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Yorkshire's rebate tops water rivals


Industrial Correspondent

A price war among the utilities escalated yesterday with a pounds 10 customer rebate from Yorkshire Water - the largest single payout in the industry so far.

Yorkshire's so-called "customer dividend" came hot on the heels of Anglian Water's pounds 6 rebate announced on Monday, and an annual reduction of about pounds 8.30 in domestic bills from Seeboard, the electricity firm.

Yorkshire Water denied any pressure to come up with handouts following North West Water's pounds 6.50 annual rebate scheme, unveiled in May.

Trevor Newton, group managing director, said the one-off pounds 10 rebate, at a cost of pounds 20m, is "a demonstration to customers that they can share tangibly in our success".

Yorkshire also predicted pounds 250m in further efficiency savings over the next five years, to be split between customers and shareholders. The pounds 125m for customers will be spent on investment beyond that required under the regulatory regime.

The company will target customers who have very low water pressure and those at risk from sewage flooding as well as leakages from pipes. Yorkshire also hopes to carry out joint projects with the National Rivers Authority to improve river quality in the region.

The company declined to be specific about shareholders' benefit from planned efficiency savings, but added: "In view of the company's performance and strong financial position, shareholders can expect to see further significant increases."

However, Yorkshire also announced plans to seek permission at the annual meeting to buy back 10 per cent of its shares "to add to the range of options available to us".

One City analyst said the customer rebates were a "great success" for Ian Byatt, director general of the water industry regulator, Ofwat. But he warned of the temptation to bow to political pressure and swing benefits too far in favour of customers, which could have long-term implications for shareholders.

Mr Newton said the rebate came from efficiency savings of pounds 150m over the last five years, of which pounds 50m will be used to enhance shareholder dividends.

He said customers had already benefited by pounds 10m from lower charges than allowed under the regulatory regime, and from "extra" investment of pounds 70m in better services and quality. That investment is over and above requirements set by the Government when the company was privatised in 1989.

Mr Newton was speaking as Yorkshire announced a 1 per cent fall in pre- tax profits to pounds 142m in the year to 31 March, after the costs of restructuring and the rebate. Earnings per share dropped by 3.7 per cent to 65.5p but the underlying change is a 20 per cent increase to 87.6p.

The dividend rose by 21.1 per cent to 27.6p. About half of the increase was accounted for by a pounds 5.8m profit from the sale of some of the company's shares in local television operations.

The company shed about 560 jobs in the 12 months and expects to cut the 3,300-strong workforce in the core-regulated business by a further 500 over the next two to three years.

Mr Newton declined to predict what would happen to dividends in future, other than to say there would be "significant" growth. During the last year, the company's non-regulated activities made a profit of pounds 7m after all business development and financing costs. Non-regulated operations include environmental and waste companies.