Severn Trent share price falls as investments squeeze profits

 
Jessica Morris
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Severn Trent said pre-tax profit fell 53.5 per cent (Source: Getty)

The figures

Severn Trent's revenue increased 2.4 per cent to £1.8bn in the year to the end of March, up from £1.76bn a year earlier.

Nevertheless, investments squeezed profits: pre-tax profit fell 53.5 per cent to £148.2m, down from £318.8m in 2013. It said that investment "in business development in US concessions impacted profit year on year".

The news pushed shares down 1.27 per cent to 2,155p in early trading.

Why it's interesting

The water company has come under increasingly regulatory pressure to lower its prices.

Earlier this year it bowed to pressure, saying water bills would fall over the next five years to around £60 below the industry average, after it accepted the price determination for 2015 to 2020 delivered by utilities regulator Ofwat.

To save cash, it announced a £100m share buy-back programme, and also reduced the dividend for 2015-16 by five per cent compared with the current year dividend. The policy in future will be to grow the dividend annually at the rate of inflation (RPI, rather than CPI) until March 2020.

"We have had at or below inflation increases in our customer bills for six consecutive years, and Severn Trent Water's customers continue to benefit from the lowest average combined water and sewerage bills in Britain," Liv Garfield, its chief executive, said today.

What Severn Trent said

Garfield added:

Our performance over the last year has also demonstrated where we are strong and the areas we need to focus on to drive improvement.

We have hit our target of a 10 per cent reduction in leakage over AMP5 and improved our customer service performance,

We've made some significant cultural and operational changes to get our business in the best possible shape for AMP6.

As a result, we are facing the future with confidence, despite one of the toughest price settlements in our history.

In short

Pre-tax profit was hit by a number of large investment programmes, but these could return value in the future.

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