Big giveaway by Welsh Water

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The Independent Online

Welsh Water yesterday unveiled one of the most generous packages of giveaways to shareholders and customers of any of the water companies so far. The complicated deal, which in effect involves a tax efficient buy-back of about 17 per cent of the shares and additional dividends to raise last year's total by a third, helped shares in Wales's biggest water provider rise 18p to 693p.

Customers will receive additional benefits totalling pounds 78m under the proposals, including up to pounds 9 a year off bills for the next four years, with pounds 38m earmarked for extra spending on projects such as keeping beaches clear of sewage.

Iain Evans, chairman, said the group's strong financial performance over the past five years had combined with a satisfactory outcome to last year's regulatory review to allow the company to go beyond the minimum regulatory obligations. He revealed that yesterday's package had been cleared with the regulator, Ian Byatt, who had indicated he would be willing to advise his successor that appropriate additional capital spending should count in the company's favour at the next review of the industry.

The customer enhancements, which are seen in the City as part of the industry's attempts to head off tighter regulation by a future Labour government, won a grudging welcome from the party's shadow secretary for trade and industry, Jack Cunningham, yesterday.

But City analysts praised the complicated package for shareholders. Welsh is issuing nine redeemable preference shares for every 10 ordinary shares currently held and consolidating the existing ordinary capital on a five- for-six basis. One analyst said this was equivalent to a share buy-back, but with a tax saving of around pounds 29m because the company would avoid the requirement to pay additional advance corporation tax.

The company is also setting aside pounds 9m as part of its "sharing" package to pay a one-off additional dividend of 6p, raising last year's total by a third to 33.9p - after a final of 24.6p - which will form the new base for future payments.

The package took the spotlight off results for the year to March which showed pre-tax profits only crept ahead by 3.3 per cent to pounds 149m, even before pounds 28.5m of exceptional restructuring charges flagged at the interim stage.