Hargreaves Services sells entire speciality coal inventory to joint venture

The AIM-traded firm said it had sold all of the speciality coal held at its two UK stockholding sites to HRMS for around £24m in cash.

Its remaining coal stocks comprised heavy industrial coal, which was expected to be sold to third parties over the rest of the current financial year.

The group said it expected to have no material coal inventory by 31 May - the end of the current financial year.

Following the sale to HRMS, Hargreaves said it had entered into a sales agency agreement under which it would market and arrange for the sale of the speciality coal inventory on behalf of HRMS on a commission basis.

Hargreaves would no longer produce or import coal, and all material direct revenue streams relating to coal production or trading would cease, with HRMS taking over the trading in the UK.

The company ceased all coal mining operations as of July, as it announced on 2 June.

Hargreaves owns 49.9% of the voting shares in HRMS, but retained an 86% economic interest.

Building on its existing expertise in coal and other bulk commodity trading activities in continental Europe, HRMS was expecting the purchase of Hargreaves' speciality coal inventory to provide a “springboard” from which to establish trading relationships with major UK purchasers.

The transaction resulted in a £3m impairment to goodwill relating to Hargreaves' coal trading business.

Hargreaves said the cessation of coal trading would reduce its projected revenue by £25m and £30m in the years ending 31 May 2021 and 2022 respectively, and by £20m for subsequent years.

However, the impact on underlying profit before tax was expected to be neutral as Hargreaves would benefit from a combination of reduced interest charges, and a projected increase in its share of profits from the HRMS joint venture.

Following the receipt of proceeds, the group said it was expecting net debt at 31 May 2021 to be £15m lower than its previous expectations, reflecting the fact that a proportion of the speciality coal stocks was projected to be sold before the financial year-end in any event.

Forecast period-end net debt was expected to comprise only leasing commitments, with no net bank debt.

The transaction would reduce Hargreaves' projected borrowing requirements materially, the board said, and by selling off all coal inventory, was expected to assist the company in establishing banking facilities which it said would be “more appropriate” for its future business needs.

HRMS was independently funded without recourse to Hargreaves, other than a long-standing guarantee over its borrowings, which was capped at €5.0m.

“The board is delighted to have unlocked the capital from its coal business, which was a key strategic goal, whilst supporting the growth of HRMS to deliver future shareholder value,” said Hargreaves Services chairman Roger McDowell.

“This transaction represents a significant stride away from our legacy in coal as the Group looks to build sustainable growth across our remaining revenue streams.”

At 1206 GMT, shares in Hargreaves Services were up 4.84% at 260p.