Yahoo Finance Severn Trent raises dividend after jump in profits
Severn Trent has splashed out on dividends after revealing a surge in full-year profits and clinching a £47.6m reward from the regulator.
The FTSE 100 water group, which serves 4.4m customers in the Midlands and mid-Wales, raised its dividend from 80.66p a share to 81.50p after pre-tax profits boomed to £543.7m in the year to March 31, compared to £504.4m the year before.
The water group also received a multi-million pound pat on the back from Ofwat for exceeding the targets it set for each year until 2019.
Ofwat regulates the savings that each water company must pass on to consumers through a price review. On top of this the regulator can dole out incentives or penalties for each company based on performance against certain targets.
Chief executive Liv Garfield said that it had “delivered significant improvements” on the issues customers care about.
“Sewer floodings are down 21pc, and we have further reduced both supply interruptions and leakages,” she said. “We have done this while maintaining the lowest bills in Britain.”
But Verity Mitchell, an analyst at HSBC, warned that Severn Trent was likely to face some of the greatest challenges within the water sector over the next decade.
“It will not be able to continue to abstract water at the current rate and we estimate it will require up to £230m of investment in new sources of water,” she said.
Ms Mitchell said the low interest rate environment had created an opportunity for the industry regulator, which sets prices, to use the extra headroom to maintain stable bills for customers while allowing companies to investment more to avoid water scarcity.
“This could provide an opportunity for accelerated investment for all companies, especially Severn Trent, which has the fastest-growing regulated asset base to 2020,” she said.
The bank downgraded its view of the water company and recommended investors sell their shares.
Ms Garfield brushed off the supply concerns as an “extreme scenario”. She insisted that the company was “in strong shape for the future”.
Severn Trent’s pension deficit stands at £570m, a £160m improvement from this time last year after the company agreed at its triennial review to boost the fund and its regular contributions.
“We’re a long-term company with long-term assets. We have a good relationship with the pension trustees and we understand exactly what we need to do over the next three years,” MS Garfield said.
The water giant is also hoping to make inroads into the business supply market after teaming up with United Utilities to merge their business customer operations after the B2B market was opened up for competition in April.
Ms Garfield said that both companies were encouraged by early signs of success for WaterPlus in the burgeoning business market but would not disclose contract wins until the half-year results.
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