Severn Trent's profits to plummet by £14m

Britain's appalling summer put a real damper on the consumption of water – and left a £14 million hole in Severn Trent's profits, it was revealed today.

In an interim trading statement the West Midlands-based water giant said revenues were likely to fall by between £12 million and £14m – or around one per cent – after hoses and sprinklers gathered dust as the rain continued. Less water was used, leading to less revenue from water meters. And reservoirs, which normally start emptying over hot summer months, remained at near capacity.

But the company, which provides water and sewerage services to around 3.7m households and businesses across the Midlands and Wales, did not join rival water firms in calling for prices for customers to rise above inflation over the next five years.

Instead Severn Trent believes that savings through efficiency and relatively low infrastructure renewal costs, expected to be about £60m in the first half of the year, will mean it can keep prices only slightly above inflation for the next five years.

The price rises proposed by Severn Trent, which have to be agreed with Ofwat, are in sharp contrast to Thames Water, the UK's largest water firm, which said in August it wanted to see price rises rise by three per cent above inflation, and Southern Water, which argued for 4.5 per cent above inflation.

Mike McKeon, finance director at Severn Trent, warned that profits could be squeezed going into the economic downturn, with bad debts set to rise as well as the cost of ongoing capital projects.

Severn Trent, which is due to announce its interim results on November 25, said group net debt at the half-year was expected to be around £3.5 billion.

The trading update came at the end of what has been a tough year for the company, which was fined £35.8m by water regulator Ofwat for providing false information and poor customer service, as well as being fined £2m for lying about water leaks in a separate case brought by the Serious Fraud Office.