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Friday, November 20, 1998 Published at 11:12 GMT

Business: The Company File

Millennium bugs Utilities

United Utilities is concerned about the impact of regulatory reviews

Paying the price of the so-called Millennium bug has led UK water and electricity group United Utilities to post lower than expected pre-tax profits.

The group which delivers services to the Northwest region, consists of Norweb Electricity and Northwest Water, but it also is expanding into gas supply and telecommunications.

It is one of the last independent utilities producers in the UK.

The company said its cost-cutting programme is on track to deliver £40m ($66.83m) worth of annual savings, but it warned it faces computer systems trouble as 2000 approaches.

Pre-tax profits for the first six months rose 3.5% to £214.2m against £206.9m last year, and well below analysts expectation of £239.5m.

The company blamed a £12.5m Millennium bug charge, the first of an estimated £40-45m programme to prepare the company for the changes.

A change in its accounting system also set the company back by £7.5m.

Mixed market

But overall results were mixed.

[ image: Digging deep: United must pay the Millennium price]
Digging deep: United must pay the Millennium price
In electricity supply, the operating profit rose 17.2% to £17m and the company said it remained "on schedule" to enter the competitive market.

It says it is ready to enter the competitive market, where customers will choose their own electricity supplier on November 30.

Turnover rose 190% to £17.4m in the gas division as the company recorded over 250,000 domestic customers.

But it was United Utilities telecommunications arm which rung up a glowing report with its turnover increasing by 98% to £21.2m.

Regulatory impact

The company on Friday became the second utilities group this week to warn of the impact on its profits of the regulatory reviews of its water and electricity business.

Finance director Bob Ferguson said it is too soon to judge what impact the next water price review, covering 2000-2005, will have on dividend payments.

Mr Ferguson said there were no indications in the regulator Ofwat's 2001-2005 Prospect for Prices' document which required the group to change its dividend policy before 2000.

"We always expected this price review to be tough and that it would impact on our ability to grow earnings in the water part of the business after the year 2000," he said.

"Before we can work out how tough, we need a whole better understanding of some of the assumptions used in 'Prospects for Prices'."

Earlier this week, Welsh multi-utility Hyder, which owns Welsh Water, tied its dividend growth to inflation until the pricing review process is completed.

United Utilities' share price rose by 5 pence to 869p while its dividend increased to 14.4 pence from 13.16 a year earlier.

As 2000 looms, the company has devised emergency and disaster recovery plans should any of its systems fail.

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