WATER company Kelda has made important progress during the past year, despite profits being hit by regulatory price cuts.

The group, owners of Yorkshire Water, saw pre-tax profits drop to £156.4m in the year to March 31 - a fall of 30 per cent.

That was a result of cuts imposed by Ofwat which hit revenues at the Yorkshire Water business.

However, chairman John Napier said the group's strategy of focusing its efforts on water and waste water services was now beginning to pay off.

Costs at Yorkshire Water, which supplies 4.5 million homes in the UK, had been brought down by two per cent in real terms - outperforming Ofwat's goal.

He said that service levels across Yorkshire Water had improved and that the business was now branching out into lucrative new areas.

Yorkshire Water will be responsible for supplying water and sewerage services to all Princes' Soft Drinks sites in the UK after signing its first national account with a key commercial customer.

The developments helped Yorkshire Water cope with the 14.5 per cent regulatory cut imposed last April, which saw sales at the business down 15 per cent to £542.1m. Group turnover fell £35m to £681.2m.

Mr Napier said: "The achievements indicate a year of important progress for Kelda in delivering strategic aims."

The Bradford company decided to focus on water and waste water after Ofwat turned down its proposals to become a mutual society last year.

It has since raised £120m through the sale of property, the disposal of its laboratory arm, and its White Rose Environmental clinical waste business.

Mr Napier said Kelda's other remaining businesses had performed well, with profits at US water supplier Aquarion up from £6.1m to £27.1m.

It also saw its 46 per cent stake in waste management group, Waste Recycling, contribute £15m to this year's profit figures - up £5m.

Kelda still hopes to sell off its renewable energy business - First Renewables - this year.

Referring to his previous moves to restructure Kelda following Ofwat's price squeeze, Mr Napier said the board continued to keep "all proposals" under review.

Shareholders will receive a total dividend of 24.8p, up 0.65p on last year. The group's shares ended the day up 6p at 391p.