5th Oct 2015 08:01
LONDON (Alliance News) - Hargreaves Services PLC on Monday said thermal coal markets remain very weak and said it is set to book small charges from the closure of the steelworks in Redcar and from other plant closures in the UK.
Hargreaves, which supplies solid fuel and bulk material logistics services, said thermal coal markets have remained "very weak" this year, with prices down by around GBP1 per tonne. In addition, demand for thermal coal in the UK is still "exceptionally low" as coal-fired power stations in the country have been operating at low capacity levels in recent months, meaning they currently have stockpiles.
Hargreaves had been expecting to receive orders for around 1 million tonnes of imported thermal coal in the second half of its financial year, ending May 2016, in addition to orders to sell its projected 1 million tonnes of coal production. But given its committed order book and future order visibility remain very weak, the company has cut it thermal coal sales estimates, leaving its guidance around 0.5 million tonnes lower than initial estimates.
As a result, the company will cut its planned imports and take more steps to cut production of thermal coal.
Beyond its own operations, Hargreaves said it remains confident that the liquidation of the Sahaviriya Steel Industries steelworks in Redcar will be manageable. As a result of the closure of the plant, Hargreaves will book a GBP1.5 million charge on making redundant staff who worked on delivering coal to the plant, plus other contract demobilisation costs. It does not expects any further charges from this.
Hargreaves said it will be left with coal and coke stocks of around GBP14.0 million due to the closure, but expects to be able to sell these over the next 12 months.
The company is also expecting to book small charges related to the closure of the Longannet, Ferrybridge and Eggborough plants, and from the recent decision by power company E.ON to close operations at the Liverpool Bulk Terminal. The closure of the operations will not have a material impact on the company in the current financial year, but it will book GBP700,000 in redundancy costs and will take a GBP1.5 million hit to its operating profit in the year to May 2017 for the Industrial Services business.
Hargreaves said that with the loss of gross margin from the Redcar operations, it will be stepping up its efforts to secure more contracts for its Industrial Services division to replace the lost revenue.
Shares in the company were down 8.7% to 316.25 pence on Monday morning.
By Sam Unsted; [email protected]; @SamUAtAlliance
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