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 £4.1m and this is expected to rise to £8.3m 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 £1 billion from an initial investment of just £38 million. This involved raising fresh funding and developing new operations, such as backing the MBO of Uskmouth Power and raising £650 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 €5 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 £2bn 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 £150m which will likely be funded by £50m of equity and approximately £100m 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 |
