Revenue rises but FY profits drop 38% for Severn Trent

MIDLAND-based utility Severn Trent has reported increased full year revenues but a decline in pre-tax profits of 38% as capital expenditure costs grew.

The Coventry group said it had had to play catch up on infrastructure improvements following the harsh winter of 2010/11 and this had impacted on performance.

In total, revenue grew 3.5% to £1,770.6m (2011: £1,711.3m), with pre-tax profit falling 38.1% to £156.7m (2011: £253m). Basic earnings per share declined 37.1% to 72.5p (2011: 115.2p).

Tony Wray, Chief Executive Severn Trent, said: “During the period we have delivered on our commitments to our stakeholders. We have beaten our leakage target, reduced supply interruptions, continue to forecast no water usage restrictions for our region this year and we maintained the lowest average charges for our customers.
 
“We delivered stable underlying PBIT in Severn Trent Water, despite incurring additional network investment costs, new costs such as private drains and sewers and the new Carbon Reduction Commitment levy. In aggregate these added over £40m to our cost base year on year.
 
“Our ability to achieve this performance is due to the great work our people have put in over the last three years and the productivity and capital efficiency improvements that have been delivered.”
 
He admitted that while activity levels had started to improve, full year performance was down.
 
“For the group as a whole, our strong balance sheet and investment grade credit rating enable us to share that benefit with our customers and investors by increasing our investment programme in our water and waste water networks by £150m, to improve further our services to customers, and return an additional £150 million to our shareholders,” he added.

The firm’s total capital programme increased by 17% year on year, to £474.2m, compared to £405.3m in the previous year. It said this reflected catch up from the severe winter of 2010/11, increased focus on leakage reduction, improving unplanned interruptions, and £2.8m of costs.
 
Direct operating costs increased by £32.5m, there was an increase in infrastructure renewals expenditure of £32m and depreciation increased by £7.5m including £3.7m in respect of the early retirement of an experimental sludge dryer.

It added that access to long term secure financing had remained a key focus and in keeping with this it had renewed its five year £500m revolving credit facility (RCF) with 11 banks and issued a 30-year Sterling bond at 4.875%, the lowest rate seen to date.

It also called in early £150m of bonds due for redemption in 2014, the year of the next price review for Severn Trent Water and a time which traditionally has been difficult for regulated water companies to refinance in public bond markets. 

“This latter action resulted in a one off finance charge of £16.5m in the year but considerably reduces the risk of not being able to refinance our bonds that were due in 2014,” it said.