LONDON (ShareCast) - Shares in Hargreaves Services fell on Tuesday after first-half results were hit by turmoil in its coal and coke markets, with management warning of a "significant reduction" in expectations for the full year.
The group said thermal coal demand was "very poor" because of the weakness in energy commodity prices and the mild winter, warning that if market conditions do not improve during the year, this could be "the most challenging period the group has experienced".

Revenues fell 24% to £351.2m in the six months to 30 November, while profit before tax decreased 49% to £15.2m from £29.65m same time last year.

However, cash and equivalents rose to £21.1m from £8.41m last year and the company announced it raised its interim dividend to 10p from 8.8p per share same time last year, showing "confidence in continuing overall profit and cash generation even through this difficult period".

The impact of coal prices on its mining operations in Scotland and at Tower could results in a "significant" reduction in management's expectations for the year ended in May 2016.

Hargreaves said the recent collapse in the oil price was also depressing gas prices, leading to a significant and unexpected reduction in coal burn and hence likely coal purchases by UK power stations.

In addition to thermal markets, it also pointed to margin pressure in the speciality markets in the short term, as UK Coal reduces prices to stimulate demand, coupled with increased supply from UK Coal's deep mines, two of which are due to close in the near future.

Management is focused in reducing fixed costs and in generating cash, having decided to close its Monckton coke operation in December and dispose its Imperial Tankers bulk tanker business.

Chairman Tim Ross said: "The market conditions we are currently experiencing are unprecedented and very challenging.

"Although we are unable to control factors such as coal price and coal demand, the management team is proactively taking all the sensible steps and measures to manage current market conditions whilst leaving the Group well placed to benefit when the market improves."

N+1 Singer analysts said: "Management is reacting rapidly, and the viability of the Scottish assets will be protected, but the impact on financial year 2016 profitability will be significant."

Shares fell 10.62% to 506.8p on Tuesday at 10:22.

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