East Midlands payout electrifies the market: Chairman casts doubt on union plan to buy British Coal mines

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The Independent Online
JOHN HARRIS, chairman and chief executive of East Midlands Electricity, yesterday cast considerable doubt on plans by the Union of Democratic Mineworkers to buy former British Coal mines.

He was speaking as East Midlands, the first electricity distributor to report on the year to 31 March, announced a higher than expected 14 per cent dividend increase and a 12.7 per cent rise in pre-tax profits to pounds 169.1m, before an exceptional charge of pounds 14m.

The charge reflected the pounds 10m cost of setting up a joint electrical retailing venture with Yorkshire Electricity, along with a pounds 4m item to cover the restructuring of its contracting operation.

East Midlands shares rose by 8p to 458p on the 13.78p final dividend. The stock market had been expecting a 12 per cent rise in the annual payout, in line with the company's interim dividend increase.

The news led to widespread gains among the share prices of electricity distribution companies yet to report their results.

East Midlands is a member of a consortium led by the UDM, whose members work predominantly in its own catchment area. Originally, the consortium had plans to buy as much as 100 per cent of the privatised coal industry.

But events since the publication of the Government's White Paper on the coal industry, including the proposed sale rather than closure of unwanted pits, have shifted the odds against the UDM's ambitions.

'The attractions of a privatised UK coal industry have reduced and the risks involved have increased significantly. Miners must ask themselves if they want to get involved with that,' said Mr Harris.

He did not expect the two UK power generators to take much fuel over and above their new five-year contracts with British Coal, and not before early 1994. By 1998, the industry would be facing 'a large hole', he said.

Mr Harris, who took a small cut in his pounds 231,000 salary last year, said he did not believe East Midlands' dividend increase would anger Offer, the electricity industry watchdog.

He pointed to a 3.2 per cent reduction in the company's tariffs from 1 April as evidence that its customers also benefited from improved efficiency.

Most of the tariff reduction came from passing lower coal prices charged by British Coal to the electricity generators.

About 0.5 per cent stemmed from improved operating efficiency at East Midlands.

Operating profits in East Midlands' core electricity business rose by 16.4 per cent to pounds 179.6m, almost entirely because of an improvement from pounds 4.7m to pounds 26m in wholesaling profits. In distribution to households, profits rose 2.7 per cent to pounds 153.6m.

East Midlands, which recently announced a pounds 14m middle management shake-up involving the loss of 300 jobs, is planning further cost reductions over the next two to three years.

Other activities fared less well. Energy services, which takes in electrical contracting and electronic security, slumped to a pounds 4.9m loss before exceptional charges of pounds 4m, and retailing profits fell from pounds 1.3m to pounds 200,000 before one-off restructuring costs of pounds 10m.