Trading Update

RNS Number : 1578B

Hargreaves Services PLC

05 October 2015

 



For immediate release

5 October 2015

Hargreaves Services plc

("Hargreaves", "the Group" or "the Company")

Trading Update

Hargreaves Services plc (AIM: HSP), the UK's leading supplier of solid fuels and bulk material logistics, provides an update on trading.

Thermal Coal Markets

Since we reported our final results in August the thermal coal markets have remained very weak and, although the rate of coal price decline has slowed, prices have softened further by approximately £1 per tonne.

In addition, and more significantly, demand for thermal coal in the UK remains exceptionally low as coal-fired power stations have been operating at low capacity levels in recent months with substantial accumulated stockpiles. The Company was previously expecting to receive orders for around one million tonnes of imported thermal coal in the second half of the financial year in addition to orders to sell its projected one million tonnes of coal production. However, as both the committed order book and  future order visibility remain very low, we are now revising our thermal coal sales estimates to be around 0.5 million tonnes below our previous expectations for the current financial year. As a result we will reduce our planned imports and take further steps to look for opportunities to reduce production of loss-making thermal coals.

Liquidation of Sahaviriya Steel Industries (UK) Limited ("SSI")

On 18 September 2015 it was announced that steelmaking operations at Redcar were being suspended. SSI entered liquidation on 2 October 2015. Hargreaves is deeply disappointed by this outcome and its impact on the workforce, contractor base and surrounding Teesside communities.

Hargreaves has, over the last three years, committed significant effort, credit lines, services and expertise to support the operation at Redcar. Given the importance of maintaining the coke ovens to secure the option to resume steelmaking in the future we have made ourselves available to SSI, the UK Government and other stakeholders to support the development of plans that might preserve the coke oven operations. Contrary to press speculation over the weekend, Hargreaves has never contemplated buying the steelworks with a view to re-starting the blast furnace when market conditions improve. Our role has been limited to offering advice and assistance to develop a plan that could have preserved the coke ovens in an operational state whilst options for the site are fully investigated.

Following the announcement of liquidation, the Official Receiver has commenced a review of all operations. The Company is willing to support any viable plan that can be developed to prevent the coke ovens from being destroyed. In the absence of such a plan being developed and implemented, we have prepared plans to wind down operations on site with immediate effect.

Although we have been highly supportive of SSI and have extended significant working capital credit lines we have structured and conducted our dealings carefully to limit any credit exposure. As previously announced, the services and coal procurement that we have provided to the site generated £4m of operating profit in the last financial year and, if no viable plan can be implemented, we would expect a similar reduction in operating profit in future years. In addition to the loss of forward earnings, we anticipate a one off charge of around £1.5m relating to the redundancy cost of the staff involved in delivering the services on site and other contract demobilisation costs. We expect no further charges.

The liquidation of SSI will leave the Company with coal and coke stocks of approximately £14m. These stock positions have been very carefully managed and monitored and will be turned into cash in an orderly fashion over the next twelve months.

Closure of Eggborough and Liverpool Bulk Terminal Operations

The planned closures of Longannet, Ferrybridge and Eggborough have been announced over the last few months, as well as the recent decision by EON to cease operations at Liverpool Bulk Terminal. We have provided handling services at Eggborough and Liverpool Bulk terminal for a number of years. The closure of these operations will not have a material impact on the current financial year, other than an expected redundancy expense of around £0.7m. The closures will impact operating profits in the Industrial Services Division in the financial years ending 31 May 2017 and beyond by around £1.5m per annum. With the loss of gross margin from our operations at Redcar and with the risk of further announcements of unit or power station closures in the coming months, the Group will be stepping up its efforts to identify new contract opportunities for its Industrial Services Division and will continue to seek its steady international expansion.

Plant, Property & Renewables

Through its various actions the Company has created a large and diverse plant and property portfolio and efforts continue to unlock the value in our plant fleet and property portfolio. Management see the opportunity to develop significant value in the property portfolio through planning gain and development efforts. The Company also continues to evaluate projects at our sites that offer renewable energy development in wind, solar, pump-storage hydro, waste and biomass. We will also seek opportunities to generate value and improve utilisation of the plant assets, particularly in the face of soft demand from the coal mining operations.

Summary

In the face of the on-going uncertainty in its core markets the Company has already taken early and decisive action which has allowed the Company to effectively de-leverage its balance sheet. Whilst the developments outlined in this statement are disappointing, they are reflective of the present conditions in our core markets.

Although the short term potential to generate profits from our plant and property asset portfolios to offset the pressures on earnings that we are facing in the coal and services sectors is limited by development timelines, the longer term potential for value creation is very significant. Many of these projects and other opportunities also offer significant synergies and contract opportunities for our transport, industrial services and fuel sourcing operations.

For further details:

Hargreaves Services Gordon Banham, Chief Executive Officer Iain Cockburn, Finance Director	0191 373 4485
Buchanan Mark Court  / Anna Michniewicz / Sophie Cowles	020 7466 5000
N+1 Singer Sandy Fraser / Nick Owen	020 7496 3000
Jefferies Hoare Govett Harry Nicholas	020 7029 8000

 

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