Severn Trent annual profits beat forecasts

MIDLANDS-based utility Severn Trent has reported a near 24% rise in full year underlying pre-tax profit, beating expectations.

The Coventry-based company said its strong performance had much to do with its exceeding its planned cost reduction programme.

Underlying pre-tax profit came in at £338.4m, up from £273.5m in 2009. The figures are based on a 3.8% rise in group revenue from £1.64bn to £1.7bn. Profit expectation had been in the range of £324m.

Sir John Egan, Severn Trent chairman, said the results built on the group’s track record of continuing improvements in efficiency, processes and standards.

“In line with our current policy to the end of March 2010, our full year dividend has grown by 7.4% to 72.32p per share, an increase of 3% above the rate of March RPI inflation,” he said.

Sir John, who is shortly due to step down from his position, said that during his tenure as chairman, Severn Trent had successfully dealt with a number of challenges and transformed itself into a company with a clear focus on water, and on delivering improved performance year after year.

“Looking ahead, Severn Trent Water has already taken a number of actions to prepare for the next five year regulatory period, such as significant AMP5 lead-in investments and early start to its contractor programme, leaving it suitably positioned to deliver higher standards and sustainable, attractive returns to shareholders,” he said.
 
The comments were echoed by chief executive Tony Wray, who said the results demonstrated the group’s strategy of delivering the lowest bills for customers and maximising value for shareholders

He said that over the AMP4 period (2005/6 to 2009/10) Severn Trent Water had delivered an improved operational performance, reflected by a maximum score for its customer service offering following watchdog Ofwat’s most recent assessment.

“We have nine of our 20 Key Performance Indicators at upper quartile and continue to drive significant improvements in areas such as health and safety and water quality, while maintaining high standards across many of our key environmental and quality obligations,” he said.

“I am pleased to confirm we exceeded our planned operating cost savings this year and delivered our capital programme for the AMP4 period.”
 
Mr Wray said the performance was all the more pleasing as it had been delivered against the severe economic decline.

“Severn Trent Services was impacted by challenging economic conditions during the year, but made good progress in reducing its cost base and positioning for growth – our Operating Services business performed well, while in Water Purification we built a record order book.

“Analytical Services consolidated its facilities while expanding its service offering, and will benefit from new contracts in the year ahead,” he said.
 
Looking ahead, he said that as the business entered its next five-year period, it did so from a stronger footing.

“We enter AMP5 in a stronger position, with our plans well advanced due to our ‘early start’ approach with contractors, SAP implementation and real estate rationalisation.

“The business is well placed to achieve higher levels of operational excellence and progressive, sustainable returns to shareholders,” he said.
 
“Our operational excellence, low cost base geography, and expertise of our non-regulated business gives us confidence that Severn Trent is uniquely placed to take advantage of the opportunities that change will bring,” he added.

Severn Trent supplies water and sewerage services to more than 3.7 million households in the Midlands and mid-Wales.