Water shares rally as United Utilities cuts 1,000 jobs, raises dividend and prepares telecom float

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The Independent Online

UNITED UTILITIES, owner of North West Water and Norweb, is to reduce its workforce by 1,000 as part of a plan to save £400m over the next five years.

UNITED UTILITIES, owner of North West Water and Norweb, is to reduce its workforce by 1,000 as part of a plan to save £400m over the next five years.

News of the latest round of job cuts to hit the sector came as United Utilities prompted a rally in water shares by raising its dividend and announcing plans to float its telecoms arm, Norweb Telecom, in 12 to 18 months.

Shares in the company rose 68p to 550.5p as the City breathed a sigh of relief that United Utilities had not followed the lead of Hyder and Pennon by cutting its dividend.

United Utilities said it had decided not to appeal against Ian Byatt's water price curbs or Ofgem's cuts in electricity charges, even though the two reviews will cut profits by £140m next year.

The headcount reduction will be achieved by implementing about 500 voluntary redundancies and outsourcing a similar number of jobs.

John Roberts, United Utilities' new chief executive, would not comment on the job cuts, saying the company would set out its plans in detail on 1 February. He stressed, however, that job losses would contribute only a small amount towards the £400m of efficiency gains. United Utilities calculates, for example, that it will save £100m by integrating back-office functions with its operational activities and £30m by rationalising its property portfolio.

The company has 6,000 workers in its core regulated UK water and electricity businesses. The target of reducing operating costs by £80m annually in each of the next five years is equivalent to a 25 per cent cut in its controllable costs. United Utilities has already reduced its operating costs by £90m a year since the merger of North West Water and Norweb in 1996.

Norweb Telecom has about 1,000 corporate customers and made operating losses of £3.2m on sales of £37m in the six months to the end of September. The business is reckoned to be worth about £1bn, but a flotation could value it at £1.5bn.

United Utilities' shares were boosted by reports that it had been targeted by Enron, the US owner of Wessex Water, for a reverse takeover. The magazine Utility Week said United Utilities would have bought Enron's water subsidiary, Azurix, for up to $2.4bn (£1.5bn) through an all-share offer, but Enron had switched its attention and was now looking to buy Hyder, owner of Welsh Water and Swalec.

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