Kelda seeks answers on equity

WATER group Kelda has resisted calls to give shareholders a substantial debt-funded payout. But it warned the Government that it had to decide whether there was a role for equity in its industry.

Executive chairman John Napier said he was not convinced investors accepted that the use of debt to finance one-off returns, as some of Kelda's peers had done, was an acceptable long-term strategy.

However, he said the industry would be unable to fund the investment needed to improve its services if the regulator did not allow it to do better than its current 6% return on capital. 'The Government has to make up its mind about whether to encourage or discourage equity,' he said. 'We need a dynamic equity base that allows us to make a profit and return some for future investment. The regulator's last determination stopped the growth in shareholders' funds.'

Kelda, which was prevented by the regulator from putting its Yorkshire Water subsidiary into a bond-funded mutual company, said pre-tax profit grew 13% to £91.4m in the six months to 30 September.

The rise was underpinned by higher tariffs at Yorkshire Water and favourable exchange rate movements at US group Aquarion, where operating profit was up 8.3% at £17m. The dividend is lifted from 7.5p a share to 7.7p.