------------------------------------ ------------ -------- ------- --------- ---------
Profit before taxation (pre-exceptional) 4,558
------------------------------------------ ------------ -------- ------- --------- ---------
Net exceptional costs (470)
------------------------------------------ ------------ -------- ------- --------- ---------
Profit before taxation 4,088
------------------------------------------ ------------ -------- ------- --------- ---------
Depreciation charge (11,128) (644) - (423) (12,195)
------------------------------------------ ------------ -------- ------- --------- ---------
Capital expenditure (14,756) (5,319) - (378) (20,453)
------------------------------------------ ------------ -------- ------- --------- ---------
Net assets/(liabilities)
Segment assets 202,924 28,791 40,090 3,023 274,828
Segment liabilities (98,464) (7,099) (5,560) (32,695) (143,818)
------------------------------------------ ------------ -------- ------- --------- ---------
Segment net assets/(liabilities) 104,460 21,692 34,530 (29,672) 131,010
Associates and joint ventures 6,917
------------------------------------------ ------------ -------- ------- --------- ---------
Total net assets 137,927
------------------------------------------ ------------ -------- ------- --------- ---------
Corporate net assets include Group banking facilities liability (GBP32.3m), cash and cash equivalents (GBP0.7m liability), derivative financial instruments (GBP0.1m liability), corporation and deferred tax assets (GBP4.3m) and other corporate items (GBP0.9m).
Property
Distribution &
& Services Energy Legacy Corporate Total
2016 2016 2016 2016 2016
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------------- ------------ -------- ------- --------- ---------
Revenue
Total revenue 336,973 5,302 - - 342,275
Inter-segment revenue (1,610) - - - (1,610)
------------------------------------------ ------------ -------- ------- --------- ---------
Revenue from external customers 335,363 5,302 - - 340,665
------------------------------------------ ------------ -------- ------- --------- ---------
Underlying operating profit/(loss) 11,343 (363) - (6,355) 4,625
Amortisation of intangibles (584)
Taxation on associates and
joint ventures (628)
Net financing costs (1,632)
------------------------------------------ ------------ -------- ------- --------- ---------
Profit before taxation (pre-exceptional) 1,781
------------------------------------------ ------------ -------- ------- --------- ---------
Exceptional costs (12,378)
Loss before taxation (10,597)
------------------------------------------ ------------ -------- ------- --------- ---------
Depreciation charge (15,805) (316) - (403) (16,524)
------------------------------------------ ------------ -------- ------- --------- ---------
Capital expenditure (12,803) (5,244) - (667) (18,714)
------------------------------------------ ------------ -------- ------- --------- ---------
Net assets/(liabilities)
Segment assets 184,597 27,553 65,713 1,314 279,177
Segment liabilities (92,957) (5,174) (5,700) (45,034) (148,865)
------------------------------------------ ------------ -------- ------- --------- ---------
Segment net assets/(liabilities) 91,640 22,379 60,013 (43,720) 130,312
Associates and joint ventures 1,043
------------------------------------------ ------------ -------- ------- --------- ---------
Total net assets 131,355
------------------------------------------ ------------ -------- ------- --------- ---------
Corporate net assets include Group banking facilities liability (GBP37.6m), cash and cash equivalents (GBP4.5m liability), derivative financial instruments (GBP0.4m liability), deferred and corporation tax balances (GBP3.4m liability) and other corporate items (GBP2.2m).
Information About Key Customers
Included in revenue is an amount of GBP23,313,000 arising from sales to the Group's largest customer; (2016: GBP12,751,000) relating to the Distribution and Services division.
2 Segmental Information continued
The following table analyses revenue by significant category:
2017 2016
GBP000 GBP000
----------------------- ------- -------
Sale of goods 167,697 178,321
Rendering of services 113,499 131,011
Construction contracts 61,672 31,333
----------------------- ------- -------
342,868 340,665
----------------------- ------- -------
3. Taxation
Recognised in the Income Statement
2017 2016
GBP000 GBP000
-------------------------------------------------- ------- -------
Current tax (credit)/expense
Current year 200 213
Adjustments for prior years (1,230) (738)
-------------------------------------------------- ------- -------
Current tax credit (1,030) (525)
-------------------------------------------------- ------- -------
Deferred tax credit
-------------------------------------------------- ------- -------
Origination and reversal of temporary differences 191 (831)
Adjustments for prior years 67 (128)
Reduction in tax rate 78 402
-------------------------------------------------- ------- -------
Deferred tax charge/(credit) 336 (557)
-------------------------------------------------- ------- -------
Tax credit in income statement (excluding
share of tax of equity accounted investees) (694) (1,082)
Share of tax of equity accounted investees 2,873 628
-------------------------------------------------- ------- -------
Total tax expense/(credit) from continuing
operations 2,179 (454)
Tax expense from discontinued operations - 199
-------------------------------------------------- ------- -------
Total tax expense/(credit) 2,179 (255)
-------------------------------------------------- ------- -------
Recognised in Other Comprehensive Income
2017 2016
GBP000 GBP000
------------------------------------------- ------- -------
Deferred tax (expense)/income
Effective portion of changes in fair value
of cash flow hedges (63) (40)
Remeasurements of defined benefit pension
plans 36 181
------------------------------------------- ------- -------
(27) 141
------------------------------------------- ------- -------
Reconciliation of Effective Tax Rate
2017 2017 2016 2016
Rate GBP000 Rate GBP000
-------------------------------------- -------- ------- ------ -------
Profit/(loss) for the year from
continuing operations 4,782 (9,515)
Total tax expense/(credit) (including
tax on equity accounted investees) 2,179 (454)
-------------------------------------- -------- ------- ------ -------
Profit/(loss) excluding taxation
from continuing operations 6,961 (9,969)
-------------------------------------- -------- ------- ------ -------
Tax using the UK corporation
tax rate of 19.83% (2016: 20.0%) 19.83% 1,380 20.0% (1,994)
Effect of tax rates in foreign
jurisdictions 18.33% 1,276 (2.8%) 276
Unrecognised tax losses - - (3.9%) 389
Non-deductible expense 8.68% 604 (6.4%) 644
Reduction in tax rate on deferred
tax balances 1.12% 78 (4.2%) 417
Over provided in prior years (16.65)% (1,159) 1.9% (186)
-------------------------------------- -------- ------- ------ -------
Effective tax rate and total
tax expense/(credit) 31.30% 2,179 4.6% (454)
-------------------------------------- -------- ------- ------ -------
The current tax adjustment in respect of prior years relates to the refund of taxes received from HMRC following the carry back of losses.
The UK corporation tax rate reduced to 19% on 1 April 2017, giving an effective base rate of 19.83% (2016: 20%).
Factors That May Affect Future Current and Total Tax Charges
Reductions in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) with a further reduction to 18% on 1 April 2020 were substantively enacted on 26 October 2015. On 16 March 2016 it was announced that the main rate of UK Corporation Tax would reduce to 17% on 1 April 2020. This change was substantively enacted on 6 September 2016. This will reduce the Group's current tax charge accordingly. The deferred tax balances at 31 May 2017 have been calculated based on the rate of 17% substantively enacted at the balance sheet date.
4. Earnings per Share
2017 2016
------------------------------------------- -------------------------------------------
Continuing Continuing
and discontinued Continuing Discontinued and discontinued Continuing Discontinued
--------------------------- ----------------- ---------- ------------ ----------------- ---------- ------------
Ordinary Shares
Basic earnings per share 16.14p 16.14p n/a (32.96)p (30.01)p (2.95)p
Diluted earnings per share 15.93p 15.93p n/a (32.96)p (30.01)p (2.95)p
--------------------------- ----------------- ---------- ------------ ----------------- ---------- ------------
The calculation of earnings per share is based on the profit/(loss) for the year attributable to equity holders and on the weighted average number of shares in issue and ranking for dividend in the year.
2017 2016
------------------------------------------- -------------------------------------------
Continuing Continuing
and discontinued Continuing Discontinued and discontinued Continuing Discontinued
---------------------------- ----------------- ---------- ------------ ----------------- ---------- ------------
Profit/(loss) for the year
attributable to equity
holders
(GBP000) 5,138 5,138 n/a (10,498) (9,558) (940)
Weighted average number of
shares 31,842,023 31,842,023 n/a 31,851,053 31,851,053 31,851,053
Basic earnings per share 16.14p 16.14p n/a (32.96)p (30.01)p (2.95)p
---------------------------- ----------------- ---------- ------------ ----------------- ---------- ------------
The calculation of weighted average number of shares includes the effect of own shares held of 1,228,072 (2016: 1,228,072). The calculation of diluted earnings per share is based on the profit/(loss) for the year and the weighted average number of ordinary shares in issue in the year adjusted for the dilutive effect of the share options outstanding (effect on weighted average number of shares is 424,804 (2016: 400,444); effect on earnings per ordinary share is 0.21p (2016: nil p). Effect on continuing earnings per ordinary share is 0.21p (2016: nil p).
2017 2016
------------------------------------------- -------------------------------------------
Continuing Continuing
and discontinued Continuing Discontinued and discontinued Continuing Discontinued
---------------------------- ----------------- ---------- ------------ ----------------- ---------- ------------
Profit/(loss) for the year
attributable to equity
holders
(GBP000) 5,138 5,138 n/a (10,498) (9,558) (940)
Weighted average number of
shares 32,266,827 32,266,827 n/a 32,251,497 32,251,497 32,251,497
Diluted earnings per share 15.93p 15.93p n/a (32.96)p (30.01)p (2.95)p
---------------------------- ----------------- ---------- ------------ ----------------- ---------- ------------
Continuing underlying basic and diluted earnings per share are calculated on the diluted weighted average number of shares of 32,266,827 (2016: 32,251,497) and on underlying profit/(loss) after tax, as reconciled below:
2017 2016
GBP000 GBP000
------------------------------------------------ ---------- ----------
Profit/(loss) for the year attributable
to equity holders from continuing operations 5,138 (9,558)
Amortisation/impairment of intangibles/goodwill 315 584
Exceptional items 470 12,378
Tax effect of above items (156) (1,587)
------------------------------------------------ ---------- ----------
Underlying Profit after Tax from Continuing
Operations 5,767 1,817
------------------------------------------------ ---------- ----------
Weighted average number of shares 32,266,827 32,251,497
------------------------------------------------ ---------- ----------
Underlying diluted earnings per share 17.88 5.63
------------------------------------------------ ---------- ----------
5. Dividends
The aggregate amount of dividends comprises:
2017 2016
GBP000 GBP000
--------------------------------------------- ------- -------
Final dividends paid in respect of prior
year but not recognised as liabilities
in that year (0.6p per share (2016: 20.0p)) 194 6,382
Interim dividends paid in respect of the
current year (2.7p per share (2016: 1.7p)) 859 542
--------------------------------------------- ------- -------
1,053 6,924
--------------------------------------------- ------- -------
Proposed dividend (4.5p per share (2016:
0.6p)) 1,433 191
--------------------------------------------- ------- -------
The proposed dividend is not included in liabilities as it was not approved before the year end.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EASPPEAXXEEF
(END) Dow Jones Newswires
August 08, 2017 02:01 ET (06:01 GMT)
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