WATER firm Severn Trent says it is keeping a close eye on customer debt, which it expects to rise as the gloomy economic outlook continues to hit consumers.
In a trading statement ahead of its AGM yesterday, the water company also said cash-strapped customers are using less water, which is expected to hit revenues to the tune of £12m to £14m. But it added falling consumption has not hit its overall perfo
rmance, with trading in line with expectations.
Severn Trent also revealed at its AGM in Birmingham it will not appeal against a £2m fine for misreporting leaks.
Severn Trent serves a population of more than eight million people, or 3.7m households and businesses, stretching from the Bristol Channel to the River Humber, and from mid-Wales to the East Midlands.
In the statement it said: "Given the current economic climate, we continue to closely monitor our customer debt and cash collection performance." While the water company has not noticed any "material deterioration" so far this year, it said rising debt "remains a risk to our outlook".
A spokesman said the group is not quantifying how much debt could rise by, but said Severn Trent is "not immune" from rising water debt across the industry.
Severn Trent was handed a £2m fine earlier this month at the Old Bailey in London, after pleading guilty to two offences under the Water Industry Act of making false returns to water regulator Ofwat in 2001 and 2002.
This was on top of a £35.8m fine imposed by Ofwat earlier this month for deliberately providing false information and poor customer service. A spokesman yesterday said the group "has not formally accepted" the £38.5m fine, the biggest ever imposed by Ofwat. He added the £2m fine will be passed on to shareholders, not consumers.
Speaking to shareholders at the AGM, chairman Sir John Egan said: "There is no doubt that the previous regime and culture in place during 2000 to 2004 lacked appropriate controls and procedures. There were indefensible shortcomings in Severn Trent's previous leadership during that era." Sir John also said the group will not be pursuing former management over the failings "because there would be no guarantee of success or recompense".
Severn Trent blamed the decline in consumption on factors including a rise in metered customers and damp weather over the last two summers. Around 29 per cent of Severn Trent's customers now have meters.
Severn Trent also said it raised its prices by 5.1 per cent, including inflation, on April 1. It said gross capital expenditure for the year, which started in April, will be around £670m to £690m, with £130m to £140m to be spent on improving infrastructure.
Chief executive Tony Wray, also addressing the AGM, said: "We have already made good progress on our improvement programme – achieving better customer service standards and outperforming against a tougher leakage target – but still have further to go as we strive to be among the best in each area of our work." Analysts said the new management appear to be getting the company back on track.
Analyst Tina Cook, at Charles Stanley stockbrokers, said: "The outlook for the remainder of the year is reassuring and should result in some upward share price movement. Severn Trent continues to keep a close eye on bad debts.
"New management appear to be gradually getting Severn Trent back on a more solid footing, working closely with regulators and improving operational performance.
"A line has finally been drawn under legacy issues from the old regime. Clarity regarding the level of fines, which were substantially lower than many feared, significantly lowers the perceived risk attached to the stock and is likely to further enhance Severn Trent's appeal."
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