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

UNITED UTILITIES, owner of North West Water and Norweb, is to reduce its workforce by 1,000 as part of a plan to save pounds 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 - 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 pounds 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 pounds 400m in efficiency gains. United Utilities calculates, for instance, that it will save pounds 100m by integrating back- office functions with its operational activities and pounds 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 annually by pounds 80m 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 pounds 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 pounds 3.2m on sales of pounds 37m in the six months to the end of September. The business is reckoned to be worth about pounds 1bn, but a flotation could value it at pounds 1.5bn.

United Utilities' shares were boosted by reports 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 (pounds 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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