Severn Trent pledges to maintain dividend until 2005

Investors in the water sector breathed a sigh of relief yesterday after Severn Trent, the UK's biggest quoted water company, said it would not be cutting its dividend.

There had been fears that Severn Trent would be forced to trim the payout because of increasing cost pressures on its core regulated water division and a dip in profits from its non-regulated waste and laboratory services businesses.

But Severn Trent said yesterday that barring unforeseen circumstances, its full-year dividend would remain at least as high as last year's payout of 45.9p until March 2005. This is when the current regulatory price control period ends.

Shares in Severn Trent, the worst-performing water company this year, rose 4 per cent in response to close 26.5p higher at 659p. The shares are on a dividend yield of 7.3 per cent.

The re-assurance on the payout came as Severn Trent reported half-year results at the top end of analysts' expectations. Profit before goodwill, amortisation and exceptional items in the six months to the end of September rose 1.2 per cent to £131.8m. Even allowing for an additional £4m of profit made in the first half because of the way Severn phases water charges for big industrial customers, underlying profits were still comfortably ahead of the mid-range forecast of £120m.

Robert Walker, the chief executive, said that Severn Trent had once again outperformed its regulatory targets and added that the group's Biffa waste business and its services division, which is 80 per cent-based in the US, had performed well in difficult trading conditions.