NORTHUMBRIAN Water yesterday announced it made £108.8m in pre-tax profits last year.

Higher water prices and debt restructuring have helped to drive up the profits.

Shares in the company hit an all-time high yesterday on the news of positive plans for future dividends.

Durham-based Northumbrian, which provides water and sewerage services to 2.6m customers in the North-East, as well as water services to 1.7m people in Essex and Suffolk, put investors on standby for three per cent real terms growth in dividends, after receiving the blessing of Ofwat to raise household bills.

Industry regulator Ofwat has told the company that it can increase its prices by no more than 15 per cent for the 2005 to 2010 period.

But managing director John Cuthbert told The Northern Echo that water prices in coming years - up to 2009/2010 - would be lower, in real terms, than they were in 1999. Prices were reduced by 22 per cent at the end of 1999 and they needed to be increased again now, he said.

He also said that his company's water prices were lower than anywhere else in England.

Northumbrian Water has seen an overhaul of its balance sheet to repay debts incurred during its flotation on the stock market in 2003 after an eight-year absence.

The utility firm beat market expectations for pre-tax profits by reporting a surplus of £108.8m in the year to March 31 - up from £65m a year earlier. But the 2003/2004 figures were slightly distorted because the group only took into account the ten months from April 2003, when it floated.

Its progress was boosted by price rises to counter unexpected costs such as a build-up of bad debts by customers, higher water quality monitoring and new obligations for investment in infrastructure.

A separate determination by Ofwat compensated Northumbrian for a shortfall in revenues after demand from industry in the North-East for water fell.

Its financial performance also reflected the fact that profits rebounded from a fall last year when the group was hit by higher interest charges related to its flotation.

Customers taking water and sewerage services from Northumbrian were told in December that their average bills will rise from by £28 over the next five years.

Ofwat agreed to let Northumbrian increase its bills to £260 by 2010 because of cost pressures such as energy price rises and pensions contributions. The utility firm has also committed itself to spending on upgrading mains and meeting "tough and challenging" efficiency targets.

Over the past year, Northumbrian has commissioned a new water treatment works at Wearhead in County Durham to serve the Wear Valley and Sunderland. An extension to a similar facility in Suffolk was also completed.

Turnover jumped to £578.6m during the year from £520.8m a year ago, mainly because of the price rises allowed by Ofwat. The total dividend was 10p, up from 8.34p a year earlier.