Chemical collapse hits Northumbrian Water hard

Nov 24 2009 by Karen Dent, The Journal

NORTHUMBRIAN Water has seen its growth hit by the downturn in Teesside’s vast chemicals industry in the recession.

The utility group says it was hit with a £1.7m bad debt charge when the Artenius chemical plant at Wilton, near Redcar, closed and remains worried about potential future problems.

Chemical companies on the site run by Dow, Invista Textiles, Artenius, Croda and Elementis have all announced plans to pull out of Teesside. There have been wide cuts at steel giant Corus’ works on Teesside and the future of the Teesside Cast Products plant in Redcar is still uncertain.

But Durham-based Northumbrian Water, which is the main water supplier in the North East, said this has offset some of the growth it expected from tariff increases.

The concerns were revealed as the group announced a 12.8% increase in pre-tax profits from £77.1m to £87m in the six months to the end of September. But revenue increased by just 1% to £351.2m compared to the same period last year.

Chris Green, group finance director, said: “The areas of concern are what’s happening on Teesside, where there is a lot of pressure on the chemicals and pharmaceuticals companies.

“One major company has gone into administration – Artenius – and you’ve still got uncertainty over Corus. That’s the background.”

He said the £10m jump in pre-tax profits during the period was mainly due to lower interest rates on its index-linked bonds.

“It is linked to the Retail Price Index,” said Mr Green. “We are now in a deflationary period and you do get a credit.”

The improved interim figures follow the full-year results, which were published in June and showed a drop in profits of more than 10% to £152.7m as Northumbrian struggled against a 50% increase in energy prices. Mr Green said energy prices had since softened and the company’s bill had fallen by more than £2m.

Northumbrian will find out on Thursday how big an increase in bills water regulator Ofwat will allow it to impose over the next five years.

The watchdog initially limited the company to a £3 increase before inflation for the whole period, but Northumbrian wants to hike bills by 3.4% a year over the rate of inflation for five years to fund its £1.2bn investment programme.

That would mean household bills would rise by around £25 by 2015, from the current £297 average to £322.

Managing director John Cuthbert said it’s essential the company has money to fund improvements.

He said: “Customer research has shown there are a very significant number of things that customers think is important – not least is sewer flooding. Events in the last couple of days have shown how much of an issue that is.”

He said the company is spending around £30m on a mains cleaning programme across the region and plans to push on with a £36m upgrade of the Howdon sewage treatment works, which would allow it to produce renewable energy.

The proposed interim dividend for the six months was 4.39p, up from 4.29p last year.