Severn Trent faces another fine from the water regulator after acknowledging yesterday that it had missed leakage targets for the second year in a row.

The group, based in Birmingham, which supplies drinking water to eight million people, said while leakage was on target in March, April and May, its performance for the year to March 31 fell short.

Colin Matthews, Severn Trent’s chief executive, who also announced that he would step down later this year, declined to comment on possible action by Ofwat, but said that any fine would come “straight out of the company’s pockets”. Severn Trent devoted £92 million to controlling leaks last year, an increase of 27 per cent.

Mr Matthews, who oversaw last year’s demerger of Biffa, the waste management business, is handing over to Tony Wray, managing director of Severn Trent Water, after only two years in charge.

Severn Trent said its annual dividend would rise 7.8 per cent to 61.45p, equivalent to a £143 million payout, on a near10 per cent jump in profits.

It already faces a fine from Ofwat for failing to achieve customer service standards and is awaiting the outcome of a Serious Fraud Office inquiry over allegations of reporting inaccurate leakage data.

Ofwat said the group’s failure to bring leakages to less than 525 megalitres a day may give rise to a fresh fine. It said: “Severn Trent is finalising and verifying its leakage data. When the data has been independently assessed, we will decide what action we will take.”

The group reported pretax profits, before one-off items, up 9.5 per cent to £252 million, on revenues up nearly 1.7 per cent at £1.5 billion.

Mr Matthews said his decision to leave reflected the fact that Severn Trent Water now made up the bulk of the business after the Biffa demerger. The focus on the water business comes amid speculation that water companies will see takeover activity in the next 18 months, with Severn Trent the most likely target.

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