Water company fails to meet leakage targets

Severn Trent today said it failed to meet its annual leakage target after the coldest December in 100 years caused a surge in the number of broken pipes.

The water company, which serves eight million customers in the heart of the UK, matched last year’s leakage performance but failed to meet regulator Ofwat’s reduced benchmark of 483 megalitres per day for 2010/11.

It blamed its first above-target leakage performance for five years on two periods of freezing temperatures followed by a thaw and pledged to invest more money to make its system more resilient this year.

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The group reported that underlying profits decreased by 14.7% to £288.6 million in the year to March 31, with revenues in its regulated water business up 0.3% to £1.4 billion after Ofwat imposed a 0.7% drop in prices.

The regulator has the power to fine firms that fail to meet leakage targets, with potential penalties up to 10% of their turnover. Last year, six companies failed to meet their targets and were the subject of increased reporting requirements while they improved their performance.

Yesterday, North West Water operator United Utilities said the “extraordinary efforts” of staff had enabled it to meet its annual leakage target.

Tony Wray, chief executive of Severn Trent, pointed out that the company had volunteered a lower leakage target than the one proposed by Ofwat: “It was the coldest December for 100 years and the outbreak of burst pipes was pretty huge.

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“We kept our leakage as low as last year, which was a record low for us.”

Severn does not currently expect to impose hose pipe bans on its customers despite the “unseasonably dry” weather, he added.

But the company would continue to monitor the situation and was encouraging its customers to use less water, while driving down its own leakage rate.

Despite the decrease in prices, Severn Trent Water’s revenues rose 0.3% due to a period of higher household consumption and robust commercial demand over the first half of the financial year.

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Its “proactive” approach to debt management resulted in a reduction in bad debts to 2.3% of turnover, from 2.5% the previous year, the company added.

Severn’s non-regulated services division, which operates in clean and waste water markets worldwide, posted a fall in profits after client projects experienced delays due to financing conditions.

The Gulf of Mexico oil drilling moratorium and the political unrest in the Middle East added to pressure on the division, which saw underlying profits fall by 10% to £25.7 million. Across the group, pre-tax profits were 24% lower at £253 million.