Profits slump by more than half for Severn Trent

COVENTRY-based utility Severn Trent has seen its profits slump by more than 50% as a result of a massive investment programme.

The company is committed to its largest ever five-year investment programme, totalling £6.2bn in real terms. It had to submit the plan under terms laid down by regulator Ofwat.

The plan includes a capital investment programme of £3.3bn, intended to improve service and quality for its customers. This will help it grow its RCV (Regulatory Capital Value) to c. £10bn by 2020.

Although around £30m of investment on improving water quality was not included in Ofwat’s final determination of the company’s business plan, it has nevertheless decided to keep it in its proposals.

Any additional investment is being funded from efficiency savings.

The company is also committed to significantly improving customer service performance and this includes fixing 100% of visible leaks within 24 hours and reducing interruptions to supply by more than 50%.

However, all this has had an impact on the company’s performance and full year figures out today show group pre-tax profit fell by 53.5% last year to £148.2m (2014: £318.9m). Basic earnings per share fell more than 72% to 49.9p (2014: 182.1p). Underlying group PBIT was up 3.2% year on year to £540.3m.

Turnover was up 2.5% to £1,801.3m (2014: £1,756.7m), largely due to higher consumption levels.

Commenting, Severn Trent chief executive Liv Garfield said: “Our focus remains on the customer and with average bills falling year on year and the lowest average bills in Britain until at least 2020, our customers are receiving good value for money. We are pleased to have launched our ‘Big Difference Scheme’, helping more customers who struggle to pay their bill over the next five years.
 
“Our performance over the last year has also demonstrated where we are strong and the areas we need to focus on to drive improvement. Water quality remains a key focus area for us. We have hit our target of a 10% reduction in leakage over AMP5 and improved our customer service performance, creating 100 new front line roles in the process.”

She said the company has made some significant cultural and operational changes to get it into the best possible shape for its next business plan period (AMP6).

“As a result, we are facing the future with confidence, despite one of the toughest price settlements in our history. The strategy we have put in place over the last year is designed to deliver an outstanding customer experience, the best value service and environmental leadership. In doing so we will create long term value for our customers, our communities and our investors,” she added.
 
“We have also re-focused our non-regulated business on our core activities – operating water and waste water assets, retail and renewables – leading to the sale of the Water Purification business.”