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Severn Trent Proposes Special Dividend After Outperformance

May 30 (Bloomberg) -- Severn Trent Plc , the U.K.’s second-largest water company, plans to pay shareholders a special dividend even after reporting a drop in full-year earnings.

The utility plans to return 63 pence (98 cents) on July 27, the same day it pays an ordinary annual dividend of 70.1 pence a share, according to a statement today. Severn Trent is targeting a dividend increase equal to the retail price index plus 3 percent through 2015.

The company will return about 150 million pounds to investors in the special dividend and spend an additional 150 million pounds on its water and waste networks, Finance Director Mike McKeon said on a conference call. The payment is the result of more efficent use of cash and improved debt, he said.

“We thought long and hard about this,” Chief Executive Officer Tony Wray said on the call. “It’s fueled by the outperfomance to date,” he said, adding that the company will spend about 2.5 billion pounds in the five-year period to 2015.

The special dividend “was hoped for and will be popular,” Angelos Anastasiou, an analyst at Investec Securities, said in an e-mail.

Profit before tax for the year ended March 31 fell 38 percent to 156.7 million pounds from 253 million pounds a year earlier, the Coventry, England-based company said.

Earnings from Severn Trent’s water business were broadly flat due to higher operating costs, including an increase in taxes, and greater spending on maintanence and repairs. The company’s services business was negatively affected by constrained municipal budgets in the U.S. and political instability in Spain and Italy.

Severn Trent gained 42 pence, or 2.5 percent, to close at 1,706 pence in London.

To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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