County Durham group Hargreaves Services has proposed to boost dividends by 70% amid positive discussions about a buy-out of its defined benefit pension scheme.
The diversified group, which includes industrial and environmental services and land sales, says it will ramp up dividends to 36p per share, payable in two stages. It comes as Hargreaves says the cost of offloading its pension scheme is likely to be below what was previously anticipated at less than £9m, lower than the £15m it had envisaged.
Bosses say a deal is likely to complete early next year. When it does, it will free Hargreaves from annual deficit reduction payments of £1.8m.
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In a trading update prior to half year results, the group presented a mixed picture in which it talked of a slowdown across its German metals recycling business but growth across its services business. It also reported progress in its renewable energy land activity with the first packages set to go to market in its 2025 financial year.
Hargreaves told the London Stock Exchange that economic slowdown in Germany and reduced commodity prices had weighed on its Hargreaves Raw Material Services GmbH (HRMS) business more than anticipated - to the point where net losses are now expected in the first half with full year profits expected to be much lower than the £15m reported in the same period the year before. Shareholders were told HRMS would make an annual distribution of £7m to the group for the foreseeable future.
Meanwhile high volumes of HS2 earth moving works continued to fuel growth across its services arm with profits for the full year expected to be £2m higher. And while sales across the group's land division were said to have softened, Hargreaves pointed to an £18.5m deal with housebuilder Avant and the sale of its energy from waste plant at its Westfield site for £7.6m.
Hargreaves' group chair Roger McDowell said: "The services business has continued to be a key growth driver for Hargreaves, with its strong revenue base providing the group with a robust underpinning to trading. 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.
"This, coupled with the impending buy out of the group's defined benefit pension scheme obligations at a much lower cost than previously indicated, has allowed the board to signal a substantial increase in the full-year dividend. 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."
