Bloomberg News

Severn Trent Profit Rises on Water Prices, Unit Sales

June 06, 2007

Severn Trent Plc, the U.K.'s second- biggest water company, posted a 28 percent rise in second-half profit after it increased prices for its water and sewage services and sold two of its units.

Net income for the six months ended March 31 advanced to 137.6 million pounds ($274 million), from 107.1 million pounds a year earlier. The results were calculated by Bloomberg by subtracting first-half earnings from full-year results released by the utility today.

Full-year sales in water and sewage increased by 5.8 percent to 1.22 billion pounds after industry regulator Ofwat allowed Seven Trent to raise prices 6.6 percent, the Birmingham, England- based company said in a statement today. Ofwat sets price controls and investment targets for maintaining delivery networks and meeting customer service goals.

``The results are exactly in line with what was expected,'' Sofia Savvantidou, an analyst at JPMorgan Chase & Co., said by telephone today. The company's reiteration that it's focusing on water ``is good and it's what we've seen the rest of the sector doing,'' she said.

Shares of Severn Trent fell 42 pence, or 2.7 percent, to close at 1,521 pence in London.

Severn Trent reported a profit of 56.3 million pounds on the sales of units. The company in the past year sold its Severn Trent Property unit for 71.7 million pounds and its U.S. Laboratories unit for 85 million pounds, continuing the disposal of non-water assets. It took a charge of 31.5 million pounds related to goodwill on the sale of the laboratories unit.

Waste Spinoff

The utility decided in April to spin off the British arm of Biffa Plc, its waste-management division, so the new owners could take advantage of more profitable, shrinking landfill sites and Severn Trent could focus on water. Separately, the company reported a profit of 9.5 million pounds on the sale of Biffa's Belgian arm.

The company's Severn Trent Water unit probably leaked close to the 525 megaliters-a-day target that Ofwat set last year, Tony Wray, managing director of the unit, said today on a conference call, without elaborating. He said he was confident leakage targets will be met for the next fiscal year.

``We are unlikely to have met our leakage target for this year,'' Chief Executive Officer Colin Matthews said on the call.

Full-Year Earnings

Net income for the year ended March 31 increased to 267.1 million pounds, or 113.6 pence a share, from 221.6 million pounds, or 95.1 pence, a year earlier, the company said. That's higher than the median estimate of 170 million pounds of seven analysts surveyed by Bloomberg.

``We've effectively got the transformation of the business complete and are focusing on operations,'' Group Finance Director Mike McKeon said today in an interview. The company said it should meet Ofwat's target for operating costs this year. Falling energy costs will save the utility about 17 million pounds this year, it said.

The company estimates that it should outperform by 3 percent Ofwat's operating costs target in the years 2008-2010, before the regulator's price determination review, saving about 30 million pounds. It also said Wray will become chief executive officer, replacing Matthews, who will retire ``around the end of 2007.'' The management change reflects the group's focus on water, it said.

Severn Trent said in April it would cut about 10 percent of jobs at its main unit in the next five years to reduce costs. About 130 of the 600 job losses are expected within the year, the company said today.

United Utilities Plc is the U.K.'s largest publicly traded water company.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles on dtilles@bloomberg.net


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