Preliminary Results - Amendme

RNS Number : 0600Z

Hargreaves Services PLC

15 September 2009

 



Please note that this announcement replaces the previously submitted Preliminary Results released under RNS number 0430Z due to a minor alteration to the Consolidated Cash Flow Statement 

For immediate release RNS Number :

15 September 2009

HARGREAVES SERVICES PLC 

(the 'Company' or the 'Group')

Preliminary results for the year ended 31 May 2009

Hargreaves Services plc (AIM:HSP), a leading supplier of products and services to the energy, mineral and waste sectors announces its preliminary results for the year ended 31 May 2009. 

HIGHLIGHTS

	Year ended  31 May 2009	Year ended 31 May 2008	Change %
Revenue	£503.1m	£404.9m	+24.3%
Operating Profit	£29.8m	£22.1m	+34.9%
Underlying Operating Profit (1)	£33.5m	£23.6m	+42.1%
Profit Before Tax	£26.2m	£17.9m	+46.5%
Underlying Profit Before Tax (2)	£28.6m	£19.0m	+50.2%
Diluted EPS	67.3p	45.7p	+47.1%
Underlying Diluted EPS (2)	76.3p	51.1p	+49.2%
Proposed Full Year Dividend	11.8p	10.3p	+14.6%

• Record results

• EPS growth of 49% achieved

• Strong performance across all divisions

• Dividend increased 14.6% to 11.8 pence

• New syndicated £115m, 3 year committed credit facility signed

• Strong underlying cash generation

• Well positioned for further growth

Commenting on the results, Chairman Tim Ross said: 'All the divisions are well placed to continue to drive further profit growth both organically and by complementary acquisitions. The Board continues to view the current year with significant confidence and expects the Group to build on its impressive track record.' 

(1) Underlying Operating profit is stated excluding the amortisation of acquired intangibles and release of negative goodwill and including share of profit in joint ventures and associates 

(2) Underlying Profit before tax and EPS are stated excluding the amortisation of acquired intangibles and release of negative goodwill

Enquiries

Hargreaves Services plc	0191 373 4485
Gordon Banham CEO
Iain Cockburn, Group Finance Director
Buchanan Communications	0207 466 5000
Tim Anderson, Catherine Breen
Brewin Dolphin Securities	0113 241 0130
Matt Davis, Graeme Summers

CHAIRMAN'S STATEMENT

Results

I am pleased to report that the Group has completed another successful year and delivered a further set of record results. Revenue for the year was £503.1m, an increase of 24.3% on the prior year. Underlying profit before tax for the year increased 50.2% from £19.0m to £28.6m. Profit before tax for the year increased by 46.5% from £17.9m to £26.2m. Underlying EPS increased by 49.2% from 51.1p to 76.3p reflecting strong organic growth combined with a well executed acquisition strategy. 

Since flotation in November 2005, Hargreaves Services plc has consistently delivered results ahead of market expectations and has established a strong growth track record. The Group has grown underlying operating profit and underlying diluted earnings per share by very impressive compound annual growth rates of 64.4% and 51.5% respectively. The Group's staff and management deserve recognition for their significant achievements since flotation, not least of which is the delivery of this strong set of results during what has been one of the sharpest and most challenging recessions in recent years.

In addition to this, the Group has completed a successful re-financing and has attracted interest from a very broad and high quality group of banks. The new £115m facility provides the Group with a flexible and cost effective facility structure that is committed for three years. The management team deserve credit for achieving such a successful non-distressed re-financing in this challenging market and I would like to thank the banks for their interest and commitment. The facility, together with the existing facilities provides the Group with access to total debt facilities of around £155m and will provide an excellent platform to help take the Group forward. 

The Group has also created a clear divisional structure and invested in developing its management teams at both the divisional and group executive levels. The latest stage of this exercise was completed with the appointment of Mark Forrest in December 2008 to lead the Transport Division. Investment and overhead costs continue to be carefully managed.

Dividend

The Board is recommending a final dividend of 8.0 pence per share, bringing the dividend for the year to 11.8 pence per share. The final dividend is proposed to be paid on 18 November 2009 to all shareholders on the register at the close of business on 16 October 2009. 

Health & Safety

The Group employs over 2,350 people and continues to be proud of its committed and hard working staff. Our staff work in challenging and often dangerous working environments and we have continued to devote a significant amount of effort to developing safety systems across the Group.

Outlook

Hargreaves remains uniquely well positioned in the resilient energy, waste and mineral sectors, dealing primarily with large blue chip customers. The Board believes that all of the divisions are well placed to continue to drive further profit growth both organically and by complementary acquisitions. The Board continues to view the current year with confidence and expects the Group to build on its impressive track record.

GROUP BUSINESS REVIEW

Overview

Against the challenging economic backdrop we are pleased with the performance of all four divisions. We have continued to grow Group profitability. In the last year we have retained our focus on both operational delivery and appraising opportunities for growing the business organically and through acquisition. The strong performance of the Group through the last twelve months of volatility in economic conditions, foreign exchange rates and commodity prices illustrates and validates the effectiveness of our risk mitigation model.

 Financial Results

Hargreaves has continued to show strong trading performance and strong growth. Revenues for the full year increased by 24.3% from £404.9m to £503.1m. Underlying operating profit increased by 42.1% from £23.6m to £33.5m. Reported operating profit increased from £22.1m to £29.8m. Group underlying operating margin increased from 5.8% to 6.7%.

Reconciliation of operating profit to underlying operating profit, by segment is as follows:

		Production	Energy & Commodities	Transport	Industrial	Total
		2009	2009	2009	2009	2009
		£000	£000	£000	£000	£000
Segment operating profit		10,512	14,941	2,968	1,425	29,846
Intangible amortisation and release of negative goodwill		-	-	446	1,962	2,408
Share of profit in  - joint ventures		-	1,216	-	-	1,216
- associates		-	-	-	-	-
Underlying operating profit		10,512	16,157	3,414	3,387	33,470

		Production	Energy & Commodities	Transport	Industrial	Total
		2008	2008	2008	2008	2008
		£000	£000	£000	£000	£000
Segment operating profit		9,665	7,599	3,219	1,644	22,127
Intangible amortisation and release of negative goodwill		-	(17)	209	972	1,164
Share of profit in  - joint ventures		-	213	-	-	213
- associates		-	49	-	-	49
Underlying operating profit		9,665	7,844	3,428	2,616	23,553

  Review of operating performance by strategic business unit  

Energy and Commodities Division

The Energy & Commodities Division had a very strong year. Gross revenues increased by £89.1m from £233.3m to £322.4m reflecting increases in commodity prices and an increase of 11.4% in the volume to 2.463m tonnes. The majority of the net volume increase is attributable to the effect of the Coal4Energy acquisition in January 2009. Including the full year trading of Coal4Energy, despite the slow down in the European coke markets, the total underlying volume of tonnes traded through all the businesses was 2.766m, an increase of 1.7% on the prior year. UK power station sales accounted for 1.674m tonnes, industrial and domestic sales accounted for 0.577m tonnes and European mineral operations accounted for 0.515m tonnes. 

As predicted in the Interim Statement, following a strong first half, trading in the European operations in the second half was subdued due to the slowdown in European steel production. UK coaling operations performed strongly across the whole year and delivered a strong second half performance to offset the weakness in Europe. Coal4Energy contributed £19.9m of revenue to the consolidated revenues following the acquisition of the remaining 50% stake in January 2009. 

Underlying operating profit increased by £8.4m from £7.8m to £16.2m. Improvements in profitability were driven by improved margins in the sale of sized coal, helped by improved marketing into niche markets and enhanced screening practices that assisted the Group recover sized coal more cost effectively. Operating profit was not materially affected by the changes in the commodity prices experienced during the year. Of the increase of £8.4m, Coal4Energy accounted for £3.5m.

The Group has continued to explore the opportunities around generation of electricity using renewable source fuels. Hargreaves has successfully operated a pilot plant at Immingham for the last 12 months and achieved certification for Renewable Obligation Certificates. The Group has acquired the option to lease six sites across Yorkshire and is working through planning and certification for our first 8MW production site. 

RocFuel, our renewable fuels trading joint venture, traded its first material cargoes and generated a profit for the first year, of £0.4m before taxes. We are confident that RocFuel is well positioned to deliver growth as the market for biomass develops. In anticipation of this potential and for the opportunity to use RocFuel to source fuel for the proposed RocPower venture, the Group acquired control of RocFuel on 9 April 2009. 

The ash business continues to trade profitably despite the downturn in the UK cement and construction sectors. Following the merger with the UK ash activities of Evonik GmbH a number of new ash processing activities and technologies are being investigated.

Production Division

The Production Division encompasses the operations at Maltby Colliery, Monckton Coke works and Monckton Rubber Technology. Excluding sales of coal from Maltby to Monckton of £18.5m, Production Division gross revenues increased from £68.5m to £78.9m primarily due to increased production levels at Maltby following the production challenges that immediately followed its acquisition in 2008. Revenues included £10.3m of speciality coking coal that was sold through the Energy & Commodities Division. Saleable production at Maltby was 1.090m tonnes. Operating profit for the division increased by £0.8m from £9.7m to £10.5m.

Coke operations contributed £37.6m of revenue compared to £34.8m in the prior year. Of this coke sales accounted for £32.7m (2008 £31.1m) and revenue from the sale of by-products was £4.9m (2008 £3.7m). The average price achieved per tonne of coke was £162 on 0.201m tonnes compared to £134 per tonne on 0.230m tonnes in the prior year net of hedge costs.  

Saleable production at Maltby improved from 1.043m tonnes to 1.089m tonnes. All power station coal produced at Maltby continues to be sold to Drax under long term contract. Coking coal is either processed into coke at Monckton or typically processed for export markets. Coal sales external to the division from Maltby generated £39.2m of revenue compared to £32.0m in the prior year. In the year to 31 May 2009, 0.811m tonnes of coal was sold externally from the division at an average price of £48.32 compared to 0.781m tonnes at an average price of £40.95 per tonne in the prior year. The increase in average selling price was due to a change in the sales mix and improved proceeds on specialist coking coals. 

Coke stocks at 31 May 2009 were 44,357 tonnes compared to 30,739 tonnes held at the end of the prior year. The increase of 13,618 was in line with the forecasted stock build outlined in the Interim Statement, following the slow down in the coke markets and the reluctance of the Group to sell the coke at distressed prices. Management is optimistic that the coke markets in Europe will continue to recover and no material stocking is expected across the remainder of the current financial year.

Production division costs increased by £9.6m over the year, £1.2m of which related to the increases in the cost of hedging coke sold under the Brunner Mond contract due to increasing commodity prices. The balance of the increase was principally attributable to higher power, fuel and steel prices at the mine, increased labour costs and increased processing and plant costs at Maltby for the recovery and processing of surface fines and speciality coking coals. 

Steady progress has been made at Monckton Rubber Technologies, particularly in improving the quality of the steel wire. The significant drop in price of scrap steel in the second half prevented the operation from becoming profitable. Monckton Rubber Technologies contributed £2.1m of revenue and generated an operating loss of £0.7m. Management is optimistic that the recent recovery in scrap steel prices will permit the operation to make a profit in the current financial year.

The site investigation work at Tower Colliery continued in the first half in conjunction with our joint venture partners. Under the terms of the joint venture agreement, the joint venture vehicle advanced £2m to Tower Colliery Limited in August 2009 to secure the land and mining rights, in addition to £1m paid in January 2009. The funding of site investigation and planning expenses will bring the expected investment up to the point of the planning decision to approximately £4m. A planning decision is expected in the financial year ending 31 May 2011. 

Industrial Services Division

The core Industrial Services business performed strongly in the year building on the contract wins in the prior year and the Eggborough contract renewal and extension that was announced in the Interim Statement. Gross revenues increased from £47.1m to £56.4m with underlying operating profit for the Division increasing by £0.8m from £2.6m to £3.4m. Underlying operating profit margin increased from 5.6% to 6.0% principally reflecting a full year contribution from AJS.

AJS has performed well in the year but a slowdown in the commissioning of engineering projects at a number of power stations has delayed delivery of some of the cross-selling synergy gains. Management is however encouraged by recent tendering activity and confident this will drive incremental sales growth in the current financial year. Although completion of one of AJS's key outage projects was delayed by a month into June, AJS had a strong second half and contributed revenues of £6.0m to the result for the year compared to £1.6m in the two months following acquisition in the prior year. AJS contributed £0.8m of operating profit compared to £0.4m in the prior year.

Transport Division

The Transport Division's gross revenues decreased by £8.0m from £75.6m to £67.6m due principally to the slow down in bulk aggregate volumes as construction activity declined. Underlying operating profit was held at £3.4m. 

Profitability has been maintained in the Division by an aggressive programme of cost efficiencies, active management of the sub-contractor fleet and investment in new and more efficient vehicles. 

We have taken the opportunity afforded by the downturn to remove 109 of the older vehicles and have replaced them with 88 new and more efficient vehicles. This has trimmed the size of the fleet from 395 vehicles to 374 vehicles. We believe that there are significant further long term cost savings to be made through both improved fuel efficiency and lower repair costs, these efficiencies being enhanced through the extremely competitive purchase prices that were available from manufacturers in the last 12 months as other operators cancelled vehicle orders.

In addition, having now ensured that all the key Imperial Tankers contracts are on monthly fuel indexation, the current year was unaffected by the £0.4m charge taken in the comparative year due to rising fuel prices. The year ended 31 May 2009 benefited from a full year's contribution from the Imperial Tankers business which was acquired on 17 September 2007. The waste operations performed strongly across the whole year.  

All three of our transport operations have continued to trade profitably and provide the highest level of service to their customers throughout the recent recession. We have reviewed a number of asset and business acquisition opportunities and will continue to do so in the coming months, looking for opportunities to add scale and geographic coverage to the Transport Division.

FINANCIAL REVIEW

Revenue

Group revenue for the year was £503.1m compared to £404.9m for the previous year, an increase of 24.3%. The key drivers of organic growth came from the Energy & Commodities Division both in the UK and Germany. The acquisition of Coal4Energy Limited on 27 January 2009 resulted in the inclusion of £19.9m revenue from Coal4Energy in the consolidated Group results.

Operating Profit and Margins

Operating profits increased in all Divisions with the exception of Transport which was flat compared to the prior year. The most significant increase in profit was generated by the Energy & Commodities Division following strong trading in the UK and Germany combined with the acquisition of Coal4Energy in January 2009. Coal4Energy contributed £3.6m of profit to the consolidated Group accounts in the period following acquisition. 

Interest

The net interest charge for the Group was £4.9m compared to £4.5m for the previous year. The increase in interest reflects the higher average debt levels following recent acquisitions and the higher Group working capital requirements. 

Profit Before Tax

Underlying profit before tax increased from £19.0m to £28.6m. Reported profit before tax increased from £17.9m to £26.2m.

Taxation

The tax charge in the year was £7.5m compared to £5.2m in the previous year. There were no material changes in the effective tax rates. 

Earnings Per Share

Basic earnings per share for the year were 68.5 pence (2008: 46.7 pence) and diluted earnings per share were 67.3 pence (2008: 45.7 pence). Underlying diluted earnings per share, after adding back amortisation of acquired intangibles, increased by 49.2% from 51.1 pence to 76.3 pence. 

Dividend

The Board has recommended a final dividend of 8.0 pence (2008: 7.0 pence) bringing the proposed dividend for the full year to 11.8 pence, an increase of 14.6% in the total dividend for the year. The proposed dividend is covered 5.8 times by earnings (2008: 4.5 times).

  BALANCE SHEET REVIEW

Net Assets

Net assets increased by £23.6m from £48.1m at 31 May 2008 to £71.7m at 31 May 2009. The unwinding of the Brunner Mond hedge contract combined with a fall in the commodity prices in the second half of the year reduced the hedge provision by £7.6m from £10.2m to £2.6m. The balance of the improvement in net assets is mainly attributable to retained profits.

Net tangible fixed assets increased by £4.9m from £66.3m to £71.2m. Working capital increased £24.2m over the year as a result of increased coke stocks at Monckton, higher coal stocks at Immingham due to the phasing of cargoes and deliveries and the investment in coal face drivage to support mine life extension at Maltby. The acquisition of Coal4Energy added £0.5m to the year end working capital. Trade debtor days improved slightly from 36.7 days at the end of the prior year to 35.4 at 31 May 2009. Working capital is core to our business and we remain focussed on managing it effectively and efficiently. 

Net Debt

Group net debt, comprising cash and cash equivalents, bank overdraft, and other interest bearing loans and borrowings, was £69.2m, an increase of £23.0m from the £46.2m reported at 31 May 2008 and a reduction of £3.7m from the £72.9m reported at the half year. The gearing ratio of the Group at 31 May 2009 was 97% compared to 117% at the half year and 96% at 31 May 2008.  

Cash Flow

Cash flow generated from operating activities (before interest and income tax paid) was £21.4m in the year compared to £23.6m in the previous year. 

Cash flow generated from operations included a £25.8m outflow relating to an increase in working capital for the reasons outlined above. There will continue to be an element of seasonality in our working capital levels with a tendency to build coal stocks over the first half and reducing stocks over the second half. If commodity prices and trading volumes remain at current levels, management does not expect to see a significant increase in working capital in the current year.  

Acquisitions accounted for an outflow of cash of £10.1m, £8.4m of which related to the Coal4Energy acquisition. The majority of the balance related to the second payment of deferred consideration of £1.2m relating to the AJS acquisition. A third and final payment of £1.2m is due in cash in May 2010.

Capital expenditure

Total capital expenditure for the year was £18.1m of which £12.5m was financed through finance leases and £5.6m was paid in cash. This compared to only £6.9m in the prior year. The depreciation charge for the year was £13.6m (2008: £11.0m). As highlighted last year we purchased the first of two new sets of face equipment for the mine. The cost of this was £7.5m. Other key capital projects at Maltby included the purchase and commission of a sixth methane gas generator. Capital expenditure on vehicle and plant replacements totalled £5.2m. The Group took advantage of very favourable market prices to replace a further 64 vehicles on lease. The objective is to maintain a balance of 50% owned and 50% leased vehicles in the transport fleet.  

As highlighted in the Interim Statement, the Group intends to invest aggressively in upgrading underground and surface equipment at Maltby. A second and final set of face equipment will be purchased in the current financial year. A number of other strategic projects are under consideration.

Liquidity and investments

During the year, the Group was financed by a mixture of cash flows from operations, trade credit, short term borrowings, longer term borrowings and finance leases. Operating leases were used in conjunction with asset financing to invest in lowering the average age of the transport fleet and to balance the flexibility afforded by asset ownership and the efficient use of capital.  

Hargreaves' debt facilities have evolved over the last few years as the Group has grown by acquisition and were comprised of a mixture of committed medium term loan and invoice finance facilities and a number of short term trading facilities.

Following the end of the year the Group undertook a review of its facility structure. Following strong interest from five banks, we are pleased to report that we have completed a new 3 year multi-bank committed facility consisting of a cost effective £35m invoice finance facility supported by an £80m revolving credit facility. The invoice finance facility is priced at 200bp over base rate. At the forecast leverage level of 1.5 to 2.0 times Debt/EBITDA, the revolving credit facility is priced at 250bp over LIBOR. Management is pleased with the support and interest shown by such a quality group of banks. The five banks making up the syndicate, in alphabetical order, are HSBC, Lloyds, RBS, Santander and Yorkshire Bank. RBS will continue to hold the largest share.

Management believes that the new facility structure will provide the Group with a committed and cost effective debt facility that will finance all the investment planned in the short term and will provide a platform for growing the Group further through organic growth and acquisition investment in years to come. 

FUTURE STRATEGY AND OUTLOOK

We believe that the Group remains well positioned to deliver its short term targets and we also believe that significant opportunities exist to grow the Group both though organic and acquisition investment.

We are very pleased to have secured the new facilities with such a high quality banking group and believe that this will provide us with a cost effective and scalable platform to support the Group's future investment requirements. 

In the short term, having secured this facility, we will be accelerating our investment in upgrading equipment at the mine. The positive experience we have had with the new face equipment that is currently in production on face T11 has confirmed the benefits and risk mitigation that such investment will bring. We remain committed to investing in Maltby to achieve the possibility to extend mine life from 2017 to 2025 as announced in September 2008.

We will also progress with investment to support the surface coal opportunity at Tower Colliery in Wales and will continue to progress our development plans for the RocPower renewable fuels generation project. We would expect there to be further progress and announcements on these projects in the coming year.

We are pleased and excited with the foundation we have laid in Belgium to start sourcing further specialist coals and trading these into the continental European markets. We believe that there are strong synergies with the UK coal operations both in terms of sourcing and sharing cargoes but also as a channel for providing markets for specialist coking coal produced from Maltby. As the European market recovers from the recession we are confident we are well placed to grow this business quickly and profitably.

At Monckton we are satisfied that our current contract base will allow us to achieve our targets for the coming year and that a strengthening in coke market prices provides an interesting upside opportunity in years to come. We have a number of important coke contract renewals that we will be working on in the coming months and we will report progress with these as they are concluded. At this time management are confident of satisfactory outcomes.

As with Monckton, there are some key contract renewals due for the UK coal operations in the next 12 months and again management is confident that these will be renewed. In the meantime the business continues to trade strongly and management is confident that we have a strong value proposition to our customers which will ensure success in renewing these contracts. We also believe that the German business is well placed to benefit from any upturn or recovery in European coke and refractory mineral trading volumes, with its very low fixed cost base protecting its core profitability in the short term.

The target and opportunities for the next 12 months for the Industrial Services Division is to continue to drive organic growth and to drive growth in AJS through cross selling into its own customer base and into the broader Group.

Having responded proactively and aggressively to the downturn, the Transport Division is well positioned, with one of the youngest and most cost effective fleets in the industry, to deliver profitable growth from any improvement in sector volumes. 

Whilst no business is immune to cyclical factors, our core markets remain robust and resilient to short term economic factors. As with last year, we are entering the current year in a strong position and remain focused on pursuing further organic and acquisitive growth.

Gordon Banham, Chief Executive Officer

Iain Cockburn, Group Finance Director

  Consolidated Income Statement

for year ended 31 May 2009

	Note	2009	2008
		£000	£000
Revenue	2	503,093	404,901
Cost of sales		(433,800)	(355,721)
Gross profit		69,293	49,180
Other operating expense		(511)	(77)
Administrative expenses		(38,936)	(26,976)
Operating profit	2	29,846	22,127
Financial income		1,683	1,151
Financial expenses		(6,577)	(5,680)
Share of profit of jointly controlled entities (net of tax)		1,216	213
Share of profit of associates (net of tax)		-	49
Profit before tax	2	26,168	17,860
Income tax expense	4	(7,459)	(5,181)
Profit for the year		18,709	12,679
Attributable to:
Equity holders of the company		18,025	12,257
Minority interest		684	422
Profit for the year		18,709	12,679
Basic earnings per share (pence)	5	68.53	46.66
Diluted earnings per share (pence)	5	67.27	45.74

  Consolidated Statement of Recognised Income and Expense

for year ended 31 May 2009

				2009	2008
				£000	£000
Foreign exchange translation differences				640	190
Effective portion of changes in fair value of cash flow hedges				8,134	(9,811)
Actuarial gains and losses on defined benefit pension plans				(170)	4,625
Tax recognised on income and expenses recognised directly in equity				(2,578)	1,238
Net income/(expense) recognised directly in equity				6,026	(3,758)
Profit for the year				18,709	12,679
Total recognised income and expense for the year				24,735	8,921
Total recognised income and expense for the year is attributable to:
Equity holders of the parent				23,871	8,499
Minority interest				864	422
				24,735	8,921

  Consolidated Balance Sheet

at 31 May 2009

				2009	2008
				£000	£000
Non-current assets
Property, plant and equipment				71,240	66,277
Intangible assets				36,685	25,666
Investments in jointly controlled entities				953	592
Derivative financial instruments				-	35
				108,878	92,570
Current assets
Inventories				60,693	43,453
Derivative financial instruments				754	754
Trade and other receivables				55,026	52,022
Cash and cash equivalents				1,062	10,015
				117,535	106,244
Total assets				226,413	198,814
Non-current liabilities
Other interest-bearing loans and borrowings				(24,331)	(30,001)
Retirement benefit obligations				(4,429)	(5,431)
Provisions				(9,557)	(10,327)
Derivative financial instruments				(113)	(7,895)
Deferred tax liabilities				(5,724)	(3,410)
Other non-current liabilities				-	(1,026)
				(44,154)	(58,090)
Current liabilities
Bank overdraft				(9,486)	(11,040)
Other interest-bearing loans and borrowings				(36,421)	(15,187)
Trade and other payables				(54,333)	(58,230)
Income tax liabilities				(7,159)	(5,092)
Derivative financial instruments				(3,191)	(3,114)
				(110,590)	(92,663)
Total liabilities				(154,744)	(150,753)
Net assets				71,669	48,061

Consolidated Balance Sheet (continued)

at 31 May 2009

				2009	2008
				£000	£000
Equity attributable to equity holders of the parent
Share capital				2,639	2,627
Share premium				29,434	29,177
Other reserves				211	29
Translation reserve				646	186
Merger reserve				1,022	1,022
Hedging reserve				(1,762)	(7,618)
Capital redemption reserve				1,530	1,530
Retained earnings				35,792	20,427
				69,512	47,380
Minority interest				2,157	681
Total equity				71,669	48,061

  Consolidated Cash Flow Statement

for year ended 31 May 2009

				2009	2008
				£000	£000
Cash flows from operating activities
Profit for the year				18,709	12,679
Adjustments for:
Depreciation				13,596	11,042
Amortisation of intangible assets				2,408	1,164
Net finance expense				4,894	4,528
Share of profit of joint ventures				(1,216)	(213)
Share of profit of associates				-	(49)
Loss on sale of property, plant and equipment				193	105
Loss on sale of investments				318	-
Equity settled share-based payment expenses				648	440
Income tax expense				7,459	5,181
Translation of minority interest				179	71
				47,188	34,948
Change in trade and other receivables				15,213	(8,820)
Change in inventories				(15,909)	(6,391)
Change in trade and other payables				(23,201)	3,542
Change in provisions and employee benefits				(1,934)	333
				21,357	23,612
Interest paid				(3,955)	(4,216)
Income tax paid				(8,323)	(4,013)
Net cash generated from operating activities				9,079	15,383
Cash flows from investing activities
Proceeds from sale of property, plant and equipment				1,495	1,016
Proceeds from sales of investments				-	51
Dividends received				117	750
Acquisition of subsidiaries, net of cash acquired				(9,547)	(8,878)
Acquisition of property, plant and equipment				(7,110)	(5,369)
Acquisition of other investments				(590)	(31)
Minority interest contribution				39	-
Net cash outflow from investing activities				(15,596)	(12,461)
Cash flows from financing activities
Proceeds from the issue of share capital				269	-
Proceeds from new loan				9,000	5,000
Repayment of borrowings				(6,374)	(5,779)
Payment of finance lease liabilities				(5,724)	(3,034)
Repayment of invoice discounting facility				(9,310)	(4,977)
Dividends paid				(2,838)	(2,453)
Proceeds from issue of promissory notes				15,115	6,759
Net cash inflow/(outflow) from financing activities				138	(4,484)
Net (decrease) in cash and cash equivalents				(6,379)	(1,562)
Cash and cash equivalents at 1 June				(1,025)	1,955
Effect of exchange rate fluctuations on cash held				(1,020)	(1,418)
Cash and cash equivalents at 31 May				(8,424)	(1,025)

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 2009 or 2008. Statutory accounts for 2008, have been delivered to the registrar of companies, and those for 2009 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985 in respect of the accounts for 2008 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2009.

These results were approved by the Board of Directors on 15 September 2009.  

2    Segmental information

The table below sets out information for each of the Group's industry segments. The origination and destination of principally all operations is in the United Kingdom.  

		Production	E&C	Transport	Industrial	Total
		2009	2009	2009	2009	2009
		£000	£000	£000	£000	£000
Revenue
Total revenue		78,941	322,388	67,620	56,431	525,380
Inter-segment revenue		(10,250)	(1,171)	(9,027)	(1,839)	(22,287)
Revenue to third parties		68,691	321,217	58,593	54,592	503,093
Segment operating profit		10,512	14,941	2,968	1,425	29,846
Share of profit in  - joint ventures		-	1,216	-	-	1,216
- associates		-	-	-	-	-
Net financing costs		(1,180)	(2,632)	(741)	(341)	(4,894)
Profit before taxation		9,332	13,525	2,227	1,084	26,168

Included within revenue is £124.6m (2008: £111.7m) of revenue which originates in Europe. All other revenue originates in the United Kingdom.

  2    Segmental information (continued)

		Production	E&C	Transport	Industrial	Total
		2008	2008	2008	2008	2008
		£000	£000	£000	£000	£000
Revenue
Total revenue		84,288	233,263	75,594	47,126	440,271
Inter-segment revenue		(15,774)	(4,012)	(10,995)	(4,589)	(35,370)
Revenue to third parties		68,514	229,251	64,599	42,537	404,901
Segment operating profit		9,665	7,599	3,219	1,644	22,127
Share of profit in  - joint ventures		-	213	-	-	213
- associates		-	49	-	-	49
Net financing costs		(1,701)	(1,571)	(956)	(301)	(4,529)
Profit before taxation		7,964	6,290	2,263	1,343	17,860

3    Acquisitions of subsidiaries

On 27 January 2009, the Group acquired the remaining 50% of the issued share capital of Coal4Energy, a jointly controlled entity with UK Coal plc, satisfied by £9,122,000 cash. Coal4Energy has an 85.2% controlled subsidiary, Maxibrite Limited. The company sells light industrial and domestic coal to the UK market.  

In the four months to 31 May 2009, the Coal4Energy group contributed profit after tax of £2,493,000 to the consolidated profit after tax for the year. If the acquisition had occurred on 1 June 2008, Group revenue would have been an estimated £560.3m and profit after tax would have been an estimated £20.4m. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 June 2008.

								Pre-acquisition carrying amounts				Fair value  adjustments		Recognised values on acquisition
								£000				£000		£000
ASSETS
Non-current assets
Property, plant and equipment								731				-		731
Intangible assets										3,175		8,148		11,323
Current assets
Inventories								800				-		800
Trade and other receivables								16,742				-		16,742
Cash and cash equivalents								828				-		828
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings										(137)		-		(137)
Deferred tax liabilities										(32)		(2,281)		(2,313)
Current liabilities
Trade and other payables										(19,577)		-		(19,577)
Current income tax liabilities										(230)		-		(230)
Interest-bearing loans and borrowings										(98)		-		(98)
Net identifiable assets and liabilities										2,202		5,867		8,069
Minority interest share of assets														(401)
Share of Coal4Energy Group owned														(901)
Goodwill on acquisition														2,355
Net purchase consideration and costs of acquisition														9,122
Satisfied by:
Consideration paid														9,122

As part of the arrangements for the acquisition the terms of a supply agreement were renegotiated, leading to the recognition of an intangible asset of £8,148,000 for the preferential agreement based on discounted future cash flows for the duration of the supply contract. There were no fair value adjustments to the existing assets and liabilities.

The intangible assets are being amortised over the weighted average expected life of the contracts, which is 60 months. The goodwill is not being amortised but will be reviewed annually for impairment.

  3    Acquisitions of subsidiaries (continued)

On 28 September 2007, the Group acquired all of the ordinary shares in Imperial Tankers Limited for £6,415,000, satisfied by £5,415,000 cash, with £1,000,000 being deferred and contingent on the future performance of the business. The company operates a fleet of bulk liquid tankers. In accordance with IFRS 3 Business Combinations, a review of the acquisition was performed to identify specific intangible assets. This resulted in the creation of an intangible asset of £2,032,000 for customer contracts, based on discounted future cash flows of the key long term sales contracts in place at the date of acquisition. 

In the 8 months to 31 May 2008 the subsidiary contributed profit after tax of £889,000 to the consolidated profit after tax for the year. If the acquisition had occurred on 1 June 2007, Group revenue would have been an estimated £410.3m and profit after tax would have been an estimated £12.7m. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 June 2007.

								Pre-acquisition carrying amounts				Fair value adjustments		Recognised values on acquisition
								£000				£000		£000
ASSETS
Non-current assets
Property, plant and equipment								7,287				-		7,287
Intangible assets										-		2,032		2,032
Current assets
Inventories								126				-		126
Trade and other receivables								2,782				-		2,782
Cash and cash equivalents								1,306				-		1,306
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings								(2,993)		(2,993)		-		(2,993)
Deferred tax liabilities										(1,068)		(569)		(1,637)
Current liabilities
Trade and other payables										(2,212)		(250)		(2,462)
Current income tax liabilities										(390)		-		(390)
Interest-bearing loans and borrowings										(1,609)		-		(1,609)
Net identifiable assets and liabilities										3,229		1,213		4,442
Goodwill on acquisition														1,973
Net purchase consideration and costs of acquisition														6,415
Satisfied by:
Consideration paid														5,415
Contingent consideration														1,000
														6,415

The intangible assets are being amortised over the weighted average expected life of these contracts, which is 62 months. The goodwill is not being amortised, but will be reviewed for impairment annually.

  3.     Acquisitions of subsidiaries (continued)

On 1 April 2008, the Group acquired all of the ordinary shares in AJS Contracts Limited for £4,436,000 cash of which £2,120,000 is deferred. The company carries out specialist engineering services relating to major outages at power stations. In accordance with IFRS 3 Business Combinations, a review of the acquisition was performed to identify specific intangible assets. This resulted in the creation of an intangible asset of £2,596,000 for customer contracts, based on discounted future cash flows of the key long term sales contracts in place at the date of acquisition. 

In the 2 months to 31 May 2008 the subsidiary contributed profit after tax of £296,000 to the consolidated profit after tax for the year. If the acquisition had occurred on 1 June 2007, Group revenue would have been an estimated £408.3m and profit after tax would have been an estimated £13.8m. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 June 2007. 

								Pre-acquisition carrying amounts				Fair value adjustments		Recognised values on acquisition
								£000				£000		£000
ASSETS
Non-current assets
Property, plant and equipment								217				(39)		178
Intangible assets										-		2,596		2,596
Current assets
Inventories								163				-		163
Trade and other receivables								649				-		649
LIABILITIES
Non-current liabilities
Deferred tax liabilities										(29)		(727)		(756)
Current liabilities
Trade and other payables										(544)		(21)		(565)
Current income tax liabilities										(299)		-		(299)
Interest-bearing loans and borrowings										(32)		-		(32)
Net identifiable assets and liabilities								125		125		1,809		1,934
Goodwill on acquisition														2,502
Net purchase consideration and costs of acquisition														4,436
Satisfied by:
Consideration paid														2,316
Deferred consideration														2,120
Net purchase consideration and costs of acquisition														4,436

The intangible asset is being amortised over the weighted average expected life of these contracts, which is 71 months. The goodwill is not being amortised, but will be reviewed for impairment annually.

  4.     Taxation

Recognised in the income statement

	2009	2008
	£000	£000
Current tax expense
Current year	8,860	5,633
Adjustments for prior years	(58)	172
Foreign tax - current year	1,234	728
Current tax expense	10,036	6,533
Deferred tax credit
Origination and reversal of temporary differences	(2,579)	(672)
Reduction in tax rate	-	(44)
Adjustments for prior years	2	(636)
Deferred tax credit	(2,577)	(1,352)
Tax expense in income statement (excluding share of tax of equity accounted investees)	7,459	5,181
Share of tax of equity accounted investees	561	122
Total tax expense	8,020	5,303

Reconciliation of effective tax rate

	2009	2008
	£000	£000
Profit for the year	18,709	12,679
Total tax expense (including tax on equity accounted investees)	8,020	5,303
Profit excluding taxation	26,729	17,982
Tax using the UK corporation tax rate of 28% (2008: 30%)	7,484	5,395
Effect of tax rates in foreign jurisdictions	162	49
Difference in effective tax rate	12	(69)
Impact of change in tax rate to 28% on deferred tax balances	-	(44)
Non-deductible expenses	418	440
Marginal relief	-	(4)
Over provided in prior years	(56)	(464)
Total tax expense (including tax on equity accounted investees)	8,020	5,303

  Tax recognised directly in equity

	2009	2008
	£000	£000
Current tax recognised directly in equity	-	-
Deferred tax recognised directly in equity	(2,578)	1,238
Total tax recognised directly in equity	(2,578)	1,238

For the year ended 31 May 2009, the Group was subject to UK corporation tax at a base rate of 28%. During the 10 months to 31 March 2008, it was subject to a base rate of 30%, and 28% from 1 April 2008 to 31 May 2008.

5.     Earnings per share

All earnings per share disclosures relate to continuing operations as the group had no discontinued operations in either 2008 or 2009.

Earnings per share for the ordinary shares are as follows:

	2009	2008
Ordinary shares
Basic earnings per share	68.53p	46.66p
Diluted earnings per share	67.27p	45.74p

The calculation of earnings per share is based on the profit for the year attributable to equity holders and on the weighted average number of shares in issue and ranking for dividend in the year.

Ordinary shares

	2009	2008
	£000	£000
Profit for the year attributable to equity holders	18,025	12,257
Weighted average number of shares	26,302,652	26,270,532
Earnings per ordinary share	68.53p	46.66p

The calculation of diluted earnings per share is based on the profit for the year and on 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: 490,344, effect on earnings per ordinary share: (1.26) pence).

	2009	2008
	£000	£000
Profit for the year attributable to equity holders	18,025	12,257
Weighted average number of shares	26,792,996	26,800,663
Diluted earnings per ordinary share	67.27p	45.74p

  6.     Dividends

Dividends

The aggregate amount of dividends comprises:

	2009	2008
	£000	£000
Final dividends paid in respect of prior year but not recognised as liabilities in that year	1,839	1,576
Interim dividends paid in respect of the current year	999	867
	2,838	2,443
Proposed dividend of 8p per share (2008: 7p)	2,112	1,839

The proposed dividend has not been included in liabilities as it was not approved before the year end.

  7.     Annual Report

The Annual Report will be posted to shareholders on or around 13 October 2009 and copies will be available from the Company Secretary, Hargreaves Services plc, West Terrace, Esh Winning, Durham, DH7 9PT, or from the Investor Relations section of the Group website at www.hargreavesservices.co.uk

END

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END

 

 

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