Anglian says customers would accept big price increases: Profits up 8% despite mounting water processing losses

CUSTOMERS of Anglian Water are prepared to accept even higher price increases than those proposed by the company, Alan Smith, managing director, said yesterday.

Despite mounting losses in its recently assembled water process engineering division, Anglian reported an 8.2 per cent increase in pre-tax profits to pounds 185.4m in the year to 31 March and a 9.3 per cent rise in dividends with a final 14.3p. Shares were unchanged at 458p.

Customers were told in a survey that Anglian would need to spend pounds 2.3bn by the end of the century to make its water safe and legal and that this would require price increases at 5 per cent above the rate of inflation.

But 77 per cent of those surveyed said that they would go along with real price increases of over 5 per cent to fund a further pounds 300m of spending by Anglian - the average acceptable rise was 6 per cent. This spending would aim to reduce water hardness and eliminate the threat of foul flooding from sewers. Mr Smith said the attitude of customers was slightly surprising, given complaints in other regions about price increases. It could be explained by concern over the years about nitrates in local water supplies and fears of pollution in the Norfolk Broads.

The water companies are due to start talks with Ian Byatt of Ofwat, the industry regulator, to fix 'k-factors' - allowable price increases - in the five years beginning 1995.

Last year turnover in Anglian's core business of water supply rose by 9.1 per cent after a 9.4 per cent price increase. Operating profits rose by 10.6 per cent although this increase was depressed by an pounds 8.4m provision for bad debts. Underlying costs rose by only 3 per cent.

Overall group performance was also weakened by increased losses of pounds 4.4m in its unregulated, non- core activities. Anglian Water Process Engineering, bolstered by the acquisition of Nordic Water in February, is suffering from contract delays and the 'crazy prices' offered by civil contractors, according to Mr Smith.