Southern Water, one of the 10 water and sewage companies in England and Wales, became the latest in the sector to gain shareholder approval to buy back up to 10 per cent of its shares. The trend attracted sharp criticism from consumer groups because of public concern over water supply problems in the prolonged hot spell.
A spokeswoman for the National Consumer Council said share buy-backs "seem extraordinary and insensitive" given the current situation. But Ofwat, the industry watchdog, said the balance sheets of companies were their own concern.
Southern's move came a day after Anglian Water became the first in the sector to implement buy-back powers - although several companies have them - at a cost to the company of pounds 162m.
Southern refused to say if or when it might make use of the powers to buy its own stock, but City analysts said its intention was clear. One analyst said some shareholders had been dissatisfied at the company's actions so far in realising shareholder value. Southern has not joined the trend among water companies towards special dividend payouts or the issue of preference shares.
At the company's annualmeeting, Southern's chairman, William Courtney, said it intended to carry out a "financial restructuring exercise to improve the balance sheet and provide enhanced long-term value for shareholders". The precise form of restructuring would be decided later this year.
Shares in Southern Water rose by 10p to 688p and those in Anglian Water added 3p to 549p. Northumbrian Water bucked the upward trend, falling by 2p to 908p on speculation that Lyonnaise des Eaux of France may drop its proposed takeover if it cannot persuade the water regulator, Ofwat, to ease demands for price cuts of up to 20 per cent.
Earlier this year, Southern said it would not pay extra dividends and rebates out of past cost savings. Mr Courtney has said that past efficiency savings had already been factored in when the regulator set the new price cap last year.
He said that rather than give handouts, other companies "could do no better by customers than increase discretionary spending on dealing with foul flooding, low water pressure, improvements in storm outfalls and smells around sewage works".