Hargreaves Services (LSE:HSP) — Interim Results

0:01 Good afternoon, and welcome to the HARGREAVES SERVICES PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Please just simply type in your question at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll, and I'm sure the company would be most grateful, for your engagement. And I'd now like to hand over to John Samuel, finance director, and Gordon Banham, CEO from HARGREAVES SERVICES. Good afternoon. Good afternoon. First of all, thank you for listening in to our presentation on the interim results for HARGREAVES SERVICES PLC for the six months ended November 30.

0:53 So just to take you fur through to the first page,

0:57 the strategic value proposition. So HARGREAVES, as some of you will know, started as a coal company, and there's been a major transformation over last number of years, which was really culminated in 2020 when we sold the last of our coal stocks. And from that transition, we've been able to deliver a business which has what we call three pillars. Those three pillars are looking we've created now, and we're now into this middle block, which we call the delivery section. So just talking about the three pillars, let's first of all talk start with services. So services has over 50 framework contracts. I'll talk about it in more detail with a number of blue chip customers. The big momentum is gonna come here from both our HS two work and our work at Hammerden near Plymouth. And, again, I'll talk about that shortly. Hargreaves Land, I'm supported by David Anderson who's here. We will talk about Hargreaves Land. David joined us from Henry Boot, and we'll give you some background of what the opportunities are in Hargreaves.

2:01 One of the things in this presentation we focus on quite strongly is the renewable portfolio, which has probably been below people's radar for a number of years, and we'll talk about that in some detail. You're also starting to see the after significant cash investment in Blind Wells, the cash is now flowing back into the business, and we're getting into a regular steady state of profits from the blind well operation. Finally, the the business that's done exceptionally well in this h one has been our joint venture in Germany. And there's two things really to say there. One is that you'll see that the profitability has increased significantly. That's twofold. One is the situation where commodities in zinc and pig iron are what we might call frothy at the moment, so they're very high.

2:52 So that's delivered some really good results. But underneath that, there's been some structural changes in how we run those businesses, and I'll talk about that in some detail, which we believe gives us a sustainable uplift. So just over the page. Headlines. I would just draw your attention, obviously, to the cash in the bank, 8,500,000. If we hadn't lent 15,000,000 to our German joint venture, a bit about 23,000,000 of cash in the bank. And as John will say, we now have no debentures. So we are so from a bank debt point of view, totally clear. Just again, as as we look through the numbers, you will see that our dividend has increased by 3.7%, which I'm sure will be welcome.

3:37 Revenue did decrease, but that was expected. Remember when we exited the coal business, the revenue related to it would ex would have been expected to disappear. So no concern there. That was expected. Big result, though, from Germany, and I'll talk about that in some detail. Couple of other things. Our first million was delivered from Tungsten West. Remember, we get a million a year for eight years. This is the first of those million. Also, we got our 2,000,000 deferred consideration from Brockwell when they reach financial close on the Westfield site, and David will talk about that in some detail. Just over the page. Just again to context for people who don't know us, in our services business, this shows the sectors that we work in, so energy, environmental, infrastructure, and industrial.

4:24 You'll obviously see see the infrastructure grow as earthworks grow, and I'll talk about that in that section. The businesses are split into HELM, where we do environmental land restoration, carbon sequestration. It's where the haulage fleet sits. So if you've seen the HARGREAVES trucks around, you'll be aware of that. This is also where the quarrying business sits. Industrial services, great business. M and E business and materials handling, and then obviously the earthworks business, which is Blackwell's. Couple of questions we've picked up over the road show has been, what's our resilience to inflation? Well, we're very fortunate that all of our contracts are either cost plus or RPI linked.

5:10 So there is no real exposure in the business to big movements in RPI. Although the only bit that is is the head office, which is obviously not recovered, but that's minimal compared to the rest of the the business. And, again, we weren't affected by COVID, so I think it's a fairly resilient services business. Just over the page. This one, we talk about the trading headlines. So we received our first payment from Tungsten West in the period. Coal is obviously gone now, and our Earthworks business is gaining momentum. Again, context for everyone. That contract we said was gonna be about 120,000,000 when it was first awarded. Let's be honest. I think HS two is gonna overrunning cost, so I would expect that number to grow, but base our current numbers on a 120,000,000 contract.

6:01 We did 2,000,000 in November, but 7,000,000 in h one. So you can see it's growing significantly. So we expect to start reaching full run rate in h two and then hit an annualized run rate of about 40,000,000 a year turnover on this business. Just taking you over the page because the really important thing is what's the outlook. Well, hopefully, you can see this is a very secure business. 85% of the orders are secure with a number of blue chip customers, 54 framework contracts that look very well spread.

6:36 Just talk about Tungsten West for a second. It's part of the momentum that's building. You'll have noticed that Tungsten West listed. Remember, they bought this mine from us. So as part of that came a contract where we get 1,000,000 a year for eight years, but we also get a mining services contract. That mining services contract is at cost plus seven and a half percent, hence we're protected from RPI wage inflation, etcetera. And it's forecast to have a turnover of about 20,000,000. So from shareholders' point of view, that's 2,500,000 for eight to ten years. People have quite rightly asked, hang on a minute. It had some history. What happens if it goes bust? The answer is we have absolutely no credit exposure. One of the terms with Tungsten West for buying the mine was they have to pay us in advance for any work we do, and, also, they have to put into an escrow account that we control all the costs of redundancy and demobilization.

7:31 So if something horrible did happen, there is no credit risk to the shareholders. Just talking about the other parts of the business, obviously, HS two is accelerating, and we'll see that feed in into h two and going forward. Earthworks is really well positioned for a number of infrastructure projects. I'll give you two examples. Sizwell down in the East and also the Lower Thames Crossing.

7:57 Why are we well positioned? Well, one, we have the core competency. But secondly, our head office for Blackwells is based in Essex, and it covers the localism agenda about employing local people. So we think we have a USP which should help us in those contracts, and they're both about to be awarded in the next eighteen months. So, hopefully, we'll be able to upgrade the market in respect of those. Just over the page because this is the one that a lot of people wanna understand. So this is our German business. We own 49%, but under the terms of the deal, we get 86% of the economic benefit. And you can see it's had a pretty stellar year compared to last year, 9,000,000 of profit, and then we give the details of the business. It sits in three pillars.

8:43 So if I take you over the page, I can explain each pillar in a bit more detail for you. So the trading business. So this trades materials in Europe, predominantly some in The UK. Look at the volumes. The volumes have nearly doubled. Now the question is why has that happened? Well, the answer is, first of all, they took over our coal operations, so they trade all the coal that we once traded. Secondly, they've been able to synergize around the ownership of DK and the grinding plant. And the example I would give is that where typically they would have bought a 25,000 ton cargo, they now buy a 50,000 ton. They obviously get the economies of scale from sea freight, and therefore, they can sell into customers where they might not have been cost competitive. So, therefore, you've seen volume increase then to those two reasons. So we think that volume's sustainable, which is, again, look to the uptick, not only in this year, but future years.

9:38 Also, though, this business has benefited from what we call the frothy sector of minerals, etcetera. So they have had some margin gain as well. So, therefore, if you get any broker's note use yourselves, you'll see that the the forecast for the next couple of years are lower for these businesses, reflecting what we think is the frothy environment for commodities. If you don't believe zinc and pig iron prices will go off the boil in the next couple of years, then the level of profits we get this year are likely to be repeatable. Again, don't be concerned. This business backs to back its purchases and sales, so it's not exposed to the commodity moving, which is important. So we don't take primary positions.

10:24 But as you can imagine, with commodity prices doubling and volumes being flat out, they were banging against their headroom of their facility. We had 23,000,000 of cash in the bank that was doing nothing, not earning much interest. So it seems sensible to loan that so they could increase their trading volumes, and we get 86% of the profit. So I hope that explains the trading business. John, I think it's John John too far. I think he went one. Yes. So here's the grinding plant. So this is the picture of the grinding plant. Now just again setting the scene for you. Germany still consumes about a 150,000,000 ton of brown coal. It's very, very polluting, double the pollution of normal coal. So if you look at that, UK was complaining at the fact we consumed 70,000,000 tons of coal. This is the equivalent to 300,000,000 tons of coal they still consume in Germany.

11:18 Change of government. We do believe that the green agenda is getting higher and that these brown coal mines will close. When they do, there's a customer base that needs about 2,000,000 tonnes equivalent of coal. So we're only looking to put 400,000 through our plant. Currently, we have a 100,000 tons, but we're doing a number of trials with customers who are positioned, ready to move when the Lignum Brown coal mines close across to us. Now when that happens, we don't know in the next few years, but we are ideally placed. We're right next to the Rhine. We have a rail link. Tracking is obviously relatively easy anywhere. So we think that this could ramp up quite significantly, quite quickly. At the moment, it's breakeven, but when you get to 400,000, you're looking at a double digit rocky return on our investment.

12:06 Just taking you over the page.

12:09 So, DK, this has been a great success for us. And I jokingly say if there's ever a reason why employee benefit trust shouldn't happen, this is it. So it was an employee benefit trust. We bought it for €1. Two things have really happened here. There, of course, has been the benefit we bought it at the right time when there was a commodity spike. This has meant increased proceeds from both our pig iron and zinc sales. But alongside that, we found the opportunity to improve the operating procedure significantly, much more than we initially expected when we bought the business. And therefore, we we believe we've been able to deliver substantial long term changes to this business, which will deliver long term profits even when the commodity cycle goes back to a much more normalized level.

12:55 What the business does is take 500,000 ton of waste that would otherwise go into landfill, recycles it, and produces pig iron and zinc. And you can see the zinc the pig iron price oh, the iron ore price here on this graph. John, if you take us to the next page. Again, just for everyone's benefit, this is zinc. So we produce about five, six thousand five, six thousand tonnes of zinc per year. Look at the curve in terms of where zinc prices have gone since when we bought it. So that's been great for us. If you look at the futures curve, we've actually taken a tactical decision to hedge 40% for the next twelve months. It's pretty flat, so there's no real discount. So we've locked in the price for 40% for the next twelve months. We're gonna see how that rolls out, and we may increase the percentage and the duration over time, but this is the first time DKA have ever has ever hedged its zinc volumes.

13:47 So that, in conclusion, is the overview of Germany. I'll just hand over to John Samuel, the FD now, who will explain the HRS balance sheet. And for those of you who've never met John before, I'm pleased to say some of you may have seen him at Renew where he was very successful, and I managed to convince him to come and join us four years ago to help us with this transformation in the group. So over to you, John. Thanks, Gordon. So HRMS is not consolidated into HARGREAVES group results because we don't control it. We have 49% of the voting shares. The balance sheet top left is 100% of the HRMS consolidated balance sheet, including DK in euros.

14:36 On the right hand side, on the top there is, HARGREAVES exposure to that balance sheet in euros. So at the end of November, we had €30,000,000 worth of loans. I'll talk about those in a moment. There's about 40,000,000 of euros worth of reserves, which have not been distributed to which HARGREAVES has an entitlement. And then not on the balance sheet, there is a 5,000,000 parent company guarantee, which is associated with the original, borrowing facilities that HRS has. I'll just talk about those for a second. So you can see something called borrowing base facility on there, 59.7 million Euros.

15:26 Essentially, to support the trading, what HRS does is it borrows about 80% of the value of the, material that it's buying in. As Gordon said in a previous slide, all of that material is presold or virtually all of that material is presold. So I am very happy to see HARGREAVES using this borrowing base facility to a large extent because it means they're doing a lot of trading. And it was to help them with that additional trading that HARGREAVES lent them another £15,000,000

16:04 just in the autumn, which is repayable in the second half. And if you just look at the bottom left hand section of this slide, you'll see the three component parts of the €30,000,000 that Germany, owes to HARGREAVES. The 50,000,000 loan pounds will come back second half. The 13,000,000 of the other two loans, 10,000,000 has been there forever in the day, really, and goes back to when, the HRS trading business was set up ten or more years ago. And the €3,000,000 is associated with the construction of the grinding plant and cannot be repaid by HARGREAVES until, the other loan, the make the bank loan for the grinding plant is repaid, and that will be by 2027.

16:58 In terms of, repatriation of, reserves to HARGREAVES, the bill at the bottom puts into pounds, and, those of you who've followed us for a little while will know that we are currently drawing back 4,000,000 or just under £4,000,000 per annum, which we are passing straight through to shareholders in the form of a 12 p per share dividend. That happened in November of last year was the first one, and that will happen again in November of this coming year. People might say, well, why are there not more money coming out of Germany? And the reason for that is that there are some restrictions in terms of distributions from the German entity, associated with the German borrowing arrangements, but the £4,000,000 of 12 p per share is secure.

17:52 So I'm gonna hand over to David Anderson, our property director, who's gonna talk about property. Thanks, John. So HARGREAVES we operate in a number of development markets. Essentially, we're we're the master developer of a number of large scale long term multi phase projects. We do direct development bespoke commercial projects, typically pre let forward sold schemes. We progressed strategic land opportunities, which essentially is taking land through the planning process before selling on to other parties. And then we've got a renewable energy portfolio, which we'll we'll cover in a bit more detail further on. In terms of the first half of the year, the the key events really reflect the momentum the land business is having now and

18:37 the progress we're making in all the the large sites we've got. So at Blindwells, we have our first houses occupied, which is nice to see following a couple of sustained years of investment in the scheme. And we completed the the third phase sale to Persimmon Homes for £9,600,000, which again, they'll be on-site next month's commencing house building. On Unity, which is our second sort of large residential as well as commercial mixed use scheme, we have £50,000,000 worth of residential land exchange with house builders. And we also secured a £40,000,000 enabling works contract, which is essentially cost plus with the national retailer who we sold a large logistics site to in last financial year. And then on the renewables side, this is an area which we haven't really talked about huge amount before, but it's now reached a bit of a a milestone in the all our projects now have received planning consent,

19:31 and our first wind farm lease has now been granted, and I'll touch on that a bit further down the line. And then related to that is Westfield where we have now is granted lease for thirty five year lease to a new EFW plant, waste to energy plant, which generates 420,000 per annum, and it covers thirty five years of annual RPI linked reviews. Again, I'll cover it elsewhere.

19:55 Turning over the page at Blindwells. So Blindwells is a large 450 acre multi phase residential development. It's about 10 miles to the East of Edinburgh adjacent to the A 1. We've been on-site putting instruction for the last couple of years, and we understood the first two phases of sales to house builders last financial year, which generated 206 plots, and they're now well advanced on-site as you'll see in the the bottom left hand corner side. And the first phase sale has just been completed to Simmon Homes, which is the green block on the plan above, and they're due to commence on-site next month. We have a further sale, which Curacys known as phase five, which is due to be is currently under negotiation for sale at the present time, and we expect that to be delivered in the next financial year.

20:46 And that's the green block you can see or just beyond the green block you can see on the slide. And then beyond that, we have a further eight phases to be delivered. Typically, the construction program allows us to deliver at least one phase per annum, with each phase being roughly between a hundred and fifty and two hundred fifty plots. So that gives, going forward, a further

21:09 GDV value of around about a £140,000,000, which comes back over the next ten years or so. And then beyond that, we have a long term strategic planning play, which is known as Greater Blind Wells, which lies immediately adjacent to the site where we own a further 110 acres and we have further land under option. And this this greater blinder scheme effectively is an allocation or forthcoming allocation for 8,000 homes, of which we could estimate will put about 1,500 in our site. We're expecting the planning allocation, which has the support of local planning authority, to really be in place roundabout 2026, '27, and that should allow housebuilder commence probably roundabout 2030, something of that order.

21:54 And obviously, we'll therefore extend the life of blind wells considered beyond that that period. Turning the page over to Unity Doncasters. This is our second large multiphase scheme. This one is 650 acres. It's a mix of greenfield and brownfield lands, the majority of which is held under options. It's fifty fifty joint venture, and it has planning consent for 2,000,000 square feet of commercial space and 3,100 homes.

22:26 So as mentioned previously that we sold a 79 acre logistics hub as our first commercial sale last financial year to a national retailer, and we've been subsequently awarded a £40,000,000 enabling works contract on a cost plus basis to accelerate, deliver that project. You can see it in the slide, the bottom left hand corner. That's now well on-site and progressing satisfactorily. In addition to that, we've got about 36 acres of residential land already under contract to a couple of house builders, Bellway and

22:57 HARGREAVES for a total consideration of £50,000,000. And again, we expect infrastructure work to commence on that next financial year with the first phase sales completing before the financial year ending May 2024. And then beyond that, we have 2,650 residential plots remaining together with 90 acres of commercial land, which can accommodate around about 1,500,000 square feet of commercial space.

23:24 And that lot has a combined gross development value of circa £200,000,000. It'll be developed out in a phased program, which will be typically be forward sold and gives a likely scheme for at least another ten years plus going forward. And it's important to note that the joint venture is independently funded. There isn't a requirement for either either parent companies to actually invest into the scheme. It secured its external funding through various sources, so again it can operate independently.

23:57 Over the next page, so HARGREAVES LAND on the renewable energy side. We've not talked about this a lot before, but really since we've reached a a point where all the schemes that we have have been granted planning consent and obscured grid connections. So these schemes are essential lands that we own typically in Southwest Scotland, which is from mining legacy days. And essentially, we either have granted or agreed to lease on sites where wind farm operators will develop out directly wind farms, or we've granted access rights across Lambion where they can lay cables which connect other parties' wind farms to the grid. The return to us is essentially long term agreements whereby we take a share of the value of the electricity generated by each individual wind farm.

24:49 And with the planning features now granted and the grid connection secured, that's given us a very clear visibility on the operator delivery program, which is expected to start delivering meaningful

25:01 investments really between FY '24 and FY '27. The first leases are already in place and wind farms are actually being built on our site already. And then beyond that is Westfield 5, which is a former open cast site where we secure planning set for energy from waste facility, and that's now being taken forward by an operator. And we've granted a thirty five year lease, as you talked about previously, together with a 30 megawatt solar farm. We're going to invest £7,000,000 this year in infrastructure to open up the first phase of the site, which in addition to servicing that platform will also deliver a further 40 acres of industrial land, which essentially will have been occupied by parties looking to benefit from the cheap heat and power that the EFW can generate.

25:53 And then we've got the potential to expand this by a further 50 acres into a subsequent phase, which essentially will be done on a demand led basis. So again, another scheme where it's got a life of a good ten years plus depending on the rate of take up. Over the page. So in addition to those large scale projects we're well on with at the moment, we've been building a new pipeline of commercial and residential development opportunities. These typically are structured really to enable us to derisk and secure forward sale commitments before we put significant investment into them. This is done typically by the use of conditional contracts, so the conditional planning, pre let, forward sales, etcetera, developed agreements where we partner with landowners, or planning promotion agreements, not agreements where essentially we will promote other parties land through the planning process.

26:45 Once planning is secured, we will sell it through to house builders and others and take a slice of the added value we've created. The new projects we've got on books now, we've got commercial space able to do about 450,000 square feet of floor space with a gross development value of around about £65,000,000. And these are really a mix of four sole retail warehousing, industrial logistics space, well as roadside space. And then on the residential side, we've got promotion agreements and option agreements, which have the potential to deliver up to 600 residential plots. And these are typically either expansion of residential areas within settlement boundaries or alternatively where we're actually allocating new sites, adjacent settlements through the local plan process.

27:30 So we've got a pipeline coming forward which will complement the existing projects we've got. Pass back to you, John. Thanks, David. So here we have a summary of the income statement. Within the services revenue, Gordon's already said that 7,000,000 of that or so came from the, HS two Earthworks project. The remainder of the revenue is basically $50.50 split between the helm business and the industrial services business. The land revenue in the first half was either from the sale of what we call noncore land that where David and his team don't see any development opportunity, plus some revenues from a smaller, development project at Bridlington.

28:19 Obviously, the because we don't control, either of the joint ventures, Unity or, the HMS business, the accounting means that the post tax profits come through in a single line. And of the 9,300,000, 9,000,000 is attributable to Germany, 300,000 in the period to Unity. Previous period, it was old Germany, which shows a huge increase in the German performance period over period. So big increase in underlying EPS. The dividend, think God mentioned, it's just up about 3.7%, but, we are planning to move to, one thirds, two thirds basis for the dividend, which we haven't had actually historically.

29:13 So if that actually occurs, then the full year dividend of 8.4p would compare to last year's full year dividend of 7.2, so quite substantial increase. The balance sheet. Now we set this out by allocating the assets to each of the business areas to show where the capital's deployed. The the first column, HRMS. Well, you've already seen the HRMS balance sheet itself, and this is the HARGREAVES proportion of our investment in there, why has it gone up by 23,500,000,000 from last year end, which is the comparative for this slide? Well, three components. Obviously, our share of the profits.

29:59 There's a small adjustment for movement in exchange rates, and then the balance is the £15,000,000 that we've lent them. In the SERVICES business, it's a capital light business model. You can see he's only got 12,000,000 of total capital involved. And where we have fixed assets, for example, plant, inert works, and so on, we tend to use finance leases to fund them, and you can see the finance lease debt in that column. The in the land section, obviously, material amount of capital employed there. The biggest part of it is in inventory, which is the biggest part of that being Blindwells. And I think David mentioned the characteristics of Blindwells are that our annual sale, if you wish to use that phrase, tend to fall towards the end of the second half of our financial year.

30:55 We then reinvest into the site to open up the next plots, which would be sold twelve months later roughly. So you tend to have lowest level of inventory at land wells around the year end, then it grows steadily through the interim accounts and into the second half, and then it comes back again as we make a realization. Move on to the cash flow for the last six months. So the waterfall chart shows net debt began the period 16,500,000 split there between, let's see, 3,500,000 cash, as you'd say, split between bank, 28.3 and 11,800,000 of leasing debt.

31:45 You bring in the profit, but then you have to take out the joint ventures because that does not equate to cash, some of the small adjustments for noncash items, and then the big movement in working capital. Of course, the 15,000,000 loan to Germany is in that block. So had that not been made, as Gordon said, we would actually have ended up with 23,500,000 of cash, and we would not have a net debt position. Other small adjustments, the dividend includes, which was paid in November time, is, last year's final plus the 12 p flowing through from Germany. So we ended the period with 8,500,000 of cash in the bank and 11,500,000 of, leasing debt.

32:33 When we look forward to the year end, we certainly won't be, having any bank debt. That's for sure. The leasing debt is very difficult to actually predict because we have substantial orders for plant for HS two's ramp up out there, and the delivery schedule is between March and June, helpfully, straddling our May 31 year end. And the amount of leasing debt we will have at the year end will be dependent upon the timing of actual deliveries and the funding of those pieces of equipment. We have a page on ESG, which is a increasingly important factor for many shareholders and indeed for the board.

33:24 We have a working group, which is made up of representatives of each of the business areas that reports into the audit risk committee, so we've got board level engagement. That group started in August. It's meets every six weeks. Initially, it was gathering information. Right now, it's at the stage where that's being done, and it's beginning to, look to establish some standards and policies with appropriate metrics, which it will bring to the audit risk committee later on this year, certainly before our year end, for approval. And then that would form part of our ESG presentation when we present the year end results at the end of July.

34:13 Breaking it into the three component sections, what's happening in environmental is that the climate risk the climate change risk assessments have already been done, excuse me, and are embedded into the business unit risk registers as it says there. Piece of work that's going on right now is to both identify opportunities for value creation, but also a program for, obviously, trying to reduce carbon emissions. And one material piece of work that's underway is to examine supply chain processes. So we've taken the top 50 suppliers into the the business and are drilling down into them to test their sustainability processes.

35:00 There are number of reports being made that indicate that supply chain emissions can be four four times greater than a business' own emissions. So it's an important piece of work. On the social side, most people tend to focus on the second bullet point and look at what the business might be doing to support, charities and other organizations. We do this. We have a dedicated fund, but we, we support those, things which our employees are heavily involved with. But another piece of work we're doing is for the staff themselves, and we've been working with our, brokers, insurance brokers, and, risk advisers, Marsh, to develop, mental health awareness training.

35:50 Number of people have been through that. We have an associated employee employee assistance program, to help identify staff who have issues in this area and to be able to provide them with appropriate help and advice. On the governance side, we adopted the QCA code, some time ago, but the board is alive to the fact that we may need to change procedures when the TCFD determines what will be applicable to businesses of HARGREAVES SERVICES. But the possibly the most important bullet point on the page is the bottom one Because this exercise is not top down. It's bottom up from the businesses, and that should enable us best to be able to identify ways in which carbon emissions can be reduced, can work with the supply chain appropriately, and probably the most important thing of all, identify and exploit a value creation opportunities.

36:50 Some of them we've already discussed or touched on. David's mentioned all the things going on in the renewable land portfolio. And, also, I think Gordon touched on the carbon sequestration activity where we're looking to use otherwise redundant land and bring it into a form of climate helpful use. So I'm gonna pass over to Gordon to summarize. Thank you very much, John. So, hopefully, you can see clearly a very positive set of results for h one. But underlying that, there's a real growth in momentum. So if you look at the businesses, services has the underpin of the over 50 contracts, 85% secured revenue already.

37:38 But two big boost in that will be the acceleration of HS two. Remember, this is effectively a contract for the government. We see that growing, and it's effectively cost plus, so limited risk. Also, Hemaadan, again, that's been derisked. That starts in the summer of twenty three. So you can see that momentum in services. In land, I think you can see how with David's help, that we've now secured Blindwell's Unity on Westfield, they are now gonna become regular contributors to our profit over these ten and fifteen year periods, so they're longer term. And, again, I would draw your attention to those wind farm assets. You know, those wind farms, renewable assets, are turning towards annuity grade value. Once we become much clearer on how much income we're gonna get over the period, I think we'll be able to start putting some value indications on it for you. Not yet, but that's coming.

38:32 Again, talking about Germany, yes, it's doing exceptionally well. We we look at the market and say it's a bit frothy at the moment in terms of commodities. If it stays at those levels, then, of course, there will be significant upgrades in profits in the next two or three years. But we've taken a much more conservative view, and and we're looking at a more normalized level in years two and three. We don't know any reason why that should be, but we're not going to just predict it based on what we regard as very high levels at the moment. Underpinning that, though, has been the significant changes in the operation. So DK, even in a normal commoditized market, is now profitable. And also, the trading business has more volume than it will continue to trade, and therefore, there's been a step up in its profitability. So we're continuing to support the growth of HMS, and we think there's further opportunities to grow in that business.

39:21 So overall, you can see that the momentum is growing in the business. It's gonna be a strong h two and strong future years, and, obviously, that the dividend has increased. So just taking over the page. What we're saying to people is this is a very strong balance sheet, this company. Remember, we have no bank debt. We actually have cash, no debentures. We have a very experienced board. Some of you all know Roger McDowell, who plays in the mid cap space as our chairman, but we also have Nick Mills, the son of Christopher Mills, who is our biggest cornerstone investor at nearly 28%. You can see with the cash in the bank and where we are, we have this sustainable dividend, which is growing. The business is underpinned by these three pillars that I hope are very clear to understand now of the business, that transition's taking place into these three strong pillars.

40:14 And each of those pillars, I think, has some good visibility of the forward pipeline. So with the usual disclaimer Gotta put the disclaimer slide up. That John puts up. I think that now hand back Marcus That's great. And Steve. Thank you. God God and Steve. Quite happy for you to lead them and take Perfect. Them through and answer That's great. John, Gordon, Dave, thank you very much indeed for your presentation and for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to review those questions submitted already, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard.

41:03 John Gordon, obviously, investors had the ability to pre submit questions ahead of today's event. We did receive a question in that I'd like to start off the Q and A with, if I may, which reads as follows. In July, it was mentioned that the Board would be exploring strategic options for HRMS. What is the current status? And I know you have touched on that, but perhaps if there's any added color you can give. Yeah. I think what I'd like to say to shareholders is we considered it. It was appropriate. But what we've found looking at the business, it's very frothy in commodities, and I think any buyer would look through that froth. There's a number of projects which we need to deliver. For instance, the grinding plant is at Breakeven. We believe it will very quickly grow to 400,000. If you look at any buyer, they're gonna discount that uncertainty, so we wanna deliver that. We also wanna deliver the profitability in DK. We think there's a lot of potential upside there as well.

41:52 So that's that's having spoken to the management and the t the team over in Germany. We're all united in the fact that we're holding on to this business to grow it and develop it to its full potential. That's great. Thank And I just yeah. Sort of add in. There is a follow-up question further down, and it's appropriate to answer it now, which just says, is the German business core, or as it is only 50%, a disposal to the partners could be a great cash bonanza. You wanna pick up on that to the extent? I think we've said it's core. Yeah. We see it as core. It's it's it's core to the business. We have a very good relationship with that team. They've been with us for fifteen years nearly. I've known them personally for a number of years.

42:39 They are core to the business. We work very closely. You know, there would never be a situation I see where we wouldn't exit we'd either exit together or we stay in together. We're still fairly wedded together, I think, the theme I would say. Just that it is actually only 49% voting shares that we have, not 50. And the 51% is owned by the management team, the three key members of the management team in Germany. That's great. Well, that takes care of the presubmitted question. John, thank you very much indeed for highlighting that question there as well. Obviously, investors have submitted a number of questions during the live event, and thank you to everybody that has taken the time to do so. Perhaps, John, if I could hand back to you maybe to be Oh, okay. For ceremonies with those, that'd be great. Thank you. Yeah.

43:24 No worries. I'll do that. So first question up is, which methods do we use for carbon sequestration? And that's going to Gordon. Very easy. We we have about 2,000 just under 2,000 acres of land, which doesn't have the wind farm opportunities, etcetera, at the moment, and we're basically planting a lot of trees on them. We're getting grants from we're applying for grants from Forestry Scotland. So the that will be basically trees on land in Scotland. So the next question, and this is a fun question. I like this. It says, SERVICES LAND or HRMS, what excites you the most? I don't know who that's addressed to, but I'm going to be bold and answer that question. I'm gonna say that for HRMS is the answer that Gordon will give, land is the answer that David will give, and service is the answer I'll give. So collectively, we're all excited about the law.

44:23 Yes. That's a good way of putting it. So next question is, what's the typical length of contracts and framework agreements? And can you talk about the initiatives you're undertaking in response to climate change? So we better break that into two and deal with the length of contracts and framework agreements first. Yeah. So, I mean, the longest one we have is obviously the HEMBEN contract, which is ten year in duration. Then we have a number of contracts which vary from five to three years. For instance, we have a con contract out in Hong Kong, which is a five year contract awarded over a year ago, so there's four years left to go. Typically, the minimum of these type of contracts is three, and the average is closer to five. A lot of extension options, you know, three or five year frameworks with two or more years extension options.

45:15 The second part of the question, initiatives, which initiatives are we undertaking in response to climate change to argue with that. Yeah. It's a bit premature really to be able to answer that. Hopefully, the slide that I put up, which I think this question came in before I got to that slide. We're not really in a position to outline those yet, but we certainly will be by when we come back to market at the end of July with the full year results. And the the next question is, and you can handle this, Gordon, what's the operating margin that we expect to make on HS two? Ah, do we declare that, John? I don't know. Well, I'll I'll deal with it. So the contract on HS two is an NEC option b contract, which has a target price, which effectively pays you a fee on top of defined eligible cost.

46:13 And it there are a number of KPIs, and the fee that one earns is related to where you score on the KPIs. So it's range. We haven't declared the margin openly, and we can't because we don't actually know where we will be in terms of the fee. But the reality is on these NEC contracts is that they are essentially cost plus in layman's language. It's just the percentage add on that you get to the defined cost that varies. I think we can probably say the range. Well, that's why I looked at you. We haven't said the range, so better not. We'll be in trouble with the brokers if we do. So Okay. But it's typical of a business in earthworks to have margins of, net margins after overhead of in the region of four to 5%.

47:13 That's great. John Gordon, thank you very much indeed. You've pretty much fly firecracker, gone through those questions and responded to everyone that's coming. Of course, if any further questions do appear, we'll make those available to you after this meeting. Gordon, I know investor feedback and, John, I know investor feedback is important to you both, and I will shortly redirect investors to provide you with their thoughts and expectations. But I guess before doing so, if I could just hand back to you, Gordon, for a few closing comments. Yes. Well, look. Thank you, everyone. This is the first time we've done one of these. So, hopefully, it's been informative for yourselves. Please engage because I think sometimes people get the wrong idea of things, and it it's much easier to just drop us a note, and we'll explain anything that you need. We would do like to engage with our shareholders, so please feel free to contact us at any time, and thank you for your time and attention.

48:01 That's great. John, Gordon, David, thank you very much indeed for updating investors today. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback order the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of HARGREAVES SERVICES PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all. Thank you.