TIDMHSP
RNS Number : 0032I
Hargreaves Services PLC
14 June 2017
For immediate release 14 June 2017
Hargreaves Services plc
("Hargreaves" or "the Group")
Update on Group's Energy Interests and Proposed Board Change
Hargreaves Services plc (AIM: HSP), a diversified group
delivering key projects and services to the infrastructure, energy
and property sectors, provides an update on its energy project
development activities and strategy.
Highlights
-- The creation of a new wholly owned subsidiary, Brockwell
Energy Limited ("Brockwell"), to oversee the development and
potential spin-off of the Group's energy project interests;
-- Brockwell will be led by Alex Lambie, as CEO, supported by
Iain Cockburn, the Group's Finance Director, who will step down
from the Hargreaves Services plc Board once a suitable replacement
has been identified; and
-- A Memorandum of Understanding ("MOU") with the UK Green
Investment Bank ("GIB") to deliver the Earl's Gate Combined Heat
& Power ("CHP") project.
Background
Over the past two years the Group has made significant progress
in developing an exciting portfolio of energy projects which
includes energy from waste ("EfW"), onshore wind and flexible gas
generation. The energy projects were originally identified as a
catalyst that would enhance the value of the Group's property
portfolio; locking in long term land rentals from developed energy
projects. However, as our appraisal of the projects progressed it
became clear that they also have the potential to create
significant value as they are taken through the planning and
development process.
Key projects under active evaluation and/or development
include:
-- Two EfW projects, namely Earl's Gate CHP (Grangemouth,
Scotland) and Westfield (Fife, Scotland);
-- 400MW of onshore wind projects, including a single 300MW
scheme, the construction of which will deliver significant site
restoration benefits; and
-- Flexible gas generation projects centred around a number of
the Group's own grid connections.
Recognising the potential for value creation, the Board is
seeking an approach that will both reduce the complexity of the
Group's existing operations and limit the capital demands on the
Group, in line with its stated simplification strategy. This is
likely to lead to the Group reducing its economic interest in the
energy portfolio through the injection of external capital into
Brockwell, which will both control the development risk and protect
the Group's balance sheet.
Future Development of Energy Projects through Brockwell
Although the Group's portfolio of energy projects offers the
opportunity for significant value creation, its development through
build-out will require substantial capital. The balance sheet value
of the energy portfolio at 31 May was GBP4.1m and this is expected
to rise to GBP8.3m by 30 November 2017 largely as a result of
ongoing pre-development expenses incurred on the Earl's Gate
project.
The Board strongly believes that there exists today an exciting
opportunity to use the Group's projects and assets as the platform
upon which to build an integrated energy business in the UK
including onshore wind, solar PV, EfW and flexible technologies
including gas and energy storage.
The Board remains cognisant of the need to manage risk and
control the level of any future financial demands placed on the
Group as it balances the creation of shareholder value against the
generation of surplus cash. The Board also remains committed to
continuing the process of simplifying the Group's strategy and
operations. In accordance with its strategy the Board has resolved
that the Group will inject all of its energy interests into a newly
formed, 100% owned ring-fenced subsidiary, Brockwell. The Group's
property arm and Brockwell will continue to work together to
exploit the Group's extensive land bank and, in particular, to
identify additional solar and onshore wind development
opportunities. The Group will maintain a carried interest in future
energy projects through its equity interest in Brockwell.
Management of Brockwell and proposed Board change
The Board is delighted to confirm the appointment of Alex Lambie
as Chief Executive Officer of Brockwell. The appointment of Alex
adds significant energy sector experience and expertise to the
Brockwell management team.
Over his 40-year career, Alex has proved himself to be one of
the most successful senior executives in the energy sector. This
was most recently highlighted by his success with Welsh Power Group
Ltd. As the majority shareholder and Non-Executive Chairman he
built Welsh Power Group into an integrated energy business with an
enterprise value exceeding GBP1 billion from an initial investment
of just GBP38 million. This involved raising fresh funding and
developing new operations, such as backing the MBO of Uskmouth
Power and raising GBP650 million for the construction of a major
850 MW CCGT development. Alex finally sold his controlling interest
in Welsh Power Group in November 2015.
Prior to Welsh Power Group, Alex led the highly successful
European expansion and risk diversification strategy for Spain's
largest electricity company, Endesa, investing over EUR5 billion of
equity to acquire and develop businesses in Italy, France, the
Netherlands, Portugal and Morocco. He also led the turnaround of
Dawson's US business operations, returning the lossmaking company
strongly back to profit in less than 18 months. He was also
responsible for the first ever international fuel procurement deal
in the UK, delivering a GBP2bn contract for National Power Plc to
counteract the lack of competition in the home market.
In addition to fulfilling his role as Group Finance Director,
Iain Cockburn has been responsible for the development of the
Group's energy interests over the past two years. In view of the
significance of the strategic opportunity for the Group represented
by the Group's portfolio of energy projects, Iain has agreed to
join Brockwell on a permanent basis as Chief Financial Officer.
Iain will remain in his post as Hargreaves Group plc's Finance
Director until a replacement has been found and an orderly handover
undertaken.
Earl's Gate Project Update
We are pleased to report excellent progress on the development
of the Earl's Gate project. This project is a circa 200,000 tonnes
per annum, 22MW electrical CHP plant that will utilise
well-established and proven technology from one of the world's
leading providers. The CHP plant will benefit from selling heat and
power into an existing private heat and power network at the Earl's
Gate complex, making it one of most efficient CHP plants of its
type in the UK.
Following the grant of planning permission in January 2017, the
Group announces that it has agreed an MOU to develop the project in
partnership with GIB. Under the terms of the MOU, GIB has deployed
technical and commercial resources to work alongside the Brockwell
team with the intention of taking a 50% equity stake in the project
at financial close, expected by the end of December 2017. The
projected capital expenditure required for the plant is circa
GBP150m which will likely be funded by GBP50m of equity and
approximately GBP100m of non-recourse project debt.
The Board expects the Earl's Gate project to generate
significant long-term returns and value. In the short term, the
successful financial closure of the project should generate a
modest development premium and offer an opportunity for the Group
to co-invest alongside a highly credible and successful third party
investor.
Management Comments
David Morgan, Chairman of Hargreaves, commented: "Exciting
progress continues to be made in developing value in our energy
projects. The formation of Brockwell Energy creates an opportunity
to raise the specialist capital and create the partnerships
necessary to enable the Group to extract maximum value across the
entire portfolio of energy projects whilst allowing the Group to
control the level of any investment and to focus on cash generation
and the continuing simplification and development of the
Group."
Gordon Banham, Chief Executive Officer of Hargreaves, commented:
"Iain has been a great finance director and business partner and
whilst I will miss working with him on the Hargreaves Services plc
Board, I am delighted that he will be supporting the development
and funding of Brockwell. I am also excited that we have been able
to attract Alex Lambie to lead Brockwell. Alex's track record
speaks for itself and I am pleased to see that Alex and Iain have
already formed a strong working partnership. Iain will remain in
place in his Group role until a replacement has been found to
ensure a seamless transition. I would like to acknowledge and thank
Iain for his ten years of dedicated service during which time he
has played a key role in the development of the Group's activities,
through both good and challenging times. I look forward to the
value and cash that Brockwell can help the Group to realise from
its property and energy investments."
Alex Lambie, Chief Executive Officer of Brockwell, commented:
"Since first engaging with Hargreaves to advise on the development
of its energy projects, I have been struck by the quality of the
project portfolio and the drive and professionalism of the team
that has been assembled within the Group to develop and manage
these projects. Together, the projects and the team offer the
opportunity to create significant value from the current project
portfolio and provide a strong platform to develop a larger
business focused on the development and delivery of energy projects
across a balanced portfolio of technologies. I am delighted to be
tasked with leading the team and excited by the opportunities that
lie ahead."
For further details:
Hargreaves Services
Gordon Banham, Chief
Executive Officer
Iain Cockburn, Finance
Director 0191 373 4485
Buchanan
Mark Court / Sophie Cowles 020 7466 5000
N+1 Singer (Nomad and
Joint Broker)
Sandy Fraser / Nick Owen 020 7496 3000
Investec (Joint Broker)
Sara Hale / Robert Baker 020 7597 5970
This information is provided by RNS
The company news service from the London Stock Exchange
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