Hargreaves Services (LSE:HSP) — Preliminary Results for the year ended 31 May 2022

0:00 Good afternoon, ladies and gentlemen, and welcome to the HARGREAVES SERVICES PLC Preliminary Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions at any time and press send. The company may not be in a position to answer every question received 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'd like to submit the following poll. And as usual, I'm sure the company will be most grateful for

0:31 your participation. And I'd now like to hand over to CEO, Gordon Bannum. Good afternoon, sir. Good afternoon, and welcome, everybody. Thank you for taking the time to review the preliminary results for HARGREAVES. Today, I'm joined by John Samuel, group FD, who'll cover the financial review. And then supporting me on the operating review is David Anderson, who's our group property director. So let me just take you through what the strategic value proposition is. Many of you have been with us for a while, so you'll already know it. But for anybody new, what we say is that there is three pillars to the business, and it's all about create, deliver, and realize value. So those three pillars, if we just take services, obviously, the narrative's here for you to read, but, what I would focus you on is we're looking at the environmental opportunities through carbon sequestration on over 9,000 acres of land we have in Scotland. We're looking to plant over a million trees up there, and we think there's some benefit from the carbon credits that are generated.

1:40 Also in services, a big point for everyone at the moment is the inflation resistant nature of those contracts. And, I'll go into some detail for you to point that out. HARGREAVES LAND, I'm not gonna steal any of David's thunder, but I I think shareholders will be pleasantly surprised about the opportunities that exist within our renewables portfolio. And, obviously, I'll talk sometime on our joint venture in Germany. It's obviously very important to you as shareholders. It's had a stellar year, and you'd probably like to understand what's happening and what is going to happen. So I'm gonna spend quite a bit of time on that just giving you a background. So let me just take you over because, obviously, how did the year finish? Well, again, hopefully, everyone's very happy with the upturn.

2:26 The dividend will increase UK dividend by nearly 25% on the back of these results. Net assets have grown by over a pound. Very important is the cash in hand. John and I both strongly believe in these challenging times that we face in the next few years that we will, look to avoid any bank debt. So we do have a degree of debt. That's leasing debt. And, again, I'll talk about that, but that's fixed and backs into contracts like, the HS two. So when you look at the numbers, services, like I said, had a good ramp up of HS two. It will get to its full run rate in the current year we're in now. HARGREAVES LAND, very pleasing to see that Brockwell achieved financial close, and that meant that their results are not only giving us £2,000,000, on completion, but also more importantly, actually, is the thirty five year lease at Westfield at 420,000.

3:24 Dave will talk about that in some detail.

3:27 As I said, Germany did have a stellar, year. If you look at brokers' forecasts, it's likely that that will, drop down, conservative view taken. So very frothy this year. Again, I'll cover that in some detail and give you some flavor. So overall as a group, I think we're in a very strong position as we enter the current year, and I'll talk about that in some detail. But before that, I'll hand over to John Samuel, group FD, who'll just go through the numbers for you. John. Afternoon, all. So on the income statement, we'll just start off with, looking at revenue. And as you can see, we've broken out the coal revenue, which remained in 2021 so that you can see that the services business actually grew by nearly 19% in revenue terms. That is predominantly HS2, picking up, and it will continue to grow in 2023, not just as a result of HS two, but that will be the prime driver.

4:35 Looking at margins inside services, the coal sales created a margin of only £800,000 last year. So if you adjust the 5.1 down by 800,000, you end up with a margin of 3.1%, which has actually grown to 4.7. And that's an underlying growth in absolute terms of pound note terms of 76% in services. In land, revenue is almost irrelevant in land because, of course, land also derives value from its joint venture, the Unity JV, and that is actually why the profit in land has fallen. Because in 2021, April 2021, the Unity JV closed on a major, commercial sale for distribution units, and we recognized over £4,000,000 of profit, from the JV. That does not reflect in revenue.

5:36 I'll come back to HRMS on another slide. Moving down, exceptional items and discontinued. As Gordon said, Brockwell, completed its financial close on the Westfield location. So that brought in the 2,000,000 of deferred consideration. And there was a very old accrual going back to 2015, which, have been sitting there and it's now time barred. So that's a nonrecurring, item, noncash, of course. Tax is a credit because of balancing allowances that arose following the mining cessation of mining last year. I think Gordon's talked about the growth in the dividend, The UK dividend of nearly 25 plus the 12 p coming from Germany, and I'll pick that up in a second.

6:31 If we, turn over to the balance sheet, you can see here where capital is allocated. The services business remains a very low capital allocation business. The fixed assets are predominantly plant and the HGVs for the transport fleet, and they're all financed on finance leases. So you really need to net the 18 off against the 29. There isn't anything else of note in that balance sheet other than to say that the working capital cycle, particularly through the earthworks and industrial services businesses tends to be a negative working capital. In land, we further increased the capital allocated to land and the biggest single item there is Blindwells included in the inventory at 25,000,000.

7:23 Last year, it was 21,000,000. The other, item that's worth noting, and we've got another green box there, which just shows the value of the renewables land within our, investment properties. Of that 7,100,000, 2,000,000 relates to Westfield and 5,000,000 relates to the wind farm land, and David will pick up both of those things, much later on. Germany, I've got a separate slide on, so I'll pass over that. In unallocated, apart from the cash position and deferred tax losses, which really actually belong to the SERVICES business. The pension scheme is recorded as an asset under IFRS 19 even though we make £2,000,000 per annum contributions to the scheme, which you will see as we turn over to the cash flow.

8:17 So water flow chart here, taking us from the start of the year to the end. If you add back the 15,000,000 loan to r m f HRMS, 12,000,000 of which was repaid on the July 1. You've basically got a flat position for cash through the year. So where did the cash actually get invested? Well, there are two principal blocks. There's the lease payments, which is effectively the capital expenditure onto HS two, and the investment into the land development opportunities. And the other items are relatively self explanatory. The dividends there, showing 2.3 is the net dividend, net of the 4,000,000 received from Germany, which is passed straight through in the form of that 12 p additional dividend.

9:10 We then have a pretty busy slide on Germany. So I'll take it in three bits. And the top left hand block is the German income statement in full, in pounds. And if you look at that analysis of revenue, you can see that the growth in revenue was principally in trading, and that's the business that benefited from increase in demand and volumes and in commodity pricing. There was also growth at DK, partly due to strong pricing. Well, in fact, really due to strong pricing as well. If you looked at the profit after tax and split it between the businesses, in the current year or the year just ended, HRS was responsible for 57% of that 32.5 and DK 43%.

10:05 And last year, the percentages were reversed. So that shows you how much the growth in the profitability from Germany is dependent or has been reliant on this strong commodities demand and strong prices. Nevertheless, DK remained profitable, increased its profits by nearly £5,000,000, in fact.

10:29 And there's some underlying sustainable profits there, which Gordon will talk about later. If you look at the balance sheet on the right hand side, the question that people ask is, why is there not more cash coming out of Germany? Well, there's a simple answer to it, and it's called inventories. That inventories is primarily for the trading business. The trading business does not take open positions on inventory. All of that inventory is secured with a back to back sales contract.

11:02 Should the activity level in Germany on trading decrease because of economic conditions or whatever, then there will be a substantial release of cash from the German balance sheet. But right now, that is not happening. We continue for the next several months to see strong demand in Germany, and that's reflected in the forecasts. The bottom left hand block shows HARGREAVES exposure to the HARGREAVES balance sheet with a large number of retained earnings. Obviously, million of that will be paid back in October before we pass on the 12 p additional dividend. Of the total loans, as I mentioned before, 12,000,000 has been repaid on the July 1.

11:55 And with that, I'll pass back to Gordon. Thank you, John. So taking the first of the, the businesses services, I would say to people, what's not to like about this? It's pretty easy to get your head around it. On one side, we have a lot of blue chip customers. There's over 50 term, framework contracts. In the industry sectors, you'll see here energy, environmental, infrastructure, and industrial. So blue chip customers, 50 contracts spread over good areas to be in. So that's one thing. The other thing to be aware of is, these contracts are very inflation proof. If you take HS two, that is effectively a cost plus contract.

12:41 So, actually, inflation helps shareholders in terms of the, return we get because the the cost of that contract originally we thought was gonna be about 125,000,000. It's grown to, we think, at least 200,000,000. And like I said, it's cost plus open book. As far as transport group's concerned, it's inflation linked reflecting both fuel price and wages. So solid base here with blue chip customers. We did buy a small acquisition called SBU. It only cost us 750. We bought it because it increased our exposure to the utility sector and opened doors. But what you'll see in this business is very much a organic growth steady as you go. One thing that we do say, in terms of the position of the group, looking towards the economic outlook, we will not look to move into any bank debt.

13:38 So don't worry about a situation where we look to do any acquisitions. We are sitting in a safe position, and we will maintain that for the foreseeable till, all this turbulence disappears. But that services, like I said, it's pretty easy to understand. I'll hand over to David who'll talk about land. Thanks, Gordon. Afternoon, everybody. So HARGREAVES LAND. We operate in a range of different, markets, so really can be divided into four sectors. We've got the multi phase master developer where we have three active sites, Blindville, UT, Westfield. These are large sites, so those three sites combined cover over 2,000 acres. And here we we get a lot of long term visibility on both residential and commercial development. It gives us a pipeline of projects spreading over many years.

14:33 We in addition to that, do bespoke one off commercial developments. These are typically retail warehousing. These are forward, sold, and pre let. So our actual direct capital exposure is relatively limited. We're involved in strategic land, is purely adding value through the planning process. We typically option up sites, run them through the planning process, secure a planning, and then we'll sell through normally to house builders without ever owning the site and simply recover our costs and take a margin on the added value. And then finally, the renewables piece, this has come has come out of the full mining land. We've been quietly building that up over the last few years and have started to talk about it as these opportunities now started to come to fruition. Turn over the page. So in terms of in the year, it's been a busy year particularly in setting up transactions for this coming year and beyond.

15:24 Blindrails, this predominantly housing scheme is now well in its way, well advanced. To give you an idea, we have 400 o 400 plots that are actually already sold with houses coming out of the ground to a range of house builders. And we've got another just over 400 plots, which are either subject to agreed terms or actually exchange contracts, which will be sales will complete this year. So you can see the the actual rate of sale is ramping up, and then we've got a further phase of 130 plots, which we've just taken to the markets now, and they will that will complete early part of next financial year we're expecting. At Unity, work continues on the up filling contracts, which is a cost plus contract that we we were awarded following sale of the large commercial site previous financial year before last.

16:17 And then we've now secured detailed planning commission for one of the two large logistics units, which we secured a conditional for sale contract for last year. So you'll see that stuff come out the ground this year. And then our first residential phase is now subject to a detailed planning application, and that's where we we've got two contracts, one with HARGREAVES, one with Bellway. And again, work on those expect to start before the end of this financial year. So again, a long term flow of work going forward, which we'll start to see some revenue coming through in this year. And then finally, Westfield. This is one where it started life out as Oak Cass Colliery. We've been awaiting the financial close of the energy for waste facility. That was achieved last Christmas. That triggered the grounds of ground lease, which is a fifty year lease. It's got a tenant break at year thirty five, so the minimum term is thirty five years. We get £400,000 per annum, and it's annually index linked.

17:15 And as part of that contract, we agreed to infrastructure that plot, which is only nine acres out of the total site.

17:22 And we're also structuring a further 40 acres on top of that and in active discussion with a range of commercial occupiers who are looking to acquire land for direct development. So we're hoping to be able to announce further transactions going through the year. So those are the three large projects where we're working through to actually deliver schemes into this year and beyond. Turning over the page, this is a slide we use in the Capital Markets Day. This one's a blind goal. It's just to emphasize the sort of steady reoccurring revenue that these large schemes can generate. So obviously, we're in FY '23 at the moment. Plot five is the sale that we've agreed with the amount and is currently going through illegals. Plot 11 is the sale we've already contracted with Ogilvy and should complete next month. And then the sale with the plot we've just taken to market is Plot 4, and that is expected to complete early part of FY '24. So it gives you an idea we're on program and continue to work the time scale we set out.

18:21 Over the slide to the Unity slide. Again, this is another capital market slide. The same theme really where we've got a a steady flow of transactions we're anticipating over the next ten, fifteen years. The 29 acres is the commercial scale where we just received a detailed planning sent to one of the buildings, and that will start on-site this year. And then the 19 acres is the contracts that we've entered into with Bellway and HARGREAVES in FY twenty four. And then beyond that, you'll see a steady flow of commercial transactions, which will begin to be overtaken by the quantum of residential developments, and that's simply a function of the fact that the commercial transactions tend to be much lumpier and are done early on where the residential tends to much more steady because you can only sell so many houses in one location anytime in a year.

19:11 Over the page onto the the pipeline outlook. So at the moment, we've got just over 4,000 residential plots with planning consent, of which we've got 780 which are actually subject to agreed terms or contracts. And then crucially, we've got just under 3,000 new plots which we're promoting through the planning process at the moment, which will generate a pipeline and that's across Scotland and England. On the retail side, which is the bespoke one off developments, we completed 44,000 square feet of forward funded retail warehouse last year, and we've got a further 35,000 square feet which we're working on, which should start to come out the ground this year. And then we've just secured a site for a further 70,000 square feet, which will be probably something that we'll start to talk about next year.

19:56 So again, a steady pipeline of those is very limited capital involved in in those projects because they're forward funded. And then on industrial logistics side, again, in addition to the two twenty acres of we've got consent for, circa three and a half million square feet, and the 560,000 square feet we've already got signed up and contracted. We've got a further one and a half million square feet of space, which we've taken through the planning process, which again will feed the pipeline going forward. And in terms of our experience of the market outlook, at the moment, we're seeing demand from house builders for residential land is remains very robust. We're not seeing any weakening of pricing. And indeed, if anything, we've seen an improvement certainly in the the level of inquiries and the actual number of parties that are looking to bid for sites.

20:49 And we've seen steady improvement to land values, which is without that offset the inflation pressures to date. The same can be largely said in the industrial logistics market where again we've got very healthy occupier demand. Both the residential and the logistics market suffer from really a fundamental shortage of space, which is underpinning the market and the values going forward. And as I mentioned previously that in terms of cost inflation, so far increasing pricing has kept place with inflation, so we haven't been too badly hit from that side. Over the page to renewables, we we started talking about this in some detail at the Capital Markets Day earlier in the year. So this to remind people, these are our existing former mining sites where we've been quietly working on a range of agreements with wind farm developers over the last few years.

21:41 These are actually are either really in the form of ground leases. So we're not involved in the development of the wind farms. We don't have any capital or risk exposure on that side. But what we do is we grant them ground leases. They're typically twenty eight year ground leases, and we get a percentage of the revenue that is generated from the sale of power into the grid. So that means that the income is largely is long term, is predominantly index linked. And at the moment, we have all the 10 sites we've identified and progressed are all under contract, all have consent, planning consent, and all have grid connections which determines the the time scales for delivery. And the twenty eight year nature of the income with index linking turns into a new to grade investment leases which effectively reflect in the investment yield which I quoted previously.

22:32 We've obviously also got the thirty five year minimum term energy from waste lease, which is an interesting play in renewables. And beyond that, we're now into detailed discussions with range of additional opportunities on our land. These range from wind farm extensions to new access agreements. And then interesting of as the market is expanded, we're now in discussion with companies looking to create hydrogen hydrolyzers, basically where they they run power through water to generate hydrogen, and they they want access to cheap power near existing wind farms. And also battery storage is really coming into its own where these are taking fairly substantial size, again on ground leases for battery storage.

23:18 So again, we we see this portfolio expanding over the next few years and we certainly are seeing a lot of investor interest in this side of it. This is not a market that we see weakening anytime soon. This slide is is really what we use on capital markets day just to give you a timeline for the renewables projects we've got under contract. The dates are all based on the grid connections that those wind farm developers have to hit, so they're fairly sacrosanct. So you'll see these steadily coming through over the next two or three years. When we hit those dates, they then become income producing with a lease. So that's when we're we're in a position where we've got income we can crystallize into a value. And in terms of how you value these things, we put this slide up previously, which really gives you the fairly convoluted form as to how how investors will value these.

24:10 The two variables are really the strike price, which is the value that investors get for the power they sell into the grid or to third party users. That range is usually from roughly between 45 and £95 a foot, and it generally isn't getting any cheaper. The utilization is, put it bluntly, how windy the sites are. There isn't that much range. It's 30 to 35%. And then really, the the only other thing to be particularly aware is the share of the income. Our agreements range from between 14% with the ability to sort of double those percentages mid term of the lease. So, it gives you an idea of how you can actually work out what these things might potentially be worth, once they all start to come on stream. And with that, I'll hand you back to Gordon. Thank you very much, David. So just taking you through HARGREAVES. Obviously, it's a stellar

25:01 performer this year. Just wanna recap for everyone the business. So remember, it started as a trading business. It asset backed itself with a coal pulverization plant and DK recycling. So how they all work together? HMS will provide the coal to the pulverization plant. It'll provide the coke and coal into DK, and it will also trade out the zinc and pig iron. HMS was already a pig iron trader in its own rights, so it brought that expertise to DK and has helped to improve the marketing. Remember, though, that we have 49.9% of the voting shares, but we get 86% of shareholders of the economic benefit. So the results are not consolidated, into the group.

25:47 Just over the page talking about trading. What this what we've always said about trading, and to be clear, it's never made a loss in all the years it's been part of the group. Why is that? Because it doesn't take principal risk. It backs to back. What it's all about is a volume of tons multiplied by a margin. What's happened where you can see here is that they've benefited by strong economic activity in 2122 in Europe. Also, though, they've benefited by being able to trade around the DK and the CPP assets. One of the examples I give people is that if you can imagine before, would have bought 20,000 tons of material. Now because they've got DK, they can buy 40. That means a bigger ship, more economies of scale, more cost competitive. Therefore, they can increase market share.

26:34 So what you will see, and brokers are forecasting a downturn. Brokers are actually forecasting a quite significant downturn next year reflecting the uncertainties certainties of the economy. So they're nearly looking at a 50% step down in profit on the German business. But what we're saying is even if you have a downturn, it won't go back to the levels trading was before because it has the step up benefits of trading around these assets. Like I say, it's back to back multiplied by margin. And one mismatch that we've been talking to shareholders about on the road show is that in the broker's forecasts, they are assuming that there'll be a downturn in trading. If that happens, as John mentioned, you have a huge amount of inventory, and that inventory will turn into cash.

27:24 And that cash at the moment doesn't appear anywhere because it just stays in Germany. That's unlikely to happen. We won't build it up on the balance sheet. But at the moment, we've got a very conservative position used by the brokers in their forecasts. So that's the trading business.

27:40 This is probably for shareholders, the disappointing part of the group. So we bought built this grinding plant, and the plan was to, replace lignum brown coal. All works perfectly well. It's been proven with lots of customers. At the moment, it's doing about a 100,000 tons, which is breakeven. The big advantage this place has is when the lignum brown coal mines close, people will switch to this product. The problem is, as you've seen in the press, the Germans have announced that because of the problems with gas, they are not rushing to close down their lignum brown coal mines. So look. This is poised, ready to go. At the moment, it's breaking even, but we hope once climate change goes back up the agenda, that the they will review the lignum brown coal mines, and then this is ready to capitalize on the opportunity.

28:29 Just over the page. So DK Recycling. Remember, this is a recycling business. So it takes over half a million ton of dust, which would have otherwise gone into landfill. There is no problem with the dust. There are more dust than we can cope with. We can only do 500,000 tons. We have another steel plant wants to supply us to improve its green credentials. Not worried about that. Coal and coke, like I said, we trade that through from HRS, put it into DK. That goes into our blast furnace. The positive thing is when you run a blast furnace, you do throw off gas. That gas goes into our own power station that's export some to the grid. But the main issue is to say, that means we are energy self sufficient. So we're not exposed to electricity prices.

29:17 We generate all our own electricity. What you get out is zinc and pig iron and energy. And I will talk on the next slide about where where those markets are going. So the inputs are secure.

29:31 What about the outputs? Well, pig iron price is always correlated very strongly to coke. Now we are forward sold on about 60,000 tons of our pig iron at prices we're happy with, and we've underpinned that with the coke purchases. So that's okay. And that's why I probably think we'll have a quite strong h one. Where it goes in h two is a question, what will happen with pig iron prices, but we see that coke prices tend to track as well, so that should compensate.

29:59 On zinc, we have these very high zinc prices that were experienced. We've taken a decision to go into the market and hedge 50% of the volume that we produce at 3,100 right out till May. One of our contracts is, not hedgeable, so we'll we're in discussions because that's up for renew in October. When it's renewed, we'll look to probably hedge a bit more of it to protect the downside for shareholders. Just over the page, we talked about the outputs, the inputs, the operating cost in the middle. These are the things that we've done since we acquired the business. They weren't capital intensive. They were just good business sense, and that means that we have reduced the cost of ACE effectively by about 10,000,000. So we believe that even through the stresses of recessionary pressures, this business will be resilient.

30:49 Question that was asked previously on roadshow has been, what about the Russian gas situation? It's very high profile at the moment. And the answer to that is that at the moment we use a relatively small amount of gas because we generate predominantly a lot ourselves. We do buy some natural gas, and the team at the moment are looking to put some liquefied gas tanks in sight so that we can be self sufficient. That will be more expensive, and we're working on all the details as we speak. But we do have contingencies in place we're working through to deal with that challenge should it arise. So that's the DK piece. So now on to the next slide, what we call hot topics, the things that, we're being asked about a lot. So inflation, as I said before, in services, we're comfortable.

31:39 Germany, I think I've talked about in some detail, and David's talked about land. There is obviously the group overhead and the divisional overhead, which is not recoverable through contracts, but we've done a rough rule of thumb for you that 1% increase maybe cost about a $100. COVID nineteen, I think you've seen that we've demonstrated we traded through that very well. Interest rates, that's why we said we we do not want to have any bank borrowings, because we're concerned about where they're moving, so we're not exposed to that. Where we do

32:10 have leasing debt, and that's predominantly actually on HS two, which again is cost plus, then we have fixed prices. So we think we're covered there. Energy costs for The UK group is about $7.50, so it would have an impact, but nothing that we can't manage. Germany, like I said, it's got its own power, so it generates. So that's a positive. Climate change is definitely lower on the agenda than it was probably twelve months ago, but we believe there's opportunities to add value. Look at all these old brownfield sites, 9,000 acres, suitable for trees. We're looking to plant nearly a million trees up there. We're just working through the process of getting forestry grants to do it, so that will be quite interesting in the long medium to long term because you actually get paid for the carbon sequestration.

33:00 The German business obviously has a very positive green agenda from the point of view. We're recycling half a million ton of product that would normally, go into landfill. So just over the page, as I laugh when we said, you know, we ESG has dropped down the agenda a bit. Everyone's worried about the risks out there, but we do take ESG seriously, and I encourage you as shareholders to take it seriously. It will come back, but what's important as well for us is retention of staff. You can imagine in the world we live in at the moment that there is a lot of pressure, so we do need to look after our employees. Hopefully, you'll be pleased to know that, you know, in the budget this year, we put a 6% pay increase through. We made sure there was death in service for all our employees, and we adjusted some of the pensions, which we think will help retention because, obviously, this business needs good quality individuals.

33:54 Over the page. So what's the outlook? Services, has the growth in HS two. So this coming year, we'll probably do about 40,000,000 when it hits full run rate. So next year is a full run rate. Big things you're looking for is the announcements on Lower Thames and Sizwell. So both look as if they're going ahead. We think we're in prime position because we have the competency because we're on HS two, but we also tick a localism box. So our earthworks business, Blackwell, is based in Essex, and it's on the doorstep of both these projects, which we think will bear us in good stead. We're hoping that one of them gets announced in this coming year. We'll obviously update shareholders through an r and s when that happens, but the profits would take a couple of years before they start flowing through.

34:45 HS two gives us a lovely underpinning there, but the rest of the businesses are doing very well. And like I said, they sit in an environment which we're very comfortable about. Land, I think, you know, please spend the time to look at David's slides on renewables. Don't underestimate the value you as shareholders have in that business. There's a lot coming through, it's gonna be exciting to talk about that over the next few years. HRMS is, has done steadily well. Can't take that away from it. When you look at brokers' forecasts, you'll see what's effectively happening for next year and the year after. German business comes off. They're they're looking at it coming off by nearly 50%, partly compensated by land getting into its stride.

35:32 Remember, two years ago, David had a really good year. He brought forward sales, which made the year that's just finished a lower year. Now it's all systems go on all of the big three developments, so you're gonna see this regular recurring income stream. And Germany, like I said, had a difficult year had a really good year. Sorry. We'll now come down and then even out in two years from now, we think. Because there's still some froth going through, so don't be surprised if h one isn't quite a strong h one. We're quietly confident in the position there. It's h two that's more difficult to predict. Just over the page in conclusion, one thing I would say is please be reassured. We do have a very strong board that sits over us. Those of you who track Roger McDowell, who's our chairman, will know his reputation.

36:22 Very confident chairman, one of the best chairman I've ever had. Alongside him, we have Nick Mills, who represents our largest shareholder. So there's a lot of scrutiny on what we do, which I I welcome. We have the strong balance sheet with no debt. I think you can see the visibility of our pipeline, which is positive. And, of course, for some of you, it's important our dividend in The UK has gone up by nearly 25% onto on the English part of it. So we have these three strong pillars. I do think they complement each other, and I'll pick that up later under questions. So that is the presentation. If everyone's happy Gordon, that's great. And and thank you to the rest of the team 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. I'd like to remind you that the 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.

37:28 Stephen, as you can see, there's a number of questions that have been submitted by investors throughout today's presentation. Firstly, thank you to all of you for your engagement this afternoon. But perhaps, Steven, if I may, just hand back to you to read out the questions and then obviously hand them out as appropriate, and I'll pick up from you at the end. Sure. No problem. So first question is from Jake. I think we might have covered this one, Gordon, but what what will be the likely impact on the company in the like in the event that Russian gas supplies to Germany are disrupted over the next several months? Yeah. So that that answer is that's why we were looking to put the liquefied gas tanks in. It will increase the cost base, but we think we can continue to produce. The big question is then what happens to the economy in general out in Europe, and that's difficult to predict. But, you know, our customers are foundries. People will still have cars.

38:19 Foundries will still be working, and we've hedged the zinc. So, hopefully, we've taken the appropriate steps. And remember, brokers forecast are nearly a 50% reduction in profits over this year, so I think there's some contingency built in there. K. We've got a couple of questions from from Mark now. First question is around the strategic logic of the three pillars. It doesn't feel they fit together particularly well as they are. Why why would we not split them out and divest the parts? Mark Mark, that's a a very good question. You gotta remember where we came from. So, no, you wouldn't have started here. Remember, we were a coal business that's morphed. The most important thing was to protect the balance sheet. We now have worked our way through that. We have these three strong if you don't wanna call them, pillars, you can call them business units.

39:07 I think it's a valid comment. I've always believed personally. If you look at property, a lot of property companies, worried about the downturn have investment grade properties that give them a rent. So when there's a downturn in property, the rents, which only have 7% yield maybe, cover the overhead of the business. We have a much more efficient balance sheet. If there was a downturn in the property sector, the services business can cover the overhead so we don't have to sell property assets at a distress. So I think they work very well together. Germany is a valid question that sits separately, and people will know that we looked at, selling Germany a couple of years ago. The point was that we looked at it and thought it was important that we proved the business model, delivered some efficiency changes, and saw where we ended up. So we're working through that process.

39:57 To be honest, as I always say to everyone, look, everything's for sale if if the price is right. But at the moment, the three businesses are working well, but it doesn't mean they'll always be all three. Next question from Mark is, what are the anticipated effects on us if HSP two is canceled in whole or in part? Again, interesting question. Mark, take my word for it. If you go down to Buckingham and look at this big scar across the landscape that we have extracted, there's no way any politician's gonna stop what's going to Birmingham. That I really do believe will carry on. They've made such a mess in terms of the countryside. They've bought a lot of land. They're in too deep. So our project that we're talking about just is to Birmingham. So we are I don't see Birmingham stopping, so we're not exposed to a stopping risk.

40:50 And then next first next question is from another Mark, a different one. Can you expand on your framework agreements and what rev revenue visibility you have, and do you see this expanding? Do you wanna do one for a change, John? So we actually only have about half a dozen framework agreements, but we have a lot of term contracts. And these are all in services, and I think on the services slide, it shows we've got 75% of the revenue expectation for f y twenty three already secured. The the frameworks vary in length. Some of them go through to 2028. Others are typically more typically sort of two or, three year frameworks. Often, they have one or two year extension periods.

41:39 The term contract similarly last for more usually three to five years, the term contracts. So and then, of course, because there's over 50 of them, they all have different start and finish points. But we generally would expect to have something north of 66% of the of the revenue in services secured by either term contracts or frameworks when we go into the new financial year. Okay. And the the the next question is from Vaughn, and it's in relation to the dividend from Jeremy, the 12 p. We've stated that the dividend will be in place for four or five years. After that four or five years, if no further profits were to be made, how much of the dividend would be available for the following four or five years?

42:28 Try to take that. Can you take that? So, you're right that we talked about, four or five years originally because we were looking at the then undistributed profits, which the German business was not permitted to pay because of the debt that it had taken out to build the grinding plant until after May 2021. And there was there are covenants related to the German balance sheet in connection with that loan for the grinding plant. And so we looked at what was an affordable level of dividend, and it turned out to be this £4,000,000.12 p per share. And that's where we came up with that, for. Obviously, the German business has continued to make profits subsequently.

43:17 So the actual sum of dividend that comes out from Germany other than the 12 p is really dependent upon Germany's own cash requirements. As Gordon said earlier on, If the trading business were to suffer a substantial downturn because of demand or commodity prices or whatever, go back to what we might call a normalized level if such a thing ever existed, then free cash becomes available. So it's not really about paying 12 p for the next ten years or whatever. I suspect that if there was a large amount of free cash came back from Germany, then we'd look to distribute it to shareholders more rapidly than taking ten years over at 12 p a time.

44:05 And a question from David for David on land. Do do you think about starting some of our own wind farm projects in order to secure a larger share of the value added potentially with Bayvaro? Yeah. It's certainly something that's on the radar. Historically, we did actually have a renewables division which we spun off. But obviously, we're now in a slightly different position. So we are looking at that. I think particularly in respect of the the other renewable opportunities, things like battery storage, things like hydrogen and hydrolyzers, I think they they have quite a broad range of possible opportunities. So it's certainly something that we're looking at. We've got three more questions on the list. So next one's again from from David, but in relation to Germany. So Germany's with Germany turning on coal generation power, does this further increase the difficulty with carbon polarization plants capacity as coals become more expensive?

45:01 Yeah. I mean, the the because coal prices have gone up, it makes it more difficult for the grinding plant. As I said, it's got a 100,000 contracted for the next three years. It will break even. So so it won't get any worse, but you're right. If coal prices stay high, it won't get any better. And a linked question from John. If the if the German government restarts mothballed coal fired power stations, could they use pulverized coal from the grinding plant? No. If if they restart their coal stations, they will just buy pure neat coal. And the final question, what about the risk of not having enough workforce in the short to medium term? Is this a risk for HARGREAVES? I hope, David, we we we answered that from my point that, you know, we've we've we've been sensible. I think the 6% pay increase was right. We've looked at, conditions.

45:54 So we feel there was a like everybody, we had a shortage of lorry drivers. That was a challenge, but we're now stabilized. So I think never be complacent, but we feel that we've been fair with our people with the 6% increase. At the moment, we're not sure of individuals. Okay. That's great. Thank you very much, John, and thank you very much indeed to, sorry, the rest of the the team. Gordon, as you know, investor feedback, I know, is in particular important to the company, and I'll shortly redirect investors to give you their thoughts and expectations. But before doing so, I wondered if I may, Gordon, just ask you for a few closing comments before I redirect investors to give you their feedback. No. Well, look. Thank you very much, everyone, for your time and attention. It's much appreciated.

46:42 I think it's something that probably HARGREAVES neglected to, in the past, deal with the retail investors. So, look, we're here. We're always available. Please feel free to contact us if we can provide any color to what's going on. Thank you for your time and attention. That's great. Thank you. Gordon, John, Steven, thank you very much indeed for updating investors this afternoon. Companies ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide feedback in order the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of HARGREAVES SERVICES PLC, we'd like to thank you for attending this afternoon's presentation, and may wish you all a very pleasant afternoon.