Unpredictable weather hits Severn Trent Months of torrential rainfall has hit turnover at Severn Trent, as a switch from drought conditions in the spring to the wettest summer since records began weighed on interim revenues. With the Environment Agency continuing to struggle with flood conditions in parts of the Severn Trent region, Tony Wray, chief executive, declared the company's own defences secure. Flood defences are designed to protect water treatment and sewerage works from inundation. "It points to the problems of planning around some "normal" average of weather, which is getting more difficult to predict," Mr Wray said. An inflation-linked price increase of 5.2 per cent agreed with regulator Ofwat was not matched by a similar increase in revenues as metered households and businesses cut their consumption by 2.8 per cent in the six months to September. Severn Trent said on Tuesday that commercial consumption, in particular agricultural, was lower than expected during a period that began with the UK government and water companies planning to deal with water shortages. Turnover at the company, which serves 3.7m households and businesses across the Midlands and mid-Wales, rose 3.6 per cent, from £886m in the same period last year, to £918m. Though profits ahead of interest and tax fell slightly, from £274m to £267m, interim pre-tax profit jumped from £65.3m to £121m as a result of reduced exceptional charges and losses on financial instruments. Losses in hedging instruments used to help fix interest charges on two-thirds of the group's net debt of £4bn fell from £70m to £38m. An agreement with HM Revenue & Customs to defer £44m of tax exceeded the £40m of current tax due on Severn Trent's interim profits, leaving it with post-tax earnings of £124m. However, the company said it expected the tax rate for group profits for the current year to be between 24 per cent and 26 per cent. During the period Severn Trent increased its capital investment from £187m to £239m under spending programmes agreed with Ofwat to maintain and improve its water and sewerage network. Severn Trent declared an 8.2 per cent rise in its interim dividend to 30.34p, in line with its policy of increasing its payouts 3 per cent ahead of the retail price index. Diluted earnings per share rose from 30.4p to 51.3p. This year's extremes in weather and the immediate distress caused by widespread flooding in many areas covered by Severn Trent will be the main concerns for many of its customers. But for investors, it is the unpredictability of regulatory conditions that hangs like a dark cloud over Severn Trent and other water companies. The sector has been a haven to lenders and shareholders alike during the economic downturn. But proposed changes to licence conditions made by Ofwat threaten the relationship between companies" returns and the current inflation-linked formulas. Shares, down from a 52-week high of £18.36 in August, lost 2p to close at £15.54 on Tuesday. Severn Trent trades on an attractive prospective dividend yield of 5 per cent. However, clarity over the impact of licence modifications demanded by Ofwat will be needed to secure any short-term uplift for its shares.