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

	Year ended 31 May 2017	Year ended 31 May 2016	Change %
Continuing Revenue	£342.9m	£340.7m	0.6
Continuing Operating Profit before Exceptionals(1)	£1.2m	£5.2m	(76.9)
Continuing Operating Profit after Exceptionals	£0.7m	£(7.2)m	109.7
Continuing Underlying Operating Profit(2)	£9.8m	£4.6m	113.0
Net Exceptional Costs	£(0.5)m	£(12.4)m	(96.0)
Continuing Profit/(Loss) Before Tax	£4.1m	£(10.6)m	138.7
Continuing Underlying Profit Before Tax(3)	£7.7m	£3.0m	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)	£15.7m	£32.3m	(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 £9.8m, an increase of 113% on the prior year

o  The Development value of the property portfolio shows £52.1m 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 £25.5m of legacy assets into cash with an additional £3.2m 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 £4.32 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 £470,000 (2016: £12,378,000).

(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 £4.6m to £9.8m reflecting a strong performance in our German trading business. Underlying profit before tax increased from £3.0m to £7.7m. 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 £32.3m to finish the year at £15.7m, helped by excellent progress in realising cash through the legacy assets disposal programme. Operating profit after exceptionals increased to a profit of £0.7m, compared with a loss of £7.2m in 2016. Reported profit before tax improved from a loss of £10.6m to a profit of £4.1m.

 

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 £10m and £15m before Group overheads by FY18;

2.     Create between £35m and £50m of value from the Property and Energy portfolio over a five year period; and

3.     Generate £60m 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 £14.4m before Group overheads of £4.6m. This performance places the Group comfortably at the top end of the £10m-£15m 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 £6.4m in the prior year to £4.6m. 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 £35-£50m 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 £60m, at the end of May 2017 this had reduced to £34.5m with disposals realising over £25m 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 £9.8m an increase of 113% on the prior year outturn of £4.6m. The Group reported a profit before tax of £4.1m, compared with a loss of £10.6m 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 £8.4m 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 £0.7m, 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 £2.4m. Although this is an increase from the prior period (2016: £1.9m), it was below our expectations by approximately £1.0m. 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 £3.4m after utilising fair value provisions of £2.7m 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 £1.2m 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 £1.8m. This was in line with our expectations, but lower than the £3.6m 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 £16.6m and £0.6m respectively, compared with £11.0m and £0.3m 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 £1.1m 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 £83m, a £52m premium to the current book value of £31m. 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 £49m, a premium of £18m against the book value of £31m. 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 £35-£50m 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 Value £m	Market Value £m	Development Value £m
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 £25.5m of cash with a further £5.5m 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 £5.6m 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 £5.5m of which £1.0m 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 £m	31 May 2016 £m
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 £2.0m 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 £2.3m to fully impair the legacy Rocpower assets. The net effect of these impairment adjustments was a charge of £0.3m.

 

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
Activities	Logistics Industrial Services UK Coal Distribution & Mining Earthworks	Property European Coal Distribution	Energy Projects
Growth/Value Potential	Limited Growth	Sustainable Growth	High Growth/High Capital
Strategy	Optimise for Cash Generation	Focus for Long Term Development	Spin-off

 

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 £2.5m 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 £83m 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 £137.9m or £4.32 per share. Including the market value premium of the property portfolio that would increase to £4.91 per share. The £83m 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 £2.2m from £340.7m to £342.9m, 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 £5.2m from £4.6m to £9.8m. Underlying Profit Before Tax increased by £4.7m to £7.7m compared with £3.0m 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 £14.7m from a loss of £10.6m to a profit of £4.1m after exceptional costs.  Exceptional costs reduced by £11.9m from a net exceptional charge of £12.4m reported in the prior year to a net exceptional charge of £0.5m. These are outlined in more detail in the Financial Review below.

 

The commentary below reflects the continuing underlying performance of the four Divisions.

	Distribution & Services 2017 £000	Property &Energy 2017 £000	Legacy 2017 £000	Corporate 2017 £000	Total 2017 £000
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 & Services 2016 £000	Property & Energy 2016 £000	Legacy 2016 £000	Corporate 2016 £000	Total 2016 £000
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 (£'000)	0.7	2.8
Germany (Associate) (£'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 £148.6m to £109.9m reflecting a £38.7m 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 £2.8m to £0.7m 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 £1.8m in the prior year to £8.4m in the year ended 31 May 2017.  After tax this results in a profit of £5.5m being recognised in respect of the German associate. The European operation generated revenue of £134m from the trading of 578,000 tonnes of product compared with £89m 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 £2.4m on revenues of £122.1m for the year ended 31 May 2017 compared with Underlying Operating Profit of £1.9m on revenues of £64.1m.  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 £3.4m 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 £3.3m 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 £2.3m.

 

Progress on the key A14 contract in the year ended 31 May 2017 was encouraging, with enabling works on two sections of the £1.5 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 £81.6m to £65.4m, producing underlying operating profit of £1.8m compared with £3.6m 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

 

£m	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 £54.5m to £48.0m with Underlying Operating Profit reducing from £1.2m to £0.1m.  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 £1.0m for the year ended 31 May 2017 which was in line with management expectations.  Operating loss of £0.4m 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 £2.3m. After exceptional items, the Property and Energy businesses reported an operating loss of £1.3m.

 

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 £4.1m.  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 £340.7m to £342.9m 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 £9.8m from £4.6m. 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 £2.4m. Whilst this represented an increase of £0.5m, 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 £0.1m Underlying Operating Profit compared to a prior year Underlying Operating Profit of £1.2m. 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 £0.4m to a profit of £1.0m. The Group has also reported the result obtained from the realisation of legacy assets into cash, which has delivered a cash inflow of £25.5m and a profit before tax of £0.1m.

 

Reported Group Continuing Operating Profit before exceptional costs decreased from £5.2m to £1.2m whilst Continuing Profit before Tax improved from a loss of £10.6m to a profit of £4.1m reflecting the strong performance of the German associate and the substantial reduction in the level of exceptional costs from £12.4m to £0.5m. Continuing operating profit after exceptionals improved from a loss of £7.2m to a profit of £0.7m.

 

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 £2.7m was recognised in goodwill in the first half of the year. This brings goodwill associated with the acquisition to £3.6m. 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 £0.5m in the year, which is a reduction of £11.9m from £12.4m in the prior year.

 

Exceptional credits/(charges)	2017 £000
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 £3.3m. Additionally, following the impairment of certain Tower related balances in the prior year, the Group has reversed the impairment of a £2.0m 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 £0.3m (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 £3.4m 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 £3.4m includes the release of £2.7m 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 £2.3m 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 £1.1m 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 £0.8m.

 

Interest

In the year to 31 May 2017, continuing net finance expenses for the Group increased by £0.5m from £1.6m to £2.1m, 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 £0.7m compared with a tax credit of £1.1m for the year ended 31 May 2016; including the share of tax of equity accounted investees of £2.9m (2016: £0.6m) this results in a total tax charge of £2.2m (2016: credit of £0.5m). 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 £5.1m, decreased from £5.7m at 31 May 2016. Contributions in the year of £1.5m (2016: £1.2m) have been offset by interest and expenses of £0.4m (2016: £0.3m) and a net re-measurement loss of £0.5m (2016: £1.0m).

 

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 £16.6m from £32.3m at 31 May 2016 to £15.7m at 31 May 2017 reflecting positive progress in the realisation of legacy assets.

 

Group net assets increased from £131m at 31 May 2016 to £138m 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 £41.8m during the year. Net cash flow from operating activities before interest, tax and working capital was £14.2m.

 

The Group has successfully realised a significant proportion of its Legacy assets into cash and this is the key driver behind the £27.6m positive working capital movement. Included within the movement are Legacy inventory realisations of £16.8m and the first significant repayment of the loans to the Tower joint venture of £5.6m. Aside from the Legacy unwind, the underlying working capital position has remained relatively consistent.

 

Tax payments in the year included £5.2m 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 £20.0m (2016: £15.1m) was offset by disposal proceeds of £5.3m (2016: £1.6m). Net capital expenditure in the financial year was £14.7m (2016: £13.5m).  This included an investment of £1.4m in the Group's Energy portfolio, as well as £3.9m 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 £6.0m and a further investment of £3.3m 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 £1.8m.

 

The Group acquired the share capital of Tru Green Limited in March 2017 resulting in cash outflow of £0.2m. The business included net debt of £0.4m at the date of purchase. This acquisition will sit within the existing Industrial Services division.

 

The Group paid dividends totalling £1.1m, comprising of the prior year final dividend of 0.6p and the current year interim dividend of 2.7p.

 

Movement in Net Debt

 

Item	2017 £m	2016 £m
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 £70m borrowing base facility ("BBF") and a £40m 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 £000	2016 £000
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

 

Continuing operations	Note	2017 £000	2016 £000
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)

 

 

 

 

 

	Note	2017 £000	2016 £000
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
	Note	2017 £000	Restated 2016 £000
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
		2017 £000	Restated 2016 £000
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

 

Group	Share capital £000	Share premium £000	Translation reserve £000	Hedging reserve £000	Other reserves  £000	Capital redemption reserve £000	Merger reserve £000	Retained earnings  £000	Total parent equity £000	Non-controlling interest £000	Total equity £000
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

 

 

 

 

 

Group	Share capital £000	Share premium £000	Translation reserve £000	Hedging reserve £000	Other reserves £000	Capital redemption reserve £000	Merger reserve £000	Retained earnings £000	Total parent equity £000	Non-controlling interest £000	Total equity £000
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 £000	2016 £000
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:

 

		Distribution & Services 2017 £000	Property & Energy 2017 £000	Legacy 2017 £000	Corporate 2017 £000	Total 2017 £000
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 (£32.3m), cash and cash equivalents (£0.7m liability), derivative financial instruments (£0.1m liability), corporation and deferred tax assets (£4.3m) and other corporate items (£0.9m).

 

 

		Distribution & Services 2016 £000	Property & Energy 2016 £000	Legacy 2016 £000	Corporate 2016 £000	Total 2016 £000
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 (£37.6m), cash and cash equivalents (£4.5m liability), derivative financial instruments (£0.4m liability), deferred and corporation tax balances (£3.4m liability) and other corporate items (£2.2m).

 

Information About Key Customers

Included in revenue is an amount of £23,313,000 arising from sales to the Group's largest customer; (2016: £12,751,000) relating to the Distribution and Services division.

 

 

 

 

2   Segmental Information continued

 

 

The following table analyses revenue by significant category:

 

	2017 £000	2016 £000
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 £000	2016 £000
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 £000	2016 £000
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 Rate	2017 £000	2016 Rate	2016 £000
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 and discontinued	Continuing	Discontinued	Continuing 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 and discontinued	Continuing	Discontinued	Continuing and discontinued	Continuing	Discontinued
Profit/(loss) for the year attributable to equity holders (£000)	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 and discontinued	Continuing	Discontinued	Continuing and discontinued	Continuing	Discontinued
Profit/(loss) for the year attributable to equity holders (£000)	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 £000	2016 £000
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 £000	2016 £000
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.