Hargreaves Services (LSE:HSP) — Interim Results

0:01 Good afternoon, and welcome to the HARGREAVES SERVICES PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they 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 can review all questions submitted today and publish responses what is appropriate to do so. Before we begin, I would like to submit the following poll.

0:33 And I would now like to hand you over to CEO, Gordon Banham. Good afternoon to you. Yeah. Good afternoon, and and welcome, everybody, and thank you for taking the time to hear how the HARGREAVES journey is progressing. I jokingly said this morning, if there was a gold medal for going from black to green, HARGREAVES must win it. Those of you who know us a long time ago when we listed we're a coal company, we're never very green, and it's amazing where the company's come to. We set out a load of strategic commitments to shareholders previously, and I'm pleased to say we are delivering against them. For those of you who don't know the company, we'll just talk about what the business is. So this first slide, it's a sum of the parts play. So what you get with HARGREAVES is three pillars, as we call it. So talking about services, had a very good period. We're doing very well.

1:29 There's volume in the services sector. We'll talk about it in a bit more detail. We've got a margin maintained at 7%, 11% increase in revenue. And subsequent years, you'll see the brokers have increased the profits for subsequent years, which shows that we're we're building some real momentum there. Land, again, those who know us really well will know that there is effectively three parts to the land business. Got the historic mining sites which are held at historic cost. So not market to market pricing, so they are very low cost. So there is a lot of pent up value in those old old sites. There is is the the renewables, and David will talk about that in some detail and give you a breakdown.

2:14 We hope that in 2025, we'll be able to tell you that we've actually sold the first tranche, and we hope that is the start of a rolling program of turning these into money. Remember, we don't spend any money. We're actually a landlord. So as soon as someone builds these wind farms, we get rent, and then we sell that income stream on. And I hope that we will do something before the end of financial year, but brokers forecast that hopefully that something will happen in 2025. So watch this space. I think there's gonna be a lot of news flow from HARGREAVES over the next twelve months. To keep you informed on, and Dave will cover that. And then finally, there's the move in David's business to the low capital model. And what we say is, look. He he's got a a pipeline of nearly 1,000,000,000 of of GDV, and we would hope that that would give him something like 3,000,000 a year recurring income stream after overhead.

3:10 So a nice land business. I always say that, you know, David's job, although in this period, we talk about the fact that one of our transaction has moved just beyond year end. So, you know, being open in November, we budgeted it to happen. We have sorry. Last year, we budgeted to happen in November. It's probably never gonna happen in June and July, it's moved there. David's main risk, I think, is delays. The value is there. Remember, we hold this at historic cost. So I've tightened up with the team and said, look. We need to deliver some of the parts in the next five years for shareholders. And so we're putting a timeline on it. And what we also say is we've increased the dividend dividend. We talked about a progressive dividend.

3:56 We're now talking thirty seven p. So based on when we started the road show, a share price of of £6, we're paying people 6% on their money to hang around. When you do the full sum of the parts, some people are talking about some of the parts worth 9. Some are saying it's worth 12. You make your own decision from this presentation. If it was 9 based on £63 increased 50%. So in theory, you'd hope over five years, we as a team can deliver you 16% growth for those five years. And it'll be interesting to to chat through why I think that's potentially achievable. And maybe you'll believe there's a higher upside number, but we'll get it there into some detail. And then I'll talk about Germany. That's the third pillar of the business.

4:45 You know, it's paid its dividend over to us. It's performing much better now, and, again, we'll give you some flavor. So what I'd like to encourage you to do is, as we go through, do your own evaluation and work out the sum of the parts, which will help you understand what this business is worth. I'll now hand over to Steven, who's our CFO, who will talk you through the numbers for the half year. Thanks, Gordon. So, good afternoon, everybody. Just a quick counter through the p and l for the first half of the year. Really pleasing. Revenue up within services quite substantially, 11% growth, and that's fed through to PBT within services up, a million pounds, so 13% growth there, maintaining a really healthy margin of above 7%. That growth has been driven by additional opportunities and increased activity predominantly in major earthmoving infrastructure projects, which are really starting to come to the fore now and are are are are the the main driving force behind the recent upgrade from this morning in in the broker forecast numbers.

5:48 In terms of HARGREAVES LAND, revenue is never really the best metric. But on terms of the the result for the the half year, a loss before tax of 1,400,000 is down on the previous year, but this is all timing related. The post period end in January, we sold a £9,000,000 plot to Avant Homes. Had that happened five or six weeks earlier, then we wouldn't be talking about the loss before tax. So this is the sort of the impacts of timing on land more than more than anything else. One of the really good stories in the first half of the other has been the turnaround within HRMS. So if you were on the call six months ago or six months prior to that, we were talking about the challenges that are within the HRMS business, particularly DK. We are coming through the other side of that now, and the business is broken even in the first half of the year. We've got a slide coming up on why that's move moved so far in our favor and some of the interesting work we're doing to continue to improve that.

6:48 Corporate costs have remained flat and taxes up 25% as you would expect. EPS grown as a result of the profit. Real really wanna highlight the increase in the dividend per share. This time last year, we increased the dividend substantially, and we promised to continue to with the progressive dividend policy, and that's what we are doing. EBITDA also grown by 21%, reflective of the contribution from services continuing. In terms of what's tied up on the balance sheet, where is all the cash invested? If I take it column by column, the services business continues to have a low capital model. Whilst capital employed has doubled from the previous or indeed from six months earlier, that's really coming from a real low point in May 24. That's never really where it would always be. I'd I'd expect it between sort of nine and twelve or thirteen million within services. Delivering those profits is a great capital great great return on capital employed, and we're very happy with that.

7:46 In terms of lands, we've got an increase in the total capital employed in land from 79 to just under 85,000,000. This reflects the continued investment into Blindwells. However, as I mentioned on the previous slide, a sale at blind wells occurred in January post numbers, which would start to bring that number back down the way. I'm confident now we are at peak with blind wells in the inventory in general in land, and we'll start to see that unwind as we move towards that low capital model we've previously outlined. Within HRMS, previous capital employed was 70,000,000, now down at 62.7. That's reflective of, well, in the first half, no profit really with a breakeven position, but we have received our dividend in the first half of the year. So that's continuing to bring that capital employed number down and has helped to fund the dividend that we paid in October.

8:36 In terms of unallocated assets here, 31,000,000 in total of which half is cash tied up is our cash. Sorry. One interesting point I'd just like to draw out, the 4,900,000 in other working capital, and this will probably be the only time I ever talk about other working capital in unallocated column. But 4,000,000 of that 4.9 relates to the loan that we gave to the pension scheme just under a year ago when we bought the scheme in. That was to help fund that that buy in. I'm pleased to be able to say, in January, we received that 4,000,000 back in full, and we no no longer have any loan out to the pension scheme. So we're just waiting for the buyout to complete once they've finished all their data checks, which probably should complete in early twenty twenty six. And the other item on here is the deferred tax assets, which is at 9,800,000, starting to come down as we're starting to utilize these tax losses that the business has built up. We've probably got four to five years of being able to use these these losses still to go.

9:39 Next slide is really just, I guess, a fact sheet for for doing your own sum of the parts and and some of the factors that we might think are useful. So Gordon talked about the sum of the parts of the three together and come up with your own valuation. They all probably require different, I guess, different methodologies. So the services business, steady revenue growth, great contract boot, good order boot, good visibility, and earnings multiple of some sort would be the the natural natural fit here. EBITDA in there of 27,000,000 reflects the consensus forecast figures as of 06:59 this morning. They do not reflect any upgrades that, the brokers have put into their forecast numbers. You may apply whatever multiple you think is appropriate for the business into that and come up with a number.

10:27 In terms of land, book value is held at historic cost of 80,000,000. Now as we move to a capital light model of roundabout 20,000,000, left in the balance sheet, we'd hope to realize during that period of time approximately 60,000,000 plus big making a profit on the way through.

10:46 In addition to that, we've got the renewable energy assets, which are on the books at 7,000,000 and have been valued independently at 27,000,000. So there's additional upside there. 80 plus 20, you could see yourself getting to a 100,000,000 on a very conservative basis that excludes any profit on the upside. So so that's that's where we would look to on land. And then in HRMS, the book value is just under 70,000,000 as we saw on the previous slide. In terms of valuing this at the moment, we would suggest you'll at least get book. There are some reasons to be more positive within DK in the longer term that may result in a better result than just book. However, for conservatism, maybe stick at book and, hopefully, you'll come up with a number that's not far off the figures that Gordon was talking about in his first slide.

11:37 Quick run through the cash flow just to show what's going on in the first six months. So we started the year with £23,000,000 in the bank, then we made some EBITDA profit of 15,000,000. However, we then invested into working capital. So 5,000,000 of that is the Blindwells investment, which has now been repatriated because we've made a significant sale. And the remaining the remaining cash that was spent on working capital is due to that unwind from May, which was re an abnormally low position. Interest and tax and net CapEx are, I think, fairly self explanatory. And then we've got the green bar, is from HRS, the dividends that they they paid us in the first half of the year. We've then had leasing payments against the debt, and dividends paid represents the final dividend payment on the f y twenty four position, which was made in October last year to leave us at 16,000,000.

12:33 And the final slide for my section is just to break out some of the detail on HRMS, which we've done a for a few times now. I think it's useful to understand the dynamics between HRMS and DK. So looking in the the green section on the top left splits the revenue out. You can see revenue in HRMS. The trading business has reduced, but that's not because of volume. Volume is almost exactly the same. What's happened is the commodity prices have come down, particularly the Coke pricing has come down, which has reduced that revenue. And in the purple, you can see it's also slightly reduced the profitability, but the margin percentage has remained the same. So all we're seeing is that we're trading the same margin, but just off a lower value. The reverse is impacted on DK, though. So that reduction in coal, in Coke price rather, has helped the profitability within DK. And that's really one of the main drivers behind why DK made a loss of 10,000,000 in the previous half year, that disconnect between pig iron and Coke. And then in the current half year, a loss of 4,600,000.

13:32 So over £5,000,000 improvement largely, not entirely, but largely related to the the reduction in the coal price they've been able to achieve. The balance sheet's there for reference. However, I would just point to the bottom left hand corner, which is the total exposure to HRMS, which is now down at 62.7 compared to 70 last year. And one of the things I'd just like to remind everyone, a couple of years ago, talked about one of the key strategic goals was to try and remove the the exposure to HRMS, repatriate cash out of that business and back to shareholders. And if I have this slide up from a couple of years ago, we were at 95,000,000 exposure to HRMS. So you can see we're really starting to deliver on that, on that promise to shareholders. So if I can pass it back to Gordon to just a quick run through services.

14:18 Thanks, Steven. So David and I now take on the baton. Key point is to help you decide the value of the sum of the parts. So we'll take each in turn. I'll cover services for you. Key point here is I say what what if I was an investor, what could go wrong in services? And I think if you think about it, there's probably three things. You know, you lose a contract, you get a bad debt,

14:41 or you have the wrong contractual terms. So we've been through an inflation spike of 11%, and we've been through the NI price hike. None of it has impacted on our profits. So I think our contractual discipline is very strong. You don't see massive growth because we're very contract selective. So, actually, we might potentially be offered a contract, but the terms don't fit into our three golden rules, you might call it, then we will not do it, which is credit exposure, you know, type of contract that's there. Of course, we can always lose a contract, and that's a risk for anyone. But I think, yeah, it looks pretty positive, you'll make your own decision. So remember, progressive growth, nothing wrong with that. Inflation resistant credit exposure.

15:27 We have appointed Simon Hicks, so he knows here. This has been, you know, a long journey with HARGREAVES from black to green. And I have to say that I think we haven't maximized all the opportunities and, you know, to criticism on level against myself, we've had so many other things to do. So we're strengthening the team with Simon, and we're hoping that he can deliver even more synergies and more opportunities that we think is potentially there. So, hopefully, that will deliver growth. As we said, 90% is in the bag in terms of the revenue for this year. Just next page. For those of you who don't know the HARGREAVES group, this is the areas that we work in. So it gives you a flavor. We're really exposed to infrastructure. We've got no retail exposure, and we think it's for primary services that are pretty resilient.

16:15 Over the page. Now I talked previously about the big projects that are in here. Now we have over 65 contracts that sit within those low credit risk, inflation resistant, but big one is obviously HS two. Now that's coming to an end in two years. So it'll go full bore for two, then probably a third year, it's slow. Size well is ramping up, which is fantastic. And then you've got Lower Thames Crossing. Now Lower Thames Crossing is be a toll road, so we're pretty confident it will go ahead. And if it does, we hope to be working as the partner to Balfour Beatty on that. We have a strategic alliance with them. So, hopefully, if it gets to go ahead in May, June time, then that will be something we switch onto.

17:03 And as HS 2 goes down, we're hoping lower temps will ramp up. Tungsten West is another one. Remember, we were fortunate that we we bought the business at we bought the site of administration, and we sold it to Tungsten West. And therefore, we had a very good contract. That contract is open book, cost plus seven and a half percent, but the most important thing to your shareholders is there's no credit risk. So we have to be paid in advance before we mobilize, and that you have to pay us up front for taking the kit down there, but also for the cost of taking it back before we turn the wheel. You have to cover redundancy, and you have to pay in advance advance for whatever work we're doing ahead. You have to keep replenishing that. So the plan is that you have no credit exposure if Tungsten West goes ahead. Now I don't know if it will or not. They're out on a fundraising exercise this year.

17:57 It is a strategic mineral. So based on the geopolitics that's going on, I'm probably more likely it will go ahead this year than not. But, look, if it doesn't, we have control over the minerals lease, and we effectively get the site back when we can restore it. Or we get the site back, and we maybe find someone else who wants to buy it and and take it on. So I think we're in a very strong position there. So here is the four irons in the fire there. But please don't forget underneath that, the team are still doing well securing, maybe smaller contracts, but all sitting within the criteria we exist. You know? So here we are, FCC contract, working with Infineum, and working with your waste. So that steady growth, I don't expect it to be stellar growth because we are very contract selective, but we are growing. It's going in the right direction.

18:49 So on that note, I'd like to hand over David Anderson, who you may be aware this will be his last roadshow. So I'd like to publicly thank him for all his efforts and commitment. Unfortunately for David, he's not leaving us totally. So he being a or whatever you call it, has agreed to look after the Unity project for us on a consultancy basis. But I think, hopefully, shareholders, you'll agree with me that he's done a great job in getting hold of the property business and turning it to something substantial. I think everyone will get all the credit now after he's gone, which I it's a bit unfortunate, but David's decided that he'd like to take it a bit easier, and I think he deserves it after his hard work. So haven't made him blush. I will hand over to

19:29 him. Thanks a lot, Gordon. So So welcome, everybody. And just for people who are new to the business, so the land business really falls in three parts. One is where we are effectively operated a master developer. Historically, that is sites we owned where we gain the planning, we put in structure it, and then we sell plots to house builders and commercial operators. And on that score, in terms of key transactions, Blind Wells is our most advanced residential scheme. And in the year, we've completed two sales. As mentioned earlier, the the advanced sale fell just outside the half year. And then we've got a further sale to Bellway, and that will be their second site purchase on Blind Wells, which we were originally expecting to be completed this side of the year end. But due to some planning delays, we expect it to fall just into next half year. It's just an avoidance now. It's not an if it will complete, it's when it will complete.

20:23 And then at Unity, which is a more recent mixed use residential and commercial scheme, we've got a couple of plot sales which are progressing with McDonald's and Starbucks. We've now secured the planning for those, and we're on with Dutch preparing the sites, and they should complete round about the middle of the year. The second tranche of activity we operate in is renewables. Now this is where we effectively we are a landowner. We assist renewables developers. Those are developers of wind farms and battery storage in the main and some solar to secure the relevant consents on our land and then develop out those types of operations. And we lease the land to them on long term leases, typically between thirty five and forty two years with annual RPI link reviews.

21:09 We're not exposed to development costs or development activity. That's we we purely pay a landowner, and we're steadily building up a significant investment pipeline of those sorts of assets. And as stated on the presentation, one of the notable updates was the fact that Copenhagen Investment Partners completed the financial close eye funding of a large five megawatt battery storage scheme on a site we own in Southwest Scotland. So we're expecting that to commence on-site construction next month. And then finally, the the third leg of our activities is planning promotion work. And this is where we secure land, normally greenfield land under promotion agreements and options and conditional contracts.

21:54 We promote it through the planning process. This is a medium term exercise promoting through the local plans, secure allocations to subsequently detailed planning for both residential commercial uses, and then sell the plots out to end users, most often residential developers and others. And we take a margin out to the added value we achieve. So relatively low cost, good return on capital employed, but it is a medium term business. But it's feeding the future pipeline for land itself. Over the page, in a bit more detail on renewables. So those be aware at the the end of last year, we had the renewables assets which had reached sufficiently advanced stage value by Jones Lang LaSalle.

22:39 These were 11 schemes where they're either operational, under construction, or in the preconstruction stage, but where they have all the consent and permitting, which is essentially planning consent and group connections. Geoslang valued those at between 27 and £29,000,000. The book cost of those is 7,400,000. And out of those 11 schemes, we've taken five sorry, seven of those to market. We're currently in the throes of sales process. Those assets have a book cost of 4,100,000, and the Jones line evaluation of of those assets was 12,600,000. We expect sales to complete during the calendar year 2025. We're not able to forecast whether it will be before the year end or after the year end, but we'd like to target before the year end if possible. But we won't be held to ransom by or would be buyer.

23:31 And then in addition to that, we've got further pipeline of these renewable assets. We've got a further three which are contracted, and they're in pre preplanning stage. They have pretty nominal book cost, and they're ones where we assess them as being likely to happen. The prospect of either getting grid connection or ones already secured and getting planning are high. Therefore, we've been willing to contract with developers for them. And then in addition to that, we've got the further four schemes wherein detailed negotiations, and these are schemes where we are still assessing the likelihood of them being delivered. If we get comfortable with them, then we contract them and then they feed through. So all those will slowly feed through, and these will be in addition to the the ones that Jones hung in value. So potentially, you're looking at a significant uplift on that twenty seven, twenty nine million pounds.

24:23 To give you a bit of an idea as to how the the schemes are progressing, over the last year, we've had rental income from renewables has increased by a 126%, which reflects the fact that we've had a lot of schemes that gone into construction stage and then subsequently, become operational where our our rent effective peaks and is maximized. Then finally, on the the sort of new project pipeline, this reflects the longer term strategy of really developing a capital light development pipeline, where we secure land under conditional contracts, development agreements, promotion agreements, and options as opposed to speculatively buying land. This ties up less cash at the outset, but allows us then promote the sites through the planning process for both residential and commercial uses.

25:10 So in the first half of the year, we secured six further sites, which have the potential to deliver another 1,100 residential plots across 159 acres and has a an approximate gross development value of £57,000,000. The GDV is essentially the value of the land with planning if it was then sold in the open market.

25:30 That's on top of we've got around about 5,000 residential plots across eight and six down acres, which is already allocated. That has gross development value of around about a £145,000,000. Some of those are held in joint ventures, so our share of that number is 70%, and 30% of those plots are owned freehold buyers.

25:50 And then in the plan promotion side, we've currently got just over 4,000 residential plots promoting. These are held under these promotion agreements. They have an additional GDV of £185,000,000. And, they're being promoted through the plan process over the next sort of five to ten years. And then finally, further eight sites which are now subject to agreed head to terms, and we're moving through legals with them, and they have the potential to deliver another 1,300 residential plots. On the commercial side, we have 5,300,000 square feet of commercial allocated space covering roundabout 500 acres on a range of different sites. That's got a GDV of about 800,000,000, which is the end built value of the space we could deliver on there.

26:36 And all that locked together really gives current visible development pipeline about £1,175,000,000, which gives you a feel for sort of the lightest deal of the pipeline going forward. I'll pass it back to Gordon. Thank you, David. So Germany. So for those who don't understand and know about our business, our German business, the the top codes, HRS, split into two parts.

27:01 Shareholders effectively own 86% of the business. Trading business is back to back trading, Germany, Northern Europe, supplying solid fuels, refractory minerals, pig iron, ferrous. Always back to back, and I'll talk about it in more detail. And then alongside that sits DK Recycling. The trading business supplies a lot of their raw materials. And what does DK do? It is the largest recycler of ferrous waste in Europe and possibly the world. And, again, I will give you some detail if we just go over the page. So splitting the businesses into two,

27:36 this is quite a reassuring slide for me because what we said to everyone is the trading team is back to back, and we all know that the economy in Germany is under real pressure. So therefore, they're at the lowest point. So if you look at the white box we talk about, we always expect their profits to sort of bump along at the bottom in a bad time. I would be worried if Germany was in recession and this was a high profit number because it would mean you're taking a lot of risk. Steven refers to the fact that the volumes are similar. So we're dealing with the same customers, but margins are under pressure. Therefore, we're getting a lower return. This trading team do not take risks to their shareholders alongside us, or what risks they do take are very calculated, and they will not chase work to try and ramp up the profits. They are very much aligned.

28:23 So the trading business you can see here is down. It's where I'd expect it to be at the bottom. And as the economy in Germany recovers, are we expected to pick up? So to take you over the page,

28:35 This is DK. DK is a fascinating opportunity. Now one of the takeaways I would say is that if we, at the end, talk about some of the parts and you assume that we just get booked for Germany, I I think think there's a lot of hidden value here that people haven't become alive to. We're going to do a capital markets day to give some detail, but I'll just give a quick helicopter over for people. At the moment, we take a lot of waste dust from all the steel plants around Europe. We're at full capacity. Can't Can't take take anymore. Stick it with coke and coal in the blast furnace. Out comes pig iron, zinc, and energy. The important point is we export energy, so we're not exposed to energy shocks. Next thing is zinc. It's traded commodity. Big thing is pig iron. So there's two things on the slide I would draw your attention to. First of all is the steel dust.

29:23 We import about half a million tons. Typically, it works at an average zinc content of 5%.

29:28 But more and more of the steel plants are moving turning to electric arc, and that has a zinc content of about 8% that comes out of its dust. Reason for that is quite simple because electric arc uses scrap, scraps galvanized, galvanized increases the zinc content. The fact that it's 8% allows us to drive prices up, and we're seeing significant movement in prices. So we're hoping to get much higher gate fees. You'll see that in what's happened in the first half, but we think it's a a feature which will continue to grow as as electric arc furnaces get turned on. So we think that's a positive positive driver on the inputs. Coal and coke typically track pig iron. They're very symbiotic. But then on the other side, what's happening in the pig iron? And there are three things that if you follow this market closely, you you should be aware of.

30:18 One, there's an embargo in Russian pig iron. That kicks in in about June this year.

30:25 Russia used to import over a million tons into Europe, and they were dumping it to get foreign exchange. The embargo now kicks in, which you would hope with that a million tons coming out of the markets, prices would move up. Second thing is CBAM. CBAM, if you Google, is the carbon border adjustment mechanism. And, effectively, what it means is if you come to Europe in a from twenty twenty thirty five, and there's a graduated run out to this, but you will have to pay, potentially, if you look at the numbers, between a 150 and €200 import tax if you bring it in from a country which doesn't do carbon reduction, which is obviously all of the carbon credit issues in The UK. So if you were bringing it from India, Ukraine, Russia, even if the embargoes had disappeared because of peace, you could be probably paying a couple of €100 a ton more to bring pig iron into Europe. So, again, positive price pressure.

31:17 The final thing, which I think is fascinating, is that a lot of our pig iron is priced off scrap. So if you look at it, we have a really high quality product. So therefore, we get premium to scrap, call it €50 a ton.

31:31 Talking to one of the major steel companies, they are forecasting scrap prices to increase by about a €100 a ton. Why is that? Really simple. All these electric furnaces are being built. They're not potentially gonna be built. The cranes are there. They're being built. It's about, I think, something like 6,000,000,000 when you add it up of these electric arc furnaces to replace blast furnaces already, and that's only stage one. What do they consume?

31:56 Scrap. Europe has always been an exporter of scrap. It's now planning to be an importer of scrap. You can imagine that switch and the logistics costs mean mean that that the views are that scrap prices will increase. If they went up by a 100, and I would be happy days if it did, 250,000 tons multiplied by a 100, you'd see 25,000,000 on the bottom line. This year, DK is at breakeven. I'm only giving you an overview of that at this stage. We really need to go into some detail with shareholders about this at

32:26 Capital Markets Day. We're hoping to do it in the autumn, but I think this is a exciting opportunity. It's probably taken up two weeks, a month of my time out there, looking at the opportunities with the steel plants and end user customers. But I think we are in a really strong position. So just over the page, this is, again, where we demonstrate the turnaround. H one is always bad because we have the summer maintenance. Every year, we close the plant for ten weeks at least to refurbish it, then we start up. So you always have a a more difficult h one than h two. H two will go and flatten out producing. We don't stop again till next summer. But look at key points I'd pick out. Coke prices, Steven mentioned, we're gonna have to get Coke cheaper. Fantastic trading team, best Coke traders, I believe. You need to be careful when I say that.

33:16 Of of coke for steel industry. Best traders there are. They have got good prices. They always follow pig iron and coke prices are symbiotic. Last time, remember, with Russia dumping material, there was a lag, but we're we're in the right place to curve, so we've driven it up. But the other thing that might look a small thing here, but look at the gate fees. Despite every steel plant in Europe losing money, we were able to drive in the first half, gate fees up by nearly 1,000,000. And

33:47 you see see a similar number in h two. So it shows you where the pricing power is despite the fact that they all lost money. So we're confident that their business should break even. I think the discussion with shareholders is very much about what's the future look like at DK. So just over the page, what I hope between David, myself, and Steven is we've laid out the key points. One, we are delivering on our promises to shareholders. The team have dealt with the old legacy pension. That's behind us now. Progressive dividend is taking place, which is positive. Expectations in services are better than we we put forward. We are conservative, so we have a strong outlook in services.

34:33 And then I'll just ask you to sit down quietly and look at services. Services have a potentially very good outlook. Heathrow is a positive for us. I don't think I've mentioned that. So if you look at Rachel Reeves' announcement that's not in the report because we didn't know what she was gonna say, Blackwells is one of the industry leaders in in Big Earthworks. We are consultant on a lot of the major reservoir projects, them design those. So we hope that puts in a good position. We were consultant on Heathrow 3rd Runway. I'd really like it to go ahead. It will be five years away, so don't get excited. But they talk about first spade in the ground in five years' time. I want it to be a black well spade. To give you an idea of the earthworks spend, it's something like 700,000,000.

35:23 So we did all the consultancy on what earthworks needed, and it's it's a a great opportunity. But it is five years away. So but all I'm saying is, genuinely, I think your services business is glass half full now in terms of opportunities. You apply a multiple to what you think is sustainable. That will give you a value. David's talked about land. Remember, we hold the land at historic cost. So we have three streams. Historic cost, expect us to get booked if you wanna be negative. Then he's got renewables as he's talking about. We hope before the road next road show to do the first renewables transaction, and we hope that it will be a premium to what Jones Lang LaSalle said. That's what we hope. And that sets the precedent of this flow out of cash in.

36:10 Jones Lang will then start valuing the ones that they haven't valued before. So if you look at it, some people turn around and say, well, that could be worth 50,000,000, but cost to 7, maybe a 40,000,000 uplift. Again, you make your own decision, but there is a lot of hidden value in the renewables. There is hidden value in the land, but it's held at cost, so just expect to get booked. And then finally, this low capital model, you know, really, you look at it, David's got assembled a portfolio of nearly 1,000,000,000 or over 1,000,000,000, and you'd hope that would give you a recurring profit of about 3,000,000 a year after overhead. You know, 4,000,000 of overhead. So it makes $37,000,000 gross less the 4,000,000. They've had three. So that's there. Germany, just assume for the moment it's gonna get booked. You know, all the stock is in a cost. So, yeah, that's easy to see that happening.

36:59 And then DK is a really exciting thing, which just assume booked for today. Let me update you more at the Capital Markets Day, and you'll see what's there. What I would finish by saying is, you know, we do have a strong board. I'm an 8% shareholder. We're fortunate to have HARGREAVES on the board with Nick Mills who's nearly 30%. So shareholders are looked after. We have a strong chairman in Roger McDowell. The dividend is progressive and going in the right direction. My final point to you as retail investors is we value you equally, and all shareholders should be treated equally. So we look on the notice board sometimes and see questions come up. There's an easy way of getting your questions answered. Drop an email to Steven and I, and we will respond to you and make sure that you are treated exactly the same as our big shareholders.

37:51 Yeah. Everybody should be treated fairly, so please don't feel this is the only opportunity to communicate. Do wanna ask us questions, we are very receptive, and our emails are there. And just send us an email, and Steven or I will get back to you on any questions. But that sort of concludes the presentation. And I think now we we hand over to yourselves for questions. Perfect. That's great. Yeah. Over to you, Steven. Yep. So we've got quite a few questions in. This one is gonna go to David because, as Gordon mentioned, he is a fellow Doncasterian, if that's the word. So I've a question. Hailing originally from Doncaster. I'd appreciate a detailed update on progress at the Unity Regeneration site alongside the M 18. Yeah. So thanks for that. So the Unity site is a big site, 650 acres, and it was opened up round about the end of the pandemic by a link road new link road that we partially funded. It comes off Junction 5 Of The M 18.

38:51 And, effectively, that opened up sites where we have consent for about 2,400,000 square feet of commercial space. That's predominantly logistics, industrial employment space together with consent for 3,000 new houses. So to date, since then, we've done a couple of significant transaction on the commercial side. So one of early ones we did, we sold 80 acres of in structured site to TJ Morris, and that's Home Bargains, you and I, for a new regional logistics center where they've just got their detailed consent on, and they're expecting to commence on-site before the middle of this year. And then subsequent to that, we've done a turnkey project for a 191,000 square foot logistics unit, which is complete towards the end of last year. And then more recently on the commercial side, as I mentioned previously, we've we've just secured planning for a couple of drive to units, provide some facilities on the side.

39:45 The residential expected to follow on from that. Over the next twenty four months, you'll start seeing a bit more activity on that store as we start in structuring, preparing sites, and bringing them forward to the market. But it is a long term project. It's sizable delivery. You're talking probably next ten to fifteen years to see the whole thing built out. Okay. Thanks, David. Next question, think, is probably for you, Gordon. Can you update as best as possible on Tungsten West progress and how that's gonna turn into becoming a working operation for HARGREAVES? Tungsten West, I think I've said to everyone on the because they're public, so you see their announcements. They're looking to go out for funding in '25. And, look, if they get funding and go ahead, is to mine it on their behalf.

40:34 But it's open book and it's cost plus, and there's no credit risk to you. So it's all upside. If it goes wrong and they don't get the funding, then we can either restore the site or we can take the site back and someone else might be interested in buying it. So I think it's all heads we win, whichever way. So, look, let's watch this space. Good thing is I think it will be resolved in '25, so you'll know exactly what's gonna happen. Thank you. Next question, probably for you, David. What's the nature of your investment into blind wells for Mark? So blind wells, we only freehold of the site. So for mining sites, so that that is at a relatively low book cost. The initial investment was really in structure, so power, sewage, water, etcetera. And we invested some flat £25,000,000 to get the site opened up. And And subsequent to that, it's been basically extending our infrastructure into the site, roads, sewage, together with ground remediation, which is essentially making it into a greenfield standard for development of house builders.

41:37 So really, as we go forward then, we just continue to invest in the site ahead of doing sales to house builders. K. Thank you. And then next question from Owen. That some land sales are delayed into next year, what news might shareholders expect between now and the next statutory results in July? Can I pick that up? Yeah. Think that's a very good question, Owen. What I think is if you look at it, you're before hopefully, before next roadshow, you may have an announcement that the renewables have gone through. And that triggers an interesting point because if you do the math, you suddenly go, oh, hang on a minute, Gordon. If that happens, you're have over 30,000,000 of cash in the bank. If that happens, that we will be in discussions with shareholders to talk about whether share buybacks or special dividends are possible because we'll have over 30,000,000 of cash in the bank, and I think shareholders would like us to look at what to do with it. So that would be a news flow.

42:35 When lower terms gets announced, hopefully, that will be a news flow. Tungsten West, what happens to them, that will be a news flow. Then you get the full year results. And then on top of that, there's gonna be this Capital Markets Day, which, again, is pretty good because we need to make sure that the retail investors somehow get to engage in that. I'm sure that's gonna be arranged. Yeah. So we mustn't forget that. So there's a lot of news flow coming, and we'll try and keep you informed as much as we can. Thank you. Another one from Mark. What do you think the implications of today's statement from the chancellor are on the timing of the Lower Thames Crossing and Sizeable Sea projects? I think it's all positive, Mark. You know, Lower Thames is toll road, so I think it'll go ahead. And if it does, it's great for us. Sizwell, we need to keep the lights on. So if it goes ahead, it should be great for us.

43:27 And the Heathrow is really exciting for us. Earthworks is about 700,000,000. And if these reservoirs she talks about goes ahead, we are already contracted to do the costings on some of those big reservoirs. So we've got more opportunity this afternoon than we did this morning. So it's all a positive. Sure. Another one from Mark. Who takes over from David and his property director as well? Yep. So colleague of mine, Bruce Lindsay, who currently runs the brand Blindwells project, he's taken over the day to day running of land. I will stay on as consultant just to deal particularly unity given it's a very involved project. But so you shouldn't really see any material change in approach or performance as a result of that, I'd like to say.

44:14 Thank you. I can cover the next one. Done if you got a good. I'm glad you do. Please, can you break down the loss on the HARGREAVES land so we can understand the profit drivers? So yeah. So I despite the fact revenue has been up in this year, it we haven't got a large margin on that that revenue that came in partly because the purchase or the sale includes some deferred element, and we'll be taking the margin at the back end of that sale. Throughout the end, most of the cost is through the overhead of the business, to be honest, and that's what's driven the loss in the first half of the year. However, with the sale that we've achieved in January to Avant Homes, which was delayed actually twelve months previous, plus all the sales we have in the pipeline, the business will return to profit in the second half. The current numbers out there on the Warbrook note and the two broker field forecasts have a 2,000,000 profit for land in the second half of the year, and that's driven by those sales of blind Rosa, one of which we've already achieved.

45:11 Do it again. Second one, do you anticipate any material costs for converting the pension buy in to a buyout? The short answer is no. I do not expect anything material. What will happen from now on is the insurance company who bought in the scheme are working through the data to check that all the data is accurate. No one's been married again or or or has any other dependencies that would increase or indeed decrease the liability they took on. Once the buyout is ready to be completed, and March 26 would represent two years from buy in, and that's typically what they're looking at at the moment. Don't forget, there was a big rush on doing pension scheme buy ins, and so there's a heck of a lot of volume that the insurance companies need to work through. So I don't expect it to be before then.

46:01 There may be a small true up or true down. It's difficult to say what that might be, but I think we're talking sub a million if indeed it gets anywhere near those numbers. So, no, I don't expect anything material. And then the next one from John, how is the employer NI increase in April 25 going to affect profits? It it it almost certainly won't, John. The most of our costs, as I think Gordon alluded to, on our services contracts, are covered. So we either have escalation factors for inflation or staff cost inflation, etcetera. So we're able to pass on the vast majority of the cost onto our customers. Obviously, there's none back office staff and and nonchargeable staff where there will be an increase, But I think the total impact of the n I increase is probably a 100,000 to the group in total. So very, very modest in total.

46:58 Nicole has got a very interesting question. Yeah. How optimistic on a scale of one to 10 are you about the future of HARGREAVES SERVICES? So I suppose I should answer that, Nicole. It's a good question. Clearly, I'm not allowed to give forecast. What I would say to you is I am more optimistic than I have been in the last ten years, and I'm more optimistic this afternoon than I was this morning. So I think that that gives you a flavor. Yeah. It's difficult to put a number on it, but I think I think very optimistic is is what we're Yeah. Yeah. So Owen has another question. There have been noises from the government about increasing the number of water reservoirs. Can you offer offer any comment on this and what effect this might have for HARGREAVES? I think we might have covered this. I think we have covered it, Owen, but just, you know, just to reconfirm, we are major consultant on some of these water reservoirs in terms of getting the design.

47:52 Hopefully, if you do the design, you should pick up the contract. It's all good. I mean, it's a lot of earth to move, and that's what we do. Great. Question from Brandon, which I I can cover. Brokers have 6,000,000 in for the joint venture, being HRMS in h two. Given the h one result, is that number challenging? Would it be due to improvement in business or seasonality? Think Gordon covered the main reason for the h one, h two disparity in Germany, and that is predominantly because of the shutdown period within HRMS sorry, within DK. The HRMS trading element has done okay first half and should do okay second half. But what we should see is HR DK coming back into profit in the second half and resulting in a a breakeven overall result.

48:38 And that's what drives that 6,000,000 in the second half, mainly because there's no shutdown in DK, so they can just trade profitably throughout the second half. And we've seen that in previous years if you look back at the half year to full year split. Another one from Brandon on renewables, would it be reasonable to use the kilowatt hours of the non valued schemes and the 27,000,000 of the valued schemes to calculate a value of those schemes? I I think, is it as simple as a pound per megawatt? I'm afraid not. The reason simply being is that the wind farms have a higher yield per kilowatt to us compared to the access agreements and the battery storage ones which have generally much higher kilowatts hours measurements that tend to have a lower per return from our point of view because they're just very different animals from each other. So I'm afraid it's not as simple as that to sort of work it through. It doesn't work like that, I'm afraid. All I would say and jump on that is, you know, the detailed stuff like that. Have a chat with David or or or Steven, and we'll go how you how you can build it. It would take too much time here. But some people have looked at it and said, right.

49:42 As a rule of thumb, that lot in total so the stuff that's coming through plus that was valued might be worth plus 50,000,000, subtract seven, eight, and you're you're at 40,000,000 of value if they will come through. That's rough hit on top of the book cost. Yeah. I think it's it's a material upside in there. Yeah. And But we can work you through these assumptions to get to that. You have to make your own calls. That's fine. Next question. Do you have any a view at this stage on the preferred method of returns to shareholders as the cash is released from the various business units? We don't. There's discussions at the moment whether it's buybacks or whether it's specials. We would value again. You know, please don't overlook retail shareholders. If you have a view, drop us a note on what you would prefer, and the board will take it into account.

50:31 I think the the key thing on that news flow is if if the renewables go ahead before it before the end of this financial year, it's something that we have to seriously consider. And so the more input from shareholders as to what they would prefer would help us make the right decision for shareholders. Great. Thanks. And the the last question is, I think, a straightforward one I can answer. So was the 9,300,000 for the 11 acre sale at Blindwells all received on completion in January 25? No. It wasn't. Half of it was received in January 25, and the other half will be received in March 25. So it'll all be in before the year end in total. That that that was the last of the question. Oh, sorry, Alex. That the last of the question. Just like to close by saying to you that thank you for taking the time to listen to the HARGREAVES story.

51:21 Hopefully, it's clear that, you know, based on six pound share price, we're gonna be paying 6% to watch. You have to decide whether you trust this management team to execute effectively. I think you've got strong corporate governance with Nick Christopher from HARGREAVES and Roger McDowell to make sure that we don't do anything silly. But, you know, do your sum of the parts. Decide whether you think the team are capable of executing that effectively, and then hopefully, you'll have a positive five years from HARGREAVES. That's the message we're trying to make clear. But final point, please do not feel that you you are a pain. You deserve to talk to us. And if you've got questions, please tell us. You don't have to put things on the notice board and discuss among yourselves.

52:06 You can actually pick up an email to us, and we'll give you the answers direct. So I encourage that, but it's up to you guys. So sorry. That is the final thing, Alex. Fantastic. Gordon, Steven, David, thank you for addressing all those questions and for updating investors today. 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 board 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'd like to thank you for attending today's presentation, and good afternoon to you all.