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Severn Trent underlying profits rose 4.3 per cent to £517 million in 2013/2014, it reported on Thursday. Modest growth in the regulated water business made up for a “disappointing” year in its services arm.
In the first results announcement since Liv Garfield joined as chief executive eight weeks ago, she highlighted the need for operational improvements.
Garfield, who previously headed up BT Openreach, said: “We know there is much more we need to do to improve our processes, speed up decision making and raise our standards.”
The bulk of profits were in the regulated water business, which reported a 1.4 per cent rise in turnover to £1,857 million on higher metered consumption over a dry summer and a 2 per cent price rise. Operating costs increased by 3.1 per cent.
Severn Trent Water is in talks with Ofwat to thrash out the details of its business plan for 2015-2020 before submitting a final version on 27 June. The remaining “challenges to address” include legacy adjustments from the current investment cycle, outcome delivery incentives and a £255 million strategic resilience project in Birmingham.
Underlying profits in Severn Trent Services, meanwhile, nearly halved to £7.1 million on a like-for-like basis. Product orders were hit by “continuing customer project and delivery delays”
Garfield said: “We have taken swift action to restructure this business, to improve the cost base and be closer to expected growth markets. Costs of these actions taken during the year are reflected in these results, while the benefits will be seen progressively through the coming year.”
The company is “making good progress” in preparing for competition opening up in 2017 to allow all business customers in England to switch water supplier, Garfield said.
United Utilities last week revealed it had won 150 customers in the Scottish water market, where retail competition is already active, to become the largest new entrant.
Garfield declined to say whether Severn Trent would attempt to overtake its rival. “Scotland is a tiny market at the moment,” she said. “We do play a bit in Scotland but it is a testing ground.”
The results were broadly in line with analysts’ expectations. Deutsche Bank said in a note: “Although the operational performance is slightly disappointing we continue to see Severn Trent’s shares as offering low risk, attractive returns.”
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