Hargreaves Services plc (AIM: HSP), a diversified group delivering services to the industrial and property sectors, announces improved trading results from its German joint venture and material improvement in cash levels to result in a year end net cash position.
As noted in the interim results announcement on 27 January 2021, the Board considers that the investment in the Group's German joint venture, Hargreaves Raw Material Services GmbH ("HRMS"), is an increasingly important aspect of the creation and delivery of shareholder value. The Board is pleased to note that trading in both HRMS' traditional materials trading business and in its subsidiary, DK Recycling und Roheisen GmbH ("DK"), is exceeding expectations. Whilst favourable market conditions have benefitted the business, the Board is confident that the overall trend is sustainable following extensive work to reduce costs and improve operational efficiency at DK. These developments are such that the Board now expects the contribution from its joint venture to Group profits to be materially greater than current market expectations.
The Group's Distribution & Services business continues to trade in line with expectations. Whilst delays to the mobilisation of HS2 are adversely impacting Specialist Earthworks, that has been offset by improved performance in both Production & Distribution and Industrial Services. The Board intends to report this business unit as "Services" in the future.
Hargreaves Land, the Group's property development business, also continues to trade in line with expectations.
The Board can also report that it has now concluded final account agreements in respect of all C A Blackwell Legacy Civils contracts. Other than retentions for defects periods, all cash has now been received. These settlements have resulted in a £2.2m exceptional charge, consistent with the previous accounting for these contracts.
In recent weeks, the Group has experienced material cash inflows due to working capital reductions. As a result, the Board now expects that year end cash balances will be substantially higher than market expectations. The only debt the Group will carry at the year end will be leasing debt, which will be lower than expected due to the deferral of capital expenditure within Specialist Earthworks into the following financial year as a knock-on effect of the delayed mobilisation of HS2. An overall consolidated net cash position is now expected as at 31 May 2021. This improvement in the Group's year end financial position will not benefit from any funds flow from HRMS other than the payment related to the sale of speciality coal announced in December 2020.
The Board expects to provide a further update in early June following the end of the financial year on 31 May.
Chairman Roger McDowell commented: "I am pleased that our German joint venture has made such good progress in turning around the performance of DK in addition to delivering strong trading results. Whilst the delay in mobilisation at HS2 is both out of our control and frustrating, the value in that contract is only deferred and not lost to the Group. The Group's cash generation is particularly satisfying and I look forward to reporting further progress at the time of our preliminary results announcement in late July."