Fresh wave of job cuts expected at PowerGen: Competition from nuclear helps to lower market share

POWERGEN cut 500 jobs last year and is expected to reduce employee numbers by the same amount in the next 18 months as it continues to lose market share.

It has 26 per cent of the electricity generating market compared with 30 per cent in 1990, and expects its share to fall to 22 per cent over the next few years as nuclear power and independent generators expand their business.

But PowerGen, the smaller of the two generating companies in England and Wales, increased pre- tax profits by 12 per cent from pounds 425m to pounds 476m in the year to 31 March. Earnings per share rose by 20.5 per cent to 44p and the total dividend goes up by 20.5 per cent to 12.65p. The company said that dividend cover was unchanged at 3.5 times but would be reduced to 2.7 or less.

Turnover fell by 8 per cent because of reduced sales volumes and lower prices charged to the regional electricity companies. The drop was offset by cost control, including a pounds 127m reduction in salaries and overheads. PowerGen has made a pounds 36m provision to cover further rationalisation, bringing total provisions to pounds 291m.

Ed Wallis, chief executive, said the company had continued strong growth despite the increased competition. Its investments in new gas-fired generating stations would leave it well-placed to take advantage of increased demand for electricity towards the end of the decade.

PowerGen has two combined cycle gas turbine stations in operation at Killingholme, Humberside, and Rye House, Hertfordshire. A third, the largest, is under construction at Connah's Quay, Clwyd, and the company is considering applying for further gas-fired plant that may be needed.

Mr Wallis said that the regulatory risks faced by the company had been reduced following an agreement with Offer, the industry regulator, to cap prices in the electricity trading pool for two years. The effect on profits would not be significant, although analysts believe that earnings growth this year and next could be limited to single figures as a result.

PowerGen has agreed with Offer to try to sell 2,000 megawatts of generating plant - equivalent to one large or two small stations - to further its competitive advantage. Mr Wallis said the company was talking to 20 interested parties, of which about six were considered serious. He added that PowerGen would sell only if it was in the best interests of shareholders.

Mr Wallis revealed that PowerGen is one of 33 companies to have pre-registered interest in the privatisation of British Coal. A bid is unlikely, but he is keeping his options open.

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