South Western joins in electricity payout spree: Shareholders benefit from strong cash position

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The Independent Online
SOUTH WESTERN Electricity kept up the dividend pace with a 17.5 per cent rise, slightly better than market forecasts and one of the highest in the current reporting season.

John Seed, chief executive of Sweb, said that the dividend increase to 20p reflected the company's strong performance last year, when pre-tax profits grew by 15.5 per cent to pounds 116.8m, and the fact that the board did not wish to increase dividend cover, currently 3.2 times against a sector average of 2.9.

'We currently have cash in the bank of pounds 43.5m which is earning very low rates of interest. We would rather give the money to our shareholders,' he said.

He denied that the rise sent any signal about the likely outcome of the review of electricity prices by Offer, the industry regulator. Although outstripped by Eastern's increase of 20 per cent on Wednesday, the rise brings the average uplift so far to 16.4 per cent. Yorkshire Electricity is due to close the reporting season today.

Sweb shares rose by 11p to 612p.

Profits from electricity increased by only 1.2 per cent to pounds 102m but the underlying improvement was closer to 10 per cent. The figures benefited from a pounds 6.5m boost from higher volumes - units distributed rose by 2.7 per cent - and a pounds 3.5m reduction in the cost base, together with pounds 14.5m recovered from previous undercharging.

The benefits were all but swallowed up by a pounds 13.5m rise to pounds 14.5m in the charge for severance costs, and a doubling to pounds 12.2m in that for information-technology development costs.

Sweb, slower than some regional companies to cut costs, reduced employee numbers by 9 per cent to 2,804 last year and expects to have reduced the head count by 20 per cent over a period of four years.

Sweb generated pounds 92m of surplus cash last year, and with a pounds 57m boost from prepayments ahead of the imposition of VAT on fuel, ended the year with net cash of pounds 43.5m against net borrowings of pounds 105.7m.

Mr Seed said that Sweb would be comfortable to see debt as a proportion of shareholders' funds back to its privatisation level of 40 per cent. The board is seeking approval, like other regional electricity companies, to buy back up to 10 per cent of its shares.

But he said the main drive behind a rise in balance-sheet gearing would be investments in non- regulated activities outside the core business.

Mr Seed said he favoured a full flotation of the National Grid Company, owned by the regional companies and in which Sweb has a 6.3 per cent stake.