Severn Trent cheered shareholders with a 4.4 rise in interim profit from its water and sewerage division after higher prices offset a decline in consumption among metered customers.
The half-year surplus of £255.3 million for Coventry-based ST’s regulated business followed a 5.07 per cent rise in prices, including inflation, from April 1. Turnover was dented by £5.4 million as a result of the consumption decline, which the group estimated will cost it between £12 million and £15 million in the whole financial year to the end of March.
But there was a feeling that the half-year results marked a turning point for the heavily-restructured company after it was fined nearly £38 million for regulatory offences under its former executive team. ST, which serves a population of more than eight million from the Bristol Channel to the Humber and from mid-Wales to the East Midlands, said a number of factors affected water profits in the half-year. These included an increase in infrastructure renewals expenditure of £10.8 million, a rise in energy and commodity costs of £7.8 million, bad debt charges of £2.7 million and other cost increases of £3.5m.
Efficiency gains, including reduced contractor costs because of better leakage management, helped mitigate the impact of inflation on its cost base. During the period ST invested £295.3 million in fixed assets and maintaining and improving its infrastructure network.
Across the group, which includes a water services arm, turnover rose by 5.2 per cent to £814.3 million with underlying profits 4.6 per cent ahead at £261.5 million. Higher finance costs meant pre-tax profits dipped by 4.3 per cent to £154.5 million.
This summer, regulator Ofwat confirmed a fine of £35.8m following Severn Trent Water’s actions in deliberately providing false information and poor customer service in 2005 and earlier years.
A day earlier the company was fined £2 million at the Old Bailey in London after pleading guilty to two offences under the Water Industry Act of making false returns to Ofwat concerning 2001 and 2002. All the matters related to previous management and Severn has said it is now at the end of resolving legacy issues from the old regime.
“That is all done and dusted,” chief executive Tony Wray said. “We have turned the corner.”
He added: “These results demonstrate continuing improvement across the business.”
The company continued to see improvements in customer service standards and leakage performance while achieving “sustained reductions” in customer supply interruptions and sewer flooding.
Finance director Mike McKeon said ST was highly-liquid, with £570 million cash in the bank and £500 million of bank facilities to draw on. That means it does not have to go to what he called “pretty volatile” money markets before 2010.
Mr Wray said ST’s £500 million infrastructure improvement for the Birmingham area was fully funded.
ST has set aside a further £2.7 million to cover debts run up by cash-strapped customers but so far there has been appreciable deterioration in the situation.