NFC returns a quarter of its value to shareholders

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The Independent Online
THE TRANSPORT group NFC yesterday became the latest company to hand back cash to shareholders in a move which will see them receive pounds 307m, representing a quarter of the company's market value.

In a complex move, NFC plans to issue new shares to investors which will then be cancelled in return for cash. It will then consolidate its remaining share capital, so that shareholders will receive three new shares and 176p in cash for every four shares they currently hold.

Gerry Murphy, chief executive, said NFC wanted to return the proceeds of its disposal programme, which has raised pounds 250m in the past twelve months, to its shareholders. He said the move will also increase the amount of debt on NFC's balance sheet. This will reduce the company's cost of capital, because debt is cheaper to service than equity. "We will now have a rational capital structure and a sensible cost of capital," he said.

Analysts calculated that the cash distribution would take NFC's balance sheet gearing to about 80 per cent by the end of its financial year in September. Profits are likely to cover its interest bill about six times.

Mr Murphy said the debt burden was not too heavy, because the group did not have any immediate plans for acquisitions.

NFC is understood to have opted for a complex distribution to avoid a large tax bill. A straightforward share buy-back would have required it to pay approximately pounds 60m to the government in Advance Corporation Tax - a sum it is unlikely ever to recoup. Gordon Brown, the Chancellor, is planning to phase out ACT next year.

Analysts were generally upbeat about the move, which had been expected after NFC sold off a string of peripheral businesses. NFC shares closed up 3.5p to 181.5p.

At the same time, however, NFC said it was planning to cut its full-year dividend to 5p per share, compared to the 7.1p the group paid out last year. The company aims to have its dividend covered twice by earnings per share.

The move came as NFC announced a 4 per cent jump in profits before tax and exceptional items, to pounds 51.9m, for the six months to March 31. Turnover edged up 2 per cent to pounds 1.09bn.

Mr Murphy said the cash distribution ended a lengthy period during which the company has restructured heavily. "It's been about three years since I joined NFC. During that time we have been trying to reshape the business," he said, adding that NFC was now "narrower and lighter".

He added that the company's operations in continental Europe, which reduced operating losses from pounds 4.7m to pounds 1.8m in the period, was likely to break even next year. The American businesses, where profits jumped 26 per cent to pounds 12.9m, were "firing on all cylinders."