More water usage by households but Severn Trent suffers drop in profits

The company serves a population of more than eight million people stretching from the Bristol Channel to the Humber, and from mid-Wales to the East Mid- lands.

Turnover at Severn Trent Water rose 1 per cent to 702.3m in the six months to September 30 after a cut of 0.7 per cent in prices from April was offset by higher household usage and a lower level of corporate failures.

Severn, which had been braced for further pressure on consumption, added that it had worked hard on its collections performance as its bad debt charge in the first half of the year fell to 2.3 per cent of turnover, from 2.5 per cent in 2009/10.

Wages and salaries were 5.8m lower due to efficiency programmes but there was an increase in depreciation of 15.8m as underlying pre-tax profits in the regulated water arm fell 2.4 per cent to 272.7m.

Across the group underlying profits fell 16 per cent to 158m.

The drop reflected the impact of higher inflation on its borrowing costs.

Severn also announced a 2.5 per cent cut in its half-year dividend as part of a 10 per cent reduction planned for this financial year due to Ofwat's latest price controls.

Severn was required to cut average household bills by 4 per cent in real terms by 2015 in a ruling labelled "tough" by the water firm.

Despite this, shares in Severn and the UK's three other listed water stocks have risen by around 25 per cent this year, compared with a 9 per cent fall for the broader utility sector.

Yesterday, Severn also announced a new dividend policy for the following four years to 2015 which will see annual growth of RPI inflation plus 3 per cent.

Dividend payments are essential for the sector to attract investors as firms look to raise the billions of pounds needed to pay for spending on the network.

Severn said its water business invested 164.5m in fixed assets and maintaining and improving its infrastructure during the half year.

Tony Wray, chief executive, said: "We have continued to raise standards and drive greater efficiency across the business."