Severn Trent to please investors

The Birmingham-based business, which supplies water services to around eight million customers in the UK between the Bristol Channel and the Humber, should reveal profits for the year to March 2003 of around £260m after adjustments for exceptional items.

The company has already stated that the results will be broadly in line with market expectations, which has been a considerable achievement given a downturn in parts of the business.

Group financial director Alan Perelman will be able to hold his head up high for keeping the company’s figures looking so healthy in such tough times. Balancing the books and maintaining the healthy financial state during a significant slump and under tight governmental controls is no simple task.

Conditions were particularly harsh at Biffa, its industrial waste unit.

The division, which provides collection, landfill and special waste services, was hit by a slowdown in economic activity that was compounded by the loss of much work from the previous year provided by the foot-and-mouth crisis.

Overall, the company still thinks that pre-tax profits from Biffa will only fall by between 7% and 10%, thanks to strong performances by the waste collection, electricity generation and Biffa Belgium operations.

In its primary water business, Severn Trent says it has managed to outstrip its regulator-imposed targets for improving cost efficiency this year, but this improvement has been offset by significant cost pressures. This should mean that the water services division manages to achieve a similar result to that of last year.

Severn Trent also received the welcome bonus that the water regulator Ofwat has given the go-ahead to increase prices in 2003-04 by an average of 4.75%, promising a boost to revenues for the next financial year. However, alongside this the company warned that continuing cost pressures in the year along with its capital expenditure programme will mean that increases in depreciation are expected.

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