Severn sells lab division to alleviate concerns

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Severn Trent has sold its laboratories business in a deal triggered by competition concerns over the water company’s ownership.

The business, which provides analysis and sampling services to the water, construction and waste industries, has been bought by Australia’s ALS, one of the world’s largest testing companies with more than 13,000 staff.

Severn Trent Analytical Services, which has offices in Wakefield, Coventry and Runcorn, is one of three divisions within Severn Trent’s non-regulated services arm.

Last summer, the company offered to sell the laboratories division in response to a complaint to water regulator Ofwat about the structural links between the water business and Severn Trent Analytical Services.

The complaint alleged that the division had won contracts to supply water analysis services to Yorkshire Water and South Staffordshire Water by pricing below cost.

Ofwat opened a formal investigation in December 2010.

The business accounts for about 1.5 per cent of revenues at Severn Trent Group, which provides water and waste water services to 4.2 million households and businesses.

The company covers households in south east Sheffield, north Derbyshire and north Nottinghamshire.

It is on track to deliver full-year earnings after posting an increase in first half-revenue helped by rising prices which countered lower usage during a wet summer.

A price rise of 5.2 per cent also helped to offset increased investment in the company’s networks.

The utility reported results in line with forecasts, with pre-tax profits up 1.6 per cent to £157.5m, from revenue up 3.6 per cent.

The group said it is on track with its £150m additional investment programme, delivering operational improvements in the areas targeted for this year.

These include improving the service to customers and producing sustainable, progressive returns for shareholders.

Severn Trent has said it is minded to accept draft changes to operating licences released by regulator Ofwat. It has asked for further clarity and suggested scaling back the percentage of revenues that would be removed from wholesale price controls.