Severn rapped over pounds 174m payout

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The Independent Online

Industrial Correspondent

Severn Trent Water will pay pounds 174m to customers and shareholders over the next five years in discounts and special dividends, continuing the trend in the industry. But the company's largesse failed to impress the Customer Service Committee set up by the regulator, Ofwat, which said that consumers had "yet again come second-best".

The package of handouts - the result of past efficiency savings - is to be split between shareholders and customers, with the average household receiving discounts of pounds 30 over the five years and shareholders an extra annual dividend of 3.84p.

The CSC said, however, that shareholders had done "extremely" well financially since privatisation compared with consumers and that the balance should now be redressed. Clive Wilkinson, CSC chairman, said: "Severn Trent has made great play of improving customer focus. Sadly it seems the shareholder gets the big bucks and the customers the loose change."

Vic Cocker, Severn Trent chief executive, said: "Our position has to be that, given shareholders could technically benefit 100 per cent in this game, a 50/50 share-out seems a very equitable approach."

He pointed out that the Customer Services Committee acts independently from Ian Byatt, director-general of Ofwat, with whom the package had been discussed.

Mr Cocker was speaking as Severn Trent announced a drop in pre-tax profits to pounds 267.5 in the year to March from pounds 281.4m the previous year after a pounds 55m restructuring charge.

The underlying profit rose by 14.6 per cent to pounds 322.5m and the earnings per share increased by 11.8 per cent to 81.3p.

The dividend for the year jumped by 26.9 per cent to 28.87p, including the second interim payout of 3.84p. Severn Trent said: "The proposed second interim dividend rewards shareholders in respect of past efficiences but remains separate from other dividends which are, more usually, based on the group's financial performance. We anticipate that continuing efficiency gains could allow further customer and shareholder benefits beyond the year 2000."

Severn Trent's deal for customers and shareholders is similar to that announced by North West Water last month. Mr Cocker denied there was any race to deliver benefits or that the package was a result of pressure from Mr Byatt.

The company cut 430 jobs during the year.

Biffa, the waste management business in the UK and Belgium, increased its profit by 22.5 per cent to pounds 17.4m.

Severn Trent is paying about pounds 23m a year in interest charges as a result of its pounds 212m acquisition of Biffa in 1991, which was financed with bonds.

Investment Column, page 22