Last checked at 
* Bristol acquisition to be earnings accretive
* Annual profit falls 14.2%
* Expects dividend base in 2021/22 to increase by about 9%
(Adds CEO, analyst comments, details on results)
By Shanima A
June 3 (Reuters) - British water company Pennon has
bought smaller rival Bristol Water for 425 million
pounds ($601 million) to help to expand its South West Water
business.
Pennon's purchase of Bristol will mean the group will be
serving a total population of about 3.5 million, the company
said on Thursday.
"We think that there is an attractive growth opportunity in
the UK water," Chief Executive Officer Susan Davy said in an
interview, but she did not elaborate about any possible future
acquisition targets.
Pennon in March had said it would consider making a
"substantial" return of capital to shareholders using proceeds
from the 4.2-billion-pound sale of its waste management
business.
On Thursday, the company proposed a special dividend of 1.5
billion pounds and announced a share buyback programme worth up
to 400 million pounds.
Pennon shares were up 4.2% at 1,113.5 pence in early
trading.
"The acquisition (of Bristol) is a sensible one. It's
positive to see so much cash getting returned to shareholders,"
Hargreaves Lansdown analyst William Ryder said in a client note.
"There's always a temptation for management to keep cash in
the business where possible, so a commitment to shareholder
returns is always good to see."
Pennon on Thursday also reported a 14.2% fall in underlying
profit before tax to 157 million pounds for the year ended March
31, in line with expectations. This was largely due to price
reductions arising from a transition to a new regulatory period
and as business demand fell during COVID-19 lockdowns.
The company however had a net increase in household demand.
It also said its dividend base in 2021/22 should grow by 9%
thanks to earnings from Bristol Water.
($1 = 0.7066 pounds)
(Reporting by Shanima A in Bengaluru; Editing by Ramakrishnan
M. and Jane Merriman)