The Independent online edition
Kelda mulls the sell-off of its not so profitable US subsidiary
26 May 2005
By Michael Harrison, Business Editor
Kelda, the owner of Yorkshire Water, signalled yesterday that it may dispose of its troubled US water subsidiary Aquarion unless profits from the business improve within 12 months.
The group has spent $800m (£440m) on Aquarion since acquiring the business in 1999 but it has consistently failed to achieve its allowed rate of return under the US regulatory regime. Last year Aquarion, which has 700,000 customers in Connecticut, New Hampshire, New York and Massachusetts, suffered a 21 per cent fall in profits to £24.9m after a £5.4m charge for company re-organisation.
Aquarion also disappointed with its performance, affected by the wet summer on America's north-eastern seaboard, which reduced demand for water, adverse exchange rates and a $2m fall in revenues in Connecticut after regulators cut the sum it was allowed to earn.
Kevin Whiteman, Kelda's chief executive, said the group did not have to sell Aquarion because the company was more than paying for itself but he said a decision would be taken by the end of this year. "It depends on how well we can make the business perform and what the market looks like."
If Kelda does sell up, it would be following in the footsteps of ScottishPower, which sold its US energy business, PacifiCorp, to Warren Buffett for $9.4bn this week, taking a £1bn write-off in the process.
Mr Whiteman indicated that Aquarion was only achieving a return of about 7.75 per cent against the 9.75 per cent it was allowed to earn. To improve its efficiency, the workforce was cut by 20 per cent last year, resulting in £3.8m of early retirement costs.
Kelda's main regulated UK water business performed much better, enabling the group to report a 17 per cent increase in pre-tax, pre-exceptional profits to £224m. It also announced plans to buy back up to 5 per cent of it shares over the next two years at a cost of £120m alongside an 8 per cent increase in the dividend for the year to 29p.
Yorkshire Water increased profits before interest and exceptional items by 13 per cent to £284.6m after outperforming the targets for operating efficiency set by the UK regulator Ofwat by £120m over the five years to march, 2005.