Severn Trent profits fall after 0.7% price cut

Water company Severn Trent yesterday reported a fall in underlying profits in the year to 31 March after regulator Ofwat made it cut its prices.

The firm said turnover was flat at 1.7 billion, as slightly higher demand from its eight million customers offset the 0.7 per cent price cut imposed by Ofwat.

Underlying operating profit was 519.1 million, down from 557.1m in the previous 12 months.

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As a result, the company's total dividend will be 10 per cent lower this year, at 65.09p, after the board proposed a final payment of 39.05p per share.

But Severn Trent said it intended to pursue a policy of raising the dividend by 3 per cent plus the rate of inflation, and assured shareholders that next year it would pay a total of 70.1p per share.

The company also revealed that December's cold spell meant that it narrowly missed its leakage targets agreed with Ofwat, but the exceptional weather conditions mean it is unlikely to be fined.

Graham Spooner, investment adviser at The Share Centre, said Severn Trent was an example of the defensive shares which were performing well in these "uncertain times".

He added: "We expect this to continue going forward and with vague rumours of takeover bids emerging in the sector, there may be interesting times ahead. We continue to recommend investors looking to reap the benefits from a safer haven to 'hold' for now."

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