Severn Trent still pays more to shareholders than it earns

Severn Trent is continuing to pay out more to shareholders than it earns from its customers but says it is in a strong position to deliver £3.5 billion of infrastructure improvements over the next five years.
The Midlands water monopoly which serves 4.6 million households has, like the rest of the industry, struggled to make ends meet with inflation hitting operating costs and high interest rates raising the cost of serving its £7.66 billion net debt mountain.
In the six months to the end of September, rising bills enabled it to raise another £52 million in revenues to £1.21 billion while its net finance costs after a fall in interest rates were cut by £55 million to £124 million.
Together that transformed the bottom line, enabling the FTSE 100 privatised utility to report after tax profits for the period rose to £141 million — or 47.2p per share — from £51 million in the same period.
However, that was still not enough to cover the interim dividend payment it had promised shareholders it would pay, of 48.68p, a 4.1 per cent year-on-year increase which will cost the company nearly £146 million.
The 16 regional water monopolies and local supply companies around the country expect to hear from the water regulator Ofwat by Christmas about how much they can raise customer bills over the next five years.
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The companies and Ofwat agree there needs to be £100 billion of investment unlocked to upgrade the network nationally but rows over how much the companies can charge and how much profit they can make to pay to shareholders are likely to see an unprecedented number of companies taking the regulator to the Competition and Markets Authority
Severn Trent is generally regarded by Ofwat as one of the better utilities it oversees and despite admitting it is not up to grade on water quality and customer satisfaction, the company said despite differences of opinion with the regulator it has received enough encouragement to start getting on with new schemes.
That will see Severn Trent continuing its “insourcing” policy of bringing back infrastructure workers in house rather than rely on outside contractors.
It is hiring a new team of 450 workers to lay 870 miles of new pipes around the region, a £415 million investment which it claims to be “the largest project in the UK’s water network for over a decade” despite the £4.5 billion London super sewer under the River Thames and Anglian Water’s £1 billion new cross-country pipeline to prevent shortages in the South East. Severn Trent said its investment will cut leakage in its region by 50 per cent over the next 20 years.
“The ‘outstanding’ rating we received [from Ofwat for its five-year business plan] gives us visibility and confidence to make a fast start on the biggest investment programme in our history,” said Liv Garfield, Severn Trent’s chief executive, who is the best paid water boss in the country.
The company admitted however that Ofwat will be levying penalties on the company over poor quality water resulting from a treatment works at Strensham in Worcestershire; and that its “‘customer experience’ scores have not been as high as we would like”.
● Southern Water, the most financially troubled company in the privatised industry after Thames Water, has had its credit rating downgraded by another agency.
Following a downgrade by Moody’s earlier this month, Fitch said the company is at “increasing risk” of default on a parcel of its loans.
Southern was rescued from impending administration four years ago by a £1.6 billion cash injection and takeover by Macquarie, the Australian finance house that used to own Thames.
A statement from Southern said Ofwat’s five-year price settlement, which is due before Christmas, “should help to alleviate much of the uncertainty”.