Hargreaves Services hikes divi by 70% but warns on profits
21st Dec 2023 07:37
(Sharecast News) - Hargreaves Services said it is hiking its dividend payout by 70% despite delivering a profit warning to the market on Thursday.
The AIM-listed company, which delivers services to the environmental, industrial and property sectors, said trading conditions in its Germany joint venture, Hargreaves Raw Material Services (HRMS), were worse than expected due to reduced commodity prices and an economic slowdown. It now expects to record a net loss for the division in the first half and for full-year pre-tax profit from HRMC to be just one quarter of that originally expected.
Shares were down 4% at 417.63p in early deals on Thursday.
However, because of the cash generation associated with the slowdown in activity, HRMS has been able to return £8m of surplus cash to the group, which was received in November. It will also received an annual distribution of £7m from HRMS which will become a regular cash receipt "for the foreseeable future".
Meanwhile, Hargreaves Services is in discussions with insurers to take o the liability for the buy-out of its defined benefit pension schemes, and the cost of closing out its obligations will be no higher than £9m, lower than the original estimate of £15m. A transaction is expected to close early next year, thereby eliminating annual deficit reduction payments of £1.8m
As a result of the positive cashflow impact from these two issues, the company has decided to increase its annual dividend to 36p, compared with 21p previously. 50% will be paid out at the interim stage and 50% as a final dividend.
"The slowdown in activity at HRMS has been more pronounced than we had previously anticipated, but has facilitated an increase in cash returned to the group," said chair Roger McDowell.
"With further opportunities to return cash to our shareholders on the horizon from the realisation of our renewables portfolio, and additional growth opportunities, the group is well-positioned to deliver long term sustainable returns."