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Pennon, the water, sewerage and waste disposal group, edged up profits and dividends as the 1.6m customers served by South West Water, its regional water supplier, had their bills increase more than 5 per cent.

But the supplier’s parent company defended the increases, which pushed South West Water’s average domestic customer bill to £517 – the highest in the country. South West Water managed to avoid the need for hosepipe bans or drought orders in Devon and Cornwall this summer for the 15th year running, despite Britain enjoying one of the hottest and driest springs since records began.

During the interim period to September 30, Pennon raised capital investment in its water subsidiary, which also supplies parts of Somerset and Dorset, by one-quarter to £51m under investment targets agreed with industry watchdog Ofwat.

South West Water, which shares responsibility for the bathing quality of water across the region’s heavily used beaches, also took on responsibility for its customers’ private sewers last month. The switch increases its estimated network length by more than half, though a funding settlement with Ofwat for taking on the burden has yet to be finalised.

Ken Harvey, chairman, said South West Water had continued a “strong operational performance and is well-placed to outperform the assumptions of the current regulatory period”.

Brokers Deutsche Bank and JPMorgan Cazenove welcomed the results, which were broadly in line with expectations. But both pointed to a note of caution in Pennon’s statement on the performance of Viridor, its waste management business with operations across the UK.

Growth at Viridor, which operates a range of landfill, recycling, incineration and anaerobic digestion facilities, lagged behind in the second quarter “reflecting deteriorating world economic and tough trading conditions”.

But David Dupont, finance director, said Pennon had delivered good growth in both businesses. Colin Drummond, chief executive of Viridor, said his business expected to double its earnings contribution over the next five years after winning permission for several disputed incineration projects over the past year.

Meanwhile Chris Loughlin, chief executive of South West Water, held out the prospect of customers benefiting from potential moves by government to help trim bills following arguments that the region faced a disproportionate burden of protecting environmental quality.

Chancellor George Osborne acknowledged in this year’s Budget that water bills in the region were “unusually high” and money could be set aside to reduce charges.

The company, which sells half of the output of one of its largest reservoirs to Wessex Water, benefited from the transformation of two disused china clay pits in Cornwall over the summer. The pits now form the region’s fourth- and fifth-largest reservoirs in the region and helped protect the company’s water supply system during the drought.

Revenues at Pennon rose from £593m to £642m as interim pre-tax profits advanced 11 per cent from £96m to £107m. Profits at South West Water rose 8 per cent to £76m, while those at Viridor rose 7 per cent to 31m.

An improved dividend of 8.22p, up by nearly 10 per cent, is payable from earnings per share of 26.1p (24.7p).

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