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20 May 2020 | 09:01

Severn Trent ups dividend despite Covid-19 impact

(Sharecast News) - Severn Trent increased its final dividend despite Covid-19's impact on rising bad debts and joint venture losses at the water and waste company. Underlying profit before interest and tax for the year to the end of March fell 0.6% to £570m as revenue increased 4.3% to £1.84bn. Statutory profit before interest and tax rose 0.9% to £568.2m.

Profit after tax halved to £159m as the company recorded an exceptional loss of £46.8m at its Water Plus joint venture with United Utilities. Severn Trent also took a £4.9m provision against loans made to Water Plus, which is suffering because of the impact of Covid-19 on the non-household retail market.

Severn Trent's bad debt charge jumped to £42.5m from £25.5m a year earlier as more uncollected debts fell into the older age category. The company said £2.2m of the increase was for the expected impact of the economic downturn on customers' ability to pay.

The FTSE 100 company increased its final dividend by 7.2% to 60.05p a share taking the annual payout to 100.08p a share, up from 93.37p a year earlier. Severn Trent said the increase was in line with its policy of increasing the dividend by at least retail price inflation plus 4%.

Chief Executive Liv Garfield said the board considered the group's financial position, interests of customers, employees and other groups and the company's decision not to seek government support during the crisis when deciding on the shareholder payout.

Garfield said: "Recognising the critical role that dividends play in providing necessary income for pensioners and savers, and the significant number of employee and former employee investors, the board determined that, based on the strong performance in 2019/20 and the underlying financial position of the company, it remains appropriate to recommend to shareholders that the final dividend ... be paid in line with policy."

The company's shares rose 2.4% to £24.62 at 09:40 BST.

Severn Trent increased the dividend despite predicting it would be affected by reduced consumption by business customers, higher bad debts and a severe impact on Water Plus as the UK economy suffers its worst recession since the Great Depression.

Severn Trent said it had £48.6m of net cash at the end of March and undrawn credit facilities of £755m. All planned investment and cash flow needs are covered by cash or committed facilities until January 2022, it said.

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