Hargreaves Services (LSE:HSP) — Interim results investor presentation

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 using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll.

0:31 I would now like to hand you over to CEO, Gordon Banham. Good afternoon, sir. Good afternoon. Good afternoon, everyone. Welcome to the HARGREAVES interim results for the six months ended 11/30/2022. So let's just take you through. I think the strategic value proposition is is well known to everyone. Were in this phase of create. We're very much now in the delivery box. You see the opportunities coming through in the business. Ultimately, we'll roost move to the realization of value. Remember, the proposition is based on the three pillars as we talk about the business. So services over 50 framework contracts, For instance, HS two is open book cost plus.

1:20 Most of the contracts are inflation clauses in to protect us. So you can see that we have weathered the macroeconomic storms that have been around and still delivered a very good result in services. Obviously, in this period, we'll talk about what's happened in HS two, which has given some significant growth. HARGREAVES LAND, one thing I keep saying to people time and time again is please remember we do not market to market our land portfolio. So all of the land assets are in a cost. So that's a very strong position to be in and and helps take some of the volatility out for us. Again, David will Henderson will cover the land part of the business for you. Finally, there's Germany, our joint venture out there, which where we have the recycling plant, the grinding plant, and the trading business. And, again, I'll give quite some detail on that for you. So just over the page, and now we're talking about the results for the period. You know, we're very pleased with how the business has performed. As I said, I think we're moving into the delivery phase.

2:23 Look at the profit. It's grown from 10.4 to 18.7. Cash in the bank of over 18,000,000, and the business is very confident. Therefore, we're increasing the dividend, from 2.8 to three p a share, 7% increase. Also, you can see the net assets have grown over the twelve month period to £6.03 NAV. So those are the numbers we're talking about on the right, just taking each division in turn. Services, obviously, the HS two kicking up to full capacity. And please remember with HS two, you know, you're very busy through the summer, tends to be very quiet from sort of November, December, January, February. So it will have a quiet a bit in H H 2 for the earthworks business.

3:10 But like I said, it's kicked in, and it's now running at full bore, and we'll carry on for the next couple of years at these type of levels.

3:17 The thing that I'd also draw your attention to, there was 2,000,000 of nonrecurring profit recognized for some asset realizations. But if you strip that and HS two out, there's still an underlying 8% growth in the services business, which is great. HARGREAVES LAND. Well, as we've always told people, we have these two big sites, Unity and Blindwells. As the LAND platforms become available, you get this conveyor belt of plots available for resale, and the first one dropped into h one at Blindwells. Remember, they are long term conveyor belts, ten to fifteen years of land bank at both Blindwells and Unity. So there's a ongoing feature that's now delivering from blind Wells, and, again, David will cover that in some detail.

4:02 Finally, HARMS, better than h one last year. There was a carryover of high zinc, high pig iron prices. H two, we always felt that H two last year was very, very frothy. So the market numbers were already reflecting that we thought it was an exceptional year last year. So H two will not be as strong as H one this year, and that's reflected by the move in commodity prices. Zinc has gone from 4,000 down to three back to about $3.04. Pig iron's gone from 700 a ton down to $5.40. So that's why we think it will be a weaker h two than h one. Like I said on the group, big issue is there's 18,000,000 of cash in the bank.

4:47 We have some lease commitments, but they all follow predominantly the equipment that's been put to work on H S 2. So at that point, I'll hand over to John Samuel, our FD, who will talk you through the financial review. Thanks, Gordon. So we've got a summary income statement here. Obviously, very substantial growth in the services revenue driven predominantly by, HS2. In, land, revenue has also grown, but you've got to remember that land is a sort of, it's very sort of event driven. And in the first half this year, we have the, Ogilby sale, at, Blindwells, and there was no corresponding Blindwells sale in the first half of last year.

5:34 In revenue, strong growth in margin in services. I'd just like to comment that if you take the 2,000,000 nonrecurring, gain on the asset realizations out, the margin is 6.1%, still an improvement over the previous period, and we're in that target zone of zone

6:05 Hello?

6:35 Hopefully, people can hear me. We've got a bit of an echo here. Yes. If you could just turn the volume down on all the PCs in the room, that would be brilliant. That should eliminate the echo there for you. Is that okay there, John? Yeah. Okay. Perfect. Thank you, sir. Please go about that. No problem. The services margin, When one removes the 2,000,000 nonrecurring, the margin is 6.1%. Pretty top quartile for this type of business. HARGREAVES LAND profits improved because of the timing of the, sale of the, the plot to Ogilvy.

7:22 HRMS result, this also retains a nonrecurring cost in this case, which impacts The UK numbers by about 1,500,000, as a result of, additional, energy costs because the ten year refurbishment of the power plant took a little longer than originally envisaged. The tax charge appears to be extraordinarily low, but bear in mind that the HRS tax is is already there in the 10.8. It's been taxed. So you have to look at that as The UK tax charge, and it works out at a brand about 20%. 68% growth in EPS, got the 7% growth in the interim dividend, and we're disclosing, although you could always work it out, the EBITDA number, which has grown materially from 3.7 to 12.9, because the balance of result has moved much more towards away from the joint venture, which does not come into the EBITDA calculation.

8:39 Moving over to the balance sheet, shows where we've allocated capital into each of the business segments. Services, you can see there, only has 6,400,000 of capital employed. Although there's over 40,000,000 of fixed assets, predominantly, this is plant, and it's predominantly, associated with that finance lease debt, which is a few lines further down. Small increase in goodwill because we bought small business, back in July in the, water sector. And this business sector, has negative working capital, which is incredibly favorable to, the capital allocation.

9:25 Land continues to be a major area of investment. The largest part of capital allocation is to blind wells. You can see there it's just about 30,000,000 for the period. And we'll talk of also later on, David will talk about the renewables portfolio, which sits in here at £11,800,000. HRMS, we've got a separate slide on HRMS, which my colleague, Steven, will take you through in a moment. So I won't dwell on the capital, employed in HRMS or allocated in HRMS. Couple of other things to mention, the pension scheme. So under IAS 19 accounting, we simply take the last year's asset of 7.7 and add the contributions paid in the period to get this 8.8. It it's bizarre accounting because this is, of course, a liability that we have to fund the £2,000,000 per annum.

10:29 Just to mention that the triennial valuation for, the pension scheme, is measured as at 12/31/2021, we haven't quite agreed it yet, but we are almost there. If you go back to the valuation at 12/31/2018, the previous triennial, it was a deficit of 35,000,000. I expect it to be agreed around about 22,000,000, but if you did the calculation today, the deficit will have shrunk to around about 11,000,000, 12,000,000 perhaps because of the increase in gilt yields and increase increase in interest rates that we have seen over the last several months.

11:15 That offers up an opportunity perhaps for the, group to, buy out the pension scheme, and that's something that, the board is looking at at the moment. I'm gonna hand over to my colleague and successor in six months' time, group financial controller, Steven Cregan, and he's gonna take you through the next couple of slides. Thanks, John. So just running through where the cash has gone in the last or where it's come from rather in the last six months. We opened the year with just under GBP 14,000,000 in the bank. The first three columns are all really EBITDA

11:54 related. So GBP 19,000,000 worth of profit, of which £11,000,000 is noncash because it comes from the joint ventures. We then add back the depreciation, which is nearly £5,000,000 also noncash to get to the EBITDA of just £13,000,000 that John mentioned on a previous slide. The next two columns relate to investing activities within CapEx. The big things to pick out here really are proceeds from disposal. We've had a number of asset realizations, which we've highlighted earlier in the presentation. Total proceeds just under 5,000,000, which yielded £2,000,000 gain in the period. And that money has fundamentally been invested in the Westfield site to facilitate the build out of NEFW, which David will cover off shortly.

12:41 Alongside that, we've spent £5,500,000 on lease payments fundamentally relating to the plant, on HS 2 as well as some of the transport fleet. The big unusual item, if you can think of it that way on the cash flow, is the repayment of the loan from Germany. So for those of you who followed us for a little while, last year, you may have noticed well, you will have noticed that we paid we paid out a loan of £50,000,000 to our German joint venture. And in the last six months, they've repaid £12,500,000 of that loan. Otherwise, working capital's pretty flat, pretty benign during the period. We've had pension contributions of just over £1,000,000 in the six months and paid total dividends of 5,700,000 relating to the final dividend for the prior year as well as the additional dividend that we passed through from our German associate.

13:33 The other items of 400,000 are very small amount of interest cost offset by, foreign exchange gains on cash held. And we've also separated out, capital acquisition of SBU, which is the acquisition John mentioned on the previous slide, total of $1,400,000 of that, roughly half related to the share purchase and half related to the repayment of debt on acquisition. Take us to $18,000,000 So just over the slide, over the page, we've got a bit more detail on the German business. The top left in here, we're looking at the P and L. You'll notice a significant increase in revenue values. An element of this is down to volume, but the vast majority is due to commodity price increases. So if we look at HRMS trading, the coke price, which is an item they trade, that has doubled in price from between the two periods.

14:27 And Gordon has mentioned and will mention further on that pig iron prices and zinc prices have also increased between November 21 and November 22, which has yet led to the growth in revenue in DK. So that leads to profit before tax increase in Germany from $14,500,000 to 17 point And you'll have noticed that that is a suppression of the margin from 6.3 to 5.5%. But that first half 17.6 number is dampened down by the additional energy costs, the nonrecurring costs that John referred to earlier on the ten year refurbishment of the power plant. So if you were to add them back, then the margin comes back up to seven, which is more like where you would expect it to be given the high commodity prices that have been going on. Common question on Germany is obviously where it's making all this profit and where is the cash. The answer is on the right hand side of this slide, specifically in the inventories line. You'll notice that the inventories are still very high, pounds 101 and £41,000,000 tied up in in inventories.

15:31 So whilst the inventories haven't come down, what the business has been able to do in the last six months is repay some of the loans back to the parent company, back to ourselves. So it has started to throw off some cash, and more will come in in due course as as we see a slowdown in trading. Another thing just to point out, bottom left on here is is what is the total exposure of the group to to our German joint venture. So it's made up of £65,000,000 worth of retained earnings, which is the historic profits made by Germany that they have not yet repatriated to us via dividend. Total loans of 14,000,000 outstanding, which is obviously down from the prior year. And we've also increased our guarantee to the German joint venture in the current year. This was to enable them to get higher borrowing base facility with their existing banks. So we have increased our our guarantee from €5,000,000 to 10. That sits off balance sheet, but it is worth pointing out so everybody is aware.

16:26 And with that, I think I'll pass back to Gordon. Thank you, Steven. I think everybody knows the business we talk about the three pillars. So this next section of the presentation, I'll cover services, David will do property, and then I'll finish off with Germany. So, hopefully, it's much more simplified for people to understand what they're investing in. Although, as you see, you know, people say, you know, it's a little bit complicated. So let's just keep it simple. Services, what's it all about? Look. You can see the four sectors we work in. We have over 50, framework and term contracts already 87% in the bag. Lots of blue chip customers. You can see they're on the left. So, you know, we're not reliant on one single customer. Credit exposure is good. The important feature a lot of these contracts is they're inflation resistant. They have cost plus or they have a built in escalator reflecting inflation. So if you look at the h s two contract, that h s two contract is cost plus, and obviously inflation has actually increased the value of the contract and therefore increased the total profit that we get out of that contract. So nice, well spread quality. As I said, if you take out h s two and the one off items that happened in the in the first six months, it still grew by 8%.

17:42 And, again, what I would say that growth has been selective. So we haven't gone for high risk. We've gone for quality contracts in there. To the extent, I give the example of we had the opportunity to win a fairly big transport contract, but the client insisted on a RPI escalator, not a gasoil escalator, sorry, the diesel escalator, which would have opened us to risk. And we although we could have won the contract, we turned it down, and I think that shows the contract discipline that is applied in the business. So just over the page, H S 2 is obviously the big theme. So this was the first to remember, as I said earlier, Earthworks, very busy up till, November time, then quiet very quiet December, January, February, then restarts.

18:29 So H 2 in HS 2 will be quieter by the nature of that quiet period. But in this period, H 1, we were at full capacity. We were going flat out. That led to the profit numbers. That's gonna carry on for another couple of years at least. But the great thing is we're able to say that Alpha BT have been awarded the Lower Thames Crossing. We are their strategic partner for Earthworks, so we think there's a great opportunity for us down at Lower Thames. And also, we mentioned in the statement, we are doing some work now up at Sizwell on what's called the Marsh Harrier project. It's only 2,000,000, but it's our first piece of earthworks up, near the, Seiswell Power Station, and we think it's a good reference site for a client to see that we are very capable and confident. Again, a very big opportunity for earthworks.

19:21 So you can see that pipeline, which sits in the rest of services, is also developing in the Earthworks business and gives us some really good long term visibility. Just over the page, just focusing on this is an interesting thing. We also say that our m and e competency is growing. So there we were with the contract with Blackwell, they needed a solution to moving material and reducing the lorry movement. So we came up with that using our industrial services group. It's contract worth over 10,000,000, which the industrial services team have carried out, and it's had these benefits for everyone. Really positive, good feedback, won an award for the quality of the project, and there's other opportunities for us. We're offering this service potentially down at Lower Thames, for instance. So, we think there's some good synergies between the two businesses.

20:16 So that's the services business. I'll now hand over to David who'll cover the the pillar called land. Thanks, Jordan. So, as a reminder, the land business really falls into three parts. We've got the three large multiphase, developed opportunities covered by the first slide, namely Blindwells Unity and Westfield. We then got a pipeline of new development opportunities, which I'll touch on shortly. And then finally, but definitely not least, we have the renewables portfolio, which again, I'll I'll cover later on. So in terms of the key events for the first half of the year, we completed, one significant sale at Blind Authrog will be homes. That's relatively new in terms that we normally complete in the second half of the year, but that one due to various circumstances we'll be able to bring forward.

21:03 The Unity, we're now on-site with a a specialty forward funded 191,000 square foot distribution scheme, and that is expected to substantially complete, by the early part of next financial year. And then finally, Westfield, the we've completed the majority of the infrastructure spend on Westfield, and that infrastructure spend, not only services the energy for waste platform, which we've granted thirty five year ground lease on, but also a further 40 acres of service land, which will go to occupiers who are looking to benefit from, cheaper heating power that's the EFW will throw off. And then over the page in terms of pipeline, this summarizes really the the projects we've got at the moment and we shall progressing.

21:51 So we've got obviously a range of residential and commercial schemes which already got under contract, where on the residential terms, we've got just over 4,000 residential plots with the GDV of 219, of which we've got 780 which are subject to agreed sales or under contract. In addition, we've got a further seven sites which are progressing through being promoted to planning, which if successful, will deliver for the 3,100 residential plots. And then we've got a further four sites where we've agreed terms, which have the potential to deliver for the two and a half thousand plots beyond that. So in terms of residential pipeline, we've got a considerable visibility on a flow of those into the future. And then on the commercial side, we we've got a quite a range of different types of commercial projects.

22:40 The benefit of that is that we don't wanna have a single exposure to any one sector whether that is residential or commercial. So we've got some retail warehousing, which is forward sold. We've got some commercial additional commercial land we've now got under contract, together with some further retail leisure space. And then we're promoting additional, industrial logistics sites through the planning process as well. One of the questions we've been asked about is the general market outlook at the moment. So in terms of the residential sector, what we found was that, the first half of last calendar year 2022 was very buoyant and extremely frothy in the housing world, and that came off in the second half of year for events we're all aware of. And, we had a very quiet Christmas, early part of New Year, which is not untypical, in the housing side anyway.

23:32 What we're seeing is we haven't seen house builders withdrawing from the market. We've seen them taking stock, reconsidering matters, but we anticipate that, activities will regularize to a more normalized level this financial year. So effective and we won't see the the level of voids we saw last year. In terms of the commercial side, we've seen really occupier market really not hugely, affected by the turmoil. Occupiers are still looking for space. Those were active before and remain generally active. The only exception being the e commerce distribution, which had already cooled by the middle of last year in any event. So we're not seeing a huge change on that that side of things. And then over the page, onto the renewables side.

24:20 This is gathering considerable momentum at the moment. We we touched on it at the Capital Markets Day, but as a recap, we have circa a dozen, renewable investment opportunities which are progressing. We've got three wind farms. So the three wind farms, one at Dalclandie is completed and operational and it's just been commissioned as we speak. It will be fully operational next week or so. We've got one which is currently under development at Broken Cross, and we've got one which we're expecting to commence development of later on this year. And then in addition to that, we've got seven access agreements, and these are effectively rights we grant across our ownership to third parties to give them connectivity to other people's wind farms to the grid. So we've got seven agreements and very similar to the wind farms. They're twenty eight year leases.

25:09 We get effectively a percentage of the revenue generated by the wind farms, and that's all RPI linked annually. And then in addition to that, we've got the Westfield waste to energy plant, which is currently under construction, the least granted. So we get a ground rent which climbs to £420,000 in the next couple of years, and that again is subject to annual RPI reviews. In addition to that, there's an additional 50 megawatt solar farm adjacent to that which will be operational around about the same time. And then finally, what we're seeing now is increasing scale battery storage, and we exchanged agreement earlier on this year, for a a minimum size battery storage facility of 500 megawatts that occupies around about 45 acres.

25:57 It has a potential to grow to a thousand megawatts. In addition to that, we've got a small one at 49.5 megawatts. Both of those have grid connections already, they're now working their way through planning. We're not expecting a problem. So that gives you a feel. But all those, agreements referred to, they all effectively are expected to land and we have very clear timetables for, when that's that's the case. I know the slide over the page give you a profile of the income. So all of the renewables projects which have a grid connection and have planning and are either currently developed, under development or expect to commence development shortly, the forecast revenue from those annual revenue is about £1,580,000 per annum. We've got a lot of visibility on when that will be delivered, and the total level of it.

26:45 And in addition to that, with the additional battery storage facilities, we're expecting that to be topped up by

26:51 roundabout anywhere from 500,000 to 1,000,000 per annum. Again, that depends entirely on the size of the battery storage when it's finally developed out. And all that will expect to be delivered out roundabout by twenty twenty six, twenty seven. And they're all typically on at least twenty eight year leases with index links. And just to be clear, we're not the wind farm developers. We simply are the landlord. We don't deploy any capital. We just take an income. Pass over to Gordon. Thanks very much, David. So the final pillar is obviously Germany. It has three elements to it. So the trading business what what this graph really shows is remember before we had DK and the grinding plant, there was never a loss made in the trading business. It's always they never take primary positions. It's back to back trading. But obviously, it oscillates on volume and market conditions. So volume and margin, you can see it in the graph. But when we had the grinding plant kicked in and DK, you could see the volumes increase significantly just after 2020.

27:50 So what we're saying to everyone is, going ahead, you may see commodities come off, which may reduce the margin that we can command. The volumes may drop off, but it's been rebased up because we have these two other assets that underpin it now. So that trading business will deliver better than historic going forward. Next page, the grinding plant. So for those of you who've been watching the press, we'll see that Greta Thunberg has landed on Germany, because obviously they're burning tremendous amounts of lignum

28:19 brown coal despite their plans to reduce their c o two emissions, obviously, driven by Ukraine. So our grinding plant is positioned ready when those close to fulfill the gap that it creates in the market. There's about 2,000,000 tons needed once the brown coal disappears close to this plant. The good thing is we've done a 100,000 tons. Everybody's done trials. They're very happy with the product. But let's be honest, the 100,000 is specialist niches, which causes it to break even. But today, if you were trying to sell this material, it's probably twice the price of lignum brown coal. So therefore, we're sitting with pent up potential. As soon as those lignum brown coal mines start to close, the capacity of this will start to fill up, and it will be at maximum.

29:05 DK Recycling, so again, had a fantastic year last year. This business, remember, produces two products, zinc and pig iron. And you've tracked the commodities. So obviously, in h one, you had the

29:18 benefit of still a relatively high zinc price that's come off, went down as low as $3,000 a ton. It's now popping back up to 3.5. And then pig iron peaked at about 700, euros a ton and it's now down to about $545.50. So, again, you can see how the commodities have come off. That is why we flagged up a long time ago that h two would be weaker than h one, and that was in broker's numbers. So it's not a surprise. It's what expected. The only thing that did happen here was the power station. So we,

29:54 every ten years, renew the power station, a big renewal, big refurb. Unfortunately, it overrun by a month, and that resulted in us having to buy power and, not export power. Now it's overcome the power plants running effectively, and it actually it's running 5% more efficiently because we did a a lot of mods to it, but it did have a one off impact in h one. So

30:20 just moving on to ESG, for myself, the governance goes without saying. We have a very strong board. The environmental, we're doing a lot of interesting things out there. David talks about the renewables. We're doing some carbon sequestration up in Scotland. So there's quite a lot of interesting thing in the environmental sector. Social is my particular, focus myself, because it's really important in the tight labor market that our staff are looked after, protect, and and, part of the family. So there's a lot of work going around the social side of it, which we think is important. But it is from the bottom up, so it's not driven from the top. It's owned by the people in the business. So finally, when we get to the outlook for the group, so remember we have the three pillars. As I said to people, you know, services is a great business. It's grown by 8%.

31:14 It has HS two, and in the earthworks, the pipeline is being filled with opportunities. The other businesses have three to five year

31:21 contracts, so you can see you've got a very good, solid, growing, good quality contract business and services. Land, as David has said many times, it has the three big flagship projects. And, again, Blindwells Unity, you know, you're talking ten to fifteen years of land. Blindwells is 10 miles from the center of Edinburgh, so we think it's a quality site. Unity is a quality site because it's on the junction of M 180 and M 62. David talks about the renewables, again, you know, I try and point out to people that if you look at the renewables income at 2,000,000 and if you apply the yield of 5%, you suddenly say, well, that's worth 40,000,000. You look at the books, it's only on the books at roughly 12, hidden value of x. The other thing I always say on David's business, we are not like property businesses that revalue market to market our land base.

32:15 It's all in at cost. So one of the big things is there is a lot of hidden value in the land base and the renewables business that's not there. And, if you look at the balance sheet in total, there's only about 6,000,000 of goodwill left. So we think it's a very, very strong balance sheet. HRMS, like I said, I did say to our board when we're having a discussion, you know, the as the profit starts to reduce in h two because the trading slows down a bit, etcetera, that's, a negative in one respect, but it's a positive because it starts to release all this cash that Steven's talking about, and then we can look at repatriating that cash back to The UK. So if you look at all three of them, they're all in a very good position. We are now, as I would say, into the delivery phase of the three arrows at the first start of the presentation and ultimately even to realization, but we're on course.

33:10 So, really, that's the presentation in itself. Like I said, we have a very strong board, really good visibility, three pillars, and we increased the dividend by 7% up to three p for the half year. Very strong balance sheet with, like I said, cash in the bank. So I think that closes the presentation itself. And therefore, I'd like to open up to the floor with questions, which I think Stephen Cregan is gonna throw out to us on your behalf, and we'll try and answer them. Yeah. So we've got a pre submitted question from Alex. Is it possible for the HARGREAVES SERVICES that it recycles into pig iron? That's a very good question. The answer is that we have a summer maintenance shutdown, which is, seven weeks, and we're looking at the possibility to reduce that to five. But I think an important point to say so, yes, we could potentially increase it, by four or 5%.

34:09 But the interesting thing at the moment, I would say, is that the demand to supply us with dust is increasing significantly. We have a lot of steel plants knocking on the door saying, we want to put dust into your plant, and that's giving us pricing power. I think the real value for shareholders in the, medium term is going to be about increasing the gate fees. Thanks, Gordon. Second question is also related to Germany. I think you might have sort of answered it, but, when when do you think the HRMS co pulverization plan will achieve full capacity? And the answer to that is I couldn't tell you, because it's all gonna depend on when the Germans deal with their energy crisis and these Lignum Bram coal mines get start

34:54 to close. So difficult to tell, so it can't be any more detailed than that. A question from Scott on on HS two. The last person presentation, someone talks about the effects of HS two on Buckinghamshire. Has anyone from the senior management team visited to see what's actually happening? Scott is keen to point out he's a shareholder, not an eco warrior. Scott. Yeah. So so, I go down there. We have our management meetings at Aylesbury, and I actually have family in Aylesbury who in the police force. So it it works well for me to be to be there once a month. Yes. We have seen the impact. One of the interesting things I mentioned here is the conveyor system that we brought and added, which has removed reduced the lorry movements on, HS 2. So we are very conscious of being a good contractor, and we are there to work with the local community. So if anybody has any issues, please please address them to us.

35:50 Thank you. Next question is around cash. I think I'll give this one to you, John. So Mike wants to know what what do you plan to do? What does the group plan to do with the £18,000,000 worth of cash on the balance sheet? Okay. Well, as always, cash is measured at any specific point in time when, we report a set of results. It's important to know that there is continued and ongoing investment into certain of the land projects, a little bit more to go into Westfield in the second half and more to go into Blindwells in the second half. However, we also have realization expected at Blindwells in the second half. So the 18,000,000 isn't just book sheet cash that can now be applied to something, And our cash cycle has always been one that looks this way, and it tends to peak actually towards at our year end.

36:48 So at the moment, we don't have clear visibility of free cash to apply to some other purpose. I mentioned we'd be looking at the opportunity to take the pension scheme out later in the year largely probably won't happen this year, but largely would depend upon the, timing of cash flows back from Germany rather than, than anything else. Okay. Next question is from John. Can you expand on the likely appointment of Blackwell by Balfour Beatty, respect to the latter's contract to deliver road North Of The Thames project? So if you see the Balfour announcement, they've been, awarded, contracts, so I can't refer to I I can refer to that and you read their their statement.

37:39 We are in their supply chain. So we are their partner on the earthworks side. We've been working alongside them. So we expect over the next eighteen months to work very closely with them to hopefully help them execute the project. Hopefully, that's Yeah. We've got full expectation of award. Mhmm. But at the moment, we don't have a contract nor actually, you know, there are a couple of hurdles for b b to overcome as well in terms of d o two t permissions. They say that that will be in 2024, and I would say we're twelve months minimum away from contractual position. Okay. Next question is from from Alan, which I think I'll I'll probably just answer this one because it's quite I think Gordon's mentioned it already. Is the £72,000,000 balance sheet value on historic cost valuation, or is it more realistic, realizable value with Blindwells, Doncaster, etcetera? So all the all of our land in the balance sheet is held at historic cost. We don't upvalue for market conditions and as Gordon said, also therefore don't downvalue for for for for for market softness. So it's all what we paid for it withheld within the balance sheet. So there's an upside to that when those sales go through.

38:55 Next question is from Simon relating to the services business. Pleasing to see that contract wins with county Durham County Council and Scottish Water. Do you have similar opportunities in the pipeline, and how long does it take to convert these kind of opportunities? Yes. We do have, similar, opportunities in the pipeline. Yeah. You're tending to look six to twelve months out, and I refer you to the 8% growth that we talked about earlier. You know, there is growth going on. It's a widespread team out there looking for work, but we are selective in the quality of the work that we take on. So just wanna be absolutely clear. I don't know if I mentioned it earlier, but, you know, we had a particular contract with the council where they wanted, RPI linking on indexation, and we refused to to take on the contract because if we needed the the, diesel price to be built into it, they wouldn't do it. So we didn't take the risk.

39:47 So there is a vetting procedure to make sure we don't just go for turnover, we've got to go for quality. Thank you. And next question from Mark. Where does the HRMS loan repayment appear on the balance sheet and cash flow statement? So this is a quite simple one in the interim statement. It's held within trade and other receivables on the balance sheet, and therefore the cash flow movement of trade and other receivables you'll see is a big number this year mark. If you were to look at the year end accounts, obviously there's a bit more detail in there. The notes to the trading of the receivables line will show loans due from JCES, which is where that number sits. When we get to the year end number you'll see that come down and be a bit more granular. There. Another question from Mark. What is the expected duration of the HS2 contract?

40:35 Very good question. I mean, it's obviously taking longer than was expected. I would expect another couple of years at full capacity and then start to tail away. Thank you. Question from Brandon, and this one's probably for Gordon. You say that HRMS second half will be softer than first half, but the fall from 10,800,000 to 4.2 seems to be more dramatic than that, especially with the exceptional cost that we've described. Can you elaborate? Just to say that those numbers must be extracted from, an analyst's They must be. Yeah. Statement. They're not the company's numbers. Okay. So so the the issue is that, in h h two, as I said earlier, our input raw material costs are fairly fixed.

41:21 We've secured that, so I can be pretty solid on what my cost of production is going to be there. The issue is what are we applying as the zinc price, and what price are we applying for the sale of pig iron. So we've taken a conservative view. No shocks to shareholders. John and I were talking about it earlier. I mean, price dropped to 3,000. It's now up to 3.5. We like to be on the side of cautious, so we've been prudent. I think that's the best way of putting it. I think there's a couple of questions for for you, David, now. So, Alan wants to know when you quote GDV numbers, what percentage of GDV would you ultimately expect to accrue to HARGREAVES as a rule of thumb? As a rule of thumb, roundabout 15% of GDV is what we generally expect on average.

42:08 Great. And is HARGREAVES LAND doing its own logistics based construction or is the purchaser doing this? We are managing the construction process effectively on behalf of the purchaser, but, we appoint a main contractor, an external main contractor on the design build contract. So we we transfer the construction risk to the main contractor with a via a fixed price design build contract. Great. A question from Brandon. The broker note talks about having GDV of over $200,000,000 as a contracted pipeline. What are the expected costs to bring this to fruition? It varies quite a lot effectively, but the most significant cost area is blind wells, where effectively we infrastructure sites and deliver them to house builders. But bear in mind, we do it primarily once we contract with a house builder. So effectively, there's a limited amount of additional spend invested ahead of actually having a contract for sale with a house builder on that one. So there isn't a rule from saying it will be x million to get to that 200.

43:09 Westfield, for example, is included in that number, and we've already spent the money to infrastructure it on that basis. And Unity, again, is a bit of a mix, but again, is a significant matter as already structured, and the rest will be done based on forward sales already in place. And the final question is from Mark, also for you, David. Do you have developers lined up or slash competing for your battery storage project? Yes. It's quite an active market at the moment. It certainly gained a lot of momentum in the last sort of a year or so. So the ones we referred to date is the larger one, we have a developer who's already signed up. They've spent a 6 figure sum putting a planning application in, and they have a funder on board, which is crucial from our point of view. That one is effective. We know who we will be contracting with and who will be paying the rent. The second one is with a developer, the smaller ones with a a wind farm, a promoter who will then sell that on. So it's a mix, but typically, all the the actual ones that we've highlighted effectively have investors already tied to them and funders already tied to them.

44:17 Thank you. That's the end of our session. That's great. Gordon, John and David, thank you for being so generous with your time. And I believe you have addressed all the questions that came through from investors today. And of course, the company will review all questions submitted today and publish those responses on the Investor Me company platform. Before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Gordon, could I please ask you for a few closing comments? Thank you. Yes. Like I'd say, I'd just like to say thank you for everyone for taking the time. We have developed this platform, which we hope helps all the retail investors to understand our business, but we're always available. So please feel free to communicate with us. The better educated everyone is, I think, the better for everyone. So we're happy to engage.

45:03 Thank you very much for your time, everyone. Gordon, John and David, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of HARGREAVES SERVICES PLC, we would like to thank you for attending today's presentation. That concludes today's session. Good evening to you all.