Thus collapses on Demon Net warnings

Shares in Thus, the telecoms company which is 50.1 per cent owned by Scottish Power, yesterday lost almost a third of their value after the group warned that its Demon internet service provider had been hit by rivals offering flat-rate Web access.

Shares in Thus, the telecoms company which is 50.1 per cent owned by Scottish Power, yesterday lost almost a third of their value after the group warned that its Demon internet service provider had been hit by rivals offering flat-rate Web access.

The shares fell by 30 per cent to an all-time low of 153p, 80 per cent below their March high, after Thus said that its full-year earnings before interest, tax, depreciation and amortisation were "expected to be negative".

The collapse in Thus shares caused a general panic in the market, with investors fleeing the telecoms sector. Colt Telecom lost 105p to close at 2085p, Energis shed 56p to 479p and Telewest dropped 12p to end at 173p. Thus is now worth less than half the 310p-a-share flotation price which Goldman Sachs attached to the group when it was spun off from Scottish Power and given a separate listing last November.

In a statement, the company said standard dial-up subscription revenues fell 13 per cent in the first quarter as retail customers defected to rivals offering "free" access to the Net. Demon's basic internet service costs £11.75 a month plus call charges but competes with companies such as Dixon's Freeserve and British Telecom's SurfTime service, which offers consumers a flat-rate internet service provider with free calls at evenings and weekends.

Thus reported a loss before interest, tax and depreciation of £8.7m for the three months to 30 June, compared to a positive figure of £1.7m the previous year on turnover up six per cent at £50.6m. Bill Allan, chief executive, described the results as "disappointing" but said the group's performance in the business-to-business market was "showing good progress". Analysts slashed their full-year Ebitda forecasts from a £25m gain to a loss of £20m. One said: "People are very, very disappointed ... But I still think they [Thus] have got quite a good underlying business."

Separately yesterday, Scottish Power unveiled a 12 per cent rise in first-quarter pre-tax profits, in line with analysts' expectations. The company reported earnings before tax, exceptional items and goodwill amortisation of £138m on turnover of £1.32bn. There was a one-off charge of £121m in the period for restructuring costs relating to the group's recent $10.7bn acquisition of PacifiCorp, a US rival.

David Nish, finance director, said the Thus losses "will not significantly impact Scottish Power's earnings". He added: "Scottish Power remains supportive of Thus's strategy."

Asked whether the electricity company would consider disposing of its Thus stake, Mr Nish said: "Where we sit on that at the moment is that we see the opportunity to maximise both our value and Thus's value by working together ... There are advantages to Thus having a strong parent behind it, particularly as it goes through this difficult time."

Mr Nish ruled out a bid by Scottish for Norweb Energi, the UK power supply business put up for sale by United Utilities. But he added the group had requested details of assets being sold by PowerGen to help fund its US drive. Shares in Scottish Power closed up 9p at 560p.