The move was accompanied by a 3 per cent increase in taxable profits to pounds 93m for the year to 31 March, on turnover up 17 per cent to pounds 194m. Earnings per share also improved 3 per cent, to 67.9p, but the dividend has been raised 9 per cent to 23.7p, with an ordinary scrip alternative.
Testlink's acquisition is aimed at complementing South West's existing involvement in intrumentations. It already owns pHOX Systems, a prominent supplier of measuring devices to the water industry.
South West is paying pounds 9m in cash and the balance in loan notes. Testlink's sales amounted to pounds 18m last year, of which 85 per cent came from overseas. The business was bought out by its management for pounds 5m in 1988. It has a workforce of 200.
Operating profits at the utility rose by a quarter to pounds 93m thanks to tight cost control and a 16.8 per cent rise in water charges for domestic users.
However, interest income dropped from pounds 26m to pounds 12m as the company used up its privatisation proceeds to finance pounds 204m in capital expenditure, up 18 per cent. By the end of March, it had net borrowings of pounds 14m, expected to rise to about pounds 77m - equivalent to 10 per cent of net assets - this year.
The company's non-regulated business maintained operating profits at pounds 200,000 on turnover of pounds 10.3m. However, this was offest by a similar loss at Westcountry Television, in which South West has a minority stake.
The shares fell 6p to 514p.