City worried over water diversification: Northumbrian makes provision for closure of pipe renovation business

Click to follow
The Independent Online
NEWS that Northumbrian Water had made an pounds 8.9m provision for closing its Amtec division has raised fears about the sector's diversification into non-core businesses.

The City has been looking for a strong contribution from water companies' non-core operations after Ofwat, the industry's watchdog, signalled a clampdown on profits from water businesses. Northumbrian's shares initially fell 17p but recovered to end 9p down at 558p.

Ian Byatt, Ofwat's director-general, wants to limit dividend growth funded from water and sewerage businesses so that shareholders' interests are not put before those of customers.

David Cranston, Northumbrian's chief executive, yesterday announced half-year results down 42 per cent to pounds 22.6m after provisions. The interim dividend was up 8 per cent at 8.1p, and Mr Cranston said his promise to increase the payout at a real rate of 5.25 per cent a year would continue until 1995.

However, the policy would be revised later in response to Ofwat's price cap, to be announced in July next year. Northumbrian has offered a scrip dividend alternative.

Mr Cranston welcomed Mr Byatt's intention to take into account each water company's circumstances before setting the pricing framework.

Amtec, a pipe and sewer renovation business, employs about 350 people and has been for sale for some time. Mr Cranston said some of the operation would be transferred and Northumbrian's environmental consultancy and waste management businesses would continue to expand.

Both these companies operated at break-even in the first half, and he predicted that they would grow into companies with turnovers of pounds 100m in the medium term.

The waste management division has won planning approval for a third disposal site. Outline planning consent has been given for a clinical waste incinerator, though the matter is now the subject of an appeal to the High Court.

Core water and sewerage businesses performed strongly and capital spending on water quality and environmental improvements was on target at pounds 94m for the year. Operating profits at the regulated businesses rose from pounds 27.3m to pounds 37m.

Investment income fell to pounds 600,000 from pounds 8.6m during the six months, including pounds 7.3m capital profit taken on the maturity of the equity fund investment. Earnings per share fell 47 per cent to 30.3p.