Severn Trent sales stable

RECESSION-hit water customers are getting to grips with bad debts and have eased efforts to cut back on water use, utility Seven Trent said yesterday.

Debt owed to the firm by customers stayed at about 2.3 per cent of turnover between 1 October last year and 25 January, the level at the end of the last financial year in September and in the first half of this year, it said.

Falling water use, which was driven mainly by businesses and non-domestic customers, had stabilised and the impact on annual revenues will be less than expected, the company added.

Severn Trent now expects a year-on-year hit of between £5m-£10m from lower use, rather than the £15m-£20m it had anticipated. The Midlands-based group said it was keeping an eye on movements in bad debts. “We continue to monitor future developments closely,” the group said.

Investors welcomed the news, sending the group’s shares up 4p to 1141p, although Evolution Securities downgraded its recommendation on the water sector as a whole to neutral from buy, saying share prices in the sector had moved close to its targets.

Severn Trent serves a population of more than eight million people from the Bristol Channel to the Humber and from mid-Wales to the East Midlands. The group also said in yesterday’s trading update that a spate of burst pipes after the UK’s freezing weather had increased leakage rates.

Severn, which maintains a 46,000-kilometre pipe network, said it had mobilised extra resources to control leakages as soon as possible. The company usually handles around 1,600 calls a day about burst pipes in January, but took double the amount this year.

The group said it was too early to judge the impact on its annual leakage rates, which are monitored by regulator Ofwat, although it said the extra cost of repairing the damage would not significantly affect annual operating spending.