Northumbrian Water receives no takeover interest, H1 pretax pre-ex up

28/11/2007

LONDON (Thomson Financial) - Northumbrian Water Group (LSE: NWG.L - news) has not been approached by any potential bidders, said Finance Director Chris Green in an interview with Thomson Financial News, despite analyst talk that it is one of UK's most attractive water companies for a takeover.

Green said: 'We have not had any offers,' though he did not rule out potential interest in the company.

'In the sector generally, there's no shortage of interest in infrastructure funds looking at regulated assets, be it water or electricity, etcetera,' said Green. 'We are a water company and I dare say we will be of interest.'

The spate in UK water company takeovers - most recently the Saltaire Water consortium's accepted bid for Kelda Group (LSE: KEL.L - news) this week - has increased speculation over future takeovers.

In April 2005 Ontario bought a 25 pct stake in Northumbrian Water, though Ontario's future ambitions for the company have not been divulged.

Southern Water was bought two months ago by a group of infrastructure funds led by JPMorgan for 1.3 bln stg, and Thames Water was bought last year by Australia's Macquarie Bank.

Northumbrian Water reported a steady set of results for the first half to Sept-end, with pretax pre-exceptional profit up to 88 mln stg from 75.5 mln stg, ahead of analysts' expectations.

One reason behind the rise was the fall in power costs compared to last year.

'One of the more volatile components is energy costs,' said Green. 'In 2006-07, the inexorable rise in power costs continued. This year it has reversed.'

The interim savings in energy costs compared to last year was 3.5-3.7 mln stg, said Green. The full-year savings compared to last year are expected to be around 7 mln stg.

However, the reductions are not set to continue, with 2008-09 expected to be more like last year. 'We are already beginning to buy power for the next year and we see some quite staggering increases again,' said Green. 'In 2008-09 the vast majority of the benefit [from 2007-09] will move away again.'

The company's interim ordinary dividend was marked at 4p against 3.75p last time, inline with analysts' predictions. The half year adjusted earnings per share was also up to 13.19 from 11.32p.

Revenues were up 5.7 pct to 333.8 mln stg, due to a rise in sewerage and water charges.

The company said it has met Ofwat's leakage targets for both its northern and southern operating areas, with 20 pct and 15 pct leakage rates respectively. There were 'marginal' decreases in leakage figures - about 0.1-0.2 pct - compared to last time.

Northumbrian Water also released its 'Looking to the Future' report today, outlining ambitions for the next 25 years. The thrust is for better service, increased maintenance and a reduction interruptions in supply. Green also said that the company has applied for an increase in reservoir capacity in the south and that the planning application will go in 'shortly'.

'The speed at which we go will depend a lot on what Ofwat will allow within its five year pricing review,' said Green.

Ofwat is already planning its price review for 2009 which will set out the price caps for water companies for 2010-15. Ofwat has already signalled its intent to favour benefits for customers rather than shareholders.

Yahoo! UK & Ireland - Finance