Profit flow slows at Severn

PRICE cuts and higher costs stemmed the flow of profits at Severn Trent, but the water firm said an inflation-busting dividend rise in the next four years showed its confidence.

Severn, which supplies water and sewage services to about 3.7m homes in the Midlands and mid-Wales, said profits fell 16 per cent to £158m on 1.9 per cent higher revenue of £867.9m in the six months to 30 September.

The regulator is forcing Severn to cut household bills in its regulated business by four per cent by 2015.

But more water use helped to offset the impact of the cuts, higher costs and a £16m depreciation charge.

The group plans to increase its dividend by retail price inflation plus three per cent for the next four years.

Finance director Mike McKeon said: “We chose three per cent because we’re confident about the performance of the business in the next four years.”

Invesco Perpetual fund manager Neil Woodford sold his £100m stake in the company last month. He is understood to have said the water sector’s regulatory regime was leading to inadequate returns for investors.

Severn’s chief executive Tony Wray said Woodford had told it there were better options elsewhere, but other investors had bought his shares.

“What is important in future price reviews is a fair and appropriate rate of return on debt and equity,” he said.

Severn has opened an operations centre in Coventry with the loss of 275 jobs, saving £10m a year.
Wray said 2011 would be tough, with government spending cuts possibly hitting jobs and making it more difficult for people to pay bills.

“We’ll be under significant cost pressure,” he said.