27th Oct 2014 11:56
LONDON (Alliance News) - Hargreaves Services PLC Monday said it will increase its dividend payout and implement a programme to return excess capital to shareholders through a share buy-back scheme.
Hargreaves has completed a strategic review and decided to implement a simplification plan that is expected to release capital and require no major capital investment in the near term future, it said in a statement.
The board intends to accelerate the rate of increase in dividends by raising the dividend payout level to 40% of underlying profit after tax. The company will be targeting a dividend cover of 2.5 times in the financial year ending May 31, 2016.
"Even taking account of the potential short-term impact of volatile market conditions and after allowing for this accelerated dividend distribution, the board remains confident that, as it implements its simplification plan, it will release further funds in excess of its near term capital requirements," said Hargreaves.
"Therefore the board is announcing its intention to implement a rolling share buy-back programme with any shares purchased being held as treasury shares," it added.
The maximum price payable for any share under the programme will be an amount equal to 105% of the average market value of the company's shares over five business days after the proposed purchase of the share.
"In conjunction with the ongoing simplification of the group, and reflecting the need to optimise the group's risk profile, a number of investment opportunities have been evaluated that would broaden the base of the business in the energy sector and provide greater control over the sourcing of coal for major power stations," said Hargreaves in a statement.
Hargreaves is not actively following any potential deals at present, but remains open to considering further opportunities in the energy sector on a collaborative or joint venture basis as long as it does not affect its new dividend policy or the share buy-back programme, it added.
"The board remains confident of continuing cash generation from its core trading and is pleased to report that underlying performance and cash generation for the financial year continue to be in line with management expectations," it said.
In a separate statement, Hargreaves said its employees at Monckton Coke and Chemical Company Ltd, which it acquired in 2005, will be issued with notification of potential redundancies.
On September 9, the company announced its intention to review the future of Monckton, which continues to suffer from turmoil in European coke markets. A significant change in both market conditions and customer demand would be needed to secure the plant's future, it said.
Monckton is expected to make a profit of GBP2 million in the current financial year, but the outlook beyond the financial year is very poor given current market prices.
"If the decision is taken to proceed with closure, whilst the current year profit would be reduced to nil reflecting the cancellation and rescheduling of a number of customer contracts, the closure would result in the unwinding of significant working capital tied up in the business," it said.
The combined impact on the 2015 financial year and the 2016 financial year of this working capital unwind would be in excess of GBP22 million, said Hargreaves.
"Whilst great progress has been made by the team in improving efficiency and environmental performance over the past ten years, the coke markets have become increasingly challenging for the business," said Chief Executive Gordon Banham.
Hargreaves shares were trading up 2.9% to 618.50 pence per share Monday.
By Joshua Warner; [email protected]; @JoshAlliance
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