Hargreaves Services (LSE:HSP) — Interim Results for the six months ended 30 November 2023

0:01 Good afternoon, ladies and gentlemen, and welcome to the HARGREAVES SERVICES PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from HARGREAVES SERVICES PLC. Gordon, good afternoon, sir. Good afternoon. Thank you very much. Thank you very much for everyone who's taken time to attend and listen to the HARGREAVES story.

0:51 Can I just encourage you that if there's any misunderstandings, anything that you do not understand from the presentation and you don't get answers to be happy within the question section, please contact us? We are very keen to engage with retail investors to make sure they have a very clear picture of what the business is doing. So here we go. Let's crack into the presentation for the interim results. So first thing is, for those of you who have noticed or or know the story, but just for anyone that's new that's reading in, HARGREAVES has been on a journey, and we're very much in the realized stage of that.

1:29 We have three businesses. So this is very much a sum of the parts play. So it should be quite easy to get your head around three businesses. There's a services business. That business has a number of contracts spread over a wide portfolio of industries. We'll talk about it in more in some detail, but key theme of these is their inflation resistant contracts. And we've seen through the cycle when inflation was peaking over 10%, but we still delivered the profits that people expected. So that gives you the comfort of that business, and I'll go into a bit more detail. Land, David Anderson is with me. We'll talk about that in some detail. Main points just at high levels. Remember, we do not market to market account on land portfolio.

2:14 It's in the historic cost. So a lot of the big flagship projects you've seen there were based on old mining sites that were held at a very low cost. Finally, the joint venture in Germany. Again, I'll give some flavor to that and what's going on there to give some visibility helped by steam. So just quickly take you over the page. This is the result. So, look, SERVICES is having a great time, doing very well. I'll give you a bit more flavor about how we see the outlook of that later in the presentation. In HARGREAVES LAND, by the nature of what David does, it's very sort of transactional. So you can imagine that in the six months, not a lot's happened.

3:00 Six months we're just moving into, there's gonna be a lot that happens, which results in David and his team having the best year ever. Again, David will give you the explanation of what's going on and what's leading to that and why our confidence is so high. It's gonna be a great year. As far as HRS is concerned, again, there's two parts to that. There's the DK recycling, which is ring fenced from the trading business. So that's had a challenging six months. Again, we're not concerned because the steps that have been taken to compensate means that we see DK moving its profit in h two. And trading, we're expecting it to replicate very similar to what it did in h one.

3:38 When you look at the business, you can see net asset, £6 a share. A big thing, as you can see, nearly 19,000,000 of cash in the bank, but the big thing the theme is this 18 p dividend. So being very clear, we're very confident that this group will be able to deliver 36 p per annum dividend, and that will organically grow when we continue to run services business. We'll explain where that step up has taken place, but we've done it now that it's h one and h two is not the old one third, two thirds, but it's just AT and P now and AT and P later. We'll get some detail. So without further ado, I shall hand over to Stephen Craigen, who's Group FD, who will talk you through the financial review.

4:26 Thanks, Gordon. So just the usual rundown of the P and L to start with. Headline revenue has come down from 160,000,000 to 110. However, that's mainly due to the timing of sales within HARGREAVES LAND. And there's been several sales that have actually occurred post period end. We expect to do so, and and that's what's really, really affected that number. Underlying services revenue is up 2%, which is encouraging and in line with our expectations. But the big piece of news is the significant improvement in the margin of p v two services. Moving from 6% margin, £6,500,000 up to £7,800,000 or 7% margin. So what's driving that margin improvement? It's mainly two fold. One is on our earthmoving business. We are significantly further into our HS2 activities and as such able to remove some of the risk from the contract to be able to recognize work at a slightly better margin.

5:23 And also our engineering services that we're providing is a higher, you know, higher skilled work and able to command a higher margin. That's what's driving that that number there. The next line down is our asset disposals. So for those of you who were joining into a year ago, you'll have noticed we had a one off sale of some assets in f y twenty three. Those assets obviously have not been sold again, so it's important that we strip that out for to compare numbers like for like. HARGREAVES LAND has had a loss in the first half of the year. It had a profit last year. It's purely due to timing. And as Gordon mentioned, HARGREAVES SERVICES PLAYS TO HAVE ITS BEST YEAR ON RECORD WITHIN WITHIN THE GROUP, GROUP, AND DAVID DAVID WILL OUTLINE CONFERENCE LIVE LIVE ON ON THAT IN A A NOMENT. AND ON HARGREAVES HARGREAVES SERVICES ON THE

6:13 in a couple of slides time, I'll I'll break that down for you to explain what's going on there, and Gordon will enlighten you on why we think that will turn a corner in the second half. Other numbers are are broadly straightforward, I think, until we get down to the dividend per share, which is a significant six fold increase from three p to 18 p. The reason for that, ignore that rather enormous jump, is twofold. First of all, we are expecting to buy out the pension scheme in the not too distant future, if fact, we expect it to be quite imminent. That will remove the need to spend nearly £2,000,000 a year deficit reduction contribution payments equating to roughly 5p per share per annum. The other increased element is in relation to the cash returns we're seeing now from HRMS.

7:00 They would they sent £8,000,000 back to us at the end of the half year, and we expect levels of that to continue ongoing. I I I want to think that's sustainable as well in the future slide. So just to run through the balance sheet, I'll I'll highlight where the cash is currently invested, but I will also give an overview of where our head is in terms of expectation of value around the the three three business streams that we have. So in terms of services, capital employed is is only £9,000,000, very consistent with what it was at the year end. And the reason we were able to keep this so low is all of our fixed assets are secured on finance leases. So we're using the bank's money rather than investors' money or shareholders' money to do that. And and the the particularly impressive thing, I believe, is our very tight working capital controls that we have. You know, we've got negative working capital of the left billing within services.

7:56 So we're not we are being effectively being paid before we have to pay a lot of our suppliers on that front. About 9,000,000 of capital employed is able to generate at least 20,000,000 of EBITDA per annum. So in terms of evaluation of that business, you you know, I'm sure I'm sure you've got you've got models that you would use to try and value your shares. If you if you apply just to get the standard five times multiple side of your target, you're at a 100,000,000, and therefore, talking roughly £3 a share in terms of the simplistic valuation of that business for now. In terms of land, there's obviously a significant amount of money invested into land, 80,000,000 in total. The biggest single part of that is Blindwells, which is our housing development outside of Scotland, outside of Edinburgh of £40,000,000.

8:41 This is a bit of an unusual one. We've invested the money into blind dwells in order to demonstrate our capability as a master developer. And now that that's happened, future schemes will be much more low capital as we're able to negotiate option agreements, profit share arrangements, which don't require quite a high amounts of capital. We expect blind loss to unwind in the in the medium term, and therefore, we expect the amount of cash held in the land to drop from, I would say, to down to around about 20 in June course. Much of that in mind has to do with blindfolds, but also we have cash in mind coming from the renewals, which we announced in the summer. Currently on the balance sheet, the renewables assets are in a book cost £7,000,000, and we have an estimated value sales value in third party valuation of between 27 and £28,000,000 on on that asset. So that's an upgrade of £20,000,000 on the cost the book cost of those assets.

9:36 So the £80,000,000 is our cost. We have not marked that that value to market value. If you aren't on the upscale value from the renewables, you're in another £100,000,000 on land. Again, it's very simplistically £3 a share into the land business. And on HRMS, the big news here is that we're starting to get cash back. Repatriation of £8,000,000 in the first half has brought the capital employed down significantly as you can see there from 76,000,000 down to 67,000,000. And there is no intention from the board to reduce that cash flow. Previously, we have invested $7,050,000,000 pounds worth of short term loan to support additional working capital requirements in that business when the commodity cycle was hot. There's no intention from the board to do that again. This is about moving cash from that German business and being able to pull it back onto the into our balance sheet and order to attribute to shareholders due course.

10:32 In terms of valuation on HARGREAVES, and Gordon will talk about his thoughts on DK. But even if we just consider that to be valued at book value, then all we get is our cash back. We're talking another £2 share in terms of valuation. So very simplistically, we've got £3 of services, three in land, two in extra MSS, and £8 valuation high level in terms of where we see the business at the moment. Cash and leasing debt broadly net out, so it's certainly due by the year end. And therefore, we sort of say we're net debt neutral. Current share price is £4 growing to 8 in due course. The big question is, of course, timing of delivery on these cash receipts. And that is that is one of the reasons we're increasing the dividend to create a 9% yield based on a £4 dividend £4 share price rather.

11:18 So £4 up to £8 with a 9% yield currently, we think that's quite a compelling case, and that's why we wanted want to lay that out to to all of you today. The other thing I'll pick up on here is just around the pension scheme. Obviously, it was a key strategic target at year end to remove the pension scheme. We're not quite there. It's on the balance sheet as as an asset of 6,000,000. However, it will cost no less, Sorry. No more than £9,000,000. I'm hoping that it would be significantly less. The big disconnect, but there is just just the the the equivalent of IFRS accounting and how how we have to account for it. The real in in reality, it's liability of certainly no more than £9,000,000, and we hope to find that out certainly in quarter one this calendar year. Now the key factor just to point out, we remain free of bad debt, cash on the balance sheet, no debenture over any of our assets.

12:11 In terms of the cash flow in the first half of the year, first three columns on here are effectively an explanation of the EBITDA within the business. So we have PBT of 2.7, on which 1.7 was the loss of the joint ventures, which is noncash, much like when it's been profitable. It was also noncash stripped out. And then we've got £7,000,000 worth of depreciation, which relates to the the assets we have for the HS2 contract, but also services contracts. Our 7,200,000 depreciation is largely offset by the leasing payments of 8,000,000, very minor CapEx, to be honest, throughout the group. And then we've also broken out with the nonlinear capital movements, the investment in Blindwell site during the year of 5,000,000, which will unwind in the second half as we get sales completed.

12:57 And then the other working capital movement largely reflects the 8,000,000 receipt we received from HRS in the first half. Final piece of the jigsaw is really the dividends paid of just under 6,000,000, which relates final dividend that was announced as of May 23 financial year end. So we closed the half year on 18,700,000.

13:19 So just to give a bit bit more color on HARGREAVES result for the first half of the year and and how how that results be made up because you don't get too much from the the annual report on accounts. So the business is in three parts, but two parts are material on the trading business and the DK recycling business. The trading business has had a significant reduction in revenue, most of this driven by a reduction in volume as a lot of customers they work with are short time working and reduced shift plans and such like. That's reduced resulted in a significant reduction in volumes, but also we've seen a reduction in commodity prices as well, which is taking the top of the revenue. That has squeezed margins, and therefore, we've seen a reduction in profitability from the trading business from 13,500,000 down to just under 6,000,000.

14:08 Now one of the things I really wanna point out here because a question that will no doubt be in your minds is around the sustainability of the additional 7,000,000 that we expect to get from Germany every year. How how are we so certain about that? Well, the trading business and DKR are ring fenced from each other. And in the first half of the year, the HARGREAVES SERVICES PBT. This is a low point in the cycle. And even if all they're able to achieve is the same again in the second half, which we are obviously hoping to do better than, we're at £12,000,000 PBT. If we take tax off the top of that, we're at eight and a half, and then we are entitled to 86% of their profits, which is more than £7,000,000 per annum. So we're very confident that 7,000,000 is sustainable out to ongoing profits without any further unwind of the balance sheet.

14:58 If we look at DK, DK's revenue is down about 7%, 70 down to 66,000,000. You might expect that to come down further given the noise about pig iron prices that have gone up dramatically. But the reason it's not down further is because of the volumes. So DK have traded a lot more volume in the current year as they've unmounted some of the balance sheet, and you can see that in the inventory slide where we've got a reduction in stock held. However, because of the significant reduction in pig iron, which has been impacted by the fact that there is no sample, there was no EU sanction against the importing of Russian pig iron. However, one of the major impacts and one of the main one of the major inputs into pig iron production is coke price that is an embargoed product from from from Russia. We've seen a reduction in pig iron revenues and increase in our cost base, which has actually led to a loss in the first half of the year.

15:53 Lord will talk about the reasons why we think that will turn out in the second half, and we're confident it will be profitable in H2. The only other thing I'll pick out on this slide really is in the bottom left around the exposure. As we continue to see this increased amount of cash come back from HRMS, we expect to see the the exposure come down, which is a realization of the assets out there. Gordon, can I hand back to you to talk about services now? Thank you, Steven. So I think Steven's laid out a clear picture, which hopefully everyone can get around some of the parts. So let's just dig into the three parts. So I'll I'll cover services, Dave will then cover property, and then I'll come back on Germany to just underpin those numbers that Steven laid out. So, really, services, for those of you who know us well, but for those who don't, we work in the sectors of energy, environmental, infrastructure, industrial. So we're not exposed to retail at one point. These are things that always need to be done.

16:55 The 60 contracts is spread over a wide cross section. The biggest concentration is our contract on HSP, which I'll talk about in a second. But by the half year, we already have 90% of the revenue already secured. Typical operating margins of 5%. You can see on the left, we've got blue chip customers, which means we're comfortable with credit exposure. Our biggest customer is effectively the government on HS two. We've been through the inflation cycle and still deliver the profits. So you can see they have been stress tested our contracts. They are inflation resistant. So that gives you the the the main business. You can see we're we're doing very well. The question on the next page that comes up is, well, hang on, Gordon. I've listened to all that, but but HS2 is gonna come to an end. I can understand you've got 59 other contracts, but, you know, HS2 is your biggest contributor. So what happens there? Really simple.

17:46 HS2 has two more years left to run. We never factored in the second stage of HS2, so that wasn't an issue for us. The three contracts that we're really focused on is Lower Thames, Seizel, and Tungsten West. Now there are three, what I would call, eyes in the fire. As HSP two slows down after the next two years, which one of these will replace it? Well, if we take them in order of where I think the most chance of them replacing. First of all, the size

18:17 We're already working at size well. We have a great relationship with the only earth moving contractor there. I think we're doing a good job. I think there's a good chance of us turning that into a big long term contract. That's one. The we have to do a good job, though, to be clear. Secondly, I think in terms of opportunity is Tungsten West. Now Tungsten West, you'll track as a listed entity. You'll see if you follow the publicity that, basically, they're waiting for a report or a permit on noise from their processing plant. If they get the permit, the team there are very confident of raising the 70,000,000. They've already been backed by nearly 5,000,000 by, and they are very confident of raising the extra 70,000,000 to go into production.

19:05 If it goes into production, we we have the benefit of a ten year contract, open book, plus plus seven and a half percent. Revenue will be between 20 and 25,000,000, so you can expect to get $1.52000000 profit a year for those ten years. The important point to recognize though is when we negotiate the contract, it is not only open book cost plus, but it's also without credit risk. So before we turn away the loan of the terms of the contract, we need to be paid. So if some of them went wrong in two or three years' time, we would not pick up a bad debt. So that's a a key feature. Lower terms is probably the highest risk of not coming through, and I simply put that down to if we get a change of government. This crossing may come into question for being in the South. Who knows? We hope not. We are well positioned with buffer BT if it goes ahead.

20:01 So what I'd like to say is, look. We've got three lines in the fire. If I get one of them, you're gonna be fairly consistent. If I get two, you're gonna get a pickup. If I get three, I get a cherry on top of the icing on the cake. So, hopefully, that gives you some comfort that the sustainability of the revenue stream and services is there. We don't need acquisitions. It's gonna be organic growth and just looking after the customer base that we have. Like I said, there's 60 contracts. Alongside that, we're very successful with our engineering capability. These are two projects we mentioned. You'll always have two to three one, two, three contracts at least by running through the business as well. So on that note, I'll hand over to David who will just talk you through the land and renewables, please. Thanks, Dylan.

20:49 So core activity is HARGREAVES PLC. We effectively promote and deliver land with clients sent for house builders, industrial logistics and retail warehouse users together with renewable energy projects. Sometimes we'll actually do the direct development of commercial projects provided they're on a forward sold basis. And historically, we've used all the mining sites and then we move further into new projects as Stephen mentioned. The new projects tend to be held on options developed agreements and most agreements where we rarely actually own the land, we draw it down, we sell it straight through to end users and restructure accordingly on a forward sold basis. So again, it's moving towards the capital line model. In terms of market conditions in the first half of the year, well obviously it was dominated by a very strong rise in inflation, which triggered a substantial increase in interest rates.

21:44 This had the result of softening investment yields on commercial projects. We saw significant weaker demand from housebuilders for land and commercial occupiers had a habit sitting on their hands. However, as we've got through towards H2, what we've seen is a a significant pickup in housebuilder activity. All the housebuilders are now back to the market bidding on land. Prices remain under pressure. It's clear they're still suffering from cost inflation, but they're not able to pass the toll free increased house prices. But they are actively buying land and virtually everybody is back in the market. Commercial occupiers, there again, we've seen a significant uptick since beginning of the year in commercial activity and we'll see how that feeds through to actually more contracts being signed.

22:35 In terms of the key events, in the first half of the year, normally in the first half year, we don't appear very heavily on the P and L side because most of our profit events are in second half. Last year, was sort of an exception. This year, we're back to the sort of normal process. So in the first half, we completed head of program, 191,000 square foot logistics unit. It's our scheme at Unity. That was forward sold where we essentially drew the land straight through

23:06 under option to the ultimate funder. We then constructed the unit via fixed price contract with the contractor and we'll pay straight through from the funder. So again, our capital deployed and that was minimal. Westfield, just after the half year, we completed the sale of a long lease ground lease investment on NG for waste plants at our Westfield site in Tye. This completes the GBP 7,600,000 of the net cash proceeds. So that will appear in the second half numbers. And then it will be in the same period, we exchanged contracts for the sale of 185 unit residential plot at GBP 4,900,000. That's conditional upon planning. We have a monitor approved planning, which is working our way through the actual planning agreements. They should be completed in the next month.

23:55 And then that sale will complete again before the end of the year end. And then finally, blind roles, we always have conditional contract in place with the bank homes for the sale of large site blind roles that will complete in the second half having now completed all the sellers' works. And so again, that gives us confidence that we expect to achieve where forecast in the market for the year ends. Over the page on the renewables, by way of update on this, previously we had a collection of renewable assets where we had good visibility on the scale of the renewables assets, the timing of when they were gonna be delivered, and therefore, we're able to get some external valuation by of between 27 and 29,000,000.

24:40 And since then, we've now got two of the three wind farms that are with the third one being under construction. Out of the six access agreements that we have, two are operational, two are under construction, and the other two are in preconstruction phase. And then we've got two battery storage schemes, which are either consented or have minded to approve and expect to move into construction phase in the near term. So they're on track really to the values we realized as expected. These assets have lease terms between twenty eight and forty two years with rents linked either to fixed rates plus RPI in case of battery storage and solar or they're linked to power pricing but with annual RPI linked review. So effectively, they're annuity grade investments.

25:26 And we're expecting the first tranche of these renewal assets to be going to market in FY 2025. Sync for about 400 megawatts, so probably half a dozen actual assets as a single package. So again, that will start to realize cash from that and return back to group as we intended. And then interesting enough, we've significantly expanded beyond those schemes valued by Jones Alliance, significantly expanded the additional renewable opportunities that we're now working on. So we originally expected last August about 800 megawatts of new opportunities. We've got to over 2,000 now, and that is a mix of battery storage, wind assets, and solar. And time scales for those are uncertain in the main moment, so we're not really able to give much guidance on when they're likely be realized.

26:18 We need to get the reconnection dates confirmed and have a better understanding when the planning will be granted. We're talking really a window between 2027 and two thousand thirty one, thirty two as when they're allowed to actually land. They won't all land, but we expect the majority to. And just to confirm, they're outside of the 27,000,000 to £29,000,000 valuation that Jones Light have already applied. That's it. I'm back to Gordon. Thanks, David. So moving on to the third leg of the business, Germany. So, again, Steven's given some granularity for you, which I hope helps. Just to recap for those who do not know the business, we effectively get 86% of the value out of this business, although we own 49.9, which changes the accounting principles used. So we don't have control of this business, although we get 86% of the value.

27:12 There's really three parts to it. Coal pulp organization plan is roughly breakeven. The reason for that is it's gonna source into the markets when the lithium brand online is closed in Germany, and they haven't closed yet because of the energy crisis in Germany the problems that's happened in Ukraine. So I'll focus on the two that are real drivers at the moment. Like I said, coal power plant is just waiting for this closure in the German mines. Trading business, it trades raw materials around Germany. It's obviously been affected by the fact that Germany is technically in a recession, and they're, you know, they're working at four day working. So that obviously is impacted on that. DK Recycling is a business that recycles waste from steel plants around around Europe. And, again, I'll explain that in a bit of detail in a second. So just over the page, let's talk about a trading business.

28:04 Trading business is a business that's been with us for about fifteen years. Never lost money. The team that there are the other shareholders, so they they're aligned with us in terms of delivering value. What happened was when we put these assets in, the growing plant and DK, it gave them more opportunities to trade, and therefore, you've seen this step up. We also said that, obviously, there'll be a lower point, and it will come down. Typically, what we said is the the extra assets we added brought the base up by about 10,000,000. And you can see that here. And at a low point, they typically make about 2 to 3,000,000 a year in the old business. So add the two together. It's sort of bottoming out at about 12. We think it's about as bad as it gets.

28:55 First half has been 6, as Steven said. So if it's no there's no real cycling nature to this. So six in the first half, we think a very conservative six in the second half would give you 12, and that feeds into why we think it's sustainable. Dividend, the payout of trading is deliverable. I would expect it to move up back up through the cycle again, but it will be oscillating between maybe a four or about 13 up to maybe 20. I mean, if you look at the slide, you'll see at the peak, You know, they were up at 25. So that's the trading business. The really interesting bit, the bit I get excited about is DK Recycling. So it's a recycling plant. For those who don't know, it takes steel dust from steel plants all over Europe that would otherwise go to landfill.

29:45 Now the dynamics that are going on here in h one, it's first of all, let's talk about zinc. So zinc is a very cyclical product as you can see by the graph. So what's happened is zinc prices have fallen, and that's resulted in a number of zinc mines that produce virgin zinc shuttering and closing because they can't produce at those prices. So capacity comes out, inventory gets exhausted, prices go back up, and that's what you're seeing. And if you follow any of the zinc codes, you'll see people talking about that. 60% of our output is hedged, but remember, 40% is exposed to this. So as prices recover, it will go straight to the bottom line. The second point, again, Steven touched on it, pig iron and coke. So you can see from the graph, they always strongly correlate, which is simple to understand because whoever's producing pig iron needs coke to produce it. So what happens in the past is that they move in sympathy.

30:42 What happened with the Russian invasion of Ukraine is that coke that came from Russia under all energy products was embargoed. So you had a shortage of coke, which drove the you would expect to drive the price of pig iron up. But the problem was there wasn't an embargo on importing Russian pig iron into Europe. So what was happening was the Russians were dumping pig iron into into Europe, driving down prices to get foreign exchange. Now after some strong lobbying, the EU from January brought in sanctions. They come in over

31:19 three years, which will embargo big arm from Russia. When that announcement was made, we saw prices start to move up, and we expect them to move up again on the back of the embargo starting to take part in January of this coming in the current January period. Final piece, remember we take 500,000 tons of dust a year from various steel plants around Europe. Actually, there is more dust than we can cope with, so there is a shortage of capacity. But the only place you can deal with these type of dust. And to give you an example, we typically do three year contracts. They all come up for they all come up renewing at December renewal, but they're staggered over three years, so not all at once.

32:05 And the advantage we have is we had good customers now for a significant increase in gate fees, those that we do for renewal.

32:14 And there was a comment from one of them as well. We're not prepared to take it. We're having a hard time like you are. We'll keep the prices where they are. And I went, okay. That's fine. Then we'll get a we'll we'll we've got other customers prepared to pay the higher gate fee. And the response was, they can't do to that plus being a part of the long term, and it'll really screw out our recycling targets if we have to book this. So we achieved an increase in price, which is above inflation on all of the customer who came up from New York. So I think the three drivers why we're confident that DK will move back into profit in the h two. ESG is an important point. I was trying to differentiate HARGREAVES from maybe other businesses. ESG for us is not a a box ticking exercise.

33:02 The important thing is with ESG is a brand differentiator. Some of it has said that we've invested heavily in ESG, reported the new head of ESG, and you might look at me and say, why are spending that money for me? The answer is because the customers that we are targeting put it instead of waiting on the award of contract. So it's not

33:21 simply about delivering at the lowest cost. It's also about what your ESG credentials. So we believe driving ESG is giving us a brand differentiator. We'll lead into margin improvement, and you'll see that over the next few years. So over the page, really the final bit is hopefully taking you step by step through this business. There's three parts of it. Hopefully, I've reassured you that services result is both stable and may improve. But when h two HS two comes to an end, we have op opportunities, which I think will at least keep it where it is, if not see it grow. Please don't forget, there's 60 other contracts. Obviously, you might lose one or two, but we hope to win more than we lose, so we'll have to see organic growth there.

34:09 One of the things that Steven mentioned is the buyout of the pension in q one.

34:14 When that happens, that will then make services a much more sellable business in the future. And I think, you know, the multiple that that Steven has applied to it is very realistic. You can come up with your own view of what multiple you'd apply to that if you do a sum of the parts. That's for you to do, but taking out the pension not only allows us to increase the dividend because we don't have to spend 2,000,000 in the pension. And, also, I think, makes services a much more sound business in the future if everyone can want to buy it. Land, like I said, please remember, it's all in a historic cost. I make no excuse for the fact that we had all these assets to do with our own common mining pedigree. We invested a lot of money to prove what we could do, and I'm fortunate that David joins Henry Bootman's help deliver that value.

35:00 But now we're moving to a much more capital light model, typically, let's say, million invested, and therefore, you'll see the liberation of that money. The other thing to remember is renewables. As David has said, and we've said in the statement, we're going to market in in the financial year ending '25 with the first tranche. Tranches are always bigger than be bigger than 10,000,000 in size. Quite the size of that tranche, we're we're not clear quite yet, but it's gonna be going to market in FY twenty five as a as a statement for you. And, also, it's gonna be bigger than 10,000,000.

35:36 And, therefore, that will release cash part of this 27,000,000,000 we're talking about. But please remember, without any value on it today is the other renewables coming down the track. So, hopefully, you can get comfortable because the land is market to market. It's a historic cost. So even if we get book and renewables, David, I hope, will deliver a profit off that land because it is relatively cheap in our books. So I think that's an upside there. In Germany, you can value that as you want. I

36:06 think if I was valuing Germany, would look at the trading business and say, okay. I'm gonna apply a book because there's a lot of very confident individuals, but it is those individuals that hold the value. DK is a much more interesting proposition. It's in the recycling space, and you can look at the sustainable EBITDA and come to a conclusion and apply your own multiple. But I think recovering the book value on HMS is not a difficult stretch for anyone to get their heads around. So I think that shows you where with the money from Germany, the money from services, and the removal of the pension sees why it's very easy to see you've got the sustainable dividend of 36 p, which allows you to sit there and say, right, at a share price of x, I've got 36 p coming.

36:53 And if I do with the sum of the parts, there's all this other money coming to me. So I can sit and wait while Gordon and his team executes the delivery of value on these other assets. Just over the page, what I hope reassures you is we have a very strong board. Roger McDowell, a lot of you will know, very experienced chairman. We also have our largest shareholder, HARGREAVES SERVICES on the board in Nick Mills, which represents nearly 30% of the shares. I personally still own 8% of the group. So, again, I think shareholders and ourselves are very well aligned with board. We have a very strong balance sheet. You know, there is no bank debt, as we've said. So, again, we don't have to in this next three to five years when we execute all of this, deliver real value for you all, if something happens, we're not in a hurry.

37:43 So we'll we know the time value of money, so we won't hold on to something trying to optimize it against time value of money. But at the same point of view, we won't be pushed into a corner that we have to sell anything on the cheap. My job and my team's job has been to prove to you, I hope, that this is a sustainable dividend. There's a lot of hidden intrinsic value here. You can see the forward pipeline and the way we're going, and I hope it's a very simple business now for people to understand with three businesses that can easily easily be valued. So on that note, I would like to close and open for questions. Perfect. Gordon, David, Steven, if I may just jump back in there. And thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would 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 dashboard.

38:47 Guys, as you can see there in the q and a tab, we have received a number of questions from investors throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. Steven, if I may, sir, just hand over to you to chair the questions, and if I could just ask you to read them out and then give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Of course. Thank you. So we had one pre submitted question, which was, could you provide a thorough revenue and profit forecast for the following two years and the one just ended? I think, unfortunately, we're not allowed to provide explicit forecasts under listing rules. However, what I would say to the the individual who's raised the question and also all of the people on the on the on the call, I would like to direct you towards the Wallbrook PR website.

39:35 In their investor section, they have a two page document outlining sort of the key points around HARGREAVES and included within there is some high level guidance around the questions that you've just asked. So hope hopefully, that resolves the question. If you're not able to find it, please email Warburg PR, and they should be able to point in the right direction. Second question from Sam. When are you paying when you are paying 36p a year in dividend, do you expect the net net asset value per share to increase or decrease over the coming years? So I think I'll take that one. In terms of the the net asset value, I'd expect to reduce if we are paying a dividend that is greater than our earnings per share. At that point, we would be removing value out of the balance sheet. The forecast that we're seeing so far, 36 p per share is less than our forecast forecasted EPS net, but I don't expect the the NAV of the group's balance sheet to reduce in in the in the in the coming years as we pay 36 p per year.

40:36 If anything, it should it should increase because our profits should outweigh the the dividend we're paying out. Next question is from Mark. I think Gordon, this one's possibly for you. What needs to happen before the tender is issued on size one c presumably for the main works? Yeah. Well, as you can imagine, with all these types of issues held up with the government. But if you follow the press on cycle, you see there's been more money released to push the project on. We are actually there working as we speak, but it is a government decision. But, again, if you follow the press, so I point you towards that, you'll see that, you know, Spain's have to be in the ground quite soon in the next couple of years, but we're we're at the mercy of governments.

41:27 But remember, HS2, as I said before, has two more years left to run, so we're comfortable with that time scale. Thank you. And next question, I think, is is the one for you as well, Gordon, from Lawrence. We'll also ask for new contract wins from the built in inflation protection, or would the company have a flat fee type proposal in order to win business? That's very good question. Thank you for that. Sorry. I missed that because we've been talking to shareholders today. While I'm chief executive, we will not go for fixed price contracts as a policy. I think you're all well aware of of the disasters that have happened in the construction sector where people have chased revenue and entered into these fixed price contracts. It's a recipe for disaster. I'd rather come to you and say, look.

42:16 Revenue's down because of this because we couldn't find the right type of contracts. So as an eight percent shareholder, I'm very aligned in making sure that we never take fixed price contracts. It's a potential recipe for disaster. Thank you. That's fair. David, I think this one's for you from from Mark. Are there any issues with grid connections for plant wind farms and or battery storage schemes? Yeah. I think especially there are always issues with grid connections. They they're entirely reliant on grid connections. Until a grid connection is available, then effectively, the a renewables project can't progress. It's effectively the first thing that any renewables route looks at. They get a fairly rapid indication of what capacity is available, when it will be available.

43:01 That then really starts to pull problems. So all the ones that we're involved in, we've valued by a geo flag, they have great connections. They have contracted great connections with precise dates when they're gonna be available. And, effectively, they procure much of the the development being renewable develops. It works back from that date. So we have good visibility when these things are going to happen. The future schemes we talked about, they are based on an early expectation of the three connections, but will be available at certain times, which has been given by the grid. One or two actually do strengthen of how we have grid connection secured and have gone through the route of securing a grid connection before they actually go and find suitable site. But as I say, it's all through line for grid connections.

43:46 It is getting better. I think it's fair to say, but it is a slow process, and it's quite a technical process both in integrated connection available and also the size of that grid connection, which then starts to dictate the size of individual renewables projects. Thank you, Harris. This one's probably for you, the one from Richard. I think it probably depends as as many as, but I'll answer it. How how many competitors are typically busy on the 60 plus contracts we have within services? That's a difficult one to call. You know, I would say, you know, you're typically three to five as a as real contenders to give you an idea. And I think over the 60 spread, you know, we've done very well. We've organically grown.

44:32 You might lose one or two, but then, hopefully, you gain three or four. That that's really how I would look at it. K. And the the final question we've got here from from Bob. What could get in the way of you realizing any pouch net price? That's a very good question, Bob. Thank you. We've tried to lay out you know, we we can't tell you that it'll be an £8 share price. What we're trying to say to you is, look. This is how we've laid out the value. So let's look at services because the share price will always be dictated by the market. It's not up to us to tell you how to value our business. It's just a label reference for you to make your own decision. But look at services. Steven's laid out a case to say, why wouldn't you value it at five times a bit then? You may use four. You may use six. You may use eight land.

45:18 Again, you know, we're saying that all David has to do is recover book. His issue will be he he should do better than that. He's got land at a low cost, but it's just around the parcels of land becoming available. So turning that 80 down into 20 will probably take David five years because some of our sites are very big, for instance, blind bus. But if we can't there's a big demand for housing. We cannot see any reason to think it won't happen because there's a big demand for for the land. It's just getting the price right. And then finally, on Germany, you know, you value Germany. That that's the one where I think, you know, at the moment, we've talked about just recovering book. If you were to ask me where I can really shift the dial, I think if we can get DK really spinning well through a cycle, I think that's where there's a load of hidden value. So, look, those are where the things are. We're very focused. We should be able to do it in five years. A term of time.

46:17 We might wanna do it quicker because time value and money. Great. And we've had an added time question come in from from Sam, which I can take up. When do you expect the pension fund issue to be resolved? And, Sam, I I would say very, very soon. I'm expecting it certainly before the end of quarter one. This can be an end. And I'm hopeful that we'll able to you know, we will make a separate announcement on this when it is concluded along with obviously how much it has indeed cost at the end. Confident it will be less than the 9,000,000 that we've stated. But, yeah, I'm I'm I'm expecting to make an announcement within not too distant future weeks, hopefully. So with that, I will hand back to Jake. Just just I would like to say to everyone that thank you for taking the time. It's really important as a company we believe in engaging with retail shareholders.

47:11 I think before we did this work with IMC, I think retail shareholders were a little bit neglected off one side. We wanted to engage with you. We're here. We wanna treat you just like the big fund managers so you get exactly the same information. So if after this, there is questions at any time through the year, you know, we respect you. So, therefore, please feel free to drop us an email. We'll try and respond on anything that we possibly can. We don't want anyone to not know what the case is very clearly. So, yes, with that final note, happy to hand back to IMC to close. Perfect. Gordon, Steve, David, thank you very much indeed for being so generous for your time there and addressing all of those questions that came in from investors this afternoon. And, of course, if there are any further questions that do come through, we will, of course, make these available to you immediately after the presentation has ended just for you to review to then add any additional responses where it's appropriate to do so, and we'll publish all those responses out on the platform.

48:08 Gordon, I was just going to ask you for some closing comments, sir, but I think you may have just well delivered those. So if it's okay, what I would do is I'll redirect those on the call for their feedback, which I know is particularly important to yourself and the company. So could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations? This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management team of HARGREAVES SERVICES PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good evening to you all.