Jonson Cox: How can AWG move up from the First Division? The answer is pure and simple

The water group's new boss talks to Tim Webb about the mopping-up exercise he put in hand after his predecessor's plans ended in disaster
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Jonson Cox, the chief executive of AWG, owner of Anglian Water, is hot and bothered. Not because it is approaching 25 degrees outside the group's central London offices and he can't find the air conditioning switch, or even because he is worried that the photographer might snap a picture of some non-Anglian Water mineral water he is drinking (it happens to be Marks & Spencer's own brand).

Jonson Cox, the chief executive of AWG, owner of Anglian Water, is hot and bothered. Not because it is approaching 25 degrees outside the group's central London offices and he can't find the air conditioning switch, or even because he is worried that the photographer might snap a picture of some non-Anglian Water mineral water he is drinking (it happens to be Marks & Spencer's own brand).

He is worked up talking about his predecessor, Chris Mellor. Cox, who joined in January, has spent the last six months dealing with a problematic legacy. AWG, he says, is now a "First Division company wanting to become a Premier League player". Having run Yorkshire Water in the 1990s and after becoming Railtrack's chief operating officer just before the Hatfield train crash, he knows a thing or two about crisis management.

The problem under Mellor, according to Cox, was that AWG expanded outside the regulated water business. Water companies, he says, should be boring. "I don't think it's boring to run a water company," he adds. "But in investors' eyes we want to be boring and predictable."

AWG has been anything but predictable in recent years. Mellor, who left a year ago, had grandiose plans to turn it into an international water and services group. He bought stakes in companies in far-flung places such as Chile and China for around £200m. In 2002 in a policy U-turn, he put them up for sale. After deciding against spinning off the UK water business, he refinanced instead, raising debt to one of the highest levels in the water sector. The refinancing, which was opposed by some shareholders, cost £130m in advisers' fees.

Mellor then capped it all by buying the property and construction business Morrison for £263m. The deal turned sour. Morrison, which had a profit forecast of £30.5m before it was sold, turned in a loss of £46.4m instead. AWG is now suing its former chairman, Sir Fraser Morrison, for £130m. The problems attracted the attentions of the high-profile WestLB banker Robin Saunders, who stalked AWG for months. Mellor's head was the price of shareholder support; Saunders has since parted company with WestLB, and the bank never followed up its interest.

Cox is still gobsmacked by the Mellor era. "In 1998, AWG was the best managed company in the industry," says Cox. "Then they blew it. The company diversified internationally, then it bought Morrison and it all goes wrong. If you get bored by running a water company, you should do something else in your own time." He is tight-lipped about Morrison, which does work for the Government and manages projects in the utility and construction sectors. But there is little doubt the deal would not have been done had he been in charge. "It took us all by surprise when AWG bought it."

Cox's straight-talking style is in marked contrast to Mellor's. His predecessor was a frequent speaker on the conference circuit. In his introduction to the 2001 annual report he writes: "The year has been one of continuing transformation. We began it as Anglian Water ... we end it as AWG ... It has not been just a case of travelling hopefully; as the report demonstrates, we have already begun to arrive."

Contrast that with Cox, who at the company's analyst meeting for its full-year results, earlier this month, warned his audience before beginning his presentation that they "would probably be bored by it". He insists the comments, which were quoted in newspaper coverage, were not rehearsed. But he is clearly delighted that AWG is being associated with the boring tag. It is a message he uses to reassure wary shareholders who had bought shares precisely in the hope of stable, predictable revenues from the water business. "Shareholders were entitled to be disappointed by the performance on the diversification plan and to question why a water company decided to take its eye off the ball," he says.

It wasn't just shareholders who were left confused. Employees were equally baffled, he says, and he found morale low on his arrival: "Anglian Water was the main source of business and people were asking themselves, 'Are we being spun off?' Yet it is the most important part of the business."

Cox has just completed a "back to basics" review. "My hope is that shareholders recognise that the water company is at the heart of the company," he says. He has decided to keep the poorly performing Morrison business for the moment. "It needs to stand on its own two feet. Let's leave it for 18 months." No one has made a serious offer for it, he says. "Lots of people have been knocking on the door, but you do not deliver value with forced sales."

He insists the ongoing legal battle with Sir Fraser - the Morrison family is also a large shareholder in AWG - is not a distraction. But the case, which had been due to come to court this spring, has been put back a year and has made it harder to sell the business.

Cox's biggest distraction is the five-year price review for the industry which the regulator, Philip Fletcher, is close to completing. Fletcher will decide in November how much water companies are allowed to charge customers for the next five years, starting in April. Earlier this year, companies submitted their business plans outlining how much they need to invest in the network to comply with new European safety standards for drinking water and sewage treatment, and how much bills will have to rise as a result. AWG is asking for one of the lowest rises, on average 3.3 per cent above inflation over the five-year period, having cut its investment estimate from £2.7bn to £1.8bn. "If bills go up I want to be at the low end of that. We are there to service customers," Cox says.

Having been through the previous price review process at Yorkshire Water, which incurred the wrath of consumers when it tried to raise prices, he knows that water companies will come in for heavy criticism. But after Railtrack, you get the sense that he is thick skinned enough to deal with any flak.

Like the railways, the water sector is far from risk free. There has been concern that lower customer bills could force companies to take on unsustainable levels of debt to pay for maintaining the pipes and sewage plants. Analysts have warned that in the event of a major environmental incident, some companies could go to the wall. "It's a fine margin when you have a lot of debt. You can't foresee everything," Cox admits.

His stint at Railtrack is still on his mind. Waiting on the platform for his late train to London that morning, he remembered that when he was in charge of the rail operator, 82 per cent of trains ran on time, despite the post-Hatfield chaos (this figure fell in subsequent years). If he can deliver a similar turnaround at AWG, after three years of losses, that achievement would be anything but boring.

BIOGRAPHY

Born: 1956.

Education: read economics at Clare College, Cambridge University.

1979-92: Management positions in the Royal Dutch Shell group.

1992-96: Managing director, Yorkshire Environmental.

1997-2000: Managing director, Yorkshire Water (part of the Kelda Group).

1994-2000: Executive director, Kelda Group.

2000-01: Chief operating officer, Railtrack.

2001: Joint winner of the Business in the Community Leadership Award.

2002-03: Chief executive officer of packaging compliance company Valpek and non-executive director of utility services group 24/7.

2004 to date: Group chief executive, AWG.

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