Operating profits up at Welsh Water: Company says it has effective cost control

WELSH WATER'S failure to repeat 1993's coup, a pounds 17m gain on the sale of its stake in South Wales Electricity, meant this year's pre-tax profits fell to pounds 144.2m from pounds 155.5m, writes Gail Counsell.

But operating profits in the year to March rose 15.5 per cent to pounds 146.4m on turnover up 32 per cent to pounds 502.1m. Turnover in the core water and sewerage businesses rose 9.2 per cent to pounds 390.9m with profits up 12.5 per cent at pounds 148.8m.

Excluding depreciation and infrastructure provisions, costs in the core businesses rose 3 per cent. But the company insists it has achieved effective cost control, with 100 people shed from its 3,200 payroll last year.

The results also suffered from pounds 7.5m of closure costs and operating losses from pipeline contracting and product technology businesses into which Welsh had diversified.

Iain Evans, Welsh Water's chairman, said the closure of most of its marginal activities would allow management attention to be devoted to its infrastructure and utility activities.

Other non-core businesses made operating profits of pounds 11.9m on turnover of pounds 178.1m. Acer, the engineering consultancy company acquired for pounds 49m in February 1983, contributed pounds 5.1m and pounds 133.4m.

Welsh had to more than double to pounds 40m its goodwill write-off on Acer, which has since been merged with its existing consultancy business. Mr Evans said Acer had been refocused and had performed satisfactorily in its first full year under Welsh's ownership.

But he admitted that the industry pricing review by Ofwat, the water watchdog, had created uncertainty in the capital spending plans of water companies, which were key clients of Acer, while public spending cutbacks had had a similar effect on the transportation market.

The final dividend is 16.95p a share, giving a total of 25.4p, up 8.1 per cent. Dividend cover dropped from 3.9 times earnings to 3.5.

Welsh was allowed considerable laxity in its targets on privatisation, but is expected to face much stiffer pricing constraints when these are announced next month. It remains committed to real growth in dividends, however. The shares dropped 12p to 603p.

View from City Road, page 13