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Severn Trent PLC

Severn Trent PLC

2297 Coventry Road
Birmingham, West Midlands B26 3PU
United Kingdom
Telephone: (44) 121-722-4000
Fax: (44) 121-722-4800
Web site: http://www.severn-trent.com

Public Company
Incorporated:
1989
Employees: 11,095
Sales: £1.63 billion (1999)
Stock Exchanges: London
Ticker Symbol: SVT
NAIC: 221310 Water Supply and Irrigation Systems; 221320 Sewage Treatment Facilities; 551112 Offices of Other Holding Companies; 551114 Corporate, Subsidiary, and Regional Managing Offices; 562111 Solid Waste Collection; 562112 Hazardous Waste Collection; 562119 Other Waste Collection; 562212 Solid Waste Landfill; 562221 Hazardous Waste Treatment and Disposal; 924110 Administration of Air and Water Resource and Solid Waste Management Programs

As the fourth largest non-government-owned water company in the world, Severn Trent PLC supplies water and sewerage services to eight million domestic and industrial consumers across the British Midlands. In the mid-1990s, its service area encompassed 8,000 square miles, reaching from Gloucestershire to Humberside, mid-Wales to Rutland. Water supply became the primary activity of Severn Trent, the successor company to the state-owned Severn Trent Water Authority, when it was privatizedalong with the rest of the water industryin 1989. Privatization improved the companys profits, but also exposed it to controversy over such issues as executive salaries and environmental stewardship. Since becoming a PLC, Severn Trent also has diversified into several related areas, including waste management, water technology services, and the creation of software systems for a variety of industrial applications. The company also has reached beyond the boundaries of its home market, becoming involved in a number of consulting and operational activities abroad.

The Birth of Modern Water Management in 19th-century Britain

The harnessing of water resources in Britain began during the Industrial Revolution, when rapidly expanding urban centers demanded more water than local rivers and lakes could provide. In the Severn Trent region, the principal city of Birmingham was among the first to develop modern water management. In the 19th century water was brought to the city via an aqueduct dependent on gravity from the Elan Valley reservoirs in rural Wales. Other cities in the region, notably Derby, Nottingham, and Leicester, brought water from the Peak District in Derbyshire.

In these early days, water projectsthe province of either private companies or local authoritieswere regulated in the sense that each project required an act of parliamentary approval to proceed. Since each proposal was considered in isolation of the others, however, water supply across the nation was haphazard and inefficient. The major cities were comparatively well served, as were smaller settlements lucky enough to lie along the route from a water source to a city, but many areas had no water provision at all. As early as 1869 the problems inherent in such an unplanned system were recognized, and the Royal Commission on Water Supply raised the suggestion of regional planning. No action was taken, however, until 1924, when the Ministry of Health established Regional Advisory Water Committees to coordinate development and operation.

Privatization and the Water Act of 1973

Successive acts of Parliament solidified the central governments involvement with water supply, culminating in the Water Act of 1973, which put an end to the network of individual suppliers and created ten regional Water Authorities in England and Wales. The far-reaching act also encompassed river management and sewage disposal, operations hitherto entirely separate from water supply, bringing all three related operations under common management.

During the 1980s Britains Conservative government instituted a wide-ranging policy of privatizing public utilities and services. This policy soon affected the water industry, and as a result the Severn Trent Water Authority became Severn Trent PLC in 1989. After privatization, however, the former water authorities, as monopoly providers of an essential utility, remained subject to government regulatory control. The Office of Water Services (Ofwat) set a ceiling on the rates the water companies could charge their customers. Severn Trent and the other providers also were required to meet standards regarding water purity and pollution control stipulated by both the United Kingdom and the European Community. It would be difficult to determine which issuepricing or environmental qualityattracted more controversy after Severn Trent was privatized.

Public Relations Problems in the Early 1990s

In the 1990s the privatized water industry as a whole came under attack for its pricing policies, and Severn Trent certainly took its share of the criticism. It frequently was alleged that Severn Trents profits were disproportionately benefiting shareholders rather than being recycled back to customers. The cost of water to the average domestic consumer in the Severn Trent region increased 69 percent from 1989 to 1994during a period when Severn Trents profits were steadily rising. The company stoutly defended its policies, however, citing the vast capital outlay required to achieve environmental standards mandated by both London and Brussels.

Environmental issues certainly did not receive adequate attention when the industry was in the public sector: Severn Trent and the other former authorities inherited an antiquated, ecologically hazardous infrastructure in urgent need of upgrading. Severn Trent invested heavily in improvements to the system, and continued to do so through a ten-year program, begun at privatization, that was estimated to cost &5 billion. Critics maintained, however, that the investment burden was being unfairly shouldered by consumers when it should have been borne by Severn Trent, whose healthy profits proved it perfectly capable of doing so. Further, it was alleged that the required capital outlay, much of which was expended in the first few years after privatization, was mitigated in the companys favor by two factors. First, the governments debt write-off was designed to ease the water authorities financial obligations. Second, the cost of improvements was substantially lower than expected due to very favorable deals made during the economic recession of the early 1990s. Furthermore, critics argued that Severn Trents financial commitments were actually significantly lower than those of the other former authorities. Because the Severn Trent region is landlocked, the company thus was saved the formidable expense of cleaning up beaches and treating sewage disposed of in the sea.

The company responded to such criticism by stating that the costs of necessary improvements were so onerous that they had to be shared by the consumer. Severn Trent also claimed that its charges were the second lowest among the countrys water companies and that it had not raised water rates beyond the maximum allowed by the industry regulator, Ofwat. Finally, the company attributed its higher profits at least partially to the rigorous and successful cost-cutting program it had initiated since privatization.

Nevertheless, one outraged journalist at the Birmingham Post responded: Tf the commercial minds at Severn Trent were to be troubled by conscience, they would be asking themselves this: how the financial rewards can have been reaped so richly from privatization and the environmental responsibilities so grossly neglected.Severn Trent pointed to several improvements it had made since privatization in response to environmental concerns, including the reservoir Carsington Water and a complete overhaul, at a cost of $70 million, of the Frankley Water Treatment Works. The company also cited encouragingly high compliance rates with quality standards: 99.8 percent in drinking water purity, and 99.0 percent with effluent standards. Severn Trent was convicted of six pollution offenses in 1993, however, making it the fourth worst offender in the United Kingdom for dumping waste into rivers.

The company was widely suspected of incompetence if not malfeasance in a 1994 incident in Worcestershire, for example, when a pollution scare left 35,000 homes without water for a few days. A Shropshire waste disposal firm known as Vital-scheme dumpedwithout, Severn Trent emphasized later, the knowledge or permission of the water companya chemical cocktail of industrial solvents into its sewerage works. The pollutant flowed 80 miles down the River Severn, undetected for several days, until it reached drinking water supplies and consumers reported evil-smelling, foul-tasting water. Several people became ill. Severn Trent reacted quickly to the complaints, warned consumers against drinking the water, traced the pollution to its source, took steps to remedy the situation, and subsequently voluntarily paid $25 compensation to each household affected. Nonetheless, the incident damaged Severn Trents reputation. Some alleged that the company, even if not actually compliant in the original dumping, was deficient in detecting the pollutant and reckless in precipitately assuring consumers that the water was again safe to drink. Severn Trent set up its own independent enquiry into the affair, led by Professor Kenneth Ives, and decided to prosecute Vitalscheme. The Ives report found that,Severn Trent responded with great speed and efficiency to the emergency, thanks to well prepared emergency planning. The long-term health effects of the chemicals, if any, were unknown.

Company Perspectives:

The principle of environmental leadership lies at the heart of our business strategy. It is not just a matter of demonstrating high environmental standards in the operations that we carry out; environmental leadership enables us to provide customers with practical and innovative services that address the environmental challenges of modern society.

Severn Trents image also suffered from the financial arrangements surrounding Chairman John Bellaks early retirement in 1994. Most customers and some shareholders were already disgruntled with the massive increases in executive salaries after privatization. Severn Trent was by no means unique in boosting its top executives payit was a common practice among Britains privatized industriesbut critics questioned the necessity for raising the chairmans salary a total of 241 percent, from a 1989 level of $51,000 to the opulent 1994 figure of $174,000. The controversy came to a head when Bellak (who had enjoyed some very lucrative share options in addition to his increased salary) received $500,000 in compensation for being requested to retire a few years early. Severn Trents customers and shareholders and a group of 50 members of Parliament condemned the deal and repeatedly demanded an explanation for Bellaks departure. Tempers were not improved by the subsequent revelation that Richard Ireland, Bellaks replacement, was garnering $100,000 for a work schedule that equated to attending less than one meeting per week. Ireland responded that he would, in fact, be devoting two days a week to his job.

Severn Trents noncore business activities were by contrast free from controversy. The company became a major player in the waste management industry with its 1991 purchase, for $212 million, of Biffa Waste Services, the fourth largest firm of its kind in Britain and the tenth largest in Europe. Biffa operated a threefold business in the United Kingdom and Belgium: collection, whereby it disposed of other companies waste materials; landfills, a rapidly growing area; and liquid waste management, handled through liquid treatment plants. Biffas financial returns were somewhat disappointing, but this was due not to the subsidiarys actual performanceits productivity and potential were soundbut rather to the financing scheme by which it was purchased. Severn Trent bought Biffa through Eurobonds with an extremely high interest rate (the annual interest bill was some $24 million) and this adversely affected profits. Independent financial commentators agreed with Severn Trent that once it came out from under its financing cloud, Biffa would prove a credit to the company.

Severn Trent Systems was the computer software arm of the company. The business arose almost tangentially from Severn Trents own need to process the volumes of information necessary for running a major utility. Customers needs and specifications, billing, costs of labor and materials, resource management, regulatory and environmental requirementsall such data needed to be processed quickly and accurately. At first in conjunction with IBM and later on its ownafter it had purchased the U.S.-based Computer Systems and ApplicationsSevern Trent developed systems appropriate to its needs. Having established the groundwork, it was a logical next step to market the experience to other, similar organizations. Severn Trent Systems offered a highly complex and sophisticated range of computer services encompassing work management systems, customer information and complaints systems, systems specific to industry types, and professional consulting services in an array of procedural and technical areas. The companys clients in the utility industries included Western Reserves, which supplied Kansas City, Missouri, with gas and electricity; London Electricity; Houston Lighting and Power Co.; Sydney Electricity; and the City of Seattle Water Department.

Severn Trent Technologies developed and marketed purification technology. The subsidiary Capital Controls was in the chlorine, ozone, and ultraviolet disinfection business, while Stoner Associates specialized in pipe network computer modeling and served the water, gas, and oil industries. Severn Trent Technologies operated in the U.S. and European markets and was investigating opportunities in China.

Severn Trent Water International Ltd. operated on numerous levels: as a water management consultant, a provider of water and wastewater technology, an operations contractor, and a water utility manager/operator. The companys most significant operations were centered in the United States, Mexico, and Belgium. In the United States, Severn Trent had contracts to operate more than 150 water and wastewater treatment plants. The acquisitions of the American companies AM-TEX and McCullough Environmental Services helped to increase Severn Trents penetration of the market.

In 1994, Severn Trent received a ten-year contract to provide an array of water and wastewater services to a quarter of Mexico City. Included in the project were the installation of 250,000 water meters, the development of customer billing services, and operation and maintenance of secondary water distribution and sewerage systems.

In Belgium, Severn Trent operated through its 20 percent interest in Aquafin, a designer and builder of sewers and wastewater treatment facilities whose influence was spreading throughout the northern part of the country. The Belgian arm of Biffa provided extensive waste management services. In addition, Severn Trent acquired Cotrans in 1994, through which the company entered the municipal contracts market, responsible for the collection of domestic and industrial waste. Severn Trent Water International also was actively pursuing interests in Germany, Puerto Rico, Swaziland, Mauritius, and India.

Severn Trents post-privatization diversification program proved more successful than many such programs initiated by the other former water authorities. Expansion seemed likely and promising for the company. For the foreseeable future, however, the majority of Severn Trents profits were expected to derive from its primary function as a U.K. supplier of water and wastewater services. In this area of its business, Severn Trent had been hounded by controversy. As a monopoly supplier of an essential utility, Severn Trents position was in some ways an unenviable one: struggling to balance the sometimes conflicting needs of the environment, customers, and shareholders.

Key Dates:

1924:
British Ministry of Health establishes Regional Advisory Water Committee.
1973:
The Water Act creates ten regional water authorities in England and Wales.
1974:
Severn Trent Water Authority is formed.
1989:
Severn Trent Water Authority is incorporated as Severn Trent PLC.
1991:
Severn Trent acquires Biffa Waste Services.
1998:
Severn Trent Services is formed.
2000:
Severn Trent purchases UK Waste from Waste Management Inc. (U.S.A.).

Nevertheless, in late 1994, the company announced that its operating performance and profits continued to improve and that it remained committed to achieving, in the words of Chairperson Ireland,the right balance between the interests of our shareholders and our customers.Toward that end, the company allocated a total of $47.5 million for improving customer service and reducing the impact of tariffs on customers. As a result, Severn Trents domestic customers received a $4 reduction in their bills during 1995-96. Moreover, a similar reduction was expected for 1996-97.

Into the 21st Century: Further Steps Toward Unregulated Business

As the year 2000 approached, the company continued its aggressive pursuit of new opportunities in the unregulated business arena, while striving to maintain its role as a leading water provider in the United Kingdom. At times, however, the effort to run a profitable water utility in Englands tightly regulated market seemed like a losing battle. The severe drought that hit most of Europe in the summer of 1995 delivered yet another series of negative blows to Severn Trents public image. The dry season exposed the weak infrastructures of the newly privatized English water companies, whose inefficient management practices and poorly maintained pipe networks resulted in continually unreliable service. The problem was exacerbated by the revelation that Severn Trent had seen big profits during this same period, further undermining the publics, as well as the governments, faith in the company.

Eventually The Office of Water Services decided to impose stricter control over the companys profitability. In November 1999 Ofwat issued a determination compelling Severn Trent to reduce customer costs by 14.1 percent in April 2000 and to implement additional reductions of 1 percent each of the following two years. In response to subsequent lost revenues, which were estimated to exceed $115 million the first year alone, the company felt obligated to carry out a radical restructuring of its regulated water business. Intent on cutting $52.5 million in costs, the company closed several plants and laid off 1,100 employees. Even after this streamlining, however, Severn Trent Water saw lower profits between the 1998-99 and 1999-2000 fiscal years, with an overall growth in sales of only 3.1 percent, by far the least aggressive of the companys various businesses. By contrast, Severn Trent Services experienced a sales increase of 63.4 percent during the same period, while Biffas sales rose by 17.5 percent.

Toward decades end, Severn Trent paid increasing attention to growth potential outside the water industry. In 1999-2000, the companys nonregulated divisions were responsible for 42 percent of total revenue and employed more than half of the Severn Trent workforce. The company made a number of key acquisitions during this period, the most significant of which was the purchase of UK Waste in June 2000, which made Biffa Waste Services the largest waste management concern in the United Kingdom. The company also added 24 new labs to Severn Trent Services in 2000, with the intent of becoming a major provider of lab analysis and onsite monitoring in the United States. At the same time the company introduced a new line of telecommunications products for small and medium-sized businesses, which it offered through Severn Trent Talks, in association with TCI; created Severn Trent Energy, a gas and electric utility division; and began marketing an innovative new water meter with no moving parts.

In spite of this apparent shift toward its unregulated interests, Severn Trent was determined to remain a leading water provider into the 21st century. Some favorable press in the late 1990s helped rebuild public confidence in the company. In September 1999 it was included in the Dow Jones Sustainable Group Index, and in 2000 the company received a top ranking in the Environment Index of Corporate Environmental Engagement. That same year, Severn Trent was the only water company in England invited to participate in the World Business Council for Sustainable Development. With the movement toward utility deregulation in other European countries Severn Trent began to recognize growth potential for its water business outside of its traditional territory, and in February 2000 it officially entered the Italian water market with the purchase of Ecotecnica.

Principal Subsidiaries

Severn Trent Water Ltd.; Biffa Waste Services Ltd.; Severn Trent Water International Ltd.; Severn Trent Industries Ltd.; Severn Trent Systems Ltd.; Severn Trent Services Inc. (U.S.); Stoner Associates (U.S.); Aquafin N.V. (Belgium; 20%); Severn Trent Property Ltd.; Charles Haswell and Partners Ltd.

Principal Competitors

Hyder PLC; Suez Lyonnaise des Eaux (France); United Utilities PLC.

Further Reading

Butler, Daniel, A Chance They Mustnt Waste, Accountancy, June 1993, pp. 34-35.

Callus, Andrew, Water Water Everywhere But Any Profits?, Reuters Company News, November 24, 2000.

Dry Britain Turns Heat on Water Firms, Agence France-Presse, August 21, 1995.

$500,000 Severn Trent Payoff to Ex-Chairman Infuriates Shareholders, Independent, July 30, 1994.

Homes and Trade Hit As MP Demands Action on River Pollution, Birmingham Post, April 19, 1994.

Jones, Matthew, and Andrew Taylor, Severn Trent Warns of Impact of Climate Change, Financial Times (U.K.: FT.com), November 28, 2000.

Leathley, Arthur, Labour Steps Up Campaign Over Utility ChiefsPay, Times (London), January 7, 1995, p. 2.

The Lex Column: Severn Trent, Financial Times, June 15, 1994.

Outrage As Water Bills Rise 9pc, Birmingham Post, February 24, 1994.

Pollution Scare Hits Water for Thousands, Birmingham Post, April 16, 1994.

Public Left to Clean Up the Mess, Birmingham Post, July 8, 1994. Severns Clear Message of Commitment, Investors Chronicle, February 4, 1994.

Severn Trent Hunting for Chemical Cocktail Solution, Birmingham Post, May 5, 1994.

Severn Trent in the Top Four of River Polluters, Birmingham Post, March 7, 1994.

Severn Trent Managers Attacked Over Profits, Birmingham Post, December 18, 1993.

Severn Trents Dirty Washing, Birmingham Post, July 6, 1994.

Severn Trent Takes Legal Action Over Chemical Spillage, Times (London), June 15, 1994.

Severn Water Approved Contamination, Independent, April 24,1994.

Tapping a Well of Riches, Birmingham Post, February 24, 1994.

Turncocks to Ozone: A Brief History of Severn Trent Water, Birmingham, England: Severn Trent Water Ltd., 1994.

UK Company News: Severn Trent Held to 4 Percent Rise, Financial Times, June 15, 1994.

Water Boss Earns $100,000 for One Meeting a Week, Birmingham Post, July 8, 1994.

Water Companys List of Shame, Birmingham Post, July 26, 1994.

Wilsher, Peter, British Water Makes Waves Overseas, Management Today, October 1993, pp. 86-90.

Robin DuBlanc

updated by Stephen Meyer

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Severn Trent PLC

Severn Trent PLC

2308 Coventry Road
Birmingham
West Midlands B26 3JZ
United Kingdom
(0121) 722 6000
Fax: (0121) 722 6150

Public Company
Incorporated: 1989
Employees: 6,757
Sales: £998 million
Stock Exchanges: London
SICs: 6711 Holding Companies; 4941 Water Supply

As the fourth largest privately owned water company in the world, Severn Trent PLC supplies water and sewerage services to eight million domestic and industrial consumers across the British Midlands. In the mid1990s, its service area encompassed 8,000 square miles, reaching from Gloucestershire to Humberside, midWales to Rutland. Water supply became the primary activity of Severn Trent, the successor company to the stateowned Severn Trent Water Authority, when it was privatizedalong with the rest of the water industryin 1989. Privatization improved the companys profits, but also exposed it to controversy over such issues as executive salaries and environmental stewardship. Since becoming a PLC, Severn Trent has also diversified into several related areas, including waste management, water technology services, and the creation of software systems for a variety of industrial applications. The company has also reached beyond the boundaries of its home market, becoming involved in a number of consulting and operational activities abroad.

The harnessing of water resources in Britain began during the Industrial Revolution, when rapidly expanding urban centers demanded more water than local rivers and lakes could provide. In the Severn Trent region, the principal city of Birmingham was among the first to develop modern water management. In the nineteenth century water was brought to the city via an aqueduct dependent on gravity from the Elan Valley reservoirs in rural Wales. Other cities in the region, notably Derby, Nottingham, and Leicester, brought water from the Peak District in Derbyshire.

Water projects in these early daysthe province of either private companies or local authoritieswere regulated in the sense that each project required an act of parliamentary approval to proceed. Since each proposal was considered in isolation of the others, however, water supply across the nation was haphazard and inefficient. The major cities were comparatively well served, as were smaller settlements lucky enough to lie along the route from a water source to a city, but many areas had no water provision at all. As early as 1869 the problems inherent in such an unplanned system were recognized, and the Royal Commission on Water Supply raised the suggestion of regional planning. No action was taken, however, until 1924, when the Ministry of Health established Regional Advisory Water Committees to coordinate development and operation.

Successive acts of Parliament solidified the central governments involvement with water supply, culminating in the Water Act of 1973, which put an end to the network of individual suppliers and created 10 regional Water Authorities in England and Wales. The farreaching act also encompassed river management and sewage disposal, operations hitherto entirely separate from water supply, bringing all three related operations under common management.

During the 1980s Britains Conservative government instituted a wideranging policy of privatizing public utilities and services. This policy soon affected the water industry, and as a result the Severn Trent Water Authority became Severn Trent PLC in 1989. After privatization, however, the former water authorities, as monopoly providers of an essential utility, remained subject to government regulatory control. The Office of Water Services (Ofwat) set a ceiling on the rates the water companies could charge their customers. Severn Trent and the other providers were also required to meet standards regarding water purity and pollution control stipulated by both the United Kingdom and the European Community. It would be difficult to determine which issuepricing or environmental qualityhas attracted more controversy since Severn Trent was privatized.

The privatized water industry as a whole has come under attack for its pricing policies, and Severn Trent has certainly taken its share of the criticism. It was frequently alleged that Severn Trents profits were disproportionately benefiting shareholders rather than being recycled back to customers. The cost of water to the average domestic consumer in the Severn Trent region increased 69 percent from 1989 to 1994during a period when Severn Trents profits were steadily rising. The company stoutly defended its policies, however, citing the vast capital outlay required to achieve environmental standards mandated by both London and Brussels.

Environmental issues certainly did not receive adequate attention when the industry was in the public sector: Severn Trent and the other former authorities inherited an antiquated, ecologically hazardous infrastructure in urgent need of upgrading. Severn Trent invested heavily in improvements to the system, and continued to do so through a 10year program, begun at privatization, that was estimated to cost £5 billion. Critics maintained, however, that the investment burden was being unfairly shouldered by consumers when it should have been borne by Severn Trent, whose healthy profits proved it perfectly capable of doing so. Further, it was alleged that the required capital outlay, much of which was expended in the first few years after privatization, was mitigated in the companys favor by two factors. First, the governments debt writeoff was designed to ease the water authorities financial obligations. Second, the cost of improvements was substantially lower than expected due to very favorable deals made during the economic recession of the early 1990s. Furthermore, critics argued that Severn Trents financial commitments were actually significantly lower than those of the other former authorities. Because the Severn Trent region is landlocked, the company was thus saved the formidable expense of cleaning up beaches and treating sewage disposed of in the sea.

The company responded to such criticism by stating that the costs of necessary improvements were so onerous that they had to be shared by the consumer. Severn Trent also claimed that its charges were the secondlowest among the countrys water companies, and that it had not raised water rates beyond the maximum allowed by the industry regulator, Ofwat. Finally, the company attributed its higher profits at least partially to the rigorous and successful costcutting program it had initiated since privatization.

Nevertheless, one outraged journalist at the Birmingham Post responded: If the commercial minds at Severn Trent were to be troubled by conscience, they would be asking themselves this: how the financial rewards can have been reaped so richly from privatization and the environmental responsibilities so grossly neglected. Severn Trent pointed to several improvements it had made since privatization in response to environmental concerns, including the reservoir Carsington Water and a complete overhaul, at a cost of £70 million, of the Frankley Water Treatment Works. The company also cited encouragingly high compliance rates with quality standards: 99.8 percent in drinking water purity, and 99.0 percent with effluent standards. However, Severn Trent was convicted of six pollution offenses in 1993, making it the fourthworst offender in the United Kingdom for dumping waste into rivers.

The company was widely suspected of incompetence if not malfeasance in a 1994 incident in Worcestershire, for example, when a pollution scare left 35,000 homes without water for a few days. A Shropshire waste disposal firm known as Vitalscheme dumpedwithout, Severn Trent emphasized later, the knowledge or permission of the water companya chemical cocktail of industrial solvents into its sewerage works. The pollutant flowed 80 miles down the River Severn, undetected for several days, until it reached drinking water supplies and consumers reported evilsmelling, foultasting water. Several people became ill. Severn Trent reacted quickly to the complaints, warned consumers against drinking the water, traced the pollution to its source, took steps to remedy the situation, and subsequently voluntarily paid £25 compensation to each household affected. Nonetheless, the incident damaged Severn Trents reputation. Some alleged that the company, even if not actually compliant in the original dumping, was deficient in detecting the pollutant and reckless in precipitately assuring consumers that the water was again safe to drink. Severn Trent set up its own independent enquiry into the affair, led by Professor Kenneth Ivés, and decided to prosecute Vitalscheme. The Ivés report found that, Severn Trent responded with great speed and efficiency to the emergency, thanks to well prepared emergency planning. The longterm health effects of the chemicals, if any, were unknown.

Severn Trents image also suffered from the financial arrangements surrounding Chairman John Bellaks early retirement in 1994. Most customers and some shareholders were already disgruntled with the massive increases in executive salaries postprivatization. Severn Trent was by no means unique in boosting its top executivespayit was a common practice among Britains privatized industriesbut critics questioned the necessity for raising the chairmans salary a total of 241 percent, from a 1989 level of £51,000 to the opulent 1994 figure of £174,000. The controversy came to a head when Bellak (who had enjoyed some very lucrative share options in addition to his increased salary) received £500,000 in compensation for being requested to retire a few years early. Severn Trents customers and shareholders and a group of 50 MPs condemned the deal and repeatedly demanded an explanation for Bellaks departure. Tempers were not improved by the subsequent revelation that Richard Ireland, Bellaks replacement, was garnering £100,000 for a work schedule that equated to attending less than one meeting per week. Ireland responded that he would, in fact, be devoting two days a week to his job.

Severn Trents noncore business activities were by contrast free from controversy. The company became a major player in the waste management industry with its 1991 purchase, for £212 million, of Biffa Waste Services, the fourthlargest firm of its kind in Britain and the tenthlargest in Europe. Biffa operated a threefold business in the United Kingdom and Belgium: collection, whereby it disposed of other companies waste materials; landfills, a rapidly growing area; and liquid waste management, handled through liquid treatment plants. Biffas financial returns were somewhat disappointing, but this was due not to the subsidiarys actual performanceits productivity and potential were soundbut rather to the financing scheme by which it was purchased. Severn Trent bought Biffa through Eurobonds with an extremely high interest rate (the annual interest bill was some £24 million) and this adversely affected profits. Independent financial commentators agreed with Severn Trent that once it came out from under its financing cloud, Biffa should prove a credit to the company.

Severn Trent Systems was the computer software arm of the company. The business arose almost tangentially from Severn Trents own need to process the volumes of information necessary for running a major utility. Customers needs and specifications, billing, costs of labor and materials, resource management, regulatory and environmental requirementsall such data needed to be processed quickly and accurately. At first in conjunction with IBM and later on its ownafter it had purchased the U.S.based Computer Systems and Applications Severn Trent developed systems appropriate to its needs. Having established the groundwork, it was a logical next step to market the experience to other, similar organizations. Severn Trent Systems offered a highly complex and sophisticated range of computer services encompassing work management systems, customer information and complaints systems, systems specific to industry types, and professional consulting services in an array of procedural and technical areas. The companys clients in the utility industries have included Western Reserves, which supplied Kansas City, Missouri, with gas and electricity; London Electricity; Houston Lighting and Power Co.; Sydney Electricity; and the City of Seattle Water Department.

Severn Trent Technologies developed and marketed purification technology. The subsidiary Capital Controls was in the chlorine, ozone, and ultraviolet disinfection business, while Stoner Associates specialized in pipe network computer modeling and served the water, gas, and oil industries. Severn Trent Technologies operated in the U.S. and European markets, and was investigating opportunities in China.

Severn Trent Water International Ltd. operated on numerous levels: as a water management consultant, a provider of water and wastewater technology, an operations contractor, and a water utility manager/operator. The companys most significant operations were centered in the United States, Mexico, and Belgium. In the United States, Severn Trent had contracts to operate more than 150 water and wastewater treatment plants. The recent acquisitions of the American companies AMTEX and McCullough Environmental Services helped to increase Severn Trents penetration of the market.

In 1994, Severn Trent received a 10year contract to provide an array of water and wastewater services to a quarter of Mexico City. Included in the project were the installation of 250,000 water meters, the development of customer billing services, and operation and maintenance of secondary water distribution and sewerage systems.

In Belgium, Severn Trent operated through its 20 percent interest in Aquafin, a designer and builder of sewers and wastewater treatment facilities whose influence was spreading throughout the northern part of the country. The Belgian arm of Biffa provided extensive waste management services. In addition, Severn Trent acquired Cotrans in 1994, through which the company entered the municipal contracts market, responsible for the collection of domestic and industrial waste. Severn Trent Water International was also actively pursuing interests in Germany, Puerto Rico, Swaziland, Mauritius, and India.

Severn Trents postprivatization diversification program has already proved more successful than many such programs initiated by the other former water authorities. Expansion seemed likely and promising for the company. For the foreseeable future, however, the majority of Severn Trents profits were expected to derive from its primary function as a U.K. supplier of water and wastewater services. And in this area of its business, Severn Trent has been hounded by controversy. As a monopoly supplier of an essential utility, Severn Trents position was in some ways an unenviable one: struggling to balance the sometimes conflicting needs of the environment, customers, and shareholders.

Nevertheless, in late 1994, the company announced that its operating performance and profits continued to improve and that it remained committed to achieving, in the words of chairperson Ireland, the right balance between the interests of our shareholders and our customers. Toward that end, the company allocated a total of £47.5 million for improving customer service and reducing the impact of tariffs on customers. As a result, Severn Trents domestic customers received a £4 reduction in their bills during 199596. Moreover, a similar reduction was expected for 199697.

Principal Subsidiaries

AMTEX Corp., Inc. (U.S.A.); Aquafin N.V. (Belgium; 20%); Biffa Waste Services Ltd.; Biffa Waste Services S.A. (Belgium); Capital Controls Co., Inc. (U.S.A.); Céntrale Verzorgingsdienst Cotrans N.V. (Belgium); Computer Systems and Applications Inc. (U.S.A.); Severn Trent Industries Ltd.; Severn Trent Systems Ltd.; Severn Trent Water Ltd.; Stoner Associates (U.S.A.).

Further Reading

Butler, Daniel, A Chance They Mustnt Waste, Accountancy, June 1993, pp. 3435.

500,000 Pounds Severn Trent Payoff to Exchairman Infuriates Shareholders, Independent, July 30, 1994.

Homes and Trade Hit as MP Demands Action on River Pollution, Birmingham Post, April 19, 1994.

Leathley, Arthur, Labour Steps Up Campaign over Utility Chiefs Pay, Times (London), January 7, 1995, p. 2.

The Lex Column: Severn Trent, Financial Times, June 15, 1994.

Outrage as Water Bills Rise 9pc, Birmingham Post, February 24, 1994.

Pollution Scare Hits Water for Thousands, Birmingham Post, April 16, 1994.

Public Left to Clean Up the Mess, Birmingham Post, July 8, 1994.

Severns Clear Message of Commitment, Investors Chronicle, February 4, 1994.

Severn Trent Hunting for Chemical Cocktail Solution, Birmingham Post, May 5, 1994.

Severn Trent in the Top Four of River Polluters, Birmingham Post, March 7, 1994.

Severn Trent Managers Attacked over Profits, Birmingham Post, December 18, 1993.

Severn Trents Dirty Washing, Birmingham Post, July 6, 1994.

Severn Trent Takes Legal Action over Chemical Spillage, Times (London), June 15, 1994.

Severn Water Approved Contamination, Independent, April 24, 1994.

Tapping a Well of Riches, Birmingham Post, February 24, 1994.

Turncocks to Ozone: A Brief History of Severn Trent Water, Birmingham, England: Severn Trent Water Ltd., 1994.

UK Company News: Severn Trent Held to 4 Percent Rise, Financial Times, June 15, 1994.

Water Boss Earns Pounds 100,000 for One Meeting a Week, Birmingham Post, July 8, 1994.

Water Companys List of Shame, Birmingham Post, July 26, 1994.

Wilsher, Peter, British Water Makes Waves Overseas, Management Today, October 1993, pp. 8690.

Robin DuBlanc

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