The group also disclosed it had reduced its leakage rates by a third to 16 per cent a year, ahead of the timetable agreed with the industry regulator, Ofwat.Exceptional charges included pounds 20m in redundancy costs at the main regulated water and sewage business, where the workforce fell by 1,100 to 5,650 in the year, and pounds 4.5m of costs incurred through Severn’s failed bid for South West Water.The company said capital investment, at pounds 412m, had exceeded after-tax profits from its regulated business by pounds 95.6m while its unregulated businesses, principally the Biffa waste division, were responsible for nearly half of last year’s profits growth.Despite a lack of rain and increased water loss through evaporation caused by climatic changes, Severn was confident it would not have to impose restrictions on water supply.Following the blocking of its bid for South West Water by the Monopolies & Mergers Commission, Severn said it intended to concentrate on a combination of organic growth and small to medium-sized acquisitions.. The company pledged to continue with its five-year programme of rebates, worth pounds 6.50 a year, irrespective of the levy to be imposed by the Chancellor, Gordon Brown, in his first Budget next month.
At the same time, Severn Trent said it intended to increase the payout to shareholders by reducing dividend cover to two times earnings. It also confirmed it would seek authority at its annual meeting next month to complete the buyback of 10 per cent of its shares, having repurchased 5.6 per cent of its share capital last December.Earlier this week, Hyder, the owner of Welsh Water and South Wales Electricity, said it might have to scrap customer rebates and discretionary spending on its network if the windfall tax was too high.However, Vic Cocker, chief executive of Severn, said yesterday it remained firmly committed to benefit sharing, believing this was in the best interests of shareholders.He was speaking as Severn announced a 5 per cent rise in pre-tax profits before exceptional charges last year to pounds 391m and a 13 per cent increase in the dividend for the year to 36.5p. Its projects include a contract to build a school in Dorset under the government’s private finance initiative.. Severn Trent, the privatised water company, yesterday rejected the option of making householders pay for the windfall tax, saying it remained committed to “benefit sharing” between customers and shareholders. Analysts expect that deal to provide profits of pounds 3m-pounds 4m this year.In April Jarvis said its profits for the 15 months to March would “substantially exceed market expectations” thanks to building project gains and lower- than-expected rationalisation costs. Amec paid pounds 25m for the South West Infrastructure Maintenance Company.

That deal provided huge windfall gains for directors and the buy-out’s major backers, Charterhouse Bank.Other deals have also proved lucrative. The meteoric rise has continued this year, during which time they have already doubled.The privatisation of British Rail has been fraught with controversy with the government being heavily criticised for selling the various parts too cheaply. One of the first examples of this was when Stagecoach, the bus and trains group, paid pounds 825m for Porterbrook, the train leasing company which had been bought by its management from the government for pounds 527m just eight months earlier. Jarvis made a loss of almost pounds 5m in 1994 and profits of just pounds 500,000 the following year.

In April this year broker Peel Hunt upgraded its profits forecast for the year to March from pounds 10m to pounds 14.6m.The transformation has proved a boon for Jarvis shareholders. Last year the company’s shares were the second-best performers on the stock market, rising by 506 per cent to 142.5p. But its fortunes have been transformed since its pounds 9m acquisition last year of Northern Infrastructure (Nimco), one of seven businesses that carries out maintenance contracts for rail network operator Railtrack. Nimco has sales of around pounds 140m largely generated from guaranteed Railtrack contracts.