Company of the week: United Utilities

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The Independent Online
WATER companies were the focus of attention last week as companies slashed dividends and announced job cuts. There was a rebound on Friday, though, led by United Utilities, whose shares rose 19 per cent, after it said it would raise its dividend and would list a telecommunications unit in 18 months.

Like its rivals, United wants to develop its non-regulated businesses to offset the cuts demanded by the Office of Water Services (Ofwat). The company, which said it would not challenge Ofwat's decision, wants to partly list its telecoms unit and its information technology unit, Vertex.

"It's a relief they aren't cutting the dividend or going to the competition commission," said Gordon Culfeather, an analyst at Sutherlands. "Their position as a multi-utility will help them integrate the businesses and cut costs, and the listings are positive."

United said first-half net income rose to pounds 225.6m from pounds 222.7m a year ago, helped by higher water prices and cost cuts. It raised its interim dividend to 14.7p from 14.4p. Sales rose 3.7 per cent to pounds 1.1bn, although the company expects the Ofwat price cuts to slash its revenue by pounds 140m next year.

"The regulated business is less likely to grow, and it is a question of achieving cost targets," said John Roberts, the United Utilities chief executive.

The company is looking for acquisitions to expand its telecoms business. It could realise a operating cost reduction target of pounds 400m in three years, faster than the five-year time frame mandated by Ofwat. Its integration plans could result in cost savings of pounds 30m.

The Warrington company also expects to expand in eastern Europe. In partnership with International Water Ltd, it recently acquired a 25 per cent stake in Aqua SA in southern Poland, and is a preferred bidder for a 25-year water and waste water concession in Bulgaria.

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