Payout blues hit Southern

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Southern Water angered consumers and disappointed the stock market yesterday after saying it would not pay extra dividends and rebates out of past cost savings. The shares slumped 13p to 627p despite the announcement of plans to buy back up to 10 per cent of the company's shares and a 12 per cent increase in dividends to 25.9p for last year.

William Courtney, chairman, said that past efficiency savings had already been factored in when the regulator, Ian Byatt, the director-general of Water Services, set the new price cap above inflation - the "K" factor - last year, which is now the highest in the sector.

Mr Courtney also ruled out future special payments, saying it would be "imprudent" to pay out when the level of savings on the company's pounds 2.1bn five-year capital programme was unclear. He suggested that other water companies had announced deals to reward shareholders and customers only because they had needed to restore the finances of the parent company with cash from regulated subsidiaries.

"Our plc is healthy because we have not invested in unregulated businesses which lose money. That is not the case with others. We have no need to revitalise our parent company."

They 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, he said.

But his explanations cut little ice with Southern's customer service committee, set up under Ofwat to represent the interests of consumers. The chairman, Professor Judith Ress, said: "It's my view that shareholders have done incredibly well and the customers have nothing apart from a vague promise of service improvements in the future."

She complained that neither she nor Mr Byatt had been consulted by Southern about its plans, despite requests to do so.

Southern announced a 12.5 per cent rise in pre-tax profits to pounds 143m for the year to March. Earnings per share of 77.6p, up from 70.3p, covered dividends of 25.9p three times, after a final of 17.45p. Profits were boosted by a pounds 2.7m gain on the sale of land in Hampshire, but Mr Courtney said the results contained no surprises.

Trading profits from the regulated water and sewage business grew 11 per cent to pounds 137m, with the growth in operating expenditure held to 1.2 per cent before depreciation after 70 jobs were axed. Other businesses raised their contribution 10 per cent to pounds 11.1m.