Northumbrian profits up as water sector waits for Ofwat

Northumbrian Water said lower debt costs helped it to a first-half pre-tax profit hike of 12.8 per cent yesterday, but warned that Thursday's announcement by the water regulator on pricing for the next five years is the "key risk to the business".

Water bills could fall by an average of 4 per cent between 2010 and 2015 if Ofwat follows its own draft recommendations, issued in July, which said cuts are likely despite the regulated water companies asking for price rises. Under the proposals, Northumbrian will be one of the few water groups permitted to increase charges, by 0.9 per cent, after the group had asked permission to raise bills by 2.3 per cent.

The draft guidelines came after the industry asked for collective price hikes of 12 per cent. "There could be some scope for Ofwat's proposals to improve ... although we see a dramatic change in the outcome as unlikely," James Brand, an analyst at Deutsche Bank, said last week.

The companies have until January to respond to Ofwat's final decision. Several groups have been lobbying the watchdog since July, warning that they may have to ask shareholders for more cash, or scale back dividends, if the draft price cuts are imposed. Consumer groups largely welcomed the draft plans.

Northumbrian's managing director, John Cuthbert, yesterday ruled out a rights issue, saying that the company was well funded through the debt markets. However, he did concede that the group's dividend policy would be reviewed. "The board will have to take a view on the dividend. We were the first to publicly state our policy at the start of the current five-year period in 2005, but that policy may have to be changed."

The interim dividend was increased yesterday, to 4.39p a share from 4.29p in 2008. Lakis Athanasiou, an analyst at Evolution, said Northumbrian investors are likely to see less pressure on the dividend between 2010 and 2015. "Northumbrian will probably need to ease back real growth, but maintain dividend per share, while Severn Trent and United Utilities will most likely need to cut."

Interest payments on the group's debt, which is largely linked to the retail price index, fell by £14.5m, helping to boost first-half profits to £87m. Northumbrian said it had been hit by industrial customers using less water during the recession. Revenues increased by just 1 per cent in the period, with operating costs increasing by 1.3 per cent after a £1.7m bad debt charge.

Ofwat said in July that it is expecting the water companies to invest £21bn between 2010 and 2015. Much of the spending is likely to be earmarked for ensuring that sewage systems do not overflow during flooding.

United Utilities, which operates in the areas of the North-west hit by virulent floods over last few days, refused to comment on the cost of the heavy rains. However, Mr Cuthbert said that Northumbrian has invested at least £80m on preventing sewer floods caused by heavy rains since 2005, adding that the group was likely to spend a further "£120m to £125m in the next five years".

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?