Freezing temperatures hit operations at Severn Trent

The group, which supplies water to customers in South Yorkshire and the Humber, said the recent extreme weather had hit operations, with the prolonged period of freezing temperatures hindering its capital programme.

For the full year 2010/11, the group now expects net capital expenditure to be in the range of 400m to 410m, assuming temperatures remain closer to average levels for the remainder of the winter.

Severn Trent, led by chief executive Tony Wray, said leakages were above the norm due to long periods of freezing temperatures followed by a thaw.

The group said it is working to bring leakage rates back down as rapidly as possible and treated water storage levels are now back to normal.

It added that it is too early to evaluate the impact on annual leakage performance, which will be assessed after the March year end.

But it said the additional cost of repairing these leaks will not be material in the context of total current annual operating expenditure.

The group said operating expenditure continues to be in line with the board's expectations for the year. Water consumption levels in the second half will be similar with levels seen last year. Group exceptional charges of around 20m to 25m are expected for the full year.

Bad debt is expected to remain at around 2.3 per cent of turnover for the full year, assuming no significant deterioration in the UK economy.

Severn Trent will announce its preliminary results for the year to the end of March on May 27.

Analyst Tina Cook, at Charles Stanley, said: "Recent extreme weather has resulted in lower capital expenditure and infrastructure renewals in the second half, following reduced activity in the first half, but in our opinion, the lower level of activity is likely to be temporary.

"The cold weather snap has also resulted in above normal leakage levels, although the cost of repairs is not material relative to overall annual operating expendi- ture."

She said that while the news that bad debts should stay steady is encouraging, the impact of public sector cuts on the rate of unemployment in the region still remains to be seen.

Last night the group's shares closed up 8p at 1424p.

Shares in water utility stocks have gained of late.

Analysts at Evolution Securities said in a note: "Although there are structural headwinds against the water sector, such as rotation from defensives to growth and projected falling retail price index from current high levels, there is still value in selected stocks."