Hargreaves’ first-half profits in line with expectations

Group experiences more stable trading conditions in six months to 30 November 2016

HARGREAVES Services plc experienced more stable trading conditions during the six months ended 30 November 2016, with underlying profits for the period expected to be in line with management expectations.

In a trading update issued ahead of their interim results, Hargreaves say they are anticipating a strong second half with expected outperformance in their Coal Distribution, Property and Energy divisions that will more than offset the impact of expected contract delays in their Industrial Services division.

Results for the Coal Distribution division include the Group’s share of profit from its associate operation in Germany, which is trading very strongly as its markets recover.

Moreover, the recent increase in coal price during the first half, together with more robust coal demand, is expected to result in the UK operation exceeding forecasts. Profits for the division are currently expected to exceed management expectations by £3 million for the full year.

The Industrial Services division set aggressive targets for new business gains over the year as a whole, and whilst good progress continues to be made, Hargreaves say it now seems unlikely that these will be fully achieved due to a delay in the commencement of a major project in Hong Kong.

However, the division’s UK business has traded strongly and is expected to continue to do so through the second half.

Good progress also continues to be made in the evaluation and development of the Group’s Property and Energy project portfolio. Profits realized from the Property division are expected to slightly exceed management targets over the year as a whole.

Integration of the Blackwell plant hire acquisition is also progressing well and underlying trading performance has been strong and in line with expectations.

Hargreaves have re-appraised the costs to complete and remediate two legacy contracts that were identified at the time of acquisition and, as a consequence, goodwill will be increased by £2.6 million to £3.4 million to reflect these additional costs – a level that the management considers sustainable given the underlying profitability and cash generation of the operation.

An escrow account established at the time of acquisition continues to provide protection in relation to legacy contracts and no further provisions or adjustments in respect of pre-acquisition contracts are expected.

In addition, good progress continues to be made in the realization of cash from sales of former Blackwell properties.

Hargreaves also remain pleased with the rate of conversion of legacy assets into cash. The Group’s existing coal stocks have been sold and the full recovery of loans to the Tower colliery joint venture is anticipated.

Working capital performance across the Group also remains in line with expectations, and the company is currently targeting to close the financial year with less than £5 million of net debt.

Hargreaves expect to report their interim results for the six months ended 30 November on 15 February 2017.