Severn Trent in Berlin bid

SEVERN TRENT, the UK water company, is bidding to take over the water supply for the German city of Berlin when the DM4bn (pounds 1.4bn) privatisation of the business takes place later this year.

Vic Cocker, the chief executive of Severn Trent, confirmed yesterday that it was interested in making a bid, possibly in conjunction with a German partner, for the operating contract to supply Berlin. This would be the most significant overseas move by Severn since privatisation nine years ago and could pave the way for further expansion into Europe.

The Berlin Wasse Bertriebe serves a population of 3.5 million people, has 6,500 employees and a capital investment programme running at about pounds 500m a year. The Berlin city authority is looking to raise at least DM2bn by selling off 49 per cent of the business and is expected to proceed formally with the sale by this autumn.

If Severn Trent's bid is successful, it would be project-financed to a large extent, limiting the amount of direct equity that the company would have to inject.

The expansion into Berlin would form part of Severn's strategy of increasing its non-regulated earnings by 20 per cent a year over the next five to six years to offset tougher regulatory curbs on its UK water and sewerage business.

However, Mr Cocker ruled out a renewed bid for another UK water company and said the company had no plans to enter either the liberalised electricity or gas markets.

He was speaking as the group announced a 4 per cent decline in profits last year but a 10 per cent increase in the dividend. The reduction in profits from pounds 391m to pounds 374m was due to higher interest charges because of the windfall tax and the capital investment programme; customer rebates and a decline in revenues due to lower water usage by business customers; and the increasing number of households switching to meters.

This was offset by improved profits from the waste business Biffa and other non-regulated divisions and further reductions in operating costs.

Severn said it was ahead of its leakage reduction targets set by the regulator and had cut leaks by 40 per cent since 1995.