2012 Annual Report
2012 Annual Report
2012 Annual Report
Together
Annual Report and Accounts 2012
Review of the Year
Find out more about this division and Find out more about this division and
its performance in 2012 from page 11 its performance in 2012 from page 10
Transport Industrial Services
One of the largest suppliers of bulk Provides quality assured contract
logistics to UK customers. management services to the power
generation, utilities, chemicals, minerals
and steel industries.
Find out more about this division and Find out more about this division and
its performance in 2012 from page 12 its performance in 2012 from page 12
Review of the Year Corporate Governance Financial Statements
IFC An Overview of the Group 20 Board of Directors and Group 35 Consolidated Statement
1 Highlights of the Year Executive Management Team of Comprehensive Income
2 Chairman’s Statement 22 Directors’ Report 36 Balance Sheets
4 Group Business Review 25 Corporate Governance 38 Statements of Changes
10 Review of Operating 28 Remuneration Report in Equity
Performance by Business Unit 31 Audit Committee Report 41 Cash Flow Statements
14 Financial Review 32 Nominations Committee Report 42 Notes (forming part of the
33 Statement of Directors’ financial statements)
Responsibilities in Respect of the 81 Notice of Annual General Meeting
Annual Report and the Financial IBC Investor Information
Statements
34 Independent Auditor’s Report
to the Members of Hargreaves
Services plc
Market leadership
We are a market leader or major player across all the sectors we operate in.
Operating in four distinct but synergistic divisions we offer our customers
an unrivalled level of expertise.
Find out more on page 7
Integration
Across our divisions, we are a fully integrated business. We source, produce,
process, handle and transport a wide range of bulk materials demonstrating
the value added nature of our service offerings.
Find out more on page 9
Quality
We are committed to delivering a quality service. We have built an
international reputation for quality, service and health and safety.
Strength
A proven and robust UK business model has been used to drive expansion
into Europe and Asia and offers an exciting platform for long-term growth
into new markets and geographies.
Find out more on page 16
www.hsgplc.co.uk
Review of the Year
>> Strong performance in the year ended 31 May 2012, record profits
>> Geological problems at Maltby announced in May 2012, progress being
made, but increasing risk profile causing concern
>> Board considering future of mine to manage Group’s forward risk profile
>> Major contract wins for Industrial Services business in Steel sector
Corporate Governance
>> Strong performance from coal trading business, UK and Europe
>> European coke trading volumes subdued reflecting low steel production
>> Tower project in production
>> Banking facilities renewed and extended in April 2012 to October 2015
Financial Statements
Revenue £688.3m £552.3m +24.6%
Operating Profit £49.5m £43.1m +14.9%
Underlying Operating Profit (1) £54.0m £46.7m +15.6%
Profit Before Tax £43.1m £36.9m +16.8%
Underlying Profit Before Tax (2) £47.5m £40.5m +17.3%
Diluted EPS 106.1p 90.5p +17.3%
Underlying Diluted EPS (2) 121.9p 103.7p +17.6%
Dividend (including proposed final dividend) 17.8p 15.5p +14.8%
Net Debt (3) £77.7m £66.0m +17.7%
(1) Underlying Operating Profit is stated excluding the amortisation of acquired intangibles and including share of profit in jointly
controlled entities.
(2) Underlying Profit Before Tax and EPS are stated excluding the amortisation of acquired intangibles.
(3) Net debt comprises cash and cash equivalents, bank overdraft and other interest bearing loans and borrowings.
54.0
121.9
688.3
15.5
46.7
103.7
552.3
13.5
503.1
88.8
38.7
459.8
11.8
76.3
33.5
404.9
10.3
23.6
51.1
‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12
Chairman’s Statement
Tim Ross, Group Chairman
Results
The reported financial results show another successful year
for Hargreaves. This is despite the significant fall in coal prices
over the last 12 months and the recessionary pressures in both
the UK and Europe, which demonstrates the robustness of our
business and gives us confidence for the long-term future of
the Group. Underlying profit before tax for the year increased
17.3% from £40.5m to £47.5m. Revenues increased by £136.0m,
from £552.3m to £688.3m. Underlying diluted EPS increased
by 17.6% from 103.7p to 121.9p.
Corporate Governance
There were some significant changes to the Board during
another successful year for Hargreaves. the year ended 31 May 2012. In last year’s statement, we were
pleased to announce the appointment of Peter Gillatt, whilst
This is despite the significant fall in coal Nigel Barraclough resigned from the Board to assume a
full-time Executive role. These changes were announced on
prices over the last 12 months and the 2 September 2011. Following last year’s statement, we were
also pleased to report that David Morgan joined the Board
recessionary pressures in both the UK on 24 February 2012. David has joined the Board as Senior
Independent Director and Chair of the Audit Committee.
and Europe. Outlook
Our coal trading business remains very strong. European
trading levels for coke remain subdued for now but the
longer-term opportunity for Hargreaves in that market place
remains very exciting. The Industrial Services business is
demonstrating significant potential for growth, particularly in
light of the recent contract wins relating to biomass conversion
Financial Statements
projects and contracting services in Asia. The Transport Division
remains stable and profitable. In the Production Division, we are
delighted that the Tower project has started and that we have
added the first, albeit small, new surface mine site to our
portfolio as we grow the scale of these operations. The progress
that we have made across all our divisions not only contrasts
with the issues we are encountering at Maltby (on which we
provide an update in the Group Business Review) but also
demonstrates the strength and breadth of the Group in its
ability to absorb such setbacks while still moving forward
with its long-term growth strategy.
Tim Ross
Chairman
24 September 2012
Corporate Governance
the closure or mothballing of Maltby would obviously be and development of the rest of the Group.
a disappointing development for the management and
employees. Having raised the possibility of mothballing The Future for Coal
or closure, I would like to provide some reassurance on the Coal remains a key profit generator for the Group. In last
impacts of such action. Firstly, I can reassure investors that year’s statement I outlined our view on the future for coal
the Board are of the view that the Group is strong enough which was largely positive and I believe that what I said
to absorb such actions. Although Maltby was one of the last year still holds true today.
original catalysts of the development of the Group, it is
now only one relatively small element among many within We will indeed see a reduction in coal burn over the coming
the Group. Maltby has not been driving our recent profitable years in the UK power generation sector. In fact we are now
growth and it has undoubtedly been adding risk and volatility helping some of our customers to convert coal facilities to
to the Group’s earnings profile and rating. handle biomass. We outlined last year that in contrast to the
trend in coal fired generation, many of the specialised coal
Although we would incur a substantial book impairment markets in which we deal, for example coal for Pulverised
charge, the cash costs, including redundancy, of mothballing Coal Injection (‘PCI’) for steel making, are not likely to be
or closing the mine, would likely be less than the losses that impacted by such reductions and present long-term market
are forecast to be made during the upcoming face gap. opportunities. In addition we still expect that the European
Financial Statements
Based on the initial work we have done to date we are very and emerging markets will continue to provide growth
confident that the cash that would be raised from selling the opportunities.
plant and machinery would be comfortably higher than
the cash costs of redundancy. The harvesting of surface fines We are often asked about the impact on Hargreaves of
and the exploitation of the methane gas engines would the declining coal burn in the UK power generation sector.
continue until exhausted. The impact on overall future Hargreaves only seeks to supply a small tonnage into the
earnings would be limited to the profit stream from Maltby. power generation market. For imported coals, as a minimum,
Five years on from acquisition this stream now represents we have to find a market for approximately one million
a far smaller proportion of overall earnings. It would also tonnes of thermal coal which will always arise from the
remove significant volatility from the Group’s earnings. importing and processing of the coal we need for the
speciality markets. We also need to place the indigenous
Following the work we have done in recent months, we are power station coal that is produced from Tower, Maltby and
confident that we will be able to protect Monckton’s profit Hatfield. Indigenous coal has traditionally sold at a discount
stream having found international coals with a very similar, to imported coal and therefore will always find a place in
although not identical, specification to Maltby coal. We are the market ahead of imported coal. Indigenous coal is
also confident that we can honour and meet all contractual a small and declining proportion of projected coal burn,
obligations without exposing the Group to penalties or claims. some 18 million tonnes, or 36% of the total 50 million
tonne annual coal burn. We are therefore confident
Setting financial matters aside, we can assure shareholders of being able to continue to place both our imported
that the safety of our workforce is our primary consideration and future indigenous coal for a long time to come.
and, no matter which path is followed, that safety will not
be compromised. The Economic Environment
Although economic conditions have been very challenging,
we continue to see resilience in all the coal markets we deal
with in the UK and the wider European markets. We have
enjoyed an increase in volumes of thermal coal for power
stations in the UK and have successfully traded our first
8-year contract worth up to cargoes of thermal coal through our joint venture with the
major Russian producer, MIR Trade AG. Volume and margins
£250m
have held up very well in the speciality coal markets.
Revenue:
£80m
Industrial Services Growth:
Breaking into the Steel sector
We have secured major contract wins at all three major steel
plants in the UK. These contracts are worth in excess of £80m
revenue and are providing a platform not only to sell additional
services but are also providing the opportunity to supply both
coking coal and PCI coal.
Financial Statements
Julian Vasey, Coal Stock Banksman
I continue to take an active role as a Group Health and Safety Although the European markets, particularly in coke sourcing,
champion, working alongside the Health & Safety team to have been subdued, we remain confident that there is a
drive high quality health and safety performance throughout significant medium to long-term opportunity in Europe
the business, not just in terms of developing processes and and we still believe we are well positioned to exploit that
systems, but in ensuring substance in terms of actions and opportunity. Off-setting this we are encouraged by the
culture underpin the processes and systems. progress we have made recently in developing activities in
the steel sector both in terms of services and opportunities
The Group has health and safety management systems to trade products such as PCI and coking coal into these
in place that are either internally or externally audited to markets.
the highest standard. We continue to manage health and
safety at a divisional and business unit level, allowing us to These strategic plans and opportunities are unaffected by
identify trends and take account of the different operational events at Maltby. We will monitor the position at Maltby
environments in which we operate. Although we focus closely over the coming weeks and we will not let ourselves
on safety at the business unit level, we have a Group Health get into a position whereby we put the Group at risk of
and Safety manager to promote communication and excessive loss or volatility going forward. In the meantime
coordination across the Group. we will continue with our efforts to develop and grow the
core parts of the Group.
Health and safety statistics continue to be monitored at
a divisional and business unit level, with regular main Board
review, as well as pro-active health and safety strategies Gordon Banham
in place at each division. Areas identified where additional Group Chief Executive
training or improved working practices would be beneficial 24 September 2012
are promptly addressed.
Financial Statements
Adam Short, Plant Operative, Immingham
Providing a value
added service offering.
Reconciliation of Operating Profit to Underlying Operating Profit, by segment, together with a reconciliation to
Underlying Profit before Tax is as follows:
Energy & Industrial
Production Commodities Transport Services Total
2012 2012 2012 2012 2012
£000 £000 £000 £000 £000
Corporate Governance
year. The profit per tonne of specialised product remained 31 May 2012 was sold as power station fuel to Drax under
strong at £15.56, slightly lower than the £16.36 in the prior a long-term contract, with a further 257k tonnes of coking
year, reflecting the loss of higher margin coke sales from coal being sold to Monckton. Coal sales from Maltby outside
the product mix. of the division generated £60.3m of revenue compared
to £53.1m in the prior year. Increased coal sales and an
In the Interim Statement we reported that we had concluded improvement in average selling price from £59.75 per tonne
our first contracts for the supply of PCI coal. These supplies are to £69.38 per tonne, resulted in coal (non-fines) revenue
expected to commence in the last quarter of this financial year. increasing from £40.6m to £47.6m. The increase in average
Trials with other UK and European customers for PCI coal have selling price reflected improved proceeds on major contract
progressed well, but opportunities to finalise contracts with renewals combined with higher market prices for coking
European customers have been delayed due to the slowdown coal. The full year benefit of the Management Services
in steel production. We remain committed to developing Contract at Hatfield Colliery boosted revenue further, with
further PCI coal supply opportunities and see this as an coal fines revenue of £12.7m being little changed year on
important opportunity for the Group, particularly considering year. Costs at Maltby increased by £3.8m compared to prior
the potential for PCI production from Tower Colliery. year, largely as a result of the full year impact of employing
a fifth production shift.
As reported in last year’s Annual Report, in June 2011 we
Financial Statements
completed the acquisition of Oxbow’s share in the Eastgate Monckton
Materials Handling joint venture for a cash payment of Production at Monckton remained steady and revenues
£1.8m which provides us with additional flexibility and increased by £8.7m from £47.6m to £56.3m. Coke sales
control to develop operations at Immingham. increased by £10.7m from £43.4m to £54.1m, whilst by-
product income improved by £0.5m to £4.6m as a result
Production Division of improving prices.
The Production Division results for the year ended 31 May
2012 encompassed the operations at Maltby Colliery, The average coke price was £208 per tonne on the sale
Monckton Coke Works, MRT, Rocpower and our share of the of 261k tonnes compared to £199 per tonne on 217k tonnes
Tower Regeneration joint venture. Gross revenues for the sold in the prior year. During the year Monckton secured
division increased by £24.8m from £110.1m to £134.9m and a contract to supply third-party manufactured coke to
underlying operating profit by £2.5m from £12.7m to £15.2m. a major existing customer in addition to Monckton’s own
As anticipated, the Division delivered a very strong second coke production. This boosted annual sales tonnage,
half performance aided by the steady production rates and and helped to satisfy demand from Monckton’s customer
thicker coal on the T15 panel at Maltby, and a first contribution base. Once again the average sales price benefitted from
of profit from the Tower Colliery project. improved contract renewal terms, underlining the demand
for Monckton’s low phosphorus coke.
Power
UK European station Other
2012 operations operations Total coal products Total
Note: Operating margin per tonne included profits on handling third-party product volumes through port operations.
The Tower project contributed £3.6m of underlying operating The highlight of the strong performance was winning
profit to the Production Division during the year through a contracts at each of the three largest steel plants in the
combination of our 35% share of TRL’s profit, profit made by UK. The largest contract was the five-year £60m contract
Hargreaves Surface Mining and management charges. awarded by Sahaviriya Steel Industries UK Limited (‘SSI’)
to provide coal and coke handling and processing services
Overall, we are very pleased with how the project has at the Redcar Steelworks. We have worked closely with SSI
progressed through the start-up phase, which included as they have worked through the difficult and challenging
overcoming the challenge presented by the wettest process of re-commissioning the Redcar Steelworks, the first
summer in 100 years. Production during the summer has time such a project has been attempted in the UK. We are
been impacted but we are still confident of achieving the also pleased to note that in our first year as a contractor at
full year profit targets for the project, assuming of course Tata’s Scunthorpe steelworks, we were awarded the honour
that the exceptional bad weather does not continue. of being nominated the ‘Contractor of the Year’.
We still expect that the joint venture will be deploying Outside of the Steel sector the core business delivered further
approximately £40.0m of plant and equipment. By the year contract wins in the power station sector, with new contracts
end £19.2m of plant had been delivered. The balance has agreed at SSE’s Fiddlers Ferry power station. In April 2012 the
been delivered over the summer and is now fully operational. division also secured an £11m project to convert coal handling
Financing to the joint venture at 31 May 2012 is in line with facilities at EON’s Ironbridge power station to handle biomass.
previous guidance. At 31 May 2012 we had advanced £22.8m Based on a successful commencement of that project the
to the Tower project including a short-term loan of £4.0m Division has just been awarded a £21m contract for biomass
that was provided from the Group to TRL to fund the initial conversion work at Liverpool Bulk Terminal.
restoration escrow account. This £4.0m loan remains in place
as we investigate the feasibility of replacing the cash escrow The Group continues to develop opportunities in Hong Kong
account with restoration bonds. and we still expect the first significant contract opportunities
to be tendered before the end of this calendar year. We are in
Outside of the Tower project we were also pleased to the process of stepping up business development activities
announce the receipt of planning permission for our first across the region.
small surface mine. The site at Well Hill in Northumberland is
expected to produce 130k tonnes and we are hoping the site Transport Division
will have cleared pre-commencement conditions around or Both our Bulk and Tanker fleets performed well in markets
just after the end of this financial year. We remain on track that continue to be challenging. The Transport Division’s
to fulfil our previous target of getting an additional two sites gross revenues decreased slightly from £78.7m to £77.3m
into the planning process before the end of this financial year. due principally to decreased Tanker revenues, with the
Tanker business experiencing a soft second half, as it
Other successfully repositioned itself following the loss of
The Group continues to provide management services a contract with Petroplus as a result of it going into
to Hatfield Colliery Limited. As reported in the Interim administration. Underlying operating profit increased
Statement, the contract to provide services has been by £0.3m from £3.8m to £4.1m. Underlying margins
extended from the initial 12-month term to a 36-month remained consistent. The restructuring costs taken in the
term. In addition to, and separate from the management prior year and the impact of the harsh winter in the prior
contract, the Energy & Commodities Division continues year largely accounted for the improvement in profits.
to market the output from Hatfield. The off-take contract
has also been extended to the same 36-month period. We are pleased with the performance of both fleets
and they continue to make a valuable contribution
Industrial Services Division to the Group’s activities in the UK.
The Industrial Services Division delivered a strong year.
We set the target of breaking into the Steel sector where we
felt our expertise in material handling and processing would Iain Cockburn
add value. The highlight of last year was winning four major Group Finance Director
contracts in the Steel sector. Since winning these, we are also
pleased to announce that we have secured in excess of £30m Gordon Banham
Group Chief Executive
24 September 2012
12 Hargreaves Services plc Annual Report and Accounts 2012
Review of the Year
Corporate Governance
and foreman, encouraged all the way
by my managers. Management’s
commitment to providing career
opportunities is second-to-none.
I won my manager’s CPC ‘badge’ in
2005 and I now manage a large part
of our Yorkshire transport fleet.”
Wilf Claydon, Transport Manager
Financial Statements
Moving forward together:
Quality
Commitment to quality,
service and safety is a
core element of our
business strategy.
We are one of the largest logistics providers
in the UK, moving vast quantities of carbon-
based materials, waste products, chemicals
and other materials smoothly, efficiently
and safely every day for our customers.
Our commitment to quality, service and
expertise has earned us an enviable
reputation within the industry.
Financial Review
Iain Cockburn, Group Finance Director
Results Overview
Revenue for the year ended 31 May 2012 increased by
24.6% from £552.3m to £688.3m. Underlying operating
profit increased by 15.6% from £46.7m to £54.0m which
generated an increase in underlying profit before taxation
of £7.0m from £40.5m to £47.5m. Reported profit before
taxation increased from £36.9m to £43.1m generating
diluted earnings per share of 106.1p (2011: 90.5p).
Revenue
Revenue for the year ended 31 May 2012 totalled £688.3m
(2011: £552.3m).
Corporate Governance
continuing tight management of inventory within the borrowings was £77.7m at 31 May 2012, an increase of
Group. As predicted in the Interim Statement, overall £11.7m from the £66.0m reported at 31 May 2011. Net debt
levels of inventory have increased as the Group has as a ratio of net assets of the Group at 31 May 2012 was
maximised the benefits of its stocking yards by forward 57% compared to 58% at 31 May 2011.
purchasing physical stock to take advantage of the
forward price curve. This net increase in inventory Borrowings and Facilities
levels has happened against a backdrop of falling During the year, the Group was financed by a mixture
commodity prices with the API2 coal price falling of cash flows from operations, trade credit, short-term
by approximately 29% during the year. borrowings, longer-term borrowings and finance leases.
Operating leases are used in conjunction with asset
Trade and other receivables increased by £29.4m during financing to balance the flexibility afforded by asset
the year in line with the growth in activity in the Group. ownership and the efficient use of capital.
Notably, Group debtor days reduced by 1 day from 27.8 days
to 27.0 days. In addition, amounts advanced to the Tower In April 2012, the Group secured a new multi-bank committed
joint venture increased by £18.8m from £3.6m at 31 May facility increasing its core UK facilities from £115m to £175m.
2011 to £22.4m at 31 May 2012. The new facility consists of a £50m invoice finance facility and
a £125m revolving credit facility (‘RCF’). The arrangement was
Financial Statements
An increase in trade and other payables of £22.4m benefitted concluded with a five bank group comprising of RBS, HSBC,
from the timing of coal vessels at the year end, as noted in Lloyds, Santander and Barclays and is committed through
the pre-close statement. Notwithstanding this, Group creditor to 30 October 2015.
days reduced by 5 days from 41.7 days to 37.0 days.
The decision to secure new facilities early has locked in slightly
After interest payments of £5.4m and income tax payments improved pricing and, critically, provides the Group with
in the year of £5.0m, resultant net cash from operating increased debt capacity to support its growth aspirations.
activities during the year was £29.0m compared to £44.7m
in the previous year. The Group benefitted by £0.8m from The Group continues to operate comfortably within its
the timing difference in cash tax payments arising from a banking covenants. The key covenants on the RCF are
sale and leaseback transaction conducted in the previous interest cover and leverage, measured as a ratio of net debt
financial year. to EBITDA. As at 31 May 2012 interest cover was 11.6 times,
comfortably over the covenant minimum of 4 times and
Capital Expenditure leverage was 1.0 times, comfortably under the maximum
Total net capital expenditure for the year was £30.7m 2.5 times permitted.
compared to £18.0m in the previous year. Of the capital
expenditure, £10.7m was financed through finance leases. The European business continues to operate on a facility
The depreciation charge for the year was £20.6m (2011: of £52m (€65m) from Commerzbank. At the end of the year
£17.1m). The capital programme has exceeded ongoing the net debt on this facility was £21.0m.
depreciation during the year as we have strategically
invested across the business. We anticipated in our Interim Capital Management
Statement that following the recent success of our Industrial The Group manages its capital to ensure that entities in the
Services business in the steel sector, we would be investing Group will be able to continue as a going concern, whilst
in plant and equipment to support these contracts at all maximising the return to shareholders. The capital structure
three major steel plants in the UK. In addition, during the of the Group consists of debt, which includes borrowings,
year, we completed the investment in T15’s face equipment cash and cash equivalents, and equity attributable to equity
at Maltby and further invested in the face equipment for holders of the parent, comprising capital, reserves and
the next face, T125. Other significant investments included retained earnings.
fleet upgrades at our Tankers business and the purchase
of the new site to act as a regional head office and transport The capital structure is reviewed regularly by the Group’s
facility near Leeds. This site is ideally located to provide Board of Directors. The Group’s policy is to maintain gearing
much needed expansion for our Yorkshire-based staff and at levels appropriate to the business. The Board principally
to provide a Yorkshire base for a significant portion of the reviews gearing determined as a proportion of debt to
transport fleet. earnings before interest, tax and depreciation. The Board also
takes consideration of gearing determined as the proportion
With regard to acquisitions and other investments, the of net debt to total capital. It should be noted that the Board
Group purchased Oxbow Coal Limited’s 50% share in our reviews gearing taking careful account of the working capital
joint venture Eastgate Materials Handling Limited for a needs and flows of the business. In the trading businesses,
cash consideration of £1.8m and also increased its effective where working capital cycles are regular, predictable and
share in its European businesses to 82% during the year. generally less than 90 days, the Board is comfortable to
maintain higher levels of debt and gearing as measured
against EBITDA.
Corporate Governance
Pre-lease creditor – 1,593 Colliery, Monckton Coke Works and our interest in the
surface mining activities at Tower, the Group does have
77,670 66,000 a longer-term exposure to price movements, favourable
or unfavourable, in international coal and coke prices.
Going Concern Commercial Relationships
The Group business activities, together with the factors The Group benefits from many long-term and partnership
likely to affect its future development performance and arrangements with key customers and suppliers. Damage
position are set out in the Group Business Review on pages to, or loss of these relationships could be detrimental to the
4 to 12. The financial position of the Group, its cash flows, Group results. In addition, due to the nature of the sectors
liquidity position and borrowing facilities are described in in which the Group operates, it does have a concentration
the Financial Review on pages 14 to 18. In addition Note 26 of business with a small number of large energy companies.
to the financial statements includes the Group objectives, The Group believes that these risks have been adequately
policies and processes for managing its capital; its financial mitigated through the close working relationships that it has
risk management objectives; details of its financial developed over a long period of time with key clients and
instruments and hedging activities; and its exposure suppliers and through careful monitoring of service levels
to credit risk and liquidity risk. and price competitiveness.
Financial Statements
The Group has considerable financial resources together Economic
with long-term contracts with a number of customers and Not only are commodity prices subject to fluctuations,
suppliers across different geographic areas and industries. trading levels are also heavily influenced by economic
As a consequence, the directors believe that the Group is factors and their impact on key customer sectors such
well placed to manage its business risks successfully despite as steel production. Our Production units benefit from
the current uncertain economic outlook. long-term contracts, typically ranging from one year
to three years. Although elements of the Energy &
After making enquiries, the Directors have a reasonable Commodities trading activities are based on long-term
expectation that the Company and the Group have adequate contracts of up to one year in duration, a significant
resources to continue in operational existence for the foreseeable portion of the trading is based on spot cargoes and deals,
future. Accordingly, they continue to adopt the going particularly in Europe. In times of economic downturn,
concern basis in preparing the annual report and accounts. traded volumes can fall. Although our fixed cost base in
the trading business is low, a drop in volumes can have
Statement on Risks Relating to the Group’s Business an impact in terms of lost profit. The impact of such
This statement is an integral part of the business review. downturns will increase as the scale of the European
business increases. The Group will continue to mitigate
Operational this risk by minimising the fixed cost base, seeking to
Deep Mining Risk enter term contracts wherever possible and diversifying
As demonstrated by recent events at Maltby, deep mining the customer base as far as possible.
is an inherently high risk activity. Disruption of either
a geological or mechanical nature can adversely affect Health and Safety
production. Whilst we expect and budget for a certain Our working environments have numerous and varied risks
degree of variability in production, major geological or which we strive to mitigate by providing systems, equipment,
mechanical failures could result in prolonged periods training and supervision. Risk is evaluated by internal and
when no production can take place. Whilst the geology external resources so it is continuously managed and
of the mine is very well understood having been worked mitigated.
for over 100 years and these instances are rare, the impact
of a prolonged period of production disruption could have Environmental
a material impact on the results of the Group. The Group There is risk of ground and air contamination at our
mitigates this risk by investing in state of the art mining production sites, in particular at the Monckton Coke Works.
equipment, operating a rigorous preventative maintenance We mitigate this risk by careful monitoring of groundwater
plan, engaging a highly skilled engineering team and discharge. Our Transport fleet carries hazardous chemicals,
operating a carefully managed spare parts strategy. which could lead to contamination in the event of a spillage.
The Group mitigates this risk through deploying properly
Surface Mining Risk maintained equipment, utilising well-trained personnel
Our surface mining operation is subject to all of the and enforcing tight operational procedures.
hazards and risks normally encountered in the exploration,
development and production of coal. Appropriate levels Human Resources and Operations
of site investigation are undertaken to minimise the risks, People are the Group’s most important asset and are key
but these risks could include unusual and unexpected to ensuring that our quality systems operate effectively.
geological formations, geo-technical instability, flooding We work hard at recruiting, training and developing staff
and other conditions involved in the extraction of material. to mitigate the risk of system or human error.
Financial Review
Continued
Energy Costs Counterparty Risks
The Group’s energy usage is very high, both throughout the The Group does routinely enter term contracts for the
Transport and Plant fleets and at the Group’s four production purchase or supply of minerals. Although price risk is hedged
facilities. An increase in energy cost has been a risk that to where appropriate on these transactions, the Group is
date we have been successful in mitigating by indexing key exposed to risk through the potential failure of counterparties
transport contracts against fuel price rises and through our to perform to contract. This risk and strength is judged against
ability to essentially balance and therefore intrinsically hedge
the scale and duration of the specific contract on a case by
electricity generation and usage between the Monckton case basis. As the Group expands into new geographies,
Coke Works and Maltby Colliery. the inherent counterparty risk profile may increase and the
information available to assess counterparties may decrease.
Financial The Group will mitigate this risk by, as far as possible, carefully
Treasury activities have the objective of minimising both selecting and monitoring counterparties and structuring
risk and finance costs and are centralised in the Group’s Head transactions to minimise counterparty exposure.
Office. Group Treasury is responsible for the management
of liquidity, interest and foreign exchange risks and operates Credit Risk
within policies and authority limits approved by the Board. Credit risk arises from the possibility that customers may
The use of financial instruments, including derivatives, is not be able to pay their debts. To manage this risk the Group
permitted when approved by the Board and where the periodically assesses the financial reliability of customers.
effect is to minimise risk to the Group. The majority of the Group’s trade receivables are due for
payment within 45 days. The Credit Control function closely
Coal, coke and minerals stocks that are purchased for re-sale monitors and chases any overdue debts.
are predominantly hedged by matching the currency of
purchase with the currency of sale. Although the Group has a diverse customer base of many
hundreds of trade debtors, concentrations of credit risk with
Interest Rate respect to trade receivables can arise. These concentrations,
The Group borrows in US Dollars, Euros and Sterling. These when they do arise tend to relate to the larger power
borrowings are predominantly at floating rates and where generation companies. These concentrations and exposures
appropriate the Group will use derivatives to generate the are closely monitored by the Credit Control function. As at
desired effective currency and interest rate exposure. As at 31 May 2012, the largest customer represented 7.4% of the
31 May 2012, 59.6% of net financial liabilities were at fixed Group trade receivables balance of £69.0m and the top ten
rates (2011: 61.0%). accounts represented approximately 49%.
Corporate Governance
Financial Statements
1. 2. 3.
4. 5. 6.
Board of Directors
The following Directors served on the Board
throughout the year:
1. Tim Ross* (aged 63) 2. Gordon Banham (aged 48) 3. Iain Cockburn (aged 47)
Non-Executive Chairman Group Chief Executive Group Finance Director
Tim read law at Oxford University and qualified Gordon was Managing Director of his family Iain is a Chartered Accountant. After five years
as a solicitor, working in the City of London and firm, F Banham Limited, until 1994 when he with PricewaterhouseCoopers in the UK and
as a company legal adviser, before attending negotiated its sale to Charrington Fuels, Gordon Luxembourg he held a number of finance roles,
London Business School and moving into general being appointed as General Manager of the in both the UK and USA, within Courtaulds plc
management. He has considerable experience of combined businesses. On the acquisition of and GenRad Inc groups. Prior to joining
the construction, aggregates, waste disposal and Charringtons by the CPL Group in 1995, Gordon Hargreaves he was Finance Director and
opencast coal industries. Previously a Main Board was made Distribution Director responsible for subsequently CEO and Finance Director of
Director of George Wimpey PLC, he is currently the enlarged group’s coal distribution activities. Knowledge Support Systems plc (‘KSS’).
Non-Executive Chairman of Superglass Holdings Gordon joined Hargreaves in 2001, subsequently
plc and a Non-Executive Director of May Gurney being appointed as Group Chief Executive.
Integrated Services plc and Lavendon Group plc, Gordon led a management buyout in 2004
in addition to board positions with a number of and subsequent flotation on the London Stock
private venture capital-backed companies. Exchange the following year. He has since
guided a series of major acquisitions.
Corporate Governance
4. 5. 6.
Financial Statements
Group Executive Management Team
The Executive Directors and the following
key managers comprise the Executive
Management Team:
Directors’ Report
The Directors present their Directors’ Report and Financial Statements for the year ended 31 May 2012.
Principal Activities
The principal activities of the Group are the provision of haulage services, waste transportation, mineral import, mining and processing, together with
coke manufacture and related activities.
Business Review
The results for the year are set out on page 35.
Information that fulfils the requirements of the business review can be found in the accompanying information. In particular:
• A balanced and comprehensive analysis of the development and performance of the Group’s business during the financial year, and of its position
at the end of the year, is included in the Group Business Review, the Review of Operating Performance by Business Unit and the Financial Review.
Key performance indicators have been included in these reviews where appropriate; and
• The principal risks and uncertainties facing the business have been included in the Financial Review within the ‘Statement on Risks Relating to the
Group’s Business’ on page 17. This includes information on environmental matters and employee issues.
Financial Instruments
The financial risks faced by the Group and its policy towards these risks are set out in Note 26 of the accounts.
Proposed Dividend
The Directors recommend a final dividend in respect of the current financial year of 11.8p per share to be paid to shareholders on the register on
9 November 2012. The shares will be ex-dividend on 7 November 2012. This dividend has not been recognised within creditors as it was not declared
and approved before the year end.
Directors
The Directors who held office during the year and subsequent to the year end were as follows:
TS Ross
GFC Banham
ID Cockburn
KJ Dougan
N Barraclough (resigned 30 September 2011)
P Gillatt (appointed 1 September 2011)
D Morgan (appointed 24 February 2012)
The Directors who held office at the end of the financial year had the following disclosable interests in the shares of the Company according to the
register of Directors’ interests:
Interest at
Interest at beginning
Class of share end of year of year
The interests of TS Ross are held through a pension trust of which he is a potential beneficiary.
All the Directors benefited from qualifying third-party indemnity provisions in place during the year and at the date of this report.
Corporate Governance
GFC Banham – June 2011 to April 2018 49,180
KJ Dougan – June 2011 to April 2018 17,213
ID Cockburn – June 2011 to April 2018 20,287
These options were granted under the Long-Term Incentive Plan on 20 June 2008 and are outstanding at the end of the year. None of the share
options have been exercised.
Period
during
Exercise which Number of
price option is options
Shareholder per share exercisable granted
Financial Statements
These options were granted under the Long-Term Incentive Plan on 30 June 2009 and are outstanding at the end of the year. None of the share
options have been exercised.
Period
during
Exercise which Number of
price option is options
Shareholder per share exercisable granted
These options were granted under the Long-Term Incentive Plan on 15 December 2010 and are outstanding at the end of the year. None of the share
options have been exercised.
Period
during
Exercise which Number of
price option is options
Shareholder per share exercisable granted
These options were granted under the Long-Term Incentive Plan on 16 September 2011 and are outstanding at the end of the year. None of the share
options have been exercised.
Under the Savings-Related Share Option schemes, the following options were held by a Director:
Options Options at
at end beginning
Scheme of year of year
In accordance with the Articles of Association one-third of Directors retire by rotation each year. The Directors retiring by rotation are Gordon Banham
and Iain Cockburn who, being eligible, offer themselves for re-election.
Directors’ Report
Continued
Significant Shareholdings
At 31 August 2012, the Company had been notified or was aware of the following shareholders with 3% or more of the issued share capital
of the Company:
Number of
ordinary
shares %
in which of issued
Shareholder interested share capital
Employees
Applications for employment by disabled persons are always fully considered. Employment policies are designed to provide opportunities
irrespective of colour, ethnic or national origin, nationality, sex or marital status. In the event of employees becoming disabled every effort is made,
including appropriate training, to ensure that their employment with the Company continues.
The Directors recognise the importance of good communications and good relations with employees. A quarterly in-house magazine is sent to all
employees.
Auditor
In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG Audit Plc as auditor of the Company and
to authorise the Directors to agree their remuneration is to be proposed at the forthcoming Annual General Meeting.
Iain Cockburn
Group Finance Director
24 September 2012
The Group has increased in size significantly in recent years and in recognition of this has both considerably strengthened the Board of Directors,
and also corporate governance structures and processes. Being listed on AIM, the Group is not required to report on corporate governance matters,
but this statement is intended to provide information on how the Group has applied the principles and spirit of corporate governance.
Corporate Governance
The Group Board currently comprises three Executive Directors, and three Non-Executive Directors. The Group Board meets at least six times per year,
receiving appropriate information from management on a timely basis, and making further detailed enquiries where necessary which enables the
Board to discharge its duties.
The Group Board has a schedule of matters which are specifically reserved to it for decision. All Directors have access to the advice and services of the
Company Secretary, who is responsible to the Group Board for ensuring that Group Board procedures are followed and for compliance with applicable
rules and regulations.
There is a defined division of responsibilities between the Non-Executive Chairman and the Group Chief Executive. The Chairman is primarily
responsible for leadership of the Board and the effective working of the Board. This is achieved by:
• Chairing Board meetings, setting the agendas in consultation with the Group Chief Executive and Company Secretary and encouraging the
Directors active participation in Board discussions;
• Leading the performance evaluation of the Board, its committees and individual Directors;
• Promoting high standards of corporate governance;
• Ensuring timely and accurate distribution of information to the Directors and effective communication with shareholders;
Financial Statements
• Periodically holding meetings with the Non-Executive Directors without the Executive Directors present; and
• Establishing an effective working relationship with the Group Chief Executive by providing support and advice whilst respecting
executive responsibility.
The Group Chief Executive is responsible for the executive management of the Group and for ensuring the implementation of Board strategy
and policy within the approved budgets and timescales.
There have been no significant changes in the commitments of the Chairman throughout the year which may impact upon his time and
commitment to the Company.
Non-Executive Directors
Non-Executive Directors bring a wide range of experience to the Group and Tim Ross, David Morgan and Peter Gillatt are considered by the Board
to be independent.
Board Committees
The Board has three Committees which assist in the discharge of its responsibilities:
• Remuneration
• Audit
• Nomination
The memberships, roles and activities of each are detailed in separate reports. Each Committee reports to, and has its terms of reference approved by,
the Board and the minutes of the Committee meetings are circulated to and reviewed by the Board. Each Committee’s terms of reference can be
found on our website.
The Group Chief Executive is assisted by the work of the Group Executive and its sub-committees. Together these form part of the Company’s
corporate governance framework, but are not formally appointed committees of the Board.
• Executive Management Team – responsible under the leadership of the Group Chief Executive for the day-to-day management of the business,
setting performance targets and implementing the Group’s strategy and direction as determined by the Board.
• Risk Committee – recently formed in 2012 and responsible for driving effective risk management throughout the business and reporting and
making recommendations to the Audit Committee as appropriate; monitoring and reporting on all material business risks which might impact
the delivery of the Group’s strategic goals and objectives. Members of the Committee include Iain Cockburn and senior operational management.
Day to day risk management is the responsibility of senior management as part of their everyday business processes. This is underpinned by
the Group’s policies and procedures to ensure that is fully embedded. The Board has ultimate responsibility for ensuring that business risks
are effectively managed. The Board has considered and approved the Risk Committee policy and has delegated the regular review of the risk
management process to the Audit Committee. The Audit Committee receives regular reports and monitors progress against agreed action
plans arising out of reviews.
Corporate Governance
Continued
Board Meetings
The Group Board meets regularly during the year as well as on an ad hoc basis, receiving appropriate information from management on a timely
basis, and making further detailed enquiries where necessary which enables the Board to discharge its duties. At each meeting, the Board receives
certain regular reports, for example, covering current trading, treasury, health and safety. At particular points in the year, the Board reviews budgets,
capital expenditure, risks and financial statements. The Board also has regular updates on strategy and also reviews other topics, in particular to cover
material risks and uncertainties facing the business or to address Board evaluation. In addition, each year the senior management succession plan
for the Group is reviewed with the Head of Human Resources.
Board Audit
Remuneration
Nominations
Attendance at meetings meetings
Committee Committee Committee
Directors have access to independent professional advice at the Company’s expense where they judge this to be necessary to discharge their
responsibilities as Directors and all Directors have access to the advice and services of the Company Secretary, who is responsible to the Board
for ensuring that Board procedures are complied with.
All directors have service agreements or letters of appointment and the details of their terms are set out in the Remuneration Report.
Conflicts of Interest
The Articles of Association enable the Directors to authorise any situation in which a Director has an interest that conflicts or has the potential to
conflict with the Company’s interests and which would otherwise be a breach of the Director’s duty, under section 175 of the Companies Act 2006.
The Board has a formal system in place for Directors to declare such situations to be considered for authorisation by those Directors who have no
interest in the matter being considered. The Nominations Committee will review conflicts of interests when considering new Board appointments.
Internal Control
Management has considerable autonomy to run and develop the business of the Group. The Group Board however believes that a well designed
system of internal reporting and control is necessary as the Group grows from strength to strength. The Group Board therefore continues to develop
and strengthen internal controls further. The Group Board has overall responsibility for the system of internal control within the Group. The Audit
Committee, on behalf of the Group Board, has the responsibility for reviewing internal controls. The system is designed to provide reasonable,
but not absolute, assurance that the assets of the Group are safeguarded, that proper accounting records are maintained, and that reliable financial
information is produced.
The Board is updated on the latest shareholder information by the receipt of shareholder register movements, analyst reports and feedback from
Corporate Governance
the Group’s brokers following investor road shows after half year and year end results.
The Group Board ensures that Health and Safety issues for employees, customers and the public are of foremost concern in all Group activities. The
Group Chief Executive, supported by external advice, is charged with overall responsibility. The Group encourages both internal and external training
through a formal network of full-time officers and Health and Safety nominated ‘champions’ at all levels. Statistical analysis is used to highlight any
areas where additional training or improved working practices would be beneficial, and positive action is promptly implemented. We are currently
striving to achieve OHSAS 18001 Occupation Health and Safety Assessment Series for health and safety management systems and ISO 14000
environmental management.
Financial Statements
Remuneration Report
On behalf of the Remuneration Committee, I am pleased to present the Directors’ report on remuneration for the year ended 31 May 2012.
The Committee invites individuals to attend meetings to provide advice so as to ensure that the Committee’s decisions are informed and take account
of pay and conditions across the Group.
The Committee adheres to principles of accountability and transparency to ensure that remuneration arrangements demonstrate a clear link between
reward and performance.
Components of Remuneration
Basic Salary
This is a fixed cash sum, payable monthly. Salaries are reviewed annually by the Remuneration Committee in the light of individual performance,
experience in the role and market comparisons.
Annual Bonus
Executive Directors participate in an annual incentive bonus scheme linked to the actual achievement of operating profit targets set by the
Remuneration Committee. Such bonus is capped at 100% of salary. No bonus counts in the calculation of pension entitlement.
Long-Term Incentives
The Executive Directors and other senior employees are invited to participate in Long-Term Incentive Plans, whereby shares in the Group are awarded
subject to Earnings Per Share growth targets over a three-year period.
The full Terms of Reference of the Committee are available on our website at www.hsgplc.co.uk.
All members of the Committee are Independent Non-Executive Directors. Independence is important and means that the pay of the Executive
Directors is set by persons who are independent of the Executives. The Chairman and the Group Chief Executive are consulted and invited to attend
meetings when appropriate but no Director is allowed to be present when his own remuneration is discussed.
Corporate Governance
Iain Cockburn 250 – 17 267 353 50 21
Kevin Dougan 176 – 31 207 223 – –
Tim Ross 60 – – 60 60 – –
Nigel Barraclough 12 – – 12 36 – –
Peter Gillatt 26 – – 26 – – –
David Morgan 10 – – 10 – – –
959 – 84 1,043 1,209 156 64
Directors’ Service Contracts
The Directors have entered into letters of appointment with the Company and the principal terms are as follows:
2013
Commencement Remuneration
Date Name Position of period of office £ Termination
24 November 2005 Tim Ross Non-Executive Chairman 30 November 2005 62,883 12 months’ notice
24 November 2005 Gordon Banham Group Chief Executive 1 October 2001 434,562 12 months’ notice
Financial Statements
24 November 2005 Kevin Dougan Group Contracts Director 23 June 1997 184,050 12 months’ notice
1 August 2007 Iain Cockburn Group Finance Director 8 October 2007 255,625 12 months’ notice
2 September 2011 Peter Gillatt Non-Executive Director 1 September 2011 38,290 6 months’ notice
27 February 2012 David Morgan Senior Independent Director 24 February 2012 40,787 6 months’ notice
The services of Tim Ross are provided by Crosswater Resources Limited, a company in which Mr Ross has a significant interest.
All employees (including Executive Directors) of the Group or any participating member of the Group whose earnings are subject to income tax and
who have the requisite minimum period of continuous employment are eligible to participate.
The exercise price of an option shall be fixed by the Group and shall normally be at a 10% discount on the market value of a share on the date invitations
are issued to eligible employees. In the case of an option to subscribe for shares the exercise price may not be less than the nominal value of a share.
Participants may, at the absolute discretion of the Committee be invited to apply for three, five or seven year options. All options must be linked
to a contractual savings scheme entered into by each participant with the savings institution nominated by the Company and approved by HMRC.
Participants may save between £5 and £250 per month (or weekly equivalent), such sums to be deducted from the relevant participant’s pay.
No option shall be granted under the Sharesave Scheme on any date if, as a result, the total number of shares issued or issuable pursuant to options
and other rights granted under the Sharesave Scheme and any other employees share scheme established by the Company on or after Admission,
would exceed 10% of the issued ordinary share capital of the Company on that date of grant.
Ordinary shares issued pursuant to the Sharesave Scheme shall rank pari passu in all respects with the ordinary shares already in issue.
In normal circumstances, options may be exercised during the period of six months commencing on the maturity (that is the relevant bonus date)
of the savings contract. Options will become exercisable immediately on the death of a participant for a period of 12 months after the date of death
or the bonus date, whichever is earlier. If a participant ceases to be an employee on reaching the age of 65 or at such other age at which that
employee is bound to retire in accordance with the terms of his contract of employment or ceases to be in employment due to injury, disability,
redundancy, or as a result of the sale of the business or subsidiary by which the participant is employed, options will become exercisable for a period
of six months. If a participant has held an option for at least three years, it will become exercisable for a period of six months. Options will also become
exercisable on an employee attaining the age of 60 if they should continue in employment and on a change in control, reconstruction, amalgamation
or voluntary winding-up of the Company.
An option will lapse six months following the bonus date, except if the participant dies, in which case an option will lapse 12 months following death,
if later.
Remuneration Report
Continued
The scheme was designed to allow awards to be made to eligible employees selected by the Remuneration Committee.
The vesting of an award granted to an Executive Director of the Company shall, or in the case of an award granted to any other Group employee may,
be subject to the satisfaction of one or more Performance Conditions. The Remuneration Committee may determine or recommend to the Trustee
that the vesting of an award will be subject to any other objective condition in addition to the Performance Conditions. The performance conditions
on current awards, including those made in September 2011, are included in Note 23.
The rules of the LTIP schemes were amended in the year, allowing participants to exercise options, to the extent they have satisfied the performance
conditions, after the expiry of the vesting period.
No option shall be granted under the LTIP scheme on any date if, as a result, the total number of shares issued or issuable pursuant to options and
other rights granted under the LTIP scheme and any other employee share scheme established by the Company on or after Admission, would exceed
10% (5% excluding other share schemes) of the issued ordinary share capital of the Company on date of grant.
Ordinary shares issued pursuant to the LTIP scheme shall rank pari passu in all respects with the ordinary shares already in issue.
An option will lapse ten years after the date of the grant, except if the participant dies, in which case the option will lapse 12 months following death,
whichever date is earlier.
Peter Gillatt
Non-Executive Director
24 September 2012
The Audit Committee comprises the three Non-Executive Directors, Tim Ross, David Morgan and Peter Gillatt. David Morgan joined the Committee
on 24 February 2012 and sits as Chairman of the Committee. David Morgan is a chartered accountant with a corporate governance background and
brings a high level of relevant financial and governance experience to the Committee. The Chairman, Group Chief Executive and Finance Director
attend meetings by invitation when appropriate. The external auditor also attends the Committee.
They meet at least twice per year, with the external auditor attending by invitation at least twice per year. The Committee provides a forum by which
the external auditor reports to the Group Board.
Corporate Governance
Responsibilities and Role of the Audit Committee
The Audit Committee is responsible for reviewing the integrity of the Group’s financial statements; the Group’s compliance with applicable legal
and regulatory requirements; the external auditor’s qualifications and independence; the adequacy of the Group’s financial disclosure, and the
effectiveness of the Group’s risk management and internal control systems. The Audit Committee also reviews the scope and results of the audit
together with its cost effectiveness. The objectivity of the auditor is enhanced by ensuring that they have direct access to the Group Board.
Non-audit work undertaken by the auditor is limited to work that requires detailed knowledge derived from the statutory audit or work where
the fees involved are not considered to be material; exceptions to this are specifically approved by the Committee.
Financial Statements
At least once per year a meeting is convened with the external auditor without members of management.
David Morgan
Senior Independent Director
24 September 2012
The Nominations Committee is responsible for reviewing succession planning for main Board, leadership requirements, performance evaluation of
the Non-Executive Directors and a review of the Group Board generally. It evaluates the balance of skills, experience, independence and knowledge
on the Board and in light of this evaluation prepares a description of the role and capabilities required for a particular appointment.
The appointment of David Morgan was effected through the use of an external consultant.
David Morgan
Senior Independent Director
24 September 2012
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and parent company financial statements for each financial year. As required by the AIM Rules
of the London Stock Exchange they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and
applicable law and have elected to prepare the parent company financial statements on the same basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state
Corporate Governance
of affairs of the Group and parent company and of the profit or loss of the Group for that period. In preparing each of the Group and parent company
financial statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and
disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements
comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Financial Statements
We have audited the financial statements of Hargreaves Services plc for the year ended 31 May 2012, set out on pages 35 to 80. The financial reporting
framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU
and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 May 2012 and of the
Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in
accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches
not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Nick Plumb
(Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
24 September 2012
2012 2011
Note £000 £000
Corporate Governance
Other operating income 4 835 469
Administrative expenses (46,288) (41,619)
Operating profit 1,5,6 49,480 43,064
Financial income 8 2,304 1,443
Financial expenses 8 (8,764) (7,602)
Share of profit in jointly controlled entities (net of tax) 99 23
Profit before tax 43,119 36,928
Income tax expense 9 (12,312) (10,108)
Profit for the year 30,807 26,820
Other comprehensive (expense)/income
Foreign exchange translation differences (2,201) 705
Effective portion of changes in fair value of cash flow hedges 3,068 (1,418)
Financial Statements
Actuarial gains and losses on defined benefit pension plans (3,274) 891
Tax recognised on other comprehensive (expense)/income 9 (6) 17
Other comprehensive (expense)/income for the year, net of tax (2,413) 195
Total comprehensive income for the year 28,394 27,015
Profit attributable to:
Equity holders of the company 29,455 24,600
Non-controlling interest 1,352 2,220
Profit for the year 30,807 26,820
Total comprehensive income attributable to:
Equity holders of the company 27,310 24,671
Non-controlling interest 1,084 2,344
Total comprehensive income for the year 28,394 27,015
Basic earnings per share (pence) 10 109.00 91.85
Diluted earnings per share (pence) 10 106.12 90.50
Balance Sheets
at 31 May 2012
Group Company
2012 2011 2012 2011
Note £000 £000 £000 £000
Non-current assets
Property, plant and equipment 11 98,340 87,120 – –
Intangible assets 12 29,831 31,616 – –
Investments in jointly controlled entities 13 140 – 42 42
Investments in subsidiary undertakings 13 – – 32,064 29,504
Derivative financial instruments 14 – – – –
Deferred tax assets 16 – – 123 123
128,311 118,736 32,229 29,669
Current assets
Inventories 17 112,027 105,944 – –
Derivative financial instruments 14 6,051 266 – –
Trade and other receivables 18 114,779 66,072 329,805 299,120
Cash and cash equivalents 19 45,852 17,243 22,270 1
278,709 189,525 352,075 299,121
Corporate Governance
Translation reserve 25 (1,383) 550 – –
Merger reserve 1,022 1,022 1,022 1,022
Hedging reserve 25 525 (1,759) – –
Capital redemption reserve 1,530 1,530 1,530 1,530
Retained earnings 97,804 74,158 13,211 5,731
134,523 109,885 50,577 42,456
Non-controlling interest 1,838 4,765 – –
Total equity 136,361 114,650 50,577 42,456
These financial statements were approved by the Board of Directors on 24 September 2012 and were signed on its behalf by:
Financial Statements
Registered Number: 4952865
Balance at 1 June 2010 2,660 30,429 (31) (690) 211 1,530 1,022 51,813 86,944 2,840 89,784
Total comprehensive income
for the year
Profit for the year – – – – – – – 24,600 24,600 2,220 26,820
Other comprehensive income
Foreign exchange translation differences – – 581 – – – – – 581 124 705
Effective portion of changes in
fair value of cash flow hedges – – – (1,418) – – – – (1,418) – (1,418)
Actuarial gains and losses on defined
benefit pension plans – – – – – – – 891 891 – 891
Tax recognised on other
comprehensive income – – – 349 – – – (332) 17 – 17
Total other comprehensive income – – 581 (1,069) – – – 559 71 124 195
Total comprehensive income
for the year – – 581 (1,069) – – – 25,159 24,671 2,344 27,015
Balance at 1 June 2011 2,683 31,490 550 (1,759) 211 1,530 1,022 74,158 109,885 4,765 114,650
Total comprehensive income
for the year
Corporate Governance
Profit for the year – – – – – – – 29,455 29,455 1,352 30,807
Other comprehensive income
Foreign exchange translation differences – – (1,933) – – – – – (1,933) (268) (2,201)
Effective portion of changes in
fair value of cash flow hedges – – – 3,068 – – – – 3,068 – 3,068
Actuarial gains and losses on defined
benefit pension plans – – – – – – – (3,274) (3,274) – (3,274)
Tax recognised on other
comprehensive income – – – (784) – – – 778 (6) – (6)
Total other comprehensive income – – (1,933) 2,284 – – – (2,496) (2,145) (268) (2,413)
Total comprehensive income
for the year – – (1,933) 2,284 – – – 26,959 27,310 1,084 28,394
Financial Statements
recorded directly in equity
Issue of shares 26 615 – – – – – – 641 – 641
Equity settled share-based
payment transactions – – – – – – – 1,332 1,332 – 1,332
Dividends – – – – – – – (4,428) (4,428)
(3,642) (8,070)
Total contributions by and
distributions to owners 26 615 – – – – – (3,096) (2,455)
(3,642) (6,097)
Changes in ownership interests
Acquisition of non-controlling interest
without a change in control – – – – – – – (217) (217) (369) (586)
Total transactions with owners 26 615 – – – – – (3,313) (2,672)
(4,011) (6,683)
Balance at 31 May 2012 2,709 32,105 (1,383) 525 211 1,530 1,022 97,804 134,523 1,838 136,361
Capital Total
Share Share
redemption Merger Retained
parent
capital
premium reserve
reserve
earnings equity
Company £000 £000 £000 £000 £000 £000
Group Company
2012 2011 2012 2011
Note £000 £000 £000 £000
Corporate Governance
Amortisation of intangible assets 4,392 3,592 – –
Dividend income – – (10,769) (4,500)
Net finance expense 6,460 6,159 1,235 1,143
Share of profit in jointly controlled entities (99) (23) – –
Profit on sale of property, plant and equipment (836) (469) – –
Equity settled share-based payment expenses 1,332 1,067 – –
Income tax expense 12,312 10,108 (238) (305)
Loss on derivative financial instruments – – 121 –
Translation of non-controlling interest (269) 124 – –
74,654 64,498 925 221
Change in inventories (8,717) (22,936) – –
Change in trade and other receivables (48,189) (5,540) (25,447) (80,361)
Change in trade and other payables 22,350 21,248 21,569 83,465
Change in provisions and employee benefits (713) (1,732) – –
39,385 55,538 (2,953) 3,325
Interest paid (5,384) (6,083) (149) (1,143)
Financial Statements
Income tax paid (4,974) (4,732) – –
Net cash from operating activities 29,027 44,723 (3,102) 2,182
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 2,468 1,452 – –
Dividends received – – 5,769 4,500
Acquisition of subsidiaries, net of cash acquired 3 (2,940) (730) (568) –
Acquisition of property, plant and equipment 11 (22,493) (12,777) – –
Acquisition of other investments 13 – (44) – (42)
Net cash from investing activities (22,965) (12,099) 5,201 4,458
Cash flows from financing activities
Proceeds from the issue of share capital 25 641 1,084 641 1,083
(Repayment of)/proceeds from pre-lease creditor 20 (1,593) 1,593 – –
Issue of secured loan (2,192) – – –
Payment of finance lease liabilities (8,941) (10,068) – –
Repayment of invoice discounting facility – (9,827) – –
Dividends paid 25 (8,070) (3,892) (4,428) (3,805)
Proceeds from promissory notes (net of expenses) 5,025 – – –
Proceeds from/(repayment of) revolving credit facility 20 31,000 (10,857) 31,000 (10,857)
Debt refinancing costs (2,026) – (2,026) –
Net cash from financing activities 13,844 (31,967) 25,187 (13,579)
Net increase/(decrease) in cash and cash equivalents 19,906 657 27,286 (6,939)
Cash and cash equivalents at 1 June (6,751) (7,206) (5,016) 1,923
Effect of exchange rate fluctuations on cash held 1,482 (202) – –
Cash and cash equivalents at 31 May 19 14,637 (6,751) 22,270 (5,016)
Notes
(forming part of the financial statements)
1 Accounting Policies
Hargreaves Services plc (the ‘Company’) is a company incorporated in the UK.
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the ‘Group’) and equity account the
Group’s interest in associates and jointly controlled entities. The parent company financial statements present information about the Company
as a separate entity and not about its Group.
Both the parent company financial statements and the Group financial statements have been prepared and approved by the Directors in accordance
with International Financial Reporting Standards as adopted by the EU (‘Adopted IFRSs’). On publishing the parent company financial statements here
together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present
its individual income statement and related notes that form a part of these approved financial statements.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated
financial statements.
In these financial statements various Adopted IFRSs which are effective for the first time, have been adopted including the following standards,
amendments and interpretations:
None of the Adopted IFRSs adopted by the Group had a significant impact on the Group’s result for the year or its equity.
c) Restoration costs
Obligations exist at both Maltby Colliery and Monckton Coke Works to carry out restoration at the end of the productive life. The related provisions
(see Note 24) are based on the nature and extent of the contamination and the estimated costs of restoration. These key assumptions are reviewed
on a regular basis and these reviews may lead to adjustments to the provisions over their lives.
e) Share-based payments
The estimation of share-based payment costs requires the selection of an appropriate valuation model together with assumptions as to the
key inputs into the model, including the achievement of certain service and performance conditions. Differences arising from actual experience
may be reflected in future years.
Measurement Convention
The financial statements are prepared on the historical cost basis except that derivative financial instruments and financial instruments classified as fair
value through the profit or loss or as available-for-sale are stated at their fair value.
Corporate Governance
The Group has considerable financial resources together with long-term contracts with a number of customers and suppliers across different
geographic areas and industries. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully
despite the current uncertain economic outlook. In making this assessment, the Board has reviewed projections for the next five years, taking
into account key assumptions and uncertainties, including the status of Maltby.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
The financial statements were approved by the Board of Directors on 24 September 2012.
Basis of Consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists where the Group has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. The acquisition date is the date on which control is transferred to the
acquirer. The financial statements of subsidiaries are included in the consolidated financial information from the date that control commences until
the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interest even if
Financial Statements
doing so causes the non-controlling interests to have a deficit balance.
Intra-group balances and transactions, and any unrealised gains and losses or income and expenses arising from intra-group transactions, are
eliminated when preparing the consolidated financial information.
Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreements and requiring
unanimous consent for strategic, financial and operating decisions. The consolidated accounts include the Group’s share of the total comprehensive
income and equity movements of jointly controlled entities and associates on an equity accounted basis. The results of jointly controlled entities and
associates are included in the consolidated accounts from the date that joint control or significant influence respectively, commences until the date
that it ceases. When the Group’s share of losses exceeds its interest in an equity accounting investee, the Group’s carrying amount is reduced to nil
and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments
on behalf of an investee.
Foreign Currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional
currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the transaction. Foreign exchange differences arising on translation are recognised in
the income statement except for differences arising on qualifying cashflow hedges which are recognised directly in other comprehensive income.
The assets and liabilities of foreign operations are translated into sterling, the Group’s presentational currency, at the exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign operations are translated at rates approximating to the foreign exchange rates ruling at
the dates of the transactions. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive
income and accumulated in the translation reserve or non-controlling interest, as the case may be. They are recycled to profit or loss upon disposal.
• they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial
liabilities with another party under conditions that are potentially unfavourable to the Group; and
• where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation
to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed
amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal
form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account
exclude amounts in relation to those shares.
Notes
Continued
Finance payments associated with financial liabilities are dealt with as part of finance expenses. Finance payments associated with financial
instruments that are classified in equity are dividends and are recorded directly in equity.
Financial Instruments
Non-derivative Financial Instruments
Non-derivative financial instruments include investments, trade and other receivables, cash and cash equivalents, loans and borrowings and trade
and other payables. These are measured at amortised cost.
Derivative financial instruments are recognised initially at fair value and subsequently re-measured to fair value at each reporting date and changes
therein are accounted for as described below.
Derivatives designated as hedging instruments are accounted for in line with the nature of the hedging arrangement. Derivatives are intended to be
highly effective in mitigating the above risks, and hedge accounting is adopted where the required hedge documentation is in place and the relevant
test criteria are met.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement
as part of financing costs.
Mine development costs at Maltby Colliery are capitalised and depreciated over the working life of the area of the mine to which the costs are
attributable.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and
equipment. Land is not depreciated. Depreciation rates are as follows:
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date. Depreciation on assets in the course of construction
commences when the assets are available for use.
Business Combinations
Subject to the transitional relief in IFRS 1, all business combinations are accounted for by applying the purchase method. Goodwill arises from the
acquisition of businesses and represents the difference between the cost of the acquisition and the fair value of the identifiable assets, liabilities and
contingent liabilities acquired. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether
those rights are separable.
Corporate Governance
• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is
not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration
are recognised in profit or loss.
On a transaction-by-transaction basis, the Group elects to measure non-controlling interests either at its fair value or at its proportionate interest
in the recognised amount of the identifiable net assets of the acquiree at the acquisition date.
Financial Statements
Acquisitions Prior to 1 June 2006 (Date of Transition to IFRSs)
Goodwill arising on acquisitions prior to 1 June 2006 was capitalised and amortised under UK GAAP. This goodwill is carried at the UK GAAP carrying
value at the date of transition to adopted IFRS and is subject to impairment reviews as described above.
Prior to the adoption of IAS 27 (2008), goodwill was recognised on the acquisition of non-controlling interests in a subsidiary, which represented the
excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction.
Other intangible assets that are acquired by the Group, which have finite useful economic lives, are stated at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is recognised in profit and loss on a straight-line basis over the estimated useful lives of intangible
assets from the date that they are available for use.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on the weighted average method and includes expenditure incurred
in acquiring the inventories, production or conversion costs and other costs in bringing them to their existing location and condition.
At Maltby Colliery, the cost of preparing proceeding coal faces is held on the balance sheet within work in progress and is charged on a tonnage-
extracted basis over the estimated production life of the relevant face. Work in progress also includes work to date on service contracts where project
milestones have not yet been reached.
Notes
Continued
Interest-Bearing Borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transactions costs. Subsequent to initial recognition, interest-bearing
borrowings are stated at amortised cost using the effective interest method, less any impairment losses.
Impairment
The carrying amounts of the Group’s financial assets, other than inventories and deferred tax assets, are reviewed at each balance sheet date
to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment
losses are recognised in the income statement.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash
generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash generating unit is the smallest
identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Reversals of Impairment
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been
a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Employee Benefits
Defined Benefit Pension Plans
Following the acquisition of The Monckton Coke & Chemical Company Limited on 17 June 2005 and Maltby Colliery Limited on 26 February 2007,
the Group operates two concessionary fuel retirement benefit schemes.
In addition, following the acquisition of Maltby Colliery, the Group is a member of two pension schemes providing benefits based on final
pensionable pay. The assets of the scheme are held separately from those of the Group.
The retirement benefit scheme liabilities are calculated by a qualified actuary using the projected unit method. The concessionary fuel retirement benefit
schemes are unfunded retirement benefits and as such there are no assets in the schemes. The retirement benefit deficits are recognised in full, the
movement in the scheme deficits is split between operating charges, finance items and, in other comprehensive income, actuarial gains and losses.
Pension scheme assets are measured using market values. Pension scheme liabilities are measured using a projected unit method and discounted at
the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. The pension scheme surplus (to the extent
that it is recoverable) or deficit is recognised in full. The movement in the scheme surplus/deficit is split between operating charges, finance items
and, in other comprehensive income, actuarial gains and losses.
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.
Where the Company grants share-based payment awards over its own shares to the employees of its subsidiaries it recognises, in its individual
financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity settled share-based payment charge recognised
in its consolidated financial statements with the corresponding credit being recognised directly in equity.
Revenue
Revenue is measured at the fair value of consideration received or receivable, excluding value added tax, for goods and services supplied to external
customers. All directly attributable expenses in respect of services provided are recognised in the income statement in the period to which they relate.
Revenue is measured at the invoiced price net of VAT and any discounts. If, as a separate transaction, the Company has entered into a derivative
Corporate Governance
contract to hedge the sale price, any gains or losses on that hedge instrument are also included in revenue at the same time as the hedged
transaction is recorded as revenue.
Services
Revenue is recognised when the service has been delivered and the Group has performed its obligations under the sales contract. A large proportion
of sales are subject to long-term contracts, typically on a cost-plus or similar basis. The profit on such contracts is recognised (and invoiced) evenly
over the term of the contract unless it is clear that the timing of contract performance requires profit to be recognised on an alternative basis. Certain
contracts, for example, include specific programmes of work to be carried out. In these instances, revenue is recognised on achievement of specific
programme milestones through agreement with the customer.
Leases
As Lessee
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases.
Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum lease
payments. The corresponding rental obligations, net of finance charges, are included in other payables. Each lease payment is allocated between
the liability and finance charges so as to achieve a constant rate of interest costs charged to the income statement on the outstanding balance.
The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term.
Financial Statements
Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the term of the lease.
As Lessor
The Group also acts as lessor for certain equipment leased on a Hire Purchase basis. As substantially all the risks and rewards of ownership have
passed to the lessee, the Group has derecognised the related equipment and recognised a recoverable for the minimum lease payments discounted
at a rate which reflects a constant periodic rate of return over the life of the lease.
Interest income and interest payable is recognised in the income statement as it accrues, using the effective interest method. Dividend income
is recognised in the income statement on the date the entity’s right to receive payments is established.
Income Tax
Income tax on the profit or loss for the period comprises both current and deferred tax. Tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date,
and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
The following temporary differences are not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that
they will probably not reverse in the foreseeable future.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be
reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions
are determined by discounting the expected, risk adjusted, future cash flows at a pre-tax risk-free rate.
Notes
Continued
Of the other IFRSs that are available for early adoption, none are expected to have a material effect on the financial statements.
2 Segmental Information
The following analysis by industry segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are
regularly reviewed by the Board of Directors (the Chief Operating Decision Maker as defined by IFRS 8) to assess performance and make strategic
decisions about allocation of resources.
The sectors distinguished as operating segments are Production, Energy & Commodities, Transport and Industrial Services. A short description
of these sectors is as follows:
• Production: produces coal and coke and also recycles tyres for customers throughout the UK and Europe;
• Energy & Commodities: provides coal, coke, minerals, smokeless fuel and biomass products to a range of industrial, wholesale and public sector
energy consumers;
• Transport: provides bulk logistics to UK customers; and
• Industrial Services: provides quality assured contract management services to the power generation, utilities, chemicals, minerals and steel industries.
These segments are combinations of subsidiaries and divisions, have separate management teams and offer different products and services.
These four operating segments are also Reportable segments.
The segment results, as reported to the Board of Directors, are calculated under the principles of IFRS. Performance is measured on the basis of
underlying operating profit, which is reconciled to profit before tax in the tables below:
Energy & Industrial
Production
Commodities
Transport Services Total
2012 2012 2012 2012 2012
£000 £000 £000 £000 £000
Revenue
Total revenue 134,873 446,214 77,326 80,722 739,135
Inter–segment revenue (22,168) (15,739) (10,034) (2,932) (50,873)
Revenue from external customers 112,705 430,475 67,292 77,790 688,262
Underlying operating profit 15,225 30,354 4,067 4,325 53,971
Amortisation of intangibles – (2,429) (393) (1,570) (4,392)
Net financing costs (1,831) (3,350) (749) (530) (6,460)
Profit before taxation 13,394 24,575 2,925 2,225 43,119
Depreciation charge (14,255) (839) (3,551) (1,910) (20,555)
Capital expenditure 21,178 2,427 4,055 5,547 33,207
Net assets
Segment assets 129,988 150,666 28,447 22,134 331,235
Segment liabilities (52,573) (86,809) (17,177) (17,949) (174,508)
Segment net assets 77,415 63,857 11,270 4,185 156,727
Jointly controlled entities 76 64 – – 140
Segment net assets including share of jointly controlled entities 77,491 63,921 11,270 4,185 156,867
Unallocated net assets (20,506)
Total net assets 136,361
Unallocated net assets include goodwill and intangibles (£29.8m), revolving credit facility (£73.1m), cash and cash equivalents (£24.3m), derivative
financial instruments (£0.4m) and other corporate items (£9.5m).
Revenue
Corporate Governance
Total revenue 110,119 330,814 78,690 69,452 589,075
Inter–segment revenue (15,870) (7,232) (11,082) (2,632) (36,816)
Revenue from external customers 94,249 323,582 67,608 66,820 552,259
Underlying operating profit 12,652 25,867 3,843 4,317 46,679
Amortisation of intangibles – (1,630) (393) (1,569) (3,592)
Net financing costs (2,698) (2,042) (829) (590) (6,159)
Profit before taxation 9,954 22,195 2,621 2,158 36,928
Depreciation charge (11,168) (1,101) (3,261) (1,590) (17,120)
Capital expenditure 10,889 842 5,061 2,681 19,473
Financial Statements
Net assets
Segment assets 94,373 133,687 30,396 16,165 274,621
Segment liabilities (36,391) (63,750) (17,773) (17,160) (135,074)
Segment net assets 57,982 69,937 12,623 (995) 139,547
Jointly controlled entities – – – – –
Segment net assets including share of jointly controlled entities 57,982 69,937 12,623 (995) 139,547
Unallocated net assets (24,897)
Total net assets 114,650
Unallocated net assets include goodwill and intangibles (£31.6m), revolving credit facility (£43.0m), derivative financial instruments (£2.5m) and other
corporate items (£11.0m).
Geographical Information
2012 2011
UK Overseas UK
Overseas
£000 £000 £000 £000
Notes
Continued
3 Acquisition of Subsidiaries
Current Year
Acquisition of Eastgate Materials Handling Limited
On 1 June 2011, the Group acquired the remaining 50% share capital of Eastgate Materials Handling Limited, a jointly controlled entity with Oxbow
Coal Limited, satisfied by £1,826,000 cash. The company operates port handling facilities at Immingham, UK.
In the 12 months to 31 May 2012, Eastgate Materials Handling Limited contributed profit after tax of £202,000 to the consolidated profit after tax
for the year.
Pre-acquisition Recognised
carrying Fair value values on
amounts adjustments acquisition
£000 £000 £000
ASSETS
Non-current assets
Property, plant and equipment 267 – 267
Intangible assets – 2,540 2,540
Current assets
Trade and other receivables 3,178 – 3,178
Cash and cash equivalents 54 – 54
LIABILITIES
Non-current liabilities
Deferred tax liabilities (6) (582) (588)
Current liabilities
Trade and other payables (3,909) – (3,909)
Net identifiable assets and liabilities (416) 1,958 1,542
Share of Eastgate Materials Handling owned 193
Goodwill on acquisition 91
Net purchase consideration 1,826
Satisfied by:
Consideration paid 1,826
Included in the consideration is the estimated fair value of the existing 50% stake which has been valued at £193,000.
The principal fair value adjustment was the recognition of an intangible asset of £2,540,000 for the guaranteed income based on discounted future cash
flows for the duration of a customer contract. Goodwill comprises principally the benefits to the wider Group of control of the facility at Immingham.
The intangible asset is being amortised over the expected life of the contract, which is 36 months. The goodwill is not being amortised but is being
reviewed annually for impairment.
Other
In July 2011 and November 2011, £180,000 of the £250,000 deferred consideration payable on the acquisition of trade and assets from Stiller Tankers
Limited in October 2009 was paid in final settlement. The remaining £70,000 was released to profit.
In June 2011 and August 2011, €467,000 was paid in relation to the acquisition of the 5% non-controlling interest in Hargreaves Raw Material Services
GmbH in June 2010.
On 16 March 2011 the Group acquired 80% of the share capital of Hargreaves Carbon Products Polska Sp Zo.o. This acquisition has been combined
Corporate Governance
in the table below as it is not material.
The result that these acquisitions contributed to the consolidated profit after tax for the two and a half months following acquisition was immaterial.
Pre-acquisition Recognised
carrying Fair value values on
amounts adjustments acquisition
£000 £000 £000
ASSETS
Non-current assets
Property, plant and equipment 158 – 158
Current assets 49 – 49
LIABILITIES
Current liabilities
Trade and other payables (100) – (100)
Financial Statements
Net identifiable assets and liabilities 107 – 107
Satisfied by:
Consideration paid 710
Goodwill on acquisition 603
Notes
Continued
Directors 26 27
Maintenance and washery 201 197
Traffic and administration 459 434
Drivers 510 543
Production 1,457 1,225
2,653 2,426
7 Directors’ Remuneration
2012 2011
£000 £000
Corporate Governance
GFC Banham (under SRSOSs) – 819 1,098
KJ Dougan 51,874 64,004 –
ID Cockburn 67,920 84,909 –
Finance income
Interest income on unimpaired financial assets 275 135
Expected return on defined benefit pension plan assets 1,574 1,224
Net gain on financial instruments designated as fair value through the income statement – 84
Interest received from jointly controlled entities 455 –
Financial Statements
Total finance income 2,304 1,443
Finance expense
Total interest expense on financial liabilities measured at amortised cost 7,200 6,218
Interest on defined benefit pension plan obligation 1,564 1,384
Total finance expense 8,764 7,602
The total interest expense on financial liabilities measured at amortised cost includes £424,000 of unamortised facility fees in relation to the three-year
UK banking facilities signed in September 2009. These unamortised facility fees were expensed upon the early refinancing of the facility in April 2012.
9 Taxation
Recognised in the Statement of Comprehensive Income
2012 2011
£000 £000
Notes
Continued
9 Taxation (continued)
Recognised in Other Comprehensive Income
2012 2011
£000 £000
Deferred tax
Effective portion of changes in fair value of cash flow hedges (784) 349
Actuarial gains and losses on defined benefit pension plans 778 (332)
(6) 17
The UK corporation tax rate reduced to 24% on 1 April 2012, giving an effective base rate of 25.67% (2011: 27.67%).
Factors That May Affect Future Current and Total Tax Charges
On 26 March 2012 the Chancellor proposed changes to further reduce the main rate of corporation tax by 1% per annum to 22% by 1 April 2014,
but these changes were not substantively enacted during the year and therefore are not included in the figures above.
Corporate Governance
Ordinary shares
Basic earnings per share 109.00p 91.85p
Diluted earnings per share 106.12p 90.50p
The calculation of earnings per share is based on the profit for the year attributable to equity holders and on the weighted average number of shares
in issue and ranking for dividend in the year.
2012 2011
Profit for the year attributable to equity holders (£000) 29,455 24,600
Weighted average number of shares 27,022,535 26,782,240
Earnings per ordinary share 109.00p 91.85p
The calculation of diluted earnings per share is based on the profit for the year and on the weighted average number of ordinary shares in issue in the
year adjusted for the dilutive effect of the share options outstanding (effect on weighted average number of shares: 732,494; effect on earnings per
ordinary share: 2.88 pence).
Financial Statements
2012 2011
Profit for the year attributable to equity holders (£000) 29,455 24,600
Underlying diluted Earnings per Share is calculated on the same weighted average number of shares in the table above, and on Underlying Profit after
Tax, as reconciled below:
2012 2011
£000 £000
Notes
Continued
Cost
Balance at 1 June 2010 20,614 – 4,974 98,000 394 6,638 130,620
Acquisitions through business combinations – – – 158 – – 158
Other acquisitions 192 773 260 18,219 29 – 19,473
Disposals – – – (2,739) – – (2,739)
Effect of movements in foreign exchange – – 3 12 – – 15
Balance at 31 May 2011 20,806 773 5,237 113,650 423 6,638 147,527
Balance at 1 June 2011 20,806 773 5,237 113,650 423 6,638 147,527
Acquisitions through business combinations 267 – – – – – 267
Other acquisitions 193 3,165 417 26,476 23 2,933 33,207
Disposals – – – (11,637) – – (11,637)
Transfers 8 (2,482) – 2,474 – – –
Effect of movements in foreign exchange (25) – (13) (146) – – (184)
Balance at 31 May 2012 21,249 1,456 5,641 130,817 446 9,571 169,180
Depreciation and impairment
Balance at 1 June 2010 2,421 – 4,076 35,833 263 2,422 45,015
Depreciation charge for the year 515 – 471 15,247 57 830 17,120
Disposals – – – (1,751) – – (1,751)
Effect of movements in foreign exchange – – 13 10 – – 23
Balance at 31 May 2011 2,936 – 4,560 49,339 320 3,252 60,407
Balance at 1 June 2011 2,936 – 4,560 49,339 320 3,252 60,407
Depreciation charge for the year 458 – 354 18,462 41 1,240 20,555
Disposals – – – (9,990) – – (9,990)
Effect of movements in foreign exchange (22) – (11) (99) – – (132)
Balance at 31 May 2012 3,372 – 4,903 57,712 361 4,492 70,840
Net book value
At 1 June 2010 18,193 – 898 62,167 131 4,216 85,605
At 31 May 2011 and 1 June 2011 17,870 773 677 64,311 103 3,386 87,120
At 31 May 2012 17,877 1,456 738 73,105 85 5,079 98,340
The Group has £1,456,000 (2011: £773,000) property, plant and equipment under construction.
Security
The Group’s property, plant and equipment is used to secure some of its interest-bearing loans and borrowings (see Note 20).
Cost
Corporate Governance
Balance at 1 June 2010 21,622 (93) 11,689 8,148 1,015 42,381
Acquisitions through business combinations 603 – – – – 603
Effect of movements in foreign exchange (2) – – – – (2)
Balance at 31 May 2011 22,223 (93) 11,689 8,148 1,015 42,982
Balance at 1 June 2011 22,223 (93) 11,689 8,148 1,015 42,982
Acquisitions through business combinations 96 – 2,540 – – 2,636
Effect of movements in foreign exchange (29) – – – – (29)
Balance at 31 May 2012 22,290 (93) 14,229 8,148 1,015 45,589
Amortisation and impairment
Balance at 1 June 2010 – (93) 6,237 1,630 – 7,774
Amortisation for the year – – 1,962 1,630 – 3,592
Financial Statements
Balance at 31 May 2011 – (93) 8,199 3,260 – 11,366
Balance at 1 June 2011 – (93) 8,199 3,260 – 11,366
Amortisation for the year – – 2,762 1,630 – 4,392
Balance at 31 May 2012 – (93) 10,961 4,890 – 15,758
Net book value
At 31 May 2010 21,622 – 5,452 6,518 1,015 34,607
At 31 May 2011 and 1 June 2011 22,223 – 3,490 4,888 1,015 31,616
At 31 May 2012 22,290 – 3,268 3,258 1,015 29,831
The supply contracts are being amortised over the weighted average expected life of the contracts, which is 60 months.
£2,032,000 of the customer contracts is being amortised over 62 months, £2,596,000 of the customer contracts is being amortised over 71 months,
£7,061,000 of the customer contracts is being amortised over 75 months and £2,540,000 of the customer contracts is being amortised over 36 months,
each being the weighted average expected life of the contracts.
£1,000,000 of other intangibles relates to an exclusivity agreement and is not yet being amortised as the agreement had not yet commenced at
31 May 2012. The life of the intangible is expected to be seven years, the expected life of the project to which the agreement relates.
Notes
Continued
The recoverable amounts of the above cash generating units have been calculated with reference to their value in use. The key features of this
calculation are shown below:
2012 2011
The growth rates used in value in use calculations reflect a conservative estimate of the average industry growth rate.
The recoverable amount of each cash generating unit has been calculated with reference to its value in use. In calculating this value, management
have used the following assumptions:
• Cash flows were projected based on budgeted operating results for the proceeding year with the short-term growth rate applied to the next four
years. A conservative growth rate of 2% has been applied in perpetuity. This rate does not exceed the long-term average growth rate for any of the
cash generating units’ industries;
• Sustaining capital expenditure in each cash generating unit has been included in the calculations equivalent to the current levels of annual
depreciation;
• A pre-tax discount rate of 12% (2011: 12%) has been used in the first instance. Management consider this to be higher than a market participant’s
discount rate for each individual cash generating unit. The latter would be used if the initial 12% indicated potential impairment of any individual
cash generating unit.
Each of the cash generating units had significant headroom under the annual impairment review, which remains after allowing for reasonably possible
changes in assumptions, with the exception of the possible closure or mothballing of Maltby, in which case it is likely that there would be an impairment
of goodwill and certain other assets.
Company
Subsidiary undertakings
Corporate Governance
Hargreaves (UK) Limited Holding company UK Ordinary 100% 100%
Norec Limited Contract management service UK Ordinary 100% 100%
Hargreaves (Bulk Liquid Transport) Limited Dormant UK Ordinary 50% 50%
Preference 50% 50%
Coal4Energy Limited Light industrial and domestic coal sales UK Ordinary 100% 100%
Forward Sound Limited Holding company UK Ordinary 100% 100%
Hargreaves Europe Limited Holding company UK Ordinary 100% 100%
Hargreaves Services (HK) Limited Holding company Hong Kong Ordinary 100% 100%
Hargreaves Services Europe Limited Import and sale of carbon-based materials UK Ordinary 82% –
Jointly controlled entities
Mir Trade Services BV Import and sale of carbon-based materials Netherlands Ordinary 50% 50%
Mir Trade Services Limited Import and sale of carbon-based materials UK Ordinary 50% –
Group
Subsidiary undertakings
Financial Statements
Hargreaves (UK) Limited Holding company UK Ordinary 100% 100%
Hargreaves (UK) Services Limited Haulage, mineral import and processing UK Ordinary 100% 100%
The Monckton Coke & Chemical
Company Limited Manufacture of coke UK Ordinary 100% 100%
Norec Limited Contract management service UK Ordinary 100% 100%
Hargreaves (Bulk Liquid Transport) Limited Dormant UK Ordinary 100% 100%
Preference 100% 100%
Maltby Colliery Limited Coal mining UK Ordinary 100% 100%
Hargreaves Raw Material Services GmbH Import and sale of carbon-based materials Germany Ordinary 82% 77.5%
Hargreaves Metallurgical Supplies Limited Mineral distribution UK Ordinary 100% 100%
Imperial Tankers Limited Haulage UK Ordinary 100% 100%
AJS Contracts Limited Engineering maintenance services UK Ordinary 100% 100%
Maxibrite Limited Smokeless fuel briquette manufacturing UK Ordinary 85.2% 85.2%
RocFuel Limited Renewable energy solutions UK Ordinary 50.1% 50.1%
RocPower Limited Renewable energy solutions UK Ordinary 85% 85%
Hargreaves Carbon Products NV Import and sale of carbon-based materials Belgium Ordinary 82% 62%
Mekol NV Port facilities Belgium Ordinary 82% 62%
Hargreaves Carbon Products Polska Sp Zo.o Sale of carbon-based materials Poland Ordinary 82% 80%
Hargreaves Europe Limited Holding company UK Ordinary 100% 100%
Hargreaves Services (HK) Limited Holding company Hong Kong Ordinary 100% 100%
Hargreaves Industrial Services (HK) Limited Contract management service Hong Kong Ordinary 100% –
Eastgate Materials Handling Limited Port facilities UK Ordinary 100% 50%
Hargreaves Services Europe Limited Import and sale of carbon-based materials UK Ordinary 82% –
Jointly controlled entities
Tower Regeneration Limited Coal mining UK Ordinary 50% 50%
Mir Trade Services BV Import and sale of carbon-based materials Netherlands Ordinary 50% 50%
Mir Trade Services Limited Import and sale of carbon-based materials UK Ordinary 50% –
Tower Regeneration Leasing Limited Lease of heavy plant UK Ordinary 50% –
Tower Regeneration Leasing Limited is a 100% owned subsidiary of Tower Regeneration Limited.
In addition to the above, the Group has approximately 13 dormant subsidiary undertakings.
The Group’s share of post-acquisition total recognised profit or loss in the above associates and jointly controlled entities for the year ended 31 May
2012 was a profit of £99,000 (2011: profit of £23,000).
Notes
Continued
Cost
At beginning of year 81
Additions –
Disposals (15)
At end of year 66
Share of post acquisition reserves
At beginning of year (81)
Transferred from current liabilities within other payables (149)
Profit for the financial year 99
Disposals 208
Effect of movements in foreign exchange (3)
At end of year 74
Net book value
At 31 May 2012 140
At 31 May 2011 –
The amount by which the accumulated share of post acquisition losses exceeds the cost of the investment in individual equity accounted entities has,
where required by the Group accounting policy, been transferred to current liabilities and included within Note 21.
Current Non-current Current Non-current Expenses
Ownership assets assets liabilities liabilities Revenue
(including tax)
% £000 £000 £000 £000 £000 £000
2012
Tower Regeneration Limited 50% 19,822 37,351 (26,434) (30,523) 5,557 (5,341)
Tower Regeneration Leasing Limited 50% 4,111 19,007 (6,793) (16,325) 250 (250)
MIR Trade Services Ltd 50% 4,722 – (4,673) – 3,139 (3,092)
MIR Trade Services BV 50% 80 – – – – –
28,735 56,358 (37,900) (46,848) 8,946 (8,683)
Current Non-current Current Non-current Expenses
Ownership assets assets liabilities liabilities Revenue
(including tax)
% £000 £000 £000 £000 £000 £000
2011
Eastgate Materials Handling Limited 50% 2,813 268 (3,490) (7) 11,269 (11,316)
Tower Regeneration Limited 50% – 4,596 (4,596) – – 132
MIR Trade Services BV 50% 87 – – – – –
2,900 4,864 (8,086) (7) 11,269 (11,184)
Corporate Governance
At 1 June 2010 28,436 – 28,436
Additions 1 42 43
Capital contribution arising on share options 1,067 – 1,067
At 31 May 2011 29,504 42 29,546
At 31 May 2011 29,504 42 29,546
Additions 2,456 – 2,456
Disposals (1,228) – (1,228)
Capital contribution arising on share options 1,332 – 1,332
At 31 May 2012 32,064 42 32,106
Financial Statements
2012 2011 2012 2011
£000 £000 £000 £000
Current
Currency contracts designated as fair value through profit or loss 306 57 – –
Currency contracts designated as fair value through hedging reserve 374 – – –
Other derivatives designated as fair value through hedging reserve 5,371 209 – –
6,051 266 – –
15 Other Financial Liabilities
Group Company
2012 2011 2012 2011
£000 £000 £000 £000
Non-current
Interest rate swaps designated as fair value through profit or loss – 168 – –
Interest rate swaps designated as fair value through hedging reserve 2,373 – –
Other derivatives designated as fair value through hedging reserve 885 – – –
3,258 168 – –
Current
Interest rate swaps designated as fair value through profit or loss 72 30 – –
Currency contracts designated as fair value through profit or loss 482 6 121 –
Other derivatives designated as fair value through hedging reserve 1,794 2,587 – –
Other derivatives designated as fair value through profit or loss 27 – – –
2,375 2,623 121 –
Notes
Continued
Deferred tax assets and liabilities have been netted as the Group has a legally enforceable right of offset and settlement will be on a net basis.
Movement in Deferred Tax During the Year
Acquired in
31 May Recognised Recognised business 31 May
2011 in income in equity combination 2012
£000 £000 £000 £000 £000
Corporate Governance
Share-based payments (123) (123) – –
Tax assets (123) (123) – –
Net of tax liabilities – – – –
Net tax assets (123) (123) – –
Movement in Deferred Tax During the Year
At 31 May 2010
and at Recognised Recognised 31 May
31 May 2011 in income in equity 2012
£000 £000 £000 £000
Financial Statements
There is no expiry date on the above recognised deferred tax asset.
Deferred tax assets and liabilities have been recognised at 24%, the tax rate which was substantively enacted on 26 March 2012. The Chancellor
also proposed changes to further reduce the main rate of corporation tax by 1% per annum to 22% by 1 April 2014, but these changes were not
substantively enacted during the year and therefore are not included in the figures above. The overall effect of the further reduction from 24%
to 22%, if these applied to the deferred tax balance at 31 May 2012, would be to further reduce the deferred tax liability by approximately £167,000.
17 Inventories
Group Company
2012 2011 2012 2011
£000 £000 £000 £000
The write-down of inventories to net realisable value amounted to £160,000 (2011: £446,000). The reversal of write-downs amounted to £nil (2011: £nil).
The write-down is in cost of sales.
Included within inventories is nil (2011: £6.2m) of advanced payments on account from customers.
Notes
Continued
The Group has a variety of credit terms depending on the customer. The majority of the Group’s sales are made to blue-chip companies and
consequently have very low historical default rates.
At 31 May 2012 trade receivables are shown net of an allowance for bad debts of £ 129,000 (2011: £110,000) arising from the ordinary course of
business, as follows:
2012 2011
£000 £000
Group
Balance at 1 June 110 593
Provided during the year 147 159
Released (67) (586)
Utilised during the year (61) (56)
Balance at 31 May 129 110
The allowance for bad debts records impairment losses unless the Group is satisfied that no recovery of the amount owing is possible, at that point
the amounts considered irrecoverable are written off against the trade receivables directly.
Group
Not past due date 58,193 (36) 58,157
Past due date (0–90 days) 10,817 (56) 10,761
Past due date (over 90 days) 129 (37) 92
Individually impaired amounts – – –
69,139 (129) 69,010
2011
Gross trade
Doubtful Net trade
receivables debt receivables
£000 £000 £000
Group
Not past due date 39,330 – 39,330
Past due date (0–90 days) 13,577 (109) 13,468
Past due date (over 90 days) 618 (1) 617
Individually impaired amounts – – –
53,525 (110) 53,415
The Group’s most significant trade receivable at 31 May 2012 is with DK Recycling und Roheisen GmbH which accounts for £5,089,000 (€6,335,000)
of trade receivables carrying amount at 31 May 2012 (2011: Tata Steel UK Limited £3,528,000).
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
2012 2011
£000 £000
UK 51,857 43,430
European customers 16,377 9,055
Other regions 776 930
69,010 53,415
The Group’s exposure to credit and currency risks and impairment losses related to trade receivables are disclosed in Note 26.
Cash and cash equivalents per balance sheet 45,852 17,243 22,270 1
Bank overdrafts (31,215) (23,994) – (5,017)
Corporate Governance
Cash and cash equivalents per cash flow statements 14,637 (6,751) 22,270 (5,016)
The Group’s exposure to credit and currency risk related to cash and cash equivalents is disclosed in Note 26.
Non-current liabilities
Finance lease liabilities 9,329 8,174 – –
Invoice discounting facility – – – –
Revolving credit facility 73,076 43,016 73,076 43,016
Financial Statements
82,405 51,190 73,076 43,016
Current liabilities
Pre-lease creditor – 1,593 – –
Promissory note facility 5,025 – – –
Current portion of finance lease liabilities 7,069 6,466 – –
12,094 8,059 – –
Bank overdraft 31,215 23,994 – 5,017
43,309 32,053 – 5,017
Finance lease liabilities Sterling 4.0% – 5.0% 2012–2017 16,398 16,398 14,640 14,640
Bank overdraft facility EUR/USD/ Sterling 4.87% – 5.0% 2013 31,215 31,215 23,994 23,994
Invoice discounting facility Sterling Base Rate + 2% 2015 – – – –
Revolving credit facility Sterling LIBOR + 2.35% 2015 75,000 73,076 44,000 43,016
Pre-lease creditor Sterling Non-interest bearing 2011 – – 1,593 1,593
Promissory note facility USD LIBOR + 1.5% 2012 5,039 5,025 – –
127,652 125,714 84,227 83,243
In April 2012, the Group completed a new 43-month multi-bank committed facility consisting of a £50m invoice finance facility and a £125m revolving
credit facility. This facility is secured by a debenture over the Group’s assets.
The invoice discounting facilities are committed 43-month facilities from 3 April 2012 which permit the refinancing of current trade receivables.
In accordance with the presentation requirements of IAS 32 and IAS 39 these liabilities have been classified according to the maturity date of the
longest permitted refinancing. Without these committed facilities these amounts would have been classified as falling due within one year. The
invoice discounting advances are secured by fixed and floating charges over the Group’s assets. The gross amount of debts which were subject
to invoice discounting advances at 31 May 2012 was £nil (2011: £nil). At the year end the invoice discounting facility was unused, with a credit with
a balance of £2,574,000 which was included in cash and cash equivalents.
The overdraft facility is a 24-month facility from 23 September 2011, and can be drawn down in Euros, US Dollars and Sterling.
The rate of interest is fixed and dependent on the currency drawn down.
The pre-lease creditor related to the financing of equipment at Maltby Colliery. This reverted to a standard finance lease liability once the equipment
had been delivered.
Hargreaves Services plc Annual Report and Accounts 2012 65
Financial Statements
Notes
Continued
Less than one year 7,693 624 7,069 7,243 777 6,466
Between one and five years 9,844 515 9,329 8,670 496 8,174
More than five years – – – – – –
17,537 1,139 16,398 15,913 1,273 14,640
21 Trade and Other Payables
Group Company
2012 2011 2012 2011
£000 £000 £000 £000
Current
Trade payables 62,137 53,733 – –
Trade payables due to Group undertakings – – 257,295 237,884
Trade payables due to undertakings in which the Company has a participating interest – – – –
Other trade payables 17,036 11,803 – –
Non-trade payables and accrued expenses 21,289 13,011 3,235 417
Deferred consideration – 658 – –
100,462 79,205 260,530 238,301
No amounts included within trade and other payables for the Group or Company are expected to be settled in more than 12 months (2011: £nil).
The Group provides for concessionary fuel retirement benefits, for the current members of the scheme, payable at retirement on attaining the age
of 65. The amounts payable are determined in the employee terms and conditions and are subject to a qualifying period of service. The costs of the
concessionary fuel benefits are determined by a qualified actuary on the basis of triennial valuations.
The latest full actuarial valuation was carried out on 31 December 2007 and updated for IAS 19 purposes to 31 May 2012.
Concessionary fuel is an unfunded retirement benefit and as such there are no assets in the scheme.
2012 2011
£000 £000
Corporate Governance
Current service cost 6 4
Contributions paid (22) (20)
Other finance cost 22 21
Actuarial loss 36 13
At the end of the year 450 408
Expense Recognised in the Income Statement
2012 2011
£000 £000
Financial Statements
The expense is recognised in the following line items in the income statement:
2012 2011
£000 £000
Administrative expenses 6 4
Finance expense 22 21
28 25
Actuarial gains and losses recognised directly in equity in the statement of comprehensive income since 17 June 2005.
2012 2011
£000 £000
The assumptions used by the actuary are chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice.
The assumptions relating to longevity underlying the pension liability at the balance sheet date are based on standard actuarial mortality tables and
include an allowance for future improvements in longevity. The assumptions are equivalent to expecting a 65 year old to live for a number of years
as follows:
Current pensioner aged 65: 20.0 years (male), 22.1 years (female).
Future retiree upon reaching 65: 20.6 years (male), 22.9 years (female).
Notes
Continued
Balance Sheet
2012 2011 2010 2009 2008
£000 £000 £000 £000 £000
Present value of the defined benefit obligation 450 408 390 364 419
Experience Adjustments
2012 2011 2010 2009 2008
The Group acquired another concessionary fuel retirement benefit scheme and became a member of two defined benefit schemes on the
acquisition of Maltby Colliery on 26 February 2007. Details of these three schemes are consolidated in the tables below.
The latest full actuarial valuation of all these schemes was carried out at 31 December 2007 and was updated for IAS 19 purposes to 31 May 2012
by a qualified independent actuary.
2012 2011
£000 £000
Corporate Governance
Expected return on defined benefit pension plan (1,574) (1,224)
Interest on defined benefit pension plan obligation 1,542 1,363
1,381 1,517
The expense is recognised in the following line items in the income statement:
2012 2011
£000 £000
Financial Statements
Actuarial gains and losses recognised directly in equity in the statement of comprehensive income since 26 February 2007.
2012 2011
£000 £000
Scheme Assets
The fair value of the scheme’s assets, which are not intended to be realised in the short term and may be subject to significant change before they
are realised, and the present value of the scheme’s liabilities, which are derived from cash flow projections over long periods and thus inherently
uncertain, were:
Fair value at
Fair value at
2012 2011
£000 £000
Notes
Continued
The assumptions used by the actuary are chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice.
The assumptions relating to longevity underlying the pension liability at the balance sheet date are based on standard actuarial mortality tables and
include an allowance for future improvements in longevity. The assumptions are equivalent to expecting a 60 year old to live for a number of years
as follows:
IWMPS
Current pensioner aged 60: 21.6 years (male), 25.4 years (female).
Future retiree upon reaching 60: 22.3 years (male), 26.3 years (female).
IWCSSS
Current pensioner aged 60: 24.3 years (male), 26.7 years (female).
Future retiree upon reaching 60: 25.0 years (male), 27.5 years (female).
History of Plans
The history of the plans for the current and prior periods is as follows:
Balance Sheet
2012 2011 2010 2009 2008
£000 £000 £000 £000 £000
Present value of the defined benefit obligation (32,177) (27,776) (23,478) (16,258) (16,573)
Fair value of plan assets 26,658 24,298 17,691 12,193 11,561
Deficit (5,519) (3,478) (5,787) (4,065) (5,012)
Experience Adjustments
2012 2011 2010 2009 2008
The terms and conditions of the grants are as follows, whereby all options are settled by physical delivery of shares:
Corporate Governance
Number
Date of
Employees of shares Vesting
Contractual
grant entitled granted conditions life
Equity Settled Share Option Scheme – Norec September 2006 Senior employees 96,572 3 years’ service 11 years
Long-Term Incentive Plan 2 June 2008 Senior employees 128,621 3 years’ service and EPS
growth of 35.4% (30% award)
– 63.5% (100% award)
over RPI over those 3 years 3.5 years
Savings-Related Share Option Scheme 4 April 2009 All employees 231,870 3 years’ service 3.5 years
Long-Term Incentive Plan 3 June 2009 Senior employees 193,658 3 years’ service and EPS
growth of 18.9% (30% award)
– 30.0% (100% award)
over RPI over those 3 years 3.5 years
Savings-Related Share Option Scheme 5 April 2010 All employees 175,511 3 years’ service 3.5 years
Long-Term Incentive Plan 4 December 2010 Senior employees 128,702 3 years’ service and EPS 3.5 years
growth of 12% (30% award)
– 26.0% (100% award
Financial Statements
over RPI over those 3 years
Savings-Related Share Option Scheme 6 April 2011 All employees 141,122 3 years’ service 3.5 years
Long-Term Incentive Plan 5 September 2011 Senior employees 134,626 3 years’ service and EPS 3.5 years
growth of 9.3%% (30% award)
– 22.5% (100% award
over RPI over those 3 years
Savings-Related Share Option Scheme 7 April 2012 All employees 167,715 3 years’ service 3.5 years
The number and weighted average exercise price of share options is as follows:
The options outstanding at 31 May 2012 have an exercise price in the range of 443p to 1,098p and have a weighted average contractual life
of 1.5 years.
The options exercised during the year had a weighted average market value of 1,002p (2011: 753p).
Notes
Continued
The options exercised during the year had a weighted average market value of 1,209p.
The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of
the fair value of the services received is measured based on the Black-Scholes model. The contractual life of the option is used as an input into this model.
2012 2011
Savings- Savings-
Long-Term Related Long-Term Related
Incentive Share Option Incentive Share Option
Plan 5 Scheme 7 Plan 4 Scheme 6
Volatility was calculated with reference to the Group’s daily share price volatility. The average share price in the year was 1,092 pence (2011: 772 pence).
The costs charged to the income statement relating to share-based payments were as follows:
2012 2011
£000 £000
Corporate Governance
Provisions made during the year 55 206 440 – 701
Provisions utilised during the year – – (59) (175) (234)
Balance at 31 May 2012 1,637 6,021 1,624 – 9,282
Provisions comprise:
1 A £1,637,000 ground and groundwater contamination provision which relates to Monckton’s obligation to address ground and groundwater
contamination at its sites. The provision is based on estimates of volumes of contaminated soil and historical contract costs of ground
contamination treatment. The costs will usually be payable on the decommissioning of the site.
2 A £6,021,000 restoration provision which relates to Maltby’s obligation to restore the site after coal mining has been completed. The provision
has increased due to estimates of the future cost of labour and fuel increasing. Payment is not anticipated until the end of the mine life.
3 A statutory provision payable to the UK Coal Mining Board at a set rate, in order to rectify any potential subsidence of the local area around
Maltby Colliery. Any unused provision will be released after the statutory period.
Financial Statements
Share Capital
Ordinary shares
2012 2011
Number Number
Translation Reserve
The translation reserve comprises all foreign exchange differences arising since 1 June 2007, the transition date to Adopted IFRSs, from the translation
of the financial statements of foreign operations.
Other Reserves
Other reserves, the Merger reserve, and the Capital Redemption reserve are historical reserves for which no movements are anticipated.
Dividends
The aggregate amount of dividends comprises:
2012 2011
£000 £000
Final dividends paid in respect of prior year but not recognised as liabilities in that year 2,803 2,525
Interim dividends paid in respect of the current year 1,625 1,367
4,428 3,892
Proposed dividend of 11.8p per share (2011: 10.4p) 3,196 2,790
The proposed dividend has not been included in liabilities as it was not approved before the year end.
Notes
Continued
26 Financial Instruments
The Group’s and Company’s principal financial instruments comprise short-term receivables and payables, bank loans and overdrafts, invoice
discounting advances, obligations under finance leases and cash. Neither the Group nor the Company trades in financial instruments but uses
derivative financial instruments in the form of forward rate agreements and forward foreign currency contracts to help manage its foreign currency,
interest rate and commodity price exposures. The main purpose of these financial instruments is to raise finance for the Group’s and Company’s
ongoing operations and manage its working capital requirements.
Level 1: The fair value is calculated based on quoted prices traded in active markets for identical assets or liabilities.
Level 2: The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows utilising applicable
year end yield curves. The fair value of forward foreign exchange and commodity contracts is determined using quoted forward exchange
rates and commodity prices at the reported date and yield curves derived from quoted interest rates matching the maturities of the
forward contracts.
Level 3: The fair value is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).
In both 2012 and 2011 all of the interest rate swaps, the forward exchange contracts and the commodity contracts are considered to be Level 2 in the
fair value hierarchy. There have been no transfers between categories in the current or preceding year.
The fair values of all financial instruments, in both the current and prior year, approximate to their carrying values.
The allowance account for trade receivables is used to record impairment losses unless the Group or Company is satisfied that no recovery
of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly.
Further information on credit risk is provided in note 18.
The Group manages its liquidity risk by monitoring existing facilities and cash flows against forecast requirements based on a rolling cash forecast.
Group
2012 2011
Carrying Contractual 1 year 1 to <2 2 to <5 5 years Carrying Contractual 1 year 1 to <2 2 to <5 5 years
amount cash flow or less years years and over amount cash flow or less years years and over
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Corporate Governance
Non-derivative
financial liabilities
Secured bank loans – – – – – – 1,593 1,593 1,593 – – –
Finance lease liabilities 16,398 17,537 7,693 4,743 5,101 – 14,640 15,913 7,243 4,879 3,791 –
Bank overdrafts 31,215 31,215 – 31,215 – – 23,994 23,994 23,994 – – –
Trade and other payables* 100,462 100,462 100,462 – – – 79,205 79,205 79,205 – – –
Invoice discounting facility (2,574) (2,574) (2,574) – – – (3,214) (3,214) (3,214) – – –
Revolving credit facility 73,076 73,076 – – 73,076 – 43,016 43,016 – 43,016 – –
Promissory note facility 5,039 5,025 5,025 – – – – – – – – –
Derivative financial
liabilities
Interest rate swaps
used for hedging 2,445 2,445 72 – 2,373 – 198 198 30 168 – –
Forward exchange
contracts used for hedging:
Financial Statements
Outflow 482 482 482 – – – 6 6 6 – – –
Inflow – – – – – – – – – – – –
Commodity contracts:
Outflow 2,706 2,706 1,821 231 654 – 2,587 2,587 2,587 – – –
Inflow – – – – – – – – – – – –
229,249 230,374 112,981 36,189 81,204 – 162,025 163,298 111,444 48,063 3,791 –
* Excludes derivatives (shown separately).
Company
2012 2011
Carrying Contractual 1 year 1 to <2 2 to <5 5 years Carrying Contractual 1 year 1 to <2 2 to <5 5 years
amount cash flow or less years years and over amount cash flow or less years years and over
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Non-derivative
financial liabilities
Trade and other payables 260,530 260,530 260,530 – – – 238,301 238,301 238,301 – – –
Bank overdraft – – – – – – 5,017 5,017 5,017 – – –
Revolving credit facility 73,076 73,076 – – 73,076 – 43,016 43,016 – 43,016 – –
Derivative financial
liabilities
Forward exchange
contracts used for hedging:
Outflow 121 121 121 – – – – – – – – –
Inflow – – – – – – – – – – – –
333,727 333,727 260,651 – 73,076 – 286,334 286,334 243,318 43,016 – –
Notes
Continued
Group
The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currencies
of Group entities. The Group’s policy is to reduce currency exposures on sales and purchasing through forward foreign currency contracts.
The Group is exposed to interest rate risk principally where its borrowings are at a variable interest rate. The Group’s policy it to reduce this exposure
through interest rate swaps.
The Group mitigates these risks wherever practicable, through the use of measures including fixed price contracts, hedging instruments and
‘back to back’ purchase and sale agreements.
Although short-term trading risks are managed in this way, through the ownership of Maltby Colliery, Monckton Coke Works, and the Group’s
participation in the Tower surface mining jointly controlled entity, the Group does have a longer-term exposure to price movements, favourable
or unfavourable, in international coal and coke prices.
31 May 2012
Polish
Sterling Euro
US Dollar Zloty Total
£000 £000 £000 £000 £000
Corporate Governance
Invoice discounting facility 3,214 – – 3,214
Trade receivables 44,404 5,399 3,612 53,415
Trade payables (38,398) (2,327) (13,008) (53,733)
Other trade payables (11,803) – – (11,803)
Overdraft (2,846) (8,976) (12,172) (23,994)
Revolving credit facility (43,016) – – (43,016)
Pre-lease creditor (1,593) – – (1,593)
(48,937) 4,743 (19,287) (63,481)
Balance sheet exposure – – –
Estimated forecast sales – – –
Estimated forecast purchases – – –
Gross exposure 4,743 (19,287) (14,544)
Forward exchange contracts – 6,416 6,416
Financial Statements
Net exposure 4,743 (12,871) (8,128)
Company
The Company has no exposure to foreign currency risk.
Sensitivity Analysis
Group
A 10% weakening of the following currencies against the pound Sterling at 31 May 2012 would have increased equity and profit or loss by the amounts
shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date.
This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis is performed on the
same basis for 2011.
Equity Profit or loss
2012 2011 2012 2011
£000 £000 £000 £000
A 10% strengthening of the above currencies against the pound Sterling at 31 May 2012 would have had the equal but opposite effect on the above
currencies to the amounts shown above, on the basis that all other variables remain constant.
Notes
Continued
This analysis assumes that all other variables, in particular foreign currency rates, remain constant and considers the effect of financial instruments
with variable interest rates, financial instrument at fair value through profit or loss or available for sale with fixed interest rates and the fixed rate
element of interest rate swaps. The analysis is performed on the same basis for 2011.
Group Company
2012 2011 2012 2011
£000 £000 £000 £000
Profit or loss
Increase/(decrease) 252 (63) 73 (185)
The capital structure is reviewed regularly by the Group’s Board of Directors. The Group’s policy is to maintain gearing at levels appropriate to the
business. The Board principally reviews gearing determined as a proportion of debt to earnings before interest, tax and depreciation. The Board also
takes consideration of gearing determined as the proportion of net debt to total capital. It should be noted that the Board reviews gearing taking
careful account of the working capital needs and flows of the business. In the trading businesses, where working capital cycles are regular, predictable
and generally less than 90 days, the Board is comfortable to maintain higher levels of debt and gearing as measured against EBITDA.
There are no externally imposed capital requirements but the bank debt is subject to certain covenants in line with normal commercial practice.
Historic and projected compliance with these covenants is reviewed by the Board on a regular basis.
27 Operating Leases
Non-cancellable operating lease rentals are payable as follows:
Group Company
2012 2011 2012 2011
£000 £000 £000 £000
Company
During the year £nil was recognised as an expense in the income statement in respect of operating leases (2011: £nil).
29 Contingencies
Corporate Governance
Group and Company
The Company and certain of its subsidiary undertakings have debenture and composite arrangements in connection with banking facilities.
The Company acts as a guarantor, or surety, for various subsidiary undertakings in banking and other agreements entered into by them in the
normal course of business. The Company’s maximum unprovided exposure is £5,280,000 (2011: £16,374,000).
30 Related Parties
Identity of related parties with which the group has transacted
The Group and Company have a related party relationship with their subsidiaries and jointly controlled entities (Note 13) and its Directors.
The Group also has a related party relationship with Hatfield Colliery Limited, in which it holds 10% of the issued share capital. At 31 May 2012,
the Group is owed £2,192,000 (2011: £nil) under a Hire Purchase agreement.
Group
Other related party transactions
Sales to Purchases from
2012 2011 2012 2011
£000 £000 £000 £000
Financial Statements
Jointly controlled entities
Eastgate Materials Handling Limited – 3,728 – 5,520
Tower Regeneration Limited 6,847 – 20 –
Tower Regeneration Leasing Limited – – 250 –
MIR Trade Services Limited 715 – – –
7,562 3,728 270 5,520
Receivables Payables
outstanding outstanding
2012 2011 2012 2011
£000 £000 £000 £000
Notes
Continued
Receivables Payables
outstanding outstanding
2012 2011 2012 2011
£000 £000 £000 £000
NOTICE IS HEREBY GIVEN that this year’s Annual General Meeting will be held at Prior’s Hall, Durham Cathedral, The College, Durham, DH1 3EH
on Friday 23 November 2012 at 11.00 a.m. for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following resolutions, of which resolutions 1 to 9 will be proposed as ordinary resolutions and resolution 10
as a special resolution.
Corporate Governance
1 To adopt and receive the Directors’ Report, the Directors’ Corporate Governance and Remuneration Report, the Auditor’s Report and the
Financial Statements for the year ended 31 May 2012.
2 To approve the Directors’ Corporate Governance and Remuneration Report for the year ended 31 May 2012.
3 To declare a final dividend for the year ended 31 May 2012 of 11.8 pence per ordinary share to bring the dividend for the year ended 31 May 2012
to a total of 17.8 pence.
4 To re-appoint Iain Cockburn as a Director of the Company in accordance with article 34 of the Company’s articles of association, who offers
himself for re-appointment.
5 To re-appoint Gordon Banham as a Director of the Company in accordance with article 34 of the Company’s articles of association, who offers
himself for re-appointment.
6 To re-appoint David Morgan as a Director of the Company in accordance with article 29.2 of the Company’s articles of association who offers
himself for re-appointment.
7 To re-appoint KPMG Audit Plc as auditors of the Company to hold office from the conclusion of this meeting to the conclusion of the next
meeting at which accounts are laid before the Company.
8 To authorise the Directors to agree the remuneration of the auditors.
9 That the Directors of the Company be and are generally granted and unconditionally authorised for the purposes of Section 551 of the
Financial Statements
Companies Act 2006 (the Act) to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for
or to convert any security into such shares in the Company (Rights):
9.1 up to an aggregate nominal value of £910,014 (representing approximately one-third of the total ordinary share capital in issue as at the
date of this notice); and
9.2 comprising equity securities (within the meaning of section 560 of the Act) up to an aggregate nominal amount of £1,820,028 (after
deducting from such amount any shares allotted under the authority conferred by virtue of resolution 9.1) in connection with or pursuant
to an offer or invitation by way of a rights issue (as defined below),
provided that such authorities conferred by this resolution 9 shall expire on the earlier of the conclusion of the next Annual General Meeting
of the Company or the date falling six months after the end of the Company’s current financial year unless varied, revoked or renewed by the
Company in general meeting, save that the Company may at any time before such expiry make an offer or agreement which would or might
require shares to be allotted or Rights to be granted after such expiry and the Directors may allot shares and grant Rights pursuant to such offers
or agreements as if the relevant authorities conferred by this resolution 9 had not expired. These authorities shall be in substitution for all
previous authorities previously granted to the directors to allot shares and grant Rights which are pursuant to this resolution 9 revoked but
without prejudice to any allotment or grant of Rights made or entered into prior to the date of this resolution 9.
For the purposes of this resolution 9, rights issue means an offer or invitation to (i) holders of ordinary shares in proportion (as nearly as may be
practicable) to the respective numbers of ordinary shares held by them on the record date for such allotment and (ii) persons who are holders of
other classes of equity securities if this is required by the rights of such securities (if any) or, if the Directors of the Company consider necessary, as
permitted by the rights of those securities, to subscribe for further securities by means of the issue of a renounceable letter (or other negotiable
instrument) which may be traded for a period before payment for the securities is due, but subject in both cases to such exclusions or other
arrangements as the Directors of the Company may deem necessary or expedient in relation to fractional entitlements, treasury shares, record
dates or legal, regulatory or practical difficulties which may arise under the laws of, or the requirements of, any recognised regulatory body or
any stock exchange in any territory or any other matter whatever.
10 That, subject to and conditional upon the passing of resolution 9 above, the Directors be and are empowered pursuant to Sections 570 and 573
of the Act to allot equity securities (as defined in Section 560 of the Act) of the Company for cash:
10.1 pursuant to the authority conferred upon them by resolution 9.1 or where the allotment constitutes an allotment of equity securities by
virtue of section 560(3) of the Act, provided that this power shall be limited to the allotment of equity securities:
10.1.1 in connection with or pursuant to an offer of such securities by way of a pre-emptive offer (as defined below); and
10.1.2 (otherwise than pursuant to sub-paragraph 10.1.1 above) up to an aggregate nominal value of £273,004 (representing approximately
10% of the total ordinary share capital in issue); and
10.2 pursuant to the authority conferred upon them by resolution 9.2, in connection with or pursuant to a rights issue,
as if section 561(1) of the Act did not apply to any such allotment and the authorities given shall expire on the earlier of the conclusion of
the next Annual General Meeting of the Company or the date falling six months after the end of the Company’s current financial year unless
renewed or extended prior to such expiry, save that the Directors of the Company may before such expiry make an offer or agreement which
would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such
offer or agreement notwithstanding that the power conferred by this resolution 10 has expired.
For the purpose of this resolution 10:
(a) rights issue has the meaning given in resolution 9; and
(b) pre-emptive offer means a rights issue, open offer or other pre-emptive issue or offer to (i) holders of ordinary shares in proportion
(as nearly as may be practicable) to the respective numbers of ordinary shares held by them on the record date(s) for such allotment; and
(ii) persons who are holders of other classes of equity securities if this is required by the rights of such securities (if any) or, if the Directors
of the Company consider necessary, as permitted by the rights of those securities, but subject in both cases to such exclusions or other
arrangements as the Directors of the Company may deem necessary or expedient in relation to fractional entitlements, treasury shares,
record dates or legal, regulatory or practical difficulties which may arise under the laws of, or the requirements of, any recognised
regulatory body or any stock exchange in any territory or any other matter whatever.
Hargreaves Services plc Annual Report and Accounts 2012 81
Financial Statements
Special Business
To consider and, if thought fit, pass the following resolution as a special resolution.
11 The Company be and is generally and unconditionally authorised for the purpose of section 701 of the Companies Act 2006 (the Act) to make
market purchases (which in this resolution shall have the meaning given to this term in section 693 (4) of the Act) of its ordinary shares of 10p
each in the capital of the Company (Ordinary Shares) on the terms set out below:
11.1 the maximum aggregate number of Ordinary Shares authorised to be purchased by the Company pursuant to this resolution 11
is 2,730,043 (representing approximately ten per cent of the number of Ordinary Shares in issue); and
11.2 the minimum price which may be paid for each of those Ordinary Shares (exclusive of expenses) is 10 pence; and
11.3 the maximum price (exclusive of expenses) which may be paid for each of those Ordinary Shares is not more than the higher of (i) five per
cent above the average of the middle market quotations for Ordinary Shares (as derived from the Daily Official Lists of the London Stock
Exchange) for the five dealing days immediately preceding the date of purchase and (ii) that stipulated by Article 5(1) of the Buy-Back and
Stabilisation Regulations 2003,
but so that this authority shall (unless previously varied, revoked or renewed) expire on the earlier of the conclusion of the next Annual General
Meeting of the Company or the date falling six months after the end of the Company’s current financial year, save that the Company may before
the expiry of this authority conclude any contract for the purchase of its own shares pursuant to the authority conferred by this resolution 11
which contract would or might be executed wholly or partially after the expiration of this authority as if the authority conferred by this resolution
11 had not expired.
24 October 2012
Stephen MacQuarrie
Company Secretary
Registered Office:
West Terrace
Esh Winning
Durham
DH7 9PT
Registered in England and Wales No. 4952865
Corporate Governance
the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A proxy form
which may be used to make such appointment and give proxy instructions accompanies this notice.
3. To be valid any proxy form or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand at
the office of the Registrars of the Company, Capita Registrars, Proxies Department, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU
no later than 6.00 p.m. on 21 November 2012.
4. The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described in paragraph 9 below) will not prevent
a shareholder attending the Annual General Meeting and voting in person if he/she wishes to do so.
5. If a member appoints a proxy or proxies and then decides to attend the Annual General Meeting in person and vote using his poll card, then
the vote in person will override the proxy vote(s). If the vote in person is in respect of the member’s entire holding, then all proxy votes will be
disregarded. If, however, the member votes at the meeting in respect of less than the member’s entire holding, then if the member indicates on
his polling card that all proxies are to be disregarded, that shall be the case; but if the member does not specifically revoke proxies, then the vote
in person will be treated in the same way as if it were the last received proxy and earlier proxies will only be disregarded to the extent that to
count them would result in the number of votes being cast exceeding the member’s entire holding. If you do not have a proxy form and/or
believe that you should have one or if you require additional forms, please contact the Company at its registered office.
6. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off time for
receipt of proxy appointments (see Note 3 above) also applies in relation to amended instructions; any amended proxy appointment received
Financial Statements
after the relevant cut-off time will be disregarded.
Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-copy proxy
form, please contact Capita Registrars at Proxies Department, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU.
If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take
precedence.
7. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to
revoke your proxy appointment to Capita Registrars. In the case of a member which is a company, the revocation notice must be executed under
its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority
under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice.
The revocation notice must be received by Capita Registrars at Proxies Department, The Registry, 34 Beckenham Road, Beckenham, Kent,
BR3 4TU no later than 11.00 a.m. on 21 November 2012. If you attempt to revoke your proxy appointment but the revocation is received after
the time specified then, subject to paragraph 5 above your appointment will remain valid.
8. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the
procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have
appointed voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate
action on their behalf.
9. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy
Instruction’) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (Euroclear) specifications, and must contain the
information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a
proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by
the issuer’s agent (ID RA10) by 11.00 a.m. on 21 November 2012. For this purpose, the time of receipt will be taken to be the time (as determined
by the timestamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to
CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated
to the appointee through other means.
10. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear does not make available
special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of
CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member,
or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such
action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection,
CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the
CREST Manual concerning practical limitations of the CREST system and timings.
11. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001 (as amended).
12. If a corporation is a member of the Company, it may by resolution of its directors or other governing body authorise one or more persons to act
as its representative or representatives at the Meeting and any such representative or representatives shall be entitled to exercise on behalf of the
corporation all the powers that the corporation could exercise if it were an individual member of the Company.
Corporate representatives should bring with them either an original or certified copy of the appropriate board resolution or an original letter
confirming the appointment, provided it is on the corporation’s letterhead and is signed by an authorised signatory and accompanied by
evidence of the signatory’s authority.
13. As at 23 October 2012 (being the last business day prior to the publication of this Notice) the Company’s issued share capital consists of
27,300,427 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 23 October 2012 are 27,300,427.
14. The following documents will be available for inspection of the Company’s registered office at West Terrace, Esh Winning, Durham, DH7 9PT
during normal business hours on any week day (Saturdays and English public holidays excepted) from the date of this notice until the close
of the Meeting and at the place of that Meeting for at least 15 minutes prior to and during the Meeting:
• copies of the service contracts for the Executive Directors of the Company; and
• copies of the letters of appointment of Non-Executive Directors of the Company.
Resolutions 1 to 9 are proposed as ordinary resolutions. This means that for each of those resolutions to be passed, more than half of the votes cast
must be in favour of the resolution. Resolutions 10 and 11 are proposed as special resolutions. This means that for each of those resolutions to be
passed, at least three-quarters of the votes cast must be in favour of the resolution.
Resolution 1: Accounts
The Directors will present their Report, the Directors’ Corporate Governance and Remuneration Report, the Auditor’s Report and the audited financial
statements for the financial year ended 31 May 2012 to the meeting as required by law. These reports and statements are set out on pages 22 to 80
of this document.
Brief biographical details of Iain Cockburn and Gordon Banham are set out on page 20 of this document.
Brief biographical details of David Morgan are set out on page 20 of this document.
In line with guidance issued by the Association of British Insurers in December 2008, resolution 9.2 grants the Directors of the Company authority
to allot unissued share capital in connection with a rights issue in favour of ordinary shareholders up to an aggregate nominal amount of £1,820,028
(representing 18,200,285 ordinary shares of 10 pence each), as reduced by the nominal amount of any shares issued under resolution 9.1. This amount,
before any such reduction, represents approximately two thirds of the Company’s ordinary share capital in issue at 23 October 2012.
It is not the Directors’ current intention to exercise either such authorities. The authorities granted by resolution 9 replace the existing authority
to allot shares.
Corporate Governance
Resolution 11: Purchase of own shares
Resolution 11 authorises the Company to purchase its own shares (in accordance with section 701 of the Companies Act 2006) during the period
from the date of this Annual General Meeting until the end of the next Annual General Meeting of the Company or the expiration of six months
after the 2013 Company financial year end, whichever is the sooner, up to a total of 2,730,043 ordinary shares. This represents approximately 10% of
the issued ordinary share capital as at 23 October 2012, the latest practicable date prior to the issue of this circular. The maximum price payable for
a share shall not be more than the higher of 5% above the average of the middle market quotations of such shares for the five business days before
such purchases and the price stipulated by Article 5(1) of the Buy-back and Stabilisation Regulations 2003 (being the higher of the price of the last
independent trade and the highest current independent bid on the trading venue where the purchase is carried out). The minimum price payable
for a share will be 10 pence. Companies are permitted to retain any of their own shares which they have purchased as treasury stock with a view to
possible re-issue at a future date, rather than cancelling them. The Company will consider holding any of its own shares that it purchases pursuant
to the authority conferred by this resolution as treasury stock. This would give the Company the ability to re-issue treasury shares quickly and
cost-effectively, and would provide the Company with additional flexibility in the management of its capital base.
The Directors will consider making use of the renewed authorities pursuant to resolution 11 in circumstances which they consider to be in the best
interests of shareholders generally after taking account of market conditions prevailing at the time, other investment opportunities, appropriate
gearing levels, the effect on earnings per share and the Company’s overall financial position. No purchases will be made which would effectively
alter the control of the Company without the prior approval of the shareholders in general meeting.
Financial Statements
Notes
Corporate Governance
Financial Statements
Notes
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