Lattice to slash jobs

Gas giant plans up to 2,000 redundancies

Lattice Group, Britain's gas pipeline operator, is this week expected to reveal plans to make thousands of staff redundant and lop millions off its annual expenditure.

Sir John Parker, the company's chairman, will announce the proposals on Thursday when he presents the company's annual results. They will focus on Transco, the regulated business owned by Lattice, which operates 275,000km of gas pipes.

Last year, energy regulator Ofgem ordered Transco to make cost savings of around £1.3bn over five years, which would lead to a £5 cut in the average domestic gas bill.

To achieve this, it is under- stood Lattice is considering making up to 2,000 people redundant and increasing the use of outside contractors for the replacement and maintenance of its pipes. Sources close to the company said that this could save it up to £500m over five years.

If Lattice opts for this plan, then Morrison, the construction arm of Anglian water group AWG, could reap the lion's share of the work. Morrison is already Transco's biggest contractor.

Lattice is also working on proposals to carve up Transco's gas supply business, and appoint a manager for each new unit to promote cost-efficiency competition between the regions.

On top of this, Lattice, which was spun off from British Gas in 2000, is expected to announce that it is shelving proposed changes to the operation of its business in an effort to meet Ofgem's targets. This could mean postponing plans to create a separate safety unit that would have responsibility for meter reading.

On Thursday, Lattice will report figures for the year to 31 December. Stockbroker Williams de Broe estimates that pre-tax profits will be £668m, down £66m on the same period last year.

But many brokers are recommending the stock to their clients. On Friday Lattice's shares closed at 159p.

Simon Edrich, an analyst at Citigroup, said: "The stock is undervalued because of what I believe are market misconceptions. The first is the worry that Lattice is about to go out and acquire European infrastructure assets. I don't think this will happen. Investors are also worried about Lattice's telecoms plans."

Its interests in telecoms are through the Lattice subsidiary 186k (the speed of light), which is planning to lay a 2,000km fibre-optic cable network along Transco's gas pipes. Lattice has committed £450m to the venture.

As part of its plans, 186k has formed a joint venture with Thames Water to lay cable through London's sewers.

But Lattice is unlikely to report any progress on finding a replacement for Philip Nolan, who left as chief executive last month. Sir John Parker, who turned down the job of chairman of Railtrack last year, has taken on the chief executive's role until a replacement is found.