9th Sep 2014 08:24
LONDON (Alliance News) - Hargreaves Service PLC Tuesday said the start up of Scottish surface coal-mining operations lifted pretax profit in its recent financial year, despite difficult market conditions.
Pretax profit was up 21% for the 12 months ended May 31 to GBP52.1 million from GBP43.1 million the year earlier.
The company announced a 24% increase in dividend to 25.5 pence per share.
Revenue for the full year increased 3.1% to GBP869.2 million from GBP843.3 million. Its production division reported a 63% increase in revenues, reflecting the first-year operations of its Scottish coal mining business.
The Scottish surface-mining operations delivered first-year revenue of GBP50.5 million, reflecting the sale of 845,000 tonnes. A slow start to production and bad weather between December and February "significantly hampered operations", said Hargreaves.
Hargreaves' industrial service business saw revenues decline to GBP122.6 million from GBP149.3 million the year before. It has recently secured a five-year contract with China Light and Power, based in Hong Kong.
Hargreaves also disposed of Imperial Tankers for GBP26.9 million in early September. It "had grown steadily...consistently profitable. However it offered limited synergies with other group operations and fell outside the group's core activities," said Chief Executive Gordon Banham.
"In difficult market conditions it is testament to the strength of the group that we are able to announce an increase in profits. The group achieved strong profitability on all measures," said Chairman Tim Ross.
The low current coal and coke prices and the ongoing market volatility has prompted the company to reassess its strategy and look for opportunities to minimise earnings risk and volatility, it said.
"Significant falls in the international coal price have been compounded by a strengthening of sterling against the US dollar. The effect of this has been to reduce the sterling price of thermal coal in the UK to around GBP46 per tonne. The board remains of the opinion that current price levels are unsustainably low and expects some recovery in the foreseeable future," it said.
"In the longer term, for new and future sites, the challenge of low coal prices can be partially mitigated through re-designing mining schemes to focus on the lower cost of recovery coals, reducing production costs. Whilst this will reduce absolute production levels it will assist in protecting the profitability of the coal that is produced," said Banham.
Its Maltby site ceased to trade during the year and has remained a discontinued operation throughout the year, as the closure programme continues in line with plan, it said.
UK Bulk Coal operations "exceeded management expectations" during the full-year with an increase of approximately 700,000 tonnes compared to 2013, and its UK speciality coal business performed largely in line with expectations, Hargreaves said.
"Hargreaves is targeting to maintain a production rate of just under 2 million tonnes of profitable coal in the current financial year," said Banham.
"We will look carefully for opportunities to protect shareholder value through either, or a combination of, seeking to maximise cash generation to improve returns to shareholders or seeking investment opportunities that help us further protect the value in our core UK activities by better positioning the group to deal with challenging market conditions," said Banham.
Hargreaves Service's shares were down 4.3% to 670.00 pence per share Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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