Kelda buyout high water mark for utilities

A STRONG management team, excellent regulatory, operational and customer service is what makes Kelda a trophy acquisition, analysts are saying.

Their approval follows the announcement yesterday that Yorkshire Water's parent company Kelda had approved a £3bn takeover bid from a consortium of investment firms made up of Citigroup Alternative Investments, GIC Special Investments, Infracapital Partners and HSBC.

Kevin Whiteman, Kelda's chief executive declined to say whether Kelda had received any counterbids, but confirmed that the deal included around £2bn of debt. He said that the offer was good for customers, employees and shareholders.

Richard Laikin, a director in the water sector team at Ernst & Young, said that Kelda was perceived as being “best in the class” in the water sector and had plenty of opportunities for continued growth in regulated asset value over the next five to 10 years.

“The company also has a highly regarded management team,” he added.

“Kevin Whiteman and his team are widely credited with turning around and driving forward Yorkshire Water over the last few years.”

Mr Laikin added that because of Kelda's relatively low gearing, its new owners will be able to further “gear up” the business and with the disposal of many of its non-core activities, including Aquarion in the US, focus on core business.

“This makes Kelda a relatively pure water business upping its premium for eager infrastructure investors,” said Mr Laikin.

A spokesman for Yorkshire Water said that customers wouldn't even notice that their water supplier had a new owner.

“Yorkshire Water is obviously a strong business and no buyer would want to change that,” he said.

“There are no plans for any cuts other than those already planned as part of our highly successful efficiency programme. We're already a very lean business.”

There are now only four lister water companies remaining, which analysts are predicting will continue to be attractive to other investors.

However, many believe that the high water mark for investment in the sector has been reached as the price review process really starts apace next year.

Kelda provides water and waste water services to customers in the UK, employing over 3,000 people.

Yorkshire Water is Kelda's main subsidiary, providing water and waste water services to more than 4.7 million people and 140,000 businesses.

Kelda's principal non regulated business, Kelda Water Services Limited, focuses on water, waste water and business services.

Yesterday Kelda reported that group revenue was up 5.6% compared to the same period last year from £411.7m to £434.9m, of which Yorkshire Water's regulated business contributed 90%. Operating profit increased by 9.8% to £184.4m.

Adjusted earnings per share (excluding deferred tax) rose 19.6% from 27.1p to 32.4p.

Kelda said that the increase in profitability reflected the underlying strength of the group's core business of Yorkshire Water and steady organic growth in Kelda Water Services.

Earlier this year Yorkshire Water was ranked second in Ofwat's OPA table in 2006/7 for the second year running and is the only company not to have been out of the top four since 2001.

Customer service also remained high with the number of written complaints falling to 23 per 10,000 customers compared to the average number across all water companies of 80 per 10,000.