Severn Trent facing £25m drop in revenues
Jan 28 2009 by Tom Scotney, Birmingham Post
Midlands water company Severn Trent yesterday said the drop in water use by struggling businesses was going to hit its revenues hard.
The company, which provides water and sewerage services to more than 3.7 million homes and businesses in central England, said trading was otherwise as good as it could have hoped for.
But the decline in metered consumption, driven mainly by commercial customers, means it is predicting a drop in revenue of up to £25 million – nearly twice as much as earlier predictions.
The company had been originally predicting a year-on-year revenue drop of £12-15 million, after signs emerged of a turnaround in its fortunes at the end of a difficult 2008 for the company.
Last Summer, Severn Trent was fined more than £35 million after deliberately providing false information and poor customer service in 2005 and earlier years. A day earlier it had been fined £2 million for separate offences.
But the firm believed it had turned the corner at the end of 2008, with half-year figures looking promising.
Commercial customers account for about 20 percent of the company’s revenue.
Severn Trent finance director Mike McKeon said: “There’s a combined (impact from) companies going out of business or not performing at the level they normally would.
“We remain focused on the successful delivery of the absolute levels of expenditure previously announced and we continue our efforts to identify and pursue additional opportunities across our operating and capital expenditure base in this lower inflation environment.”
Lower consumption by the likes of premium car maker Jaguar Land Rover is at the root of the recent income problems at the firm, it said, as businesses cut back on production because of the slowing economy.
Mr McKeon said the company was seeing an impact from the collapse of retailers such as Woolworths and MFI as well as the downturn at manufacturers such as JLR.
“There’s a combined (impact from) companies going out of business or not performing at the level they normally would,” he said.
Analysts were expecting Severn Trent to report full-year pretax profit before interest and exceptional items of between £465 million and £480 million, against £469.5 million last year. but declined to say what the company’s own expectations were.
Severn, which reports results for the year to March 31 on May 29, serves a population of more than eight million people.
Utility prices have been a big issue for businesses looking to cut their operating costs. Severn Trent has been working with the Manufacturing Advisory Service (MAS) to help companies cut down on their bills.
David Wright, the chief executive of MAS-WM, said: “In today’s volatile economic picture, firms must do everything they can to reduce their overheads and it is no surprise that manufacturers are being especially hard hit by escalating fuel and utility costs.”
