Hargreaves Services Plc - Analyst/Investor Day (HSP) Earnings Call Transcript & Summary

It's great to see some familiar faces here, and I'd like to welcome particularly those new friends that we've got who are spending the time with us today and not forgetting all the folks who are online. So thank you for making the effort to do that, too. So the team are here today, what we're going to do is concentrate on 2 particular areas of our business where we've got some new developments to run through with you and where we feel strongly we can grow and develop shareholder value, which is what we're all about. So those of you who are familiar with the group will not need a reminder that we're organized effectively into three really clear pillars. We have a Services business. We have a land business, and we're deliberately not talking about the land business today. We have no particular surprises there the land business continues to develop positively. And then we've got the -- our HRMS business, which is our activity in Germany, where we do have some new news. So this structure has been in place for a number of years and is really clear cut and is the basis on which we operate. We want to and will continue to grow the services business. We'll talk about that through the accumulation of some high-quality, robust contractual positions in our target markets. And we do have a little bit of a tailwind in that area, which we'll talk to. As I've said, the land business is in good shape, and the game plan there over a period of time is to realize capital from that land portfolio, including -- and we've recently announced 1 disposal, the renewable energy and assets. The game plan in Germany is to maximize the returns from our German joint venture and create a valuable and they're a unique asset, more of that later. So we're making good progress on those 3 strategic aims, including not to make 2 finer points a bit our presence at size well. And the recent sale of the first tranche of the energy and assets that I've just referred to and continuing cash receipts from our German business, HRMS, which supports, in no small measure, the group dividend. So today, we're going to focus, as I've said, on the services business unit and a very interesting opportunity emerging within the world of steel waste recycling. I know it's hard to believe there are exciting things emerging in the steel waste recycling, well, believe me, there are. So the last 5 years have seen substantial growth in our services offering with profit growing at an annual rate of 30% over that period. Simon and the team will be building on that forward momentum, highlighting the business model that's allowed us to be successful as well as the scale of the opportunities that lie in front of us and why we are well positioned. So as I did say, we have a little bit of a tailwind in that area. Then Gordon will present on 2 key areas. Firstly, he's got to give a more in-depth understanding of the steel waste recycling process at DK recycling in [indiscernible] and then he's going to present a new opportunity to recover and recycle zinc oxide that's been developed in-house, building on the group's expertise, innovation and commitment to minimizing industrial waste. There's going to be opportunities for questions as my colleague has just said, at the end of each section. So just hold your questions until the end of each section. We're also taking questions online, I think obviously and we'll -- we're going to manage them at the end of each section as well. Okay. So that's the game plan. Then I'm going to introduce Simon, who's going to take over at this point, and I forgot to press the button, so there it is. Thank you.

Thank you and good morning to everybody. Services strategy. So first of all, I'm really pleased to be presenting to you all here today. First time I presented to you as an audience 6 months in the business so far. So just want to introduce who's going to be presenting today, myself, Chief Operations Officer of Hargreaves Services Plc. Niall Fraser, who is joining us. He's the MD of our Blackwell's business. He's been working for lower [indiscernible] crossing Sizewell and HS2 and is a very busy gentleman. So I'm glad he's with us today. Then Sean Hager, who looks after the business that services a number of our core customers in a number of the sectors that we operate in, energy, waste, water, environmental and industrials. As you can see by our photos, lots of experience between the 3, there's about a century of experience collectively that we have. We've all been in this sector from very early in our lives. And we've been working through what for me personally and for other colleagues has been the decarbonization ourselves when I started in the industry, I started building gas plants and operating oil and gas assets. And we've been on that journey with our customers over the last 30 years. And in front of us, we see, in my mind, a really exciting future. It's the first time in a generation, I think, for the infrastructure sector. We've had some certainty. So I'm going to take you as our investors through how we're approaching those opportunities in front of us and how we're looking to deliver value as we go forward. Reminder first of what the services model within Hargreaves is about. That long-term set of relationships that we've built over many years, 70-plus customers we tipped over last year. That gives us a really strong base to think about the future. Without that certainty and that resilience, it will be difficult for us to look forward into the opportunities coming. This business delivers really strong fundamentals. 6% margin is very good in the sector. It's a good strong performance we tipped over that last year. Really strong free cash flows. We're converting the work in progress in line with our contract commitments, and it's an excellent return on capital employed. GBP 36 million of our EBITDA last year. And most importantly, that firm base gives us that ability to select. We've built the business. It's inflation resistant. You saw that during the times of high inflation. It's resistant in its revenues and it's resistant to credit exposure. The sorts of customers we deal with, large blue-chip organizations, and we're very careful about how we contract with those customers. So with all of these factors working together, we've now got an opportunity to grow. The question for us going forward is where do we now grow and where do we take that growth. Those of you who may have seen in June this year, the government published for the first time in a long time, a robust industrial strategy for infrastructure. The 10-year infrastructure plan and the aligning of [indiscernible] and National Infrastructure services transfer information authority now has given us a clear and if you choose to look at it online, a portal that shows us what the 10 years looks forward for the U.K.'s investment in infrastructure. Lots of people, when I talk to folks to say, we're sure we're going to get this done and they start to look at some of the signs of what's happening and where we're seeing that activity starting to come towards us. GBP 725 billion is a publicly announced number the government says it's going to be spent, and that's a 20% to 25% uptick on what's spent in previous years over the next 10. All of the industry bodies that represent skills are saying that's going to increase, too. I sit on the Engineering Construction Training Board, and we're seeing the volume of apprenticeship starts and people going on the site already ticking up. We partly wait to [indiscernible] as a country, and we're now looking forward to other large infrastructure. So we'll just take it in the 3 columns that Hargreaves operate in. Connectivity, which in our minds, is connecting people. It's all the things that bring people together that large infrastructure of roads, rail, airports and indeed now data, large rollouts of infrastructure investment in data. And what does that mean to Hargreaves. Well, we've been on HS2 for some time now. Niall's [indiscernible] have been delivering long time. When it gets finished, it's in the public domain, probably as we always say, another 2 years to run. So HS2, we're there. East West Rail is coming, lower terms crossing. We've done some preliminary work on that already in this year, and we're looking forward into next year. We get the timing right. It moves our fleet from one contract onto another contract, Lower Thames Crossing already engaged. Enhanced regional transport and Heathrow, which is now called Expanding Heathrow along the Heathrow expansion project. We've worked on the preliminary work for that, and we've done some of the scheme work already. So again, well positioned to take advantage of that. As I touched on the data centers. Data centers for Hargreaves could mean a number of things. It could mean on our land. It could mean we provide services to prepare the land or it could mean we provide services to build those assets and operate them. In our minds a data center is a small refinery, it needs large amounts of electricity, large amounts of clean water. So it fits neatly with the services that we would provide. The second column we're interested in is, of course, clean energy. And in Clean Energy, we're already supporting is well with the Tempur construction area. If you go down to Sizewell, the moonscape that we've created has been done over the past 2 or 3 years. We've been involved very early on in the project and we've been transitioning now our fleet to one that's ready and prepared to do the major works down there. We're in a very good place outside well. If we look at SMRs, nuclear fusion, the government have just announced the rollout of Wilver, which is going to be multiple SMRs. They've announced the investment in the Hartley pool, which is going to be a third nuclear -- new build nuclear using American technology and we are at West Burton clearing the site of old ash, and that prepares that sight for the Atomic Energy Authority to come into there to start thinking about the first fission and fusion projects. So we're well placed there. Energy from Waste, colleagues in the room who operate our haulage and waste management businesses Energy from Waste presents us with an opportunity that we're already in. We move that we're waste around on our vehicles. We operate some of their assets, and we're maintaining some of their assets, that sector has now stabilized for us. It's a good position for long-term contracts, and we have some really good customers in them. Renewables, developing wind farms and solar on our land and energy storage battery storage that we have broken across. So that segment, clearly available to Hargreaves to target and lots of investment going in there. On to the environment and the environmental sector, we just completed some trial pits at the [indiscernible] reservoir, and we're doing the Friends reservoir trial pits in the spring. We are going to be in the U.K. investing in a series of large reservoirs that we haven't done for 40 to 45 years, significant investment on the same scale so that we're seeing at HS2 and Sizewell and [indiscernible], the strategic reservoir for Thames. We've already been engaged in the pre-contractual conversations with Thames. Sean's business in it has a business we acquired a few years ago, which operates within the existing water treatment businesses, and that's providing us mechanical, electrical services into the water treatment business, water processing. And we're doing small EPC-type projects for them in upgrading their plants. So [indiscernible] coming towards us, which produce gives us another opportunity there. Not only do we operate and assist them in the operation, and we build reservoirs, we're also dealing with a waste product from waste. Our land remediation takes the waste sludges from a number of water companies, Scottish Water, Yorkshire, Northumbrian and thames and we use that to immediate land in Scotland. That material will keep coming towards us. We have to think about a different solution for that as we run out of land bank to put it onto the land, and there's quite a lot of energy and conversation going in as what do we do next? How do we upgrade the facilities to deal with that waste large-scale investment there. Sustainable resources, we're looking at bringing in all these clean energy projects and infrastructure projects all need sustainable types of resources. There's no point building clean energy assets from materials that aren't sustainable. So I'll talk about a case study later on. We've talked about how we're finding sustainable materials to win into the construction of these infrastructure projects. So hopefully, you can see our enthusiasm for large markets ahead of us. We've got a strong business that's delivering strong returns. The question for me is how do we make sure we maximize the opportunity and take those opportunities ahead of us. A simple operating model. I like simplicity, I like to keep things so that we can convert that message into all of our people. And it's built under 3 pillars. Inspire people, get the best people into our business, train them well, look after them and engage them and they'll do great work for us and for our customers. That's the first pillar of our work stream, and Niall will talk about a live example of how we're doing that within the earthmoving business. Once we've got those people deliver excellence, Hargreaves got a really strong reputation in the sector. I've known agree at all of my life, and we've always seen Hargreaves as a really strong deliverer. We've got to maintain that reputation, maintaining that reputation and that standard of excellence is what delivers in these large infrastructure projects and what keeps our customers coming back to us. Sean is going to talk about how we do that within a specific project within our business. And if we have the greatest people delivering on those standards, we win more work. And win is not just about winning more work for us, it's winning for our people. Winning for them by winning more work, gives them more employment prospects or opportunities to develop and grow our business. So this is a circular model, understand our business, understand our customers and follow them with great people who are inspired to deliver excellence. Now I'd like to hand over to Niall, who's going to talk about how we're inspiring some of our people on the ground.

Thank you very much assignment. As Simon says, I'm going to pick up the first step in the operating model, the Inspire step. And I'm going to look at that through the lens of Blackwater moving and how [indiscernible] as a part of Hargreaves resources, these very large moving projects, which in the infrastructure sector, which Simon has described. By way of context, we've been doing it next year for 70 years. Next year is our platinum anniversary. So this isn't news to Blackwell, it's what we do as a business. And obviously, we've been doing it as part of the Hargreaves Group for the last 10 years and have benefited enormously from the support and the backing of the Plc. So thank you to Simon. In terms of how we inspire our resources. You can see a [indiscernible] in three here. We have a workforce which currently actually is [indiscernible] 400 is nearly 500. We have quite a lot of subcontract staff working for us at Sizewell as well. We have a professional managerial of supervisory staff of about 100 and then we have the earthmoving fleet. The earthmoving fleet is amongst the largest. It's amongst the newest in the U.K., and it includes over 250 [indiscernible] is heavy earthmoving equipment. But I'm going to focus in the Inspire space on the people because however hard I try, I do find it quite difficult to inspire a bulldozer. So how do we inspire our people. And what does the inspiration means. To me it means and this really is reiterating what Simon has said, it's how we recruit and retain the best people for the business, the best people in the industry. So I believe our team right away from workforce through to leadership contains the strongest moving proponents within the U.K. So how do we do that? Let me give you some examples and as a stress, we've been doing this for a long, long time. By way of more recent illustration since Hargreaves acquired us 10 years ago. We've grown the business about free fold. So we went from the head count on the A14, which was our largest, largest high reserve moving project ever undertaken. We've grown the business since we moved from into A14 into HS2 and Sizewell, about freehold [indiscernible]. How we can do it. How do we do it in that -- in the people space. What makes people want to come and work for Blackwell. I'm going to refer here to if you were to pets on the slides. One is the heritage. Blackwell's are a very, very well-regarded name in U.K. Civil engineering. As part of the Hargreaves Group, with [indiscernible] backing of the Plc and the [indiscernible] and the credibility that, that gives us, I do believe it makes us a very, very attractive proposition for those seeking a career in civil engineering. The opportunity which Blackwell present because we only work on the very largest projects, which are in national conscious, as Simon has mentioned in Sizewell, HS2, HS1. I worked on HS1 and I've worked on [indiscernible] Terinal 5. These are projects which people are keen to work on from a career development perspective. If you come to work for Blackwell's a part of Hargreaves, you are going to work on Korea defining projects. So that point, I think, makes us very attractive. The opportunities within the group for our people to gain because and -- we are a very specialist business. We do 1 thing and one thing only and it's earthmoving. It can be seen as Pigeon holding, but as part of Hargreaves, we offer our people training another experience is whether it's a part a division in Hong Kong, which our people wouldn't have if we were part of the broader group. And those projects extend not just into the construction phase with construction cycle of project, Blackwell also provides professional services, advisory services, at a very early stage of the project is mentioned, HS2. We actually started working in the paid capacity, believe it or not on HS2 in 2012. We do put our first bucket on the ground until 2019. So the opportunity for our people to gain experience at very early stages of the project, which may certainly more special -- most of our peers, most specialist contractors don't offer. I think also makes us very attractive. We're also a very progressive employer the image on the bottom right here has a logo on it, [ 25 in '25 ], we've been driving the recruitment of women in U.K. Civil engineering for a number of years resulting in our 25 in '25 campaign, where we set out during the course of 2025 to increase our head count of women's 25%. We're very, very nearly there. I'm conscious there's not much every year left. But given that national average in U.K. engineering is 13%, we're way ahead of the curve. We're also very progressive and Simon again touched upon it in and that is plays back into the plant fleet in our approach to carbon reduction in earthworks. We've been looking at carbon reduction initiatives in earthworks since 2011. We work with the University of Cambridge into research -- research paper for the carbon impact of the work. And back in 2011, I think it's still called global warming. It wasn't climate change at that point. So we've been doing these long, long before others were thinking at it. We still lead the industry. We've an early adopter of battery electric equipment because simply speaking, we need to take these out of heavy earthmoving, which is a real challenge. But other ways we do it is using matric electric equipment. With the support of Hargreaves, we bought the first 2 battery electric earthmoving spaces in the U.K., which is really, really exciting. That inspires people to come and work for us because they see Blackwell as being an employer who's taking the challenges of sustainability very, very seriously. We have to recruit and retain the best people to meet the challenges and to meet the opportunities which are in front of us. Simon, again, has alluded to many of these. The scale of the earthmoving required for the new fleet of reservoirs, for [indiscernible] water who we're already engaged with in a [ consultancy ] and mining contracting capacity and water was anything for this country seen. Certainly, and I've been doing this for 37 years, it towards anything that I see in 37 years, dwarfing even the scale of the year moving on HS2. That coupled with airport expansion earthmoving, particularly Heathrow Airport means, but there's huge opportunities ahead for Blackwells and the broader group on these projects. We have to inspire our people in order to have the capacity to do it. And with that, I'm going to hand over to Sean for the next chain.

Thank you now. Sean Hager, Managing Director of Hargreaves Industrial Services, but I also have responsibility growth level for health and safety and delivery of operational excellence. And as Niall has mentioned, Blackwell have been around for 70 years -- or almost 70 years. The Industrial Services division has been not quite 70 years, but it will go back to the mining industry of the mine. So we've been involved in this decarbonization of the industry for many, many years now. The positive, and I [indiscernible] some comfort from this about Industrial Services is that we never lose contracts. So the only time we lose the contract is when the contract comes to an end or the plant sales to exist that we're working on. Occasionally, we'll make a commercial decision to enter contract because it's not working for other -- it's not working for the client. But predominantly, our contracts continue to roll over the inflation built under provide good, steady, safe income. We put this down to our operating standards the business consumer, really good, really established, really safe operating standards. Many of our operations take place in really high risk environments, power stations, earthmoving, significant large projects. These type of environments demand really high levels of health and safety. It's an expectation and we build on this expectation with real high levels of operational delivery, again, as I mentioned, that reinforces the brand and almost guarantees [indiscernible] business. There is an example on the slide. So the example on the slide that is behind it is one of our activities where we handle lodge and biosolids on behalf of a number of water companies. This just is another example of where Hargreaves was involved in the purpose of the waste and really turning it into a usable commodity. Biosolid, just for a background, so biosolids really are a byproduct of a switch treatment works. So the sludge is made as part of the sweet treatment works, it is cleaning the water the flood is treated and what you get out of that treated sludge is basically a fertilizer that can be put to land. And we to sell quality, it's crop growth, all supporting the circular economy. Some of the sludge unfortunately, is unsuitable can't be treated. So what we know with that sludge is that we take it to predominantly large industrial land banks in Scotland where they [indiscernible] to the [indiscernible] and help support landscaping activities. So very circular. We're currently working with 2 water companies on these projects and we abide an absolute full end-to-end service. So we take the logistic comes out of the [indiscernible] treatment works all the way to put in our own land. In these activities, we provide all the plant. We provide all the labor, we provide all the operating controls. Everything we do is provided and controlled by Hargreaves. Everything is critical, and our focus is on how we deliver safe, reliable operations. What we can't do is take sludge to land, which in going to a [indiscernible] process and [indiscernible] because being the health and safety risk brings an environmentally show brings the food safety to potentially. We've got some really robust well-embedded consultant segues that ensure that everything we do is many styling. We invest steadily in plant. We invest heavily in people. The plant is a more stricter date, most environmentally friendly, most efficient plant that you can get in the market. Our people said are competent and multiskilled are invested in. Having modern plant competent work for us and a can-do attitude of a business that is regarded as safe and as a great reputation guarantees business and make sure that we can keep generating good, safe revenue. Okay. Thank you, Simon.

Thank you, Sean. So coming those first 2 points there. The next thing for me is to win and to win more work and win for our people. Thank you, Niall. Thank you, Sean. Let's not forget that at the core of Hargreaves history, we were a trading business. Origins can be traced all the way back to 1936 if you do the history and check back where the name came from. And this is a business that has followed its customers for all that time. We provided solid fuels into the thermal energy business for many years, and we've done in that, we've started to build up the services you've seen today. So instead of using our equipment to mine mines, we're using it to prepare the ground for clean energy. Instead of using our equipment to move solid fuel into thermal power generators, we're using that to move sludge. So we've transitioned as a business now from an old product that went into delivering energy for the country into the services that purviewed future infrastructure and future energy for the U.K. We're well prepared and well positioned for the future markets coming towards us. The example that for me, sums a lot of that help is a recent project that our minerals team worked on in conjunction with our earthmoving teams and industrial and haulage businesses. In building these assets, you have to make sure, as I've said before, you have to have sustainable products and sustainable equipment that's going in there. It's no longer optional other consent orders on these assets, say suppliers will deliver sustainable products. So our minerals trading team source the product to fulfill a [indiscernible] down at Sizewell. Sizewell need circa 6 million tonnes to 9 million tonnes of aggregate to backfill the plant, the project. Minerals team sourced a secondary product. It was a waste product being put to waste Granite that was a waste product from digging a tunnel in Oslo. So that product would have normally disappeared and been lost. And they sourced the product, tested it for quality and compliance that it could go into the project, the right size, the right composition right hardness. And not only that, they took it upon themselves to work out that because it's a byproduct, it can be certified as having 22.5% less CO2 in its production. And that's when you compare it to mining [indiscernible] materials out of a quarry. So because it's a byproduct, it's got less carbon intensity, which is appealing to our customer. So we've then set about organizing the shipping, organizing the port handling, organizing the delivery of that stuff on our vehicles and incorporating into that product. Customers really pleased we fulfilled one of their sustainability needs in a project by joining the services that Harris does separately together on this project, maximizing the value into our business. We will continue to drive forward with our strategy. And hopefully, you've seen today how focused we are as a leadership team on making sure that we're delivering for our customers and delivering for our shareholders. I'd just like to now share with you, we've prepared a short video, which gives you an insight into some of the things we're doing. And so you can have a look at what we think is a very exciting business. [Presentation]

Hopefully, that gives you a flavor of what our teams are doing and how we're supporting the country in its infrastructure development. We have great people, and we are building inspiration into those teams. We deliver excellent services, and we're always looking to drive greater efficiencies and winning more work. I hope you can see now we're positioned to take advantage of the pipeline of critical infrastructure projects ahead of us. Happy to take questions at this point.

It's Ed Stacey from Cavendish. And just 1 question, and it's about the reservoirs because Niall mentioned that the scale of the earthmoving contract would dwarf HS2. I know you're not going to give me a number for any of those reservoirs. But in terms of like are we talking it would dwarf the total scale of HS2, but would be spread over 15 years or kind of annual run rate? Are we talking about contracts that might actually be bigger than what you've been doing on HS2.

Thank you. That's a really good question. There's more than 1 reservoir. There's a fleet of 10 new reservoirs to be built in the U.K. pretty much starting construction-wise in 4 to 5 years' time and then running for 10 to 15 years beyond that. Of those reservoirs, 3 of them have enormous amounts of the earthmoving and 2 of them have a modest amount of earthmoving and the other 5 less so, the combined earthmoving required for all of those reservoirs. And there's no firm figures available for me. So some of this is my judgment equals and is slightly greater than the earthmoving requirements for HS2. So in terms of the magnitude slightly more. And in H2, I'm talking HS2 Phase 1, obviously, London, Birmingham, what's currently in construction. In terms of magnitude, slightly more in terms of run rate, depending on the timing of the reservoirs potentially over a slightly longer period. HS2 has been concentrated over 5 years. Here, we're looking at the between 5 to 10.

Thank you. [indiscernible], an investor. I just wanted to ask maybe a broader question on the competitive landscape. Could you talk about your major competitors and maybe your market share. And the way you win businesses, is it more like -- I'm simplifying it, but I hope you explained it in more detail, like pricing or quality or timing? And then, if I may, on the contracts, like just for us to understand as investors like what kind -- how the contracts work? Is it like a 12-month a multiyear? And you mentioned the 6% margin what gives you confidence in this? Like how do you arrive at that? Like is it a cost plus? Or just kind of a bit more on the contracts, I think.

Okay. In terms of competition, if you look at hardware, we operate a number of services. So we would compete with potentially different people in those services. clear example as you saw in the videos and trucks. Lots of people own and use trucks, but we're actually quite niche in that. So we move certain specific projects which associated with the sector we're in. So you could arguably say we don't have thousands of competitors in that. We have a narrower space of competitors who have trucks. In earthmoving, large-scale earthmoving, there are maybe 2 or 3 in this country to is definitely on the smaller but do the type of work we do. So those large infrastructure projects that haven't been run for a long time, very well positioned because there isn't a great deal of competition in that in the U.K. In our industrial business, there are probably more customers because we have a broad spread of what we do. But again, we're quite specific in what we do. We do handling of stuff rather than general mechanical, electrical. So what I'm trying to paint to is we're quite niche in that infrastructure space, but there were lots of people who could claim there in that space, too, which is a very big market with lots of services. But if you want, especially in earthmoving, you would come to Blackwell. In terms of the contract models we adapt, because we're selective and we have a strong base, we're not out there doing lump sum EPC type of work. The Industrial business is very much a flow-through of cost with a margin and management fee derisked. We're providing the customers with efficiency gains by working with them and they pay us broadly our costs. Same in earthmoving because there's a great deal of competition. We're not doing that big lump sum pieces and work, we tend to be fee-based. So I hope that answers the question. We're not in that area of non-term big construction.

Yes. So if I stick to services-related questions. First part is which part of the agro services are you most hopeful of seeing good growth, what area of service.

I mean the obvious in there is the volume of earthmoving Niall talked about. But that feeds -- if we get the businesses as we bring the businesses in into those larger projects and they communicate well together, which they do, it pulls to other things. So I guess all of it. Yes, yes. We've got a really good example, Sean, just reminding me of we did a significant amount of earthmoving for HS2, as everybody knows. And we also installed a large conveyor, which the Industrial Services did big piece of work, and it takes stuff across a road and highway so that we don't have to have trucks coming in and out there. That's an example of pull through good relationship with a customer, we're bringing 2 of the other services.

I think this question is it is a services-related question, although I think the genes of it is in the land business, whether or not the business is considered checking closed mines for the presence of rare earth metals, I suspect, it means as there could be -- this one might be for you.

Well, no, we haven't [indiscernible].

Thank you, Gordon. That's all I'm going to cover on services. There's a few questions that are more generic, but we'll pick them after.

Simon Corfield, shareholder. How do you measure Inspire Excellence, I guess, winning is easier to measure, but how do you measure inspire and excellent.

Tricky is the answer to that because it's a people-based thing. So for me, it's about -- if you look at our people, wasting Scotland looking at land remediation last week. And I was talking to a gentleman that's worked for us for many, many years is 62 years old, started with apprentice started mining coal for in an up gas coal mine in Scotland. And he's now operating a digger, which is taking the way Sean talked about bringing that back in the land and putting the land back on top, we're storing it to nature. He's enormously proud about that activity, and he says to me specifically, you've allowed me to do that as a business. So you do it by talking to people, you do it by the traditional do people engagement studies, people engagement surveys and say, whether people are happy to work for us whether to recommend us to a friend Excellence is our team contracts. It's what Sean talked about. When we retain contracts and they renew them without negotiation, that's a hard measure for excellence. So we've delivered that service. And I'm going to hand it over to Gordon.

Good morning, everybody. I think most of you know me, Gordon Batam, CEO. I just want to say thank you to the team for what they did on services. Simon has been a great addition to the group. And of course, the old faithfuls, Sean and Niall continue to do a really great job for me. So let me just talk about Germany. I just want to take some time because you can imagine on the roadshows, we don't have a lot of time to talk about Germany. And I have been fairly throw away with a lot of the shareholders by saying, well, if you're doing a sum of the parts calculation, just look at what the balance sheet is and put it in a balance sheet value. And that's very unfair on the German business. So what I'm going to do today is just take some time to try and give you the data to make your own decision on what that valuation should be in your sum of the parts play. So at the moment, the balance sheet is about GBP 58 million of our share of it. So let me just take you through and remind you. So the German business, forget DK Zinc processing, it's a new announcement today. Historically, you'll all be aware of that the business split into 2 parts. So you have the trading business, HRMS, which owns DK recycling. DK recycling, HRMS and the zinc processing business are all ring-fenced -- so you have to do a little bit of the sum of the parts of the 3, but they are ring-fenced from each other, which is important to know. When I've been on road show with a lot of you and I've spoken about HRMS as a trading business. And I've said to you very simply, it makes about GBP 1 million a month. So if we eventually want to recover value, very easy route is to close it down, liquidate the stocks. There's about 3 months of inventory in the books. So you've got GBP 3 million of profit, which we wouldn't take that would be a redundancy closure costs. So hopefully, you look at it and go, right, Gordon, I've got my head around that, that bit secure, easy. That trading business is a bunch of people and I always say, I don't attribute a value to that per se because these people can leave. So I try to be realistic as that. DK recycling is a very specific business in the recycling sector and I'm going to explain that in a lot more detail for you, reminding some of you are explaining it to people. Just remember, voting rights are different from economic. So basically, the profits of this business, we get 86% of it. The little nuance, and it's really exciting. And please pay attention as we go through because you'll see how they all link very well. DK Zinc processing is a new announcement today from a point of view of where we're developing the business, but if you look at it, it stands alone and it is -- we have purposely shown as part of Plc because we will be reporting on this as part of the group. So it sits as part of the group. It's not a joint venture. So I just wanted to make that clear. So just reminding everybody today about the business at DK. So DK is a recycling business. Its technology is the only technology that deals with waste dust from glass furnaces. You really have any 2 options with the waste dust. You either put it to landfill or you give it to us. Traditionally, some have gone to landfill, some have gone to us. What the process does, and these are all our customers, so a very big blue chips that you'll know the names of. We mixed coking coal with iron ore, and we put it into our blast furnace and we get pig iron, zinc and energy. So we're recycling, it's very positive. We're also protected because we have our own power station on site. So it's a big industrial complex and does the job very well and pixel [indiscernible] with it. Like I said, the customers can either do it with us or landfill. But 1 of the key points that I'll pick up later is it typically can only deal with a zinc content of about 3%. Now it's a USP because nobody else can deal with 3%, that's why it goes into landfill, but it can't deal with high zinc, which is what the new electric heart furnaces do. So what I'd say here is, and this is just a correlation. In the old days, I would sit and say this business is going to be long making between GBP 5 million and GBP 20 million profit. Why does it vary well, if there's operational problems at the plant and then, of course, zinc is a commodity. So what tends to happen if zinc prices go up, and we have a good run, and we're producing well, we could be up at close to the 20. If zinc prices are down and we have some problems at the plant, we could be down at 5. But it's always worked in that range. We've always been very comfortable looking at it like that. But I think everyone in this room knows there's a huge amount of change in the steel well. These are the 3 points that you've all heard of, people have mentioned over the last 12 months. I'll try and dig into them in a little bit of detail to explain what impact they're having, but you're all aware of Trump, you finally use that name today. Trump and the tariffs and all that's going on. So it's creating some huge dynamics. And that's why DK had some challenges over the last couple of years. So what are the market drivers in DK as well? Well, if you think about it, as I told you, coke and pig iron prices tend to be symbiotic, so that was okay, wasn't it? Well, tariffs are causing major disruption to the steel industry in Europe. You're seeing plant closures or capacity reduction. That's meaning that steel prices are very, very low. Most of it is loss-making, which is driving pig iron prices really below cost of production. So that's hurting us. Construction sector down in Europe, therefore, running at roughly 60% of normal levels. That's a negative to us. A positive, and I mentioned this when I've been out on a road show with some of you. The Russia was dumping 1 million tonnes a year of pig iron into Europe because it wasn't an embargo product after the Ukrainian invasion. That has now been sanctioned. So by the end of '25, 1 million tonnes of pig iron will come out of the European market, which should help drive prices up. Then there's a thing called the carbon border adjustment mechanism. There's some people in this room will know all about it and go, yes, I understand that. Some of you may not. The scary thing -- and I put it very easily for you, if you bring a ton of pig iron after 2035 into the U.K. -- into Europe, you will be paying 100 -- based on what the price was in November, you will be paying EUR 164 a tonne more for that commodity, just a straight tax on the top EUR 164. So if you're involved in any businesses that are heavily involved in bringing in or using steel products, that is the green tax that is coming by 2035. It's called CBAM. It's just starting and what it really means is that if you bring anything into Europe and you have done it with high global emissions, so pig iron is roughly 2 tonnes of CO2 for every tonne produced. If you do that in Brazil or China or India, you will have to pay this on top of normal tariffs, EUR 164. So that shows you how much these prices are going to move up. In Europe, you get what's called free allowances. And at the moment, DK gets about 500,000 free allowances to keep us in business. And then we give those 500,000 back. It's a very circular process. In 2026, the EU has to make a decision because what's going to happen, if they carry on in their current trajectory, by 2035, we will get no more free allowances. So we'll have to buy them. But all of our competitors who are bringing it in the outside of Europe are going to pay EUR 164. What it really means is if you buy pig iron, whether it's from us or from these guys, you're going to pay EUR 164 a tonne more based on that price. So that's a significant cost to European economies. I think the governments are starting to panic in Europe at the moment, especially Germany, there's a lot of challenges. But if that trajectory carries on as it is, prices of pig iron will go up, and we will be in balance. What it will do is stop us exporting pig iron because if you think about it, once you're outside of the carbon border adjustment, sales to Korea, Japan, Pakistan, places we do Europe will be uncompetitive. We won't be able to get a look in. So we're internalizing our sales. And with the move to electric arc furnaces, the demand for pig iron is increasing. So if you take [indiscernible] report, they're looking to buy European about 100,000 tonens of pig iron that they didn't. So we think we can internalize inside Europe, which is a good thing, but the prices of everyone's pig iron is going to go up. It isn't going to improve our profitability but at least it shows that we're protected. Everyone talks about carbon capture. It's got a long way to go. So if you hear all these stories about carbon capture. The first people that are going to put this on is going to be cement plants. We'll let them have what I call bleeding edge technology and then we'll look at it. But it's very, very expensive. We're protected by CBAM protecting us taking things forward. So it's creating a lot of uncertainty and opportunities. The other thing that's happening is still decarbonization. Now a lot of you will have seen, if I take a U.K. perspective, closure of port [indiscernible]. So they closed port [indiscernible] highly polluting -- you saw that -- they nationalize [indiscernible] steel because they were going to close the blast furnaces. It's now lost the government GBP 216 million in the first 6 months since they've owned it. So everybody is looking to move away from the traditional blast furnace and these people that we all are in -- we as a company around detailed discussions with at the highest levels are all building big electric arc furnaces with subsidies. For instance, Tata getting $2 billion [indiscernible]. [indiscernible] already got $2 billion, Tysons got 2 billion, so these are big projects. They run to a size of about a 3 million electric -- 3 million tonne electric arc furnace. So they're big pieces of kit. They need huge investment. But the really interesting thing is that they now create a very different dust, and I'd point you to the zinc content between 8 and 15. Now as I told you, DK can't deal with anything much more than 3%, 4% so it's like, oh, that's a problem for us. But it's a problem for everybody because I'll talk about traditional method of treatment, that can't deal with it either. So somebody needs an answer to that, is it an opportunity? Or is it a risk for us. So that's why it's an opportunity for us. I don't know if they'll just stand up. Stephan and Robert. So Stefan and Robert have been leading the project for 3 years. They're in the front. Please catch up with them later. They're intimately involved. You're going to stand up so everyone can see who you are. Otherwise, they will not know who you are. So if you want to catch them later to talk to them, they've been involved with this, Robert -- Stefan how [indiscernible] in 3 years, I think 4 -- for sorry, 5 for you, right? So at least I say it shorter, I must have enjoyed it. So look, this is a new technology that we've developed in-house. The cost of the build is GBP 18 million. So bear that in mind. We've set an internal ROCE a minimum of 20%. I'll talk about that later. German government have looked at all of this and gone absolutely great. GBP 2 million as agreed. We've got the GBP 2 million. We've also said, tell you what, we will give you a loan of a minimum, so I want to say minimum because it could be slightly more, but a minimum of GBP 4 million. So we're now getting GBP 6 million, which is ring-fenced to that business. So at the moment, the risk to you and shareholders with this crazy CEO, is actually GBP 12 million because I bet you've all sat through presentations and someone said, "Oh, this is going to be great, and then it's all exploded and it was called the [indiscernible]. So the risk is GBP 12 million because this is ring-fenced. And I always say to ever remember, 8.5% of the money's mine as well. So I am -- that's why I took 3 years to even talk to you about it. The building will start in January '26 so space in the ground. It will be fully operational in H2 '27. It's 86% owned by the Plc, and that's important because I will tell you what's happening every 6 months on this. So it isn't going to get hidden in the other numbers. So to be clear, it's going to be transparent and open for you to understand. The really exciting thing is the first plant can do about 50,000 tonnes of dust on the site that we have, we can actually build 2 more as a [indiscernible] and pending, and there's an opportunity to deploy this technology elsewhere. So you sort of said, well, challenges. So I'll just explain an electric arc furnace at the moment. They only -- so the normal electric heart furnace uses scrap, and that means it has a zinc content of anything from about 18% up to 40%. So remember, there's this sweet spot, DK can deal with up to about 5 or it goes landfill. Anything above 18% up to 40% is dealt with technology that's called a vault skill. And if you do your research, you'll see there's a dominant player in the market called Befesa. Market cap is about GBP 1 billion, and it deals with all of the electric arc furnace tests on long-term contracts, makes a margin of about EUR 100 a tonne on every [indiscernible] processes. So the problem for the existing relatively small electric arc furnaces who use 100% scrap is they can only go to landfill or these guys. And these guys make a significant profit. Now the problem with a [indiscernible] is it uses pet coke or anthracite or coke. So that's a CO2 footprint. The residual that comes out the back end goes into landfill, but they do extract the zinc. It's the only thing they take out. They take out the zinc. But they produce zinc concentrate, which then has to go to a sync smelter, which is again energy intensive. And if you go down at 15% to 18%, it doesn't work. The economics -- because you do the math and go, well, if it breaks even, Gordon, at 15%, you go -- well, actually, if you do I've lost 7% and zinc at the moment trading at, let's call it, about EUR 2,500 a tonne. So a vault [indiscernible] will have to charge you about EUR 175 a tonne. We've had that tested because we deal with a company called me [indiscernible] in Poland, who run vault skills, run the numbers through, and they said, "Yes, that's roughly what we would charge for that type of material." Landfill is cheaper. So it's like, oh, so you've got these big projects being built that are producing a waste, which is supposed to improve their footprint and guess what, they're going to put a big pile of dust in landfill. So that doesn't work for them either. So what do we do? Well, interestingly, DK already supplies about 8,000 tonnes of material to the phase. So we already deal with their contracts. We had a guided tour of their plant, which they were great doing that a few months ago. and they take -- so we take DK's material about 8,000 and material from electric arc. 50,000 tonnes is chemically treated. We're not saying exactly what we do because we don't want the competition to know because we've got a patent pending. At the far end come zinc oxide and waste dust. Now interesting there, we already have letters of intent to buy the oxide. We've run a pilot plant. And the customers have looked at it. We've agreed a formula. So we know what the output price is going to be. It is linked to zinc price. So the strategy will be once the technology is proved, we'll hedge to this because that's the right strategy, you can hedge link in the market. The waste dust is really interesting because you can -- what I might call, polish it down to 2%, and then you can put the material into DK. Now if you didn't put it into DK because they're ring-fenced, you would landfill it. So the transfer price to DK is at EUR 70 because that's exactly what they pay for landfill. So it's an arm's length transaction, but the quality of that dust with a EUR 70 gate fee is earnings enhancing for DK. So actually, there's a benefit over in DK because it gets a new customer that's paying a higher gate fee. Typically, they're getting paid something like a EUR 30 an average gate fee. So this materials probably worth 20 or 30, the quality is not quite as good, but there's a definite uptick. What's the advantages of this process over a vault skill? Well, if you -- it's electricity really. So if you use green electricity as a minimal carbon footprint. The residual, if it goes to DK, you recycling 99%. Remember, a vault skill, its waste goes into landfill. And 1 of the big barriers to entry, why Befesa has been so dominant to build a vault skill, you have to get plan and permission, you have to do all of that, but it roughly cost you GBP 100 million. So they have a dominant position controlling about 80% of the market in Europe. So you say to me, okay, listen to all that. And believe me, I have stress tested this, Robert and Stefan have the scars of wells how does this work? Does that work? So we took it to Imperial. I said here's the chemistry, does it work. They've signed off and has Alan Williams, [indiscernible]. German government looked at it and said, "Yes, we'll give you the grants, we'll give you the state guarantees." So the German government are backing this project. We've run a pilot plant, which important thing for anyone knows chemistry, the scalability is a factor of 50. So it isn't a big scale up from something to a factor of 1,000. It's only 50 times. This is a chemical [indiscernible] not a heat treatment. So it's all about surface interaction, mixing it correctly. As I said, we have the letters of -- we're only looking to place about 6,000 tonnes in a market that's 239,000 in Europe. So we're not worried about driving prices there. One of the things I say to everyone is DK is probably the most perfect place for this because it's got rail connection. It's got road connection, it's got sea -- river connection right next to the waterways. We already have planning permissions to deal with dust. We have all of the infrastructure. So what this business has done. When I talk about the GBP 18 million spend, GBP 2.5 million of that is to buy land off the DK as a stand-alone. So we own the land -- it's already got all the permits it needs. So there's -- we've had a very low barrier to entry. The other really great thing is we already deal with Befesa, so we already supplied us. We've seen their contracts, we visited their plants. All of the people that supplied Befesa take pig iron from us as well. So we're already a trusted partner with all of them. They're all talking to us and saying, "Great, you're an alternative." All of the big steel boys do not deal with Befesa because they've never produced this type of dust before, but we're a trusted partner because we already take their existing low zinc dust. I'll be a bit of an under and I can quickly explain. If someone says to me, why is the zinc content different. In the big electric arc furnaces, they use what's called DRI, which is effectively iron ore. So they use a blend of between 50% and 70% iron ore, 30% scrap. A typical electric arc furnace is a 100% scrap. That's why you get difference in content, zinc comes from galvanizing. So again, I have stress test this, like I hope all of you in the room would do. And I've gone right, what can go wrong? Well, it could be cost overrun. So we have contractors tied up. It's been under R&D Shan and Simon are helping me oversee all of that as well because obviously, it's an expertise that we have to make sure that, that doesn't go wrong. Okay. Seeing that happen on other companies. What about the feedstock being inconsistent because it is a waste byproduct. The answer is this plant can deal between 6% and 40% zinc in its process. So we have got a lot of flexibility. It's very adaptable. We've already trialed in the pilot plant, all the different types of dust. So we already know the ways they react. Zinc price could collapse, totally true. And the way we protect that is hedging, but I wouldn't be hedging until we prove the technology for everybody. We obviously don't want to hedge position. But if you look at Befesa, they hedge about 85% of their output. And there's always the classic, Never forget, some new technology could arise. So all of the country -- customers I'm talking to at the moment, I'm talking about a 5-year take-or-pay contract. So they're desperate. And if you think about it, they're spending something like GBP 4 billion of plant and the governments are going, okay, we'll give you GBP 2 billion, what you're doing with your waste dust. So they actually need these contracts, and we've actually got a -- we've got more customers than we can deal with. And 1 of my conditions is it has to be a 5-year take-or-pay. So what's happening in terms of next steps. So I have a meeting with 4 of the main steel companies in the summer. Remember the plant is starting to be built in January, so they want to come and see it being built. They all want to contract by the end of '26 because the first plant comes online in '27. I'm hoping they get delayed a bit because they may come on stream before we do, if we're not careful. They normally get delayed by 6 months. We're building stock of our own material to cover that gap. So how we're going to manage any slowdowns is we're going to have our own stock on the ground that gives us 6 months supply. So we can flex around 6 months. At the moment, we can only handle 50,000 tonnes, and I have 200,000 tonnes banging on the door interesting out of home call yesterday, Swedish Steel rang us and said, we heard what you're doing. Can we come and talk to you about doing a contract with you because we're putting in a big -- a 1.5 million tonne electric arc furnace. So they're coming down to see us next week to chat it through. So that's a new one that I wasn't aware of until yesterday. So in summary, if I've tried to take you through this properly, what I've tried to explain, and only you'll be able to tell me if I got it right, is I've always very loosely said some of the parts. So I think you can see trading, great business, very happy with it, take consumer protected there. I hope you can see DK has gone through a challenging period, but we see a way to the other side. And we also see that when we open the zinc project, it will further improve the profitability of DK and give it a long-term future. But finally, the really exciting thing for me is DK Zinc. It's at arm's length. The management team in Germany and us are very aligned. We think it's an industry disruptor. We're being very cautious. We're talking about a 20% ROCE on the first plant. We will only build plants 2 and 3 there once we have contracts to underpin them and we prove the technology. So I'm not going to race ahead. My only issue is that we will trial it and by the end of '27 is likely where we'd make the next invest decision because the customers are queuing up, and we need to be ready to react to that. But I think you can see it's a really exciting development. I hope that this presentation has given you more in-depth understanding of the German business and hopefully, you put your own number on what you think it's worth. But hopefully, you can see there's more intrinsic value than just a balance sheet recovery issue there. So if I could open up to any questions, please. [indiscernible] Was that confusing or that precise. I'm not sure which.

A couple of questions. First of all, on Page 24, your final bullet point, driving prices 8% implies increase in the price. So I didn't understand that.

Which one?

Page 24, the final bullet point.

This one.

No, 24.

Sorry -- Oh sorry, right. Let me take it back. Sorry. [indiscernible] on here, sorry, okay, this one.