Utility shareholders net pounds 1.2bn bonanza

Handouts of pounds 460m were confirmed yesterday by three electricity and water companies, bringing their total distribution to shareholders announced in recent weeks to more than pounds 1.2bn.

The giveaways yesterday were by Southern Electric, which paid a special dividend of pounds 150m, London Electricity, which confirmed a similar payout of pounds 198.7m, and Southern Water, which bought back pounds 113m of its own shares.

The payments have been made because the companies are flush with cash and can afford to borrow much more heavily than in the past to finance their investment programmes.

Although long expected, they are bound to reinforce criticisms of the utilities by Labour, which has threatened a windfall tax but may see much of the companies' spare cash given away by the election.

Shareholders in each of the two electricity companies are already benefiting from a handout of National Grid shares after last week's flotation - worth pounds 350m for London shareholders and pounds 420m for Southern. In its previous financial year London also did pounds 150m of share buybacks, bringing total distribution of surplus cash to pounds 700m.

The latest moves followed hard on the heels of the pounds 238m special dividend announced by the regional electricity company East Midlands on Wednesday - a company that is also handing pounds 300m of its National Grid shares to shareholders.

Southern Electric's special dividend is worth 50p a share, less than half the 120p paid by East Midlands, and raising its gearing to 15 per cent. Southern's profits before tax for the half-year rose to pounds 127.8m from pounds 106.8m.

Geoffrey Wilson, the chairman, said the special dividend had been restrained for tax reasons, because at the level other companies were paying there would have been a substantial additional burden of advance corporation tax.

Partly offsetting this, Southern raised its ordinary interim dividend 26.5 per cent to 10.5p a share. In common with all the regional electricity companies, Southern is paying a rebate to domestic customers of just over pounds 50.

Mr Wilson said he still backed the idea of the takeover offer from National Power, which has been referred to the Monopolies Commission and is unlikely to be decided until next spring. The shares fell 12p to 916p.

London Electricity, confirming the special dividend, said it was asking shareholders to retain the flexibility to buy up to another 10 per cent of its shares back. The 100p-a-share special dividend was accompanied by doubled interim pre-tax profits, up from pounds 42.8m to pounds 84.5m and a 21 per cent increase in the interim dividend to 11.5p. Gearing will rise to 60 per cent. London shares fell 16p to 678p.

Southern Water bought back almost 10 per cent of its shares and declared interim profits before tax 18 per cent higher at pounds 83.7m and a 16 per cent rise in the ordinary dividend.

Southern said it had reduced leakage from 26 per cent to 14 per cent since privatisation, saving enough to supply a town of 400,000 people.

It is targeting a reduction to 10 per cent by 2000. William Courtney, the chairman, said other companies were setting themselves a target Southern had already achieved. Southern shares rose 9p to 667p.