Winter leaks blow hits water giant

The water company, which supplies water to customers in South Yorkshire and the Humber, matched last year’s leakage performance but failed to meet regulator Ofwat’s reduced benchmark of 483 megalitres per day for 2010/11.

Chief executive Tony Wray said: “During the past year we dealt with a number of challenges, most notably a dry summer followed by the coldest December in 100 years.

“Severn Trent Water saw an increase in leakage above normal levels due to two periods of freezing temperatures followed by a thaw. Our people showed tremendous dedication, working around the clock to keep supplies running.”

The group managed to maintain leakage at last year’s levels of 497 megalitres per day.

“We have reduced leakage significantly since the winter and have plans in place to achieve our targets in 2012,” said Mr Wray.

Severn Trent pledged to invest more money to make its system more resilient this year.

“We have taken into account recent experiences and have already commenced with plans to improve the resilience of our network,” said Mr Wray.

The group cheered investors with a smaller than expected drop in annual profits, as higher water consumption offset lower prices. Lower prices and higher costs hit underlying pre-tax profits, which fell 14.7 per cent to £288.6m for the year to March 31, but still beat estimates of £276.7m.

Sales at the company, which serves eight million customers in the UK, were almost flat at £1.71bn, in line with estimates.

Severn Trent Water’s prices were reduced by an average of 0.7 per cent, but measured consumption increased so turnover was broadly similar to the previous year.

Revenues in the regulated water business rose 0.3 per cent to £1.4bn after Ofwat imposed the 0.7 per cent drop in prices.

The regulator has the power to fine firms that fail to meet leakage targets, with potential penalties up to 10 per cent 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.

Mr Wray 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.

“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 will continue to monitor the situation and is encouraging its customers to use less water, while driving down its own leakage rate.

The group said that following the impact from the weather on the capital programme in 2010/11, net capital expenditure for 2011/12 is expected to be higher year on year, in the range of £450m to £470m.

Shares in Severn Trent closed up 15p at 1517p.

Evolution analyst Lakis Athanasiou said: “The leakage target was not met, but this will be the first time in four years, and winter was very cold, so a rational Ofwat should not have a problem with this.”

Severn Trent said it has made further progress in areas such as first time job resolution and sewer flooding, two areas which have a significant impact on customers.

“Given the ongoing economic climate, we have continued to help customers who are having difficulties paying their bill with our WaterSure tariff, Water Direct and trust fund contributions,” said Mr Wray.

“Our proactive approach to debt management and collections is reflected in the reduction of the bad debt charge in 2010/11 to 2.3 per cent of turnover, from 2.5 per cent the previous year.

On Thursday, larger peer United Utilities reported a lower profit after regulators ordered it to cut prices, days after Pennon posted a dip in profits at its water and sewerage unit. Both companies managed to beat market expectations.