PROFITS at water firm Dee Valley Group plunged by more than a fifth last year as a result of a significant increase in finance costs.

But the water company also saw income drain away because the recession has hit demand for water from business customers.

The group reported yesterday that profits before tax dropped 21% from £3.97m to £3.12m.

Chairman Graham Scott said revenue during the year to March increased by £1m to just over £20m, but the 5.4% increase was less than the average increase of 9.3% in charges because of a continuing drop in demand by the group’s industrial customers and more of its household customers switching to metered supplies.

Dee Valley Water serves 108,000 households and 8,000 commercial, industrial and business customers in Chester, Cheshire and North East Wales.

Capital expenditure last year was £4m, of which replacement of water mains represented the largest single item.

The company’s five-year business plan, which sets out investment plans for 2010-2015l, has been submitted to regulator Ofwat.

The company is proposing average water charge increases of 1.8% a year above inflation for the five-year period. The £34m investment plan involves the replacement of old assets including treatment works. Other expenditure to tackle flooding risk is also on the cards.

Operating costs increased during the year by £600,000 (5.8%), of which electricity accounted for a substantial proportion.

Other significant cost increases included wages and salaries and costs associated with the preparation of the final business plan.

Mr Scott said: “Levels of service afforded to customers continue to be among the highest in the industry and, in the recent customer research conducted as part of the periodic review, 93% of customers expressed satisfaction with levels of service.”

During the year 407 written customer complaints were received by the company, representing 3.36 complaints per 1,000 properties, compared to 2.86/1,000 properties the year before. The industry average in 2007/08 was 11.18 complaints/1,000 properties.

Dee Valley said the increase in the number of complaints was not attributable to any particular issue.