Outlook: Watery grave

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The Independent Online
THE FIRST of the big fish has swallowed hard and accepted the water price curbs announced last week by Ian Byatt. The minnows who follow in its slipstream would do well to take note. Of course, Severn Trent has less to worry about than some of its counterparts. Being landlocked, it does not have hundreds of miles of polluted coastline to tackle.

Severn also has a robust balance sheet - thanks in part to the fact that the same regulator blocked its takeover of Wessex Water two years ago and thereby saved the company from overstretching itself.

Mr Byatt has done Severn no favours this time around. His latest price determinations will slice pounds 120m off the bottom line next year, add pounds 100m to its investment programme and result in 1,100 job losses. But at least Severn will be able to maintain the dividend without having to pay shareholders out of reserves. Who knows, assuming it beats its internal cost saving projections, there may even be some upside for investors.

The chief executive designate, an ex PepsiCo man, was wheeled out for the first time yesterday to wax lyrical about Severn's international expansion plans. Robert Walker's knowledge of the water industry may be limited to what they put into fizzy drinks but he has grasped the strategy to his bosom with gusto.

Severn reckons that eventually it can bring in more revenue by telling Americans how to clean up their water than by selling the stuff to the Birmingham householders. Others do not have the same range of options. Given the cost and management time a Competition Commission eats up and the uncertainty of the outcome, only the desperate, or those without a UK shareholder base to worry about, will take their chances with a referral. Hyder is the former (desperate), and Northumbrian and Wessex the latter.