Early capital spending pays off for Severn

SEVERN TRENT, the privatised water utility, said yesterday that its policy of bringing forward its capital expenditure programme had paid off, as it reported a 4.3 per cent rise in interim profits, writes John Murray. Severn made pounds 146.9m in the six months to the end of September on turnover that rose 6.7 per cent to pounds 489.8m.

Roderick Paul, chief executive, said Ofwat's recent indications on return on capital showed Severn had been right to concentrate the capital spending needed to comply with regulations early in the decade.

'It may mean we get a lower 'K', but we would have got a worse return if we still had to spend large sums on the infrastructure.' 'K' is the amount above inflation by which the privatised water companies are allowed to raise charges.

Mr Paul rejected criticism of Severn's diversification into non-regulated businesses. He said Biffa, the waste management company bought for pounds 212m in 1991, was performing strongly, with operating profit 10 per cent higher at pounds 6.6m.

The group said it had changed tack on its international division after recording a pounds 700,000 loss in the first half. 'The loss was caused by a marketing spend of pounds 1.2m that did not bring the contracts we hoped for, especially in Germany,' Mr Paul said.

Profits in the core water business rose 12 per cent to pounds 167m. The interim dividend rises 7.9 per cent to 7.55p. The shares rose 8p to 583p.