Wessex up by 12%: Water company plans waste expansion

WESSEX WATER, which made a pounds 144.5m rights issue in January to help to pay for the pounds 113m acquisition of NFC's waste management operations, intends to expand further into waste, writes Terence Wilkinson.

A contribution of pounds 4.5m against pounds 900,000, mainly from its interest in Wessex Waste Management, the 50 per cent joint venture with Waste Management International of the US, helped to lift pre-tax profits by 12 per cent to pounds 86m in the year to 31 March.

In common with other water companies, Wessex is questioning whether there are benefits to be obtained from even higher levels of capital spending on environmental quality now that compliance with EC drinking water standards is 99.7 per cent and that of sewage treatment works 98.9 per cent.

Nicholas Hood, chairman, said that a survey showed customers did not want Wessex to spend substantially more. The company would be pressing this view in the review of water prices by Ofwat, the industry regulator.

With a final of 14.2p, the overall dividend goes up by 10 per cent to 21.5p. News of the figures and the healthy 19.5 per cent profit margins being earned by Waste Management helped Wessex shares 12p higher to 570p and encouraged gains in other water company shares.

Operating profits in the core water business rose by 20 per cent to pounds 81m on an 8 per cent gain in sales to pounds 205.6m as operating costs were held level. Interest earnings fell from pounds 8.5m to pounds 500,000 on the back of acquisitions and pounds 130m of capital spending.

Mr Hood said the waste management joint venture, which more than doubled in size during the year with the NFC purchase and nine smaller acquisitions, was well on the way to becoming the UK's leading waste management business.