Slimmed-down Severn Trent saw pretax profits at its core water and sewerage business fall by nearly six per cent to #142.7 million in the six months to September 30 as spending on maintenance and repairs rose and higher energy costs took their toll.

The figures from the Birmingham-based group excluded the contribution from the recently offloaded Biffa waste disposal business.

Severn Trent is fighting to repair its public image after being rapped by water regulator Ofwat for its high level of leakeages which see 542 million litres ebb away every day.

It also faces an investigation by the Serious Fraud Office into claims it gave misleading information about the leaks and customer service standards.

The country's second biggest water company has had to repay customers more than #3 million after it was found the incorrect data had inflated bills over a five-year period.

Tony Wray, managing director of Severn Trent Water, was adamant yesterday that the re-structured company was vigorously tackling leakages and would be spending between #15 million and #20 million more on the problem in this financial year.

"We are taking every practicable step we can to reduce leakages and they are lower than they were this time last year," Mr Wray said.

Yesterday's interims showed that the water and sewerage business yielded a profit before tax and interest of #225.6 million, a fall of 6.58 per cent, on turnover 4.6 per cent up at #610.4 million.

Energy bills rose by #9.6 million during the period and STW had to make bad debt provision of #2.6 million.

Spending on the network, which serves eight million homes in England and Wales, rose from #36.2 million to #42.5 million in the first half of the year.

Customers are already getting the benefit of the higher levels of investment, Mr Wray said.

"On average they pay 73p a day for water and sewerage, and that is the third lowest charge in the industry.

"They get phenomenal value for money," he said.

Severn Trent was spending #500 million in total this year on improving services and the total value of the current round of capital spending – up to 2009 – was #2.6 billion.

"For every #2 profit we are investing #3 back into the business," Mr Wray added.

As well as offloading Biffa as a separate company, Severn Trent has recently sold its property arm to Prologis and is in the process of selling its US laboratories operation.

Group chief executive Colin Matthews said: "With restructuring substantially completed, group management is now committed to the single minded pursuit of continuous improvement in our water business.

"We are investing now for improved customer service and leakage reductions.

"By raising standards we will improve customer service and generate sustained financial returns for our shareholders."

The interim dividend is therefore raised by 6.6 per cent to 22.77p per share; and that comes on top of a previous special payout that totalled #577 million.

Shares closed down 29p at 1450p. water droplet It's not just the group structure that is undergoing a transformation at Severn Trent – the balance sheet is being re-engineered as well. By replacing equity with debt, the company is able to raise dividends by three per cent above inflation in the current regulatory period.