Severn Trent records first WaterPlus profits

Severn Trent’s non-household business, WaterPlus, has made a profit for the first time since the water retail market opened in 2017.

The business, which is a joint-venture with United Utilities, earned Severn Trent £0.2 million profit for the six months to September 2022, compared to a loss of £1.8 million in 2021/22.

Speaking this morning on the publication of the company’s half-year results, chief executive Liv Garfield and chief financial officer James Bowling downplayed the profit by underlining that WaterPlus was a very small proportion of the overall business. Bowling said the company is aware that the non-household sector is vulnerable to the impact of the wider economic situation.

The company reported it remains on-track to earn at least £50 million in rewards for outcome delivery incentives (ODIs) set by Ofwat for the full year 2022/23. Garfield said the organisation’s capital programme is set to deliver 10.8% real regulatory capital value growth. This investment includes Green Recovery work that began last year, as well as creating two bathing rivers, installing 500,000 water meters and implementing nature-based solutions to improve flood resilience and bolster water resources.

Garfield said the organisation has largely protected itself from rising energy costs by self-generating around half of the energy it requires and forward hedging for most of the rest, both this year and next. Power costs increased by more than three quarters when compared to the previous period to more than £41 million although they were partially offset by revenues from its generation portfolio.

She said it is unclear whether Severn Trent will be affected by the government’s new windfall tax but noted that around three-quarters of its electricity generation is using gas, which is outside of the scope, and that most the electricity it generates is consumed at Severn Trent’s sites rather than being sold.

Garfield told investors and analysts that the returns being made in the water sector are “very different” to those in energy sectors and while the top performing companies may be doing well, financial results across the water sector would show “most companies” are struggling to make returns.

Alongside the interim results, the company announced a 10-year community support plan to address underlying causes of poverty in the Midlands, beginning with East Birmingham. The plans include offering work experience opportunities for school children and at least 10,000 hours of free skills and employability training in communities to help people find jobs.

With Birmingham City Council, the water company said it aims to help 100,000 people, especially young people not in education, employment or training, as well as re-entrants to the workforce or those exploring different career options.

Over the next decade, Severn Trent will establish school partnerships to offer 500 work experience placements a year.