Making a splash: Severn Trent says it will sell off a wave of surplus land to help Britain's housing shortage

 
Rebecca Smith
The water company is hoping to tap into one of Britain's biggest problems
The water company is hoping to tap into one of Britain's biggest problems (Source: Getty)

Water giant Severn Trent has announced it will sell off its surplus land to help bolster the British housing market.

The FTSE 100 firm made the announcement with its half-year results, saying selling surplus land over the next 10 years "will help keep bills low as a proportion of profits will be shared with customers through an end of AMP regulatory capital value adjustment".

It has identified opportunities to generate profits of around £100m over the next 10 years from the development of surplus property assets, and said some of the profits will contribute to lower bills.

These plans, Severn Trent said, will help tackle the housing shortage and create new jobs.

Shares were up 2.3 per cent in early trading.

Read more: Severn Trent flogs its North American unit for £48m

The figures

The firm reported a 3.7 per cent rise in turnover to £850.4m in the six months to 30 September 2017.

Group underlying profit before interest and tax rose 4.4 per cent to £287.8m.

It is boosting its interim dividend 6.2 per cent on this time last year, to 34.6p.

The firm said that it had the lowest average combined water and sewerage bills in Britain at £341.

It said it was increasing guidance to at least £50m in outcome delivery incentives for 2017/18, compared with a previous forecast of around £23m. Water firms are penalised if they miss targets, and rewarded when they meet or exceed them.

Why it's interesting

Alongside the headline figures, Severn Trent set out several pledges including to generate the equivalent of 50 per cent of its energy needs from renewables by 2020; at present it is 38 per cent.

The most eye-catching however, was the surplus land pledge, which the company said will result in extra profits before interest and tax of £5m to £15m per year, or around £100m over the next five years.

What the company said

Liv Garfield, Severn Trent's chief executive, said: "As a result of the hard work of everyone at Severn Trent and their focus on the areas that are most important to our customers, we've reduced total sewer floodings by 48 per cent."

Regarding the surplus land announcement, Garfield said:

In maximising value from our assets for the longer term, we today announce plans to sell land made available through operational efficiency. This strategy will create benefits for our customers, communities and investors.

What analysts said

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "It might not feel like it to those affected by the water leaks that are still a common feature of the Britain’s ageing water network, but Severn Trent’s efforts to improve customer service are delivering results.

"In the monopolistic world of water suppliers, improved service can’t be recognised by new customers - who are tied to whichever provider happens to own their local pipes. Instead the government offers bonuses for hitting targets, and Severn Trent’s efforts look set to rewarded this year."

He added: "It’s a second half of good news in quick succession, coming close on the heels of the decision to upgrade the dividend policy to RPI plus four percent increases. That has started delivering for investors today.”

Read more: Severn Trent lifts guidance for its business services unit

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