Severn blames leakage lapse on weather
Water firm Severn Trent has blamed last December's freezing weather for causing a rush of burst pipes and making it miss its annual leakage target.
Water measure: 'Outbreak of burst pipes was pretty huge,’ says Severn
Chief executive Tony Wray stressed it managed to match last year's leakage performance, which was a record low.
But the firm, which serves 8m UK customers, failed to meet regulator Ofwat's reduced benchmark of 483 megalitres per day for 2010/11.
'It was the coldest December for 100 years and the outbreak of burst pipes was pretty huge,' said Mr Wray.
He pointed out that the company had volunteered a lower leakage target than the one proposed by Ofwat.
It was Severn's first above-target leakage performance for five years and it pledged to invest more money to make its system more resilient this year.
Yesterday, United Utilities praised the 'extraordinary efforts' of staff who battled extreme winter weather to ensure the company met its annual leakage target of 464 megalitres a day.
The regulator has the power to fine firms that fail to meet leakage targets, with potential penalties of 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.
Severn reported a 14.7% fall in underlying profits to £288.6m in the year to March 31 after Ofwat imposed a 0.7% drop in prices.
Revenues in its regulated water business were up 0.3% to £1.4bn, while group revenue was up 0.4% at £1.71bn. The firm cut its total annual dividend by 10% to 65.09p,
Shares in Severn were up 19p at 1,521p in trading today.
Mr Wray said Severn does not currently expect to impose hose pipe bans on its customers despite the 'unseasonably dry' weather.
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.
View from the City
'Severn Trent has produced final results that are pretty much in line with expectations.,' said Angelos Anastasiou of asset manager Investec.
'We believe that the group remains well placed for the medium term, but this is reflected in the 30% increase in the share price over the past year. We see United Utilities as the noticeably cheaper option in the Waters: while our figures suggest a 7% total return for Severn Trent, the figure for UU is nine percentage points higher at 16%.'
Graham Spooner, investment adviser at online broker The Share Centre, said: 'Despite a 10% fall in the full year dividend income seekers will be pleased to hear the current year dividend is expected to grow to 70.1p, increasing by 7.7%.
'This exceeds the company's stated dividend policy of a 3% increase each year for the next four years.'
'In these uncertain times defensive shares are seen to be attractive to income seeking investors and have been performing quite well. We expect this to continue going forward.'
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