Severn Trent profits nearly triple despite non-compliance risk on water quality

Severn Trent nearly tripled profits in the first half of its financial year while also missing a regulatory target on water quality risk compliance.

The utility company said it will fail the so-called compliance risk index (CRI), a metric which indicates whether firms are treating water in line with regulations.

Severn said it expects “to be in penalty” on the metric, mainly down to a treatment works in Strensham, Worcester, where it said it has introduced a new disinfection scheme.

The company, which serves about 4.6 million homes and businesses across the Midlands and Wales, said it was on course to meet the “vast majority” of its performance targets.

Meanwhile, profit at the group nearly tripled to £141.4 million for the six months to September, while it hiked its interim dividend by 4.2% to 48.68p per share.

Chief executive Liv Garfield said she was “proud” of the company for hitting other regulatory targets on leaks and blocked drains, while also being given a four-star rating from the Environment Agency for five consecutive years.

“But we know there is more to do,” she added, pointing to plans to invest between £1.3 billion and £1.5 billion on improving its network of pipes, drains and sewers over this financial year.

Severn is among the better performing privatised water companies by most regulators’ metrics, and beat performance targets set by Ofwat last year, the watchdog said in October.

The company also said it is recruiting for 450 more people, starting this month, to help replace nearly 870 miles of old water pipes by the end of this decade.

Severn expects the new pipes to last for up to 100 years, and that they would contribute to its own target of reducing leaks by 16% up to 2030 and by 50% to 2045.

Nonetheless, the industry has drawn public outrage in recent years over the extent of pollution in recent years, amid rising bills, high dividends, and executive pay and bonuses.

Severn was fined more than £2 million earlier this year for polluting a section of the River Trent near Stoke, in late 2019 and early 2020, in an incident that the EA said was “fortunate” not to have caused “catastrophic pollution”.

The group said it has installed 900 storm overflows over the last five years, and that it will have reduced spills by 15% over the most recent regulatory period, stretching from 2019 to 2024.

It has also asked Ofwat to let it raise the average consumer water bill by 46% over the next five years versus current levels.

The watchdog is set to make a final verdict on bill increases across the sector in December.

Neither Severn’s investment programme for this year, nor its plan to recruit people to lay more pipes, are contingent on the 46% bill increase being approved.

Russ Mould, an analyst at the investment platform AJ Bell, said: “The big increase in profit at water utility Severn Trent may sit uncomfortably with the company’s admission it will miss some water safety performance metrics this financial year.

“Pollution in Britain’s rivers and seas and the travails of Severn’s unquoted peer Thames Water mean this sector’s name is mud with many.

“However, a modest increase in the dividend and the improved financial performance may be enough to get some investors back on side.”