Severn to continue rebates despite tax threat

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Severn Trent, the privatised water company, yesterday rejected the option of making householders pay for the windfall tax, saying it remained committed to "benefit sharing" between customers and shareholders.

The company pledged to continue with its five-year programme of rebates, worth pounds 6.50 a year, irrespective of the levy to be imposed by the Chancellor, Gordon Brown, in his first Budget next month.

At the same time, Severn Trent said it intended to increase the payout to shareholders by reducing dividend cover to two times earnings. It also confirmed it would seek authority at its annual meeting next month to complete the buyback of 10 per cent of its shares, having repurchased 5.6 per cent of its share capital last December.

Earlier this week, Hyder, the owner of Welsh Water and South Wales Electricity, said it might have to scrap customer rebates and discretionary spending on its network if the windfall tax was too high.

However, Vic Cocker, chief executive of Severn, said yesterday it remained firmly committed to benefit sharing, believing this was in the best interests of shareholders.

He was speaking as Severn announced a 5 per cent rise in pre-tax profits before exceptional charges last year to pounds 391m and a 13 per cent increase in the dividend for the year to 36.5p. The group also disclosed it had reduced its leakage rates by a third to 16 per cent a year, ahead of the timetable agreed with the industry regulator, Ofwat.

Exceptional charges included pounds 20m in redundancy costs at the main regulated water and sewage business, where the workforce fell by 1,100 to 5,650 in the year, and pounds 4.5m of costs incurred through Severn's failed bid for South West Water.

The company said capital investment, at pounds 412m, had exceeded after-tax profits from its regulated business by pounds 95.6m while its unregulated businesses, principally the Biffa waste division, were responsible for nearly half of last year's profits growth.

Despite a lack of rain and increased water loss through evaporation caused by climatic changes, Severn was confident it would not have to impose restrictions on water supply.

Following the blocking of its bid for South West Water by the Monopolies & Mergers Commission, Severn said it intended to concentrate on a combination of organic growth and small to medium-sized acquisitions.