Date: Tuesday 25 Nov 2014
LONDON (ShareCast) - First half results from Severn Trent were broadly in line with expectations, though negotiations with regulator Ofwat about the upcoming price review will mean bringing forward extra capital expenditure into the second half.
Turnover rose 2.7% to £947.6m, with underlying group profit before interest and tax up 3% to £274.9m and adjusted earnings per share up 12.6% to 52.6p.
The interim dividend was lifted 5.6% to 33.96p and the full year payout of 84.9p remains on track.
Chief executive Liv Garfield said: "As we draw to the close of the price review, we remain committed to maintaining a constructive dialogue with Ofwat. We have submitted our representations on the draft determination and believe we have addressed all its evidence requests."
The company said it was "disappointed" with Ofwat's objections to its proposals, mostly related to a £255m disagreement over planned expenditure on Severn Trent's Birmingham strategic resilience project.
As a result of discussions, Severn Trent has revised the Birmingham component of its plan and made further pleas to the regulator to allow the other parts of its pricing plan.
Its representation to Ofwat said that "as it stands, the financing of the Severn Trent plan is critically at risk" as its June plan had already factored in a 15% cut in dividend from its December 2013 plan, but the regulator's draft determination reduces the profit after tax by a further undisclosed amount.
Ex-BT director Garfield, who pointed out the company's combined bills for water and sewage were "lowest in the land", said the company was making the organisational changes required to deliver the plan and "will bring forward additional capital investment to ensure we are in the best place possible to start the new regulatory period".
Full year expectations for net capital expenditure have therefore increased slightly to a range of £530m-£545m.
The first half saw sales at the regulated Severn Trent Water business increase 2.5% and profits before interest, tax and exceptionals 2.1%.
The smaller non-regulated services business lifted profits more than sixfold on sales 4.7%, thanks to cost cuts earlier in the year. Several new contracts were won in the US in the Northeast and Pacific regions, while the UK business won 10 new contracts in the healthcare, retail and leisure sectors.
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