Hargreaves on the acquisition trail as group sees profits soar

COAL mining and support services group Hargreaves Services is on the hunt for acquisitions after lifting profits by almost 50 per cent and securing a new financing deal with its banks.

The group, which owns Yorkshire's Maltby colliery, yesterday said pre-tax profits for the year to the end of May leapt 46.5 per cent to a record 26.2m. Revenue was up by almost a quarter to 503.1m from 404.9m a year earlier.

Hargreaves said it has sorted a new 115m debt facility with a syndicate of five banks led by Royal Bank of Scotland, at attractive interest rates.

"Despite what you hear about banks not lending, all five banks were really keen to develop the relationship with Hargreaves," said chief executive Gordon Banham.

The group has net debt of around 70m, and with total facilities of 155m, Mr Banham said Hargreaves has considerable scope to expand by acquisition.

"The likelihood's moved up in the last couple of months," he said "There's every likelihood that we'll be looking to do acquisitions in the next 12 months. We're now starting to see much more realistic valuations appear on potential acquisitions."

Hargreaves is looking at up to 10 possible targets, any of which could be as much as 20m, Mr Banham added.

Over the year Maltby upped its production of coal by 4.4 per cent to 1.09 million tonnes. Hargreaves bought the mine from UK Coal and plans to extend its life to 2025. It invested about 20m in the mine over the year and is ploughing in another 15m investment this year.

Maltby has been a working mine since 1908 and is one of only two remaining deep coal mines in the UK, employing more than 500 people.

"We are committed to substantial investment to bringing Maltby up to a world-class mining operation," said finance director Iain Cockburn.

The group's enhanced profitability was driven by its energy and commodity division, which improved margins on coal sales, as by well as niche marketing.

All power station coal mined at Maltby is sold to North Yorkshire's Drax under long-term contract – about 600,000 tonnes a year.

Another 30 per cent of the coal is sold to export markets, where it is highly prized because of its low phosphorous content.

Manufacturers of solar panels in Scandinavia, France and Spain import Maltby coal because of its chemical properties.

Hargreaves also owns the Monckton Coke & Chemical Company in Barnsley, the last independent coke producer in the UK, which processes Maltby's coal.

The production division improved operating profits by about eight per cent to 10.5m.

The group is also forging ahead with plans to reopen Tower Colliery in South Wales, which would allow it to access its seven million tonnes of coal reserves via opencast mining.

It expects a decision from planning authorities on its plans there by June 2011, by which point it will have invested about 4m in the project.

Earlier this year Hargreaves bought UK Coal's 50 per cent stake in Coal4Energy for 9m.

The business, set up in 2006 as a joint venture between the two firms, is Britain's largest coal supplier to the domestic andindustrial markets, serving everyone from households to prisons.

It added about 20m revenue to the group's results.

"It's been another fantastic year for Hargreaves," said Mr Banham. "It's four years since we floated and we have always outdelivered market expectations.

"If you want the lights to stay on or the bins to be emptied, you need what we do."

Hargreaves proposed a final dividend of 8p, bringing its total dividend to 11.8p, an increase of 15 per cent.

Analyst James Wheatcroft at Evolution Securities said "accretive acquisitions will add extra spice". He added the company would be re-rated as its relative protection from commodity prices becomes clearer.

He reiterated his 'buy' recommendation, and increased his target to 700 pence per share from 650 pence.

At forefront of renewable race

Hargreaves Services plans to generate electricity from renewable fuels at six sites across Yorkshire.

Earlier this year it signed a contract with electricity firm YEDL to generate electricity from renewable sources.

Hargreaves will use a combination of fuels, including cooking oil, biofuels and imported tall oil, a by-product from paper manufacturing.

After a successful trial run at a pilot plant in Immingham over the past year, which received Renewable Energy Certificates, it is now working through planning and certification for an eight megawatt (MW) site in Wakefield.

The next site is earmarked for Sheffield.

Hargreaves plans to generate up to 60MW of electricity annually from the Yorkshire sites, which will be fed into the national grid.