22nd May 2015 08:49
LONDON (Alliance News) - Severn Trent PLC Friday said its pretax profit more than halved in the last financial year due to losses on financial instruments, but underlying earnings and revenue rose and the company increased its dividend as expected.
The FTSE 100-listed UK water company said its pretax profit for the year ended March 31 more than halved to GBP148.2 million from GBP318.9 million a year earlier. However, excluding exceptional items and losses on financial instruments, profit rose to GBP300.4 million from GBP276.1 million as revenue climbed to GBP1.80 billion from GBP1.75 billion.
Revenue missed analyst expectations by around GBP80 million whilst pretax profit excluding exceptional items comfortably beat expectations of GBP285.0 million.
Severn Trent's profit before interest was GBP521.6 million, up from GBP508.6 million a year earlier, missing analysts' expectations for GBP531.7 million.
Basic earnings per share fell 72.6% to 49.9 pence from 182.1 pence but excluding exceptional items and losses on financial instruments, earnings rose to 107.2 pence from 92.5 pence.
Severn raised its dividend for the year by 5.6% to 84.90 pence per share from 80.40 pence, and the company reiterated plans to grow the dividend every year until 2020 in line with inflation. In March, the company said it would cut its dividend by 5% to comply with tighter profit rules imposed by Britain's water regulator.
Severn reported a GBP133.5 million loss on financial instruments in the year, swinging from a GBP58.0 million gain a year earlier, whilst exceptional items rose to GBP18.7 million from GBP15.2 million.
Severn Trent's regulated water business delivered a "good financial performance" in the year, which generated more revenue than expected due to higher consumption.
The company's main achievement of the year was completing the AMP5 capital programme, which had a total of GBP547 million invested in it. The programme was aimed at improving trunk mains, cleansing sewers, and investing more at the water treatment works to deliver further operational improvements.
Over the next five years, the company has committed to its largest ever five year expenditure programme which will total GBP6.2 billion, including the company's largest ever capital investment programme of GBP3.3 billion to improve service and quality offered to its customers.
Severn Trent said it has identified a further GBP100 million of savings following on from a separate GBP100 million worth of savings being identified in March. The new savings will come from a new single supplier contract on waste water and additional contracts delivering further capital efficiencies, it said.
In total, the company said it has locked in GBP300 million of efficiencies for the coming five year period, demonstrating "excellent progress" towards the GBP372 million target.
In January, the UK water regulator Ofwat told Severn Trent, which supplies water in the Midlands and Wales, to reduce costs by GBP372 million by 2020 as part of the authority's five-year tariff-setting role.
Water prices at its regulated business fell 1.8% from April, and the company said it expects total expenditure in the current financial year to come in at GBP1.03 billion to GBP1.06 billion whilst reducing operating costs. Regulated capital expenditure will total between GBP410 to GBP430 million with an additional GBP125 to GBP135 million to be invested in infrastructure.
Severn Trent's non-regulated businesses, including operating services in the US and UK and renweable energy, was restructured in the year which saw the company dispose of its water purification business.
Operating services in both the UK and US saw revenue grow year on year, driven by contract wins in the US and new business wins in the UK, including a 10 year contract with the Coal Authority.
"Investment in business development in US concessions impacted profit year on year, and we have taken the opportunity to reduce the cost base of this business, the benefits of which will be seen next year," it said.
In March, the company said it would invest GBP190 million in renewable energy to take self generation from an equivalent 28% of Severn Trent's gross energy consumption to around 50% by 2020. The company is currently making "good progress" and trending to hit 30% before the end of 2015.
Severn Trent is expecting profit and revenue to rise in its operating services in the UK and US, alongside renewables in the current financial year.
Severn Trent shares were down 1.7% to 2,145.00 pence per share on Friday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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