TIDMSVT
RNS Number : 4236A
Severn Trent PLC
24 May 2023
Preliminary Announcement of Annual Results
24 May 2023
Results for the year to 31 March 2023
Environmental leadership, strong performance, investing for
future growth
Setting the benchmark through environmental and social
leadership
-- Highly confident in achieving 4* EPA(1) status for a fourth consecutive
year, performance on all six environmental metrics expected to
be on or better than target
-- Improved our performance on river quality by a third over the
last year; our share of RNAGS(2) reduced from 24% to 16%; average
annual storm overflow performance reduced from 25 to 18 activations,
ahead of regulatory target
-- Work underway on the world's first Net Zero waste water treatment
hub, to be delivered in 2024, providing the blueprint for reducing
process emissions; supported by Ofwat's Innovation Fund
-- Financially supporting 237,000 customers in need with up to 90%
off their bill, on track to help 315,000 customers by 2025
-- Progressing well with our ten-year Societal Strategy to help
support 100,000 people out of poverty by 2032
-- Doubling our biodiversity commitment to 10,000 hectares by 2025,
two years earlier than planned
12.2% RoRE (3) for FY23 driven by strong environmental,
operational and financial performance
-- Continuing to deliver strong operational and financial outperformance,
despite extreme weather and tough macroeconomic conditions; cumulative
AMP7 RoRE of 8.9% to date
-- Around 80% of OD(I4) measures met or exceeded including leakage,
pollutions and water quality complaints, resulting in a net reward
of GBP53 million; over GBP200 million delivered AMP7(5) to date,
already surpassing our total in AMP6(5)
-- Record energy generation of 5956 GWh, equivalent to 53% of Group
consumption, with 45 GWh of additional generation expected from
planned acquisition of Andigestion Ltd7
-- Group PBIT8 of GBP509 million (2021/22: GBP506 million), up 1%,
in line with expectations
-- Adjusted basic EPS9 of 58.2 pence (2021/22: 96.1 pence) reflecting
the effect of inflation on index-linked debt. Basic EPS of 52.7
pence (2021/22: loss of 35.2 pence)
-- Proposed final dividend of 64.09 pence (2021/22: 61.28 pence),
in line with our policy and payable on 14 July 2023
Investment on-track, well-positioned for AMP8 growth
-- Year end RCV(10) of GBP11.6 billion, AMP to date growth of GBP2.2
billion, with investment plans on track
-- RCV expected to be GBP12.8 billion by March 2025, reflecting
AMP7 nominal growth of 36%
-- Strong balance sheet with regulatory gearing of 60.0%(11) , well
below the sector average, providing capacity for future investment
in water resources, improving environmental standards and Net
Zero
-- Capital investment of GBP737 million(12) with 84% of prices agreed
for our core capital programme, GBP200 million of new annual
supply chain capacity secured for future investment
-- Guiding to increased capital investment of between GBP850 million
and GBP1 billion for 2023/24, as we ramp up delivery capability
ahead of AMP8
Liv Garfield, Chief Executive, Severn Trent Plc, said:
"Creating job opportunities, continuing significant regional
investment, and financially supporting more customers than ever
before is made possible by the strong results we have delivered
this year.
"At a time when unemployment rates in our region are increasing
and the cost of living crisis is still front and centre of many
customers' minds, we are proud to be able to create 1,000 jobs in
our region over the next couple of years and to further help up to
50,000 customers with financial support. This, coupled with our
long-term programme to help people into work, go towards truly
supporting the communities we serve.
"This support is being delivered whilst continuing with the
multibillion-pound investment in the region to improve water and
waste services, providing an exceptional service and investing in
our people who go above and beyond every day to make a positive
impact in our region. We are expecting the biggest investment
period the sector has ever seen, with a focus on water resources,
improving environmental standards and on Net Zero, and we feel more
than ready for this exciting opportunity ahead of us."
Group results
2023 2022 Increase/ (decrease)
GBPm GBPm %
Group turnover 2,165.1 1,943.3 11.4
Group PBIT 508.8 506.2 0.5
--------------------------- -------- -------- ---------------------
pence/ pence/
share share
-------------------------- -------- --------
Adjusted basic EPS 58.2 96.1 (39.4)
Basic EPS 52.7 (35.2) 249.7
Total ordinary dividends 106.82 102.14 4.6
--------------------------- -------- -------- ---------------------
Footnotes to page 1 of this RNS
1. EPA: Environmental Performance Assessment ('EPA') status is
expected to be confirmed by the Environment Agency ('EA') in July
2023
2. RNAGS: The EA's analysis of Reasons for Not Achieving Good
Status (RNAGS) records the source, activity and sector involved in
causing waters to be at less than good status
3. RoRE: Return on Regulatory Equity (see glossary)
4. ODIs: Outcome Delivery Incentives, quoted pre-tax and in
2017/18 prices unless otherwise stated. FY23 ODIs include in year
reward earnings of GBP35.5 million and GBP17.5 million for work and
milestones already delivered in relation to end of AMP ODIs
5. AMP: Asset Management Plan (see glossary); AMP7 refers to the
period 1 April 2020 to 31 March 2025, and AMP6 refers to the period
1 April 2015 to 31 March 2020
6. Includes 548 GWh from renewable sources and 47 GWh from natural gas
7. Acquisition is subject to clearance by the Competition and Markets Authority
8. PBIT: Profit before interest and tax
9. Adjusted basic earnings per share: Set out in note 9
10. RCV: Regulatory Capital Value (see glossary). RCV is
measured including additions from Green Recovery and real options.
Nominal RCV assumes forecast CPIH of 2.5% for 2023/24, and 1.5% for
2024/25 and forecast RPI of 4.2% for 2023/24 and 2.1% for 2024/25
as per Oxford Economics April 2023 forecast
11. Refers to shadow regulatory gearing based on shadow RCV
which includes our Green Recovery programme. Regulatory gearing on
our reported RCV is 60.7%
12. See alternative performance measures in note 16 for definition of capital investment
Note: FY2023/24 technical guidance is included in the Chief
Financial Officer's Review in this announcement.
Enquiries
Investors & Analysts
Rachel Martin Severn Trent Plc +44 (0) 782 462 4011
Head of Investor Relations
Dominique Mowle Severn Trent Plc +44 (0) 796 776 7079
Investor Relations
Manager
Media
Jonathan Sibun Teneo +44 (0) 207 353 4200
Press Office Severn Trent Plc +44 (0) 247 771 5640
Preliminary Results Presentation and Webcast
A presentation of these results hosted by Liv Garfield, CEO,
James Bowling, CFO and Helen Miles, CFO Designate, will be
available on our website (severntrent.com) from 7.00am BST today,
24 May 2023.
We will be hosting a live Q&A session with Liv, James and
our wider Executive team at 8.30am BST today via video call which
you can register for through our website.
Chief Executive's Review
With our PR24 plans due to be submitted in a matter of months,
we are at a pivotal point in the regulatory cycle. We can reflect
on the progress we have already made in AMP7 and look forward to
the opportunities that AMP8 brings.
This year has brought many challenges including extreme weather,
high inflation driven by exceptional energy prices, and heightened
macroeconomic uncertainty; through it all we have continued to
deliver strong environmental, operational and financial
performance, benefitting all our stakeholders.
-- We are highly confident we will achieve the EA's highest possible
annual 4* rating for the fourth consecutive year and have made
fast progress against our Get River Positive pledges;
-- Around 80% of our ODI measures are in reward. We have delivered
consistent improvements on a number of key measures including
leakage, water quality complaints, persistent low pressure and
pollutions, but we know there are some key focus areas for us
including external sewer flooding; and
-- As we strive to deliver sustainable benefits for all our stakeholders,
I am delighted to see this reflected in another set of strong
results, with RoRE performance of 12.2%, significantly outperforming
the base return, and a forecast end of AMP RCV of GBP12.8 billion,
reflecting estimated AMP7 nominal growth of 36%.
This was our largest year of capital spend so far this AMP, and
we have made great progress on a range of schemes including our
sector-leading Green Recovery programme. We know that our
investment plans will be stepping up again next year, as some of
our projects enter a critical delivery phase, and we have already
been working closely with our supply chain to secure the capacity
we need.
This strong foundation will enable us to ramp up for what is
expected to be the most significant period of growth the sector has
ever seen, including the investment needed to meet water resourcing
needs and a significant Water Industry National Environment
Programme.
We know that extensive growth plans need to be affordable for
our customers, which is why we will be financially supporting
315,000 of our most vulnerable customers by the end of AMP7 and
have plans to increase this support even further through AMP8. We
also want to go further and make a genuine positive change to the
lives of the people we serve through our employability and skills
strategy, which will help support 100,000 people out of poverty by
2032.
Leading on environmental change
Our customers expect us to be an environmental leader, and once
again we are proud to have hit 100% of our environmental
performance commitments, and we are highly confident that we will
achieve the EA's highest 4* rating in its annual assessment ('EPA')
for the fourth consecutive year, which no company has achieved
before.
However, as a sector, we recognise that we should have given
sewage activations much more attention and acted faster, and we
want to be a driving force for positive change. Since the launch of
our five Get River Positive pledges last year, we have made great
progress on each of them. We have accelerated the installation of
event duration monitors across our storm overflows, providing us
with 300 million data records through which we can monitor and
improve our performance.
Our 2022 annual performance of combined sewer overflow ('CSO')
activations improved by 28% to an average of 18 activations per CSO
per annum. This means we are ahead of plan to reach our target of
an average of 20 activations per annum by 2025 and a maximum of 10
activations per annum in line with the Government's 2050 target.
While some of last year's improvement can be attributed to 2022's
dry summer, the majority reflects the significant capital and
operational investments we have made. For example, by increasing
our investment in waste water treatment screens, which remove
debris from flows into our works, we have been able to expand storm
tank capacity, increasing the flow through our network.
The combined effort across our pledges means that our share of
our region's RNAGS is now down to under 16% and we remain on track
to meet our commitment to reach zero RNAGS by 2030.
Our Get River Positive activities are overseen by a panel of six
independent experts, all of whom are passionate about the health of
our region's rivers. The objective of this panel is to help oversee
our progress against each commitment and ensure we maximise the
potential benefits across Get River Positive campaigns.
Another key reason for our environmental performance is our
approach to catchment management. Programmes such as Farming for
Water and Great Big Nature Boost help to improve raw water quality,
and today we are pleased to announce that we are extending and
accelerating our commitment to improve biodiversity on 5,000
hectares of land by 2027 to 10,000 hectares by 2025. This now means
our work will account for 2% of the nation's 2042 Nature Recovery
Network target, which is about the size of 14,000 football pitches.
We are also progressing at pace with our Farming for Water scheme,
having already improved 23 catchments across our region, exceeding
our full AMP target of 16 catchments.
Eight years ago we made the decision to significantly increase
our investment in energy self-generation and committed to reaching
more than 50% of the energy we consume. Since then, we have
invested around GBP400 million and benefitted from growing returns,
protection against energy price volatility and progress towards our
Net Zero goals. This year, Bioresources and Green Power combined
generated 595 GWh of energy, equivalent to 53% of our Group
consumption. We continue to increase our output thanks to continued
investment in our existing assets and a focus on operational
excellence, increasing asset efficiency to 96%. The planned
acquisition of Andigestion Ltd (subject to regulatory approval) by
Severn Trent Green Power will deliver an additional 45 GWh of
annual energy generation for the Group.
In addition to expanding our renewables capability and electric
vehicle fleet, we are also reducing our direct process emissions,
of which around 80% comes from our sewage and sludge treatment
processes. We are on track to deliver the world's first Net Zero
waste water treatment hub in 2024, transforming our Strongford
works, which serves 380,000 customers each year. Together with our
own investment, we were pleased to be awarded GBP10 million from
the Ofwat Innovation Fund to deploy innovative new technologies
developed in collaboration with our global partners. Being a Net
Zero sector leader means we will be able to share our learnings to
benefit our sector and the planet, as well as helping us deliver
further Net Zero sites in AMP8.
We know that the environment, and our role in protecting it,
will form a meaningful part of our PR24 plans. The work we are
doing now sets us on the right path to achieve our long-term goals
and provides the blueprint for success in AMP8.
Operational excellence at our core
Despite the challenging weather experienced this year, our teams
have worked hard to meet or exceed around 80% of ODI measures, and
deliver a net reward of GBP53 million, taking the total amount
earned so far to over GBP200 million, which is already more than we
earned in all of AMP6.
Enhancing water resilience
This year has been a true test of water resilience for the
sector, with some of the hottest and driest months ever experienced
over the summer, followed by a sharp cold snap and rapid thaw over
the winter. Despite these challenging conditions we have kept water
flowing and navigated the summer conditions with no enforced
Temporary Usage Bans ('hosepipe bans') in our region for nearly 30
years.
Over recent years we have invested extensively in our water
network through both large-scale and smaller targeted projects, to
bolster our resilience and protect our capacity. We have also made
significant progress with our metering programme, installing over
166,000 meters this year, including 65,800 smart meters through our
Green Recovery programme. We are now accelerating our AMP8 plan to
deliver a further 250,000 meters early. By the end of the AMP we
will have installed over 750,000 meters over five years, taking us
to 61% of network coverage. This will provide us with much greater
insight into our network, including flow data trends, helping to
identify leaks sooner, and helping our customers save on water
usage.
We have also insourced key functions such as our 'blue light'
Network Response team, giving us more resilience and flexibility
in-house, while our work to optimise our planning and scheduling
function has helped improve our response times, for example
reducing the time taken to fix leaks by a third. These teams are
supported by real-time data from our investment in smart assets,
such as the 30,000 acoustic loggers that now span our network.
In total our work across water has helped us to deliver on key
measures, including:
-- Hitting our leakage target for eleven out of the last twelve
years, putting us firmly on track to reduce leakage by 15% by
2025 and 50% by 2045;
-- Our best ever performance on water quality complaints, hitting
our reward cap for the second consecutive year;
-- Our Welsh business, Hafren Dyfrdwy ('HD') has also improved water
quality complaints by 50% so far this AMP;
-- Our best ever performance on persistent low pressure, with a
year-on-year improvement of 63%; and
-- Improving our year-on-year speed of response performance by 12%.
Our supply interruptions performance of nine minutes and ten
seconds was our best so far this AMP, but we know any interruption
can have a significant impact on our customers and so we must do
better. Although we are disappointed to have missed an increasingly
stretching target this year, we are proud that during this winter's
"Freeze Thaw" event we were able to reduce the impact on our
customers by 93% compared to the "Beast from the East" back in
2018. We will be taking our learnings forward to continue to make
further progress on this measure.
Working smarter in waste
We operate a multi-pronged approach to our waste operations
through:
-- Using smart data: We have commenced trials with innovative artificial
intelligence technology to look for ways to model and control
the flow of waste water through our network better, maximising
the capacity and efficiency of our assets;
-- Enhancing asset maintenance: Since the beginning of the AMP we
have increased sewer cleansing work substantially, investing
over GBP30 million in this activity; and
-- Educating our customers: We have quadrupled the size of our Network
Protection team who educate household customers on the use of
sewers, and continue to work in partnership with food service
providers in our region to reduce the amount of fats, oils and
greases entering the network, all of which help to prevent blockages
and reduce pollutions.
These improvements mean we have hit a number of our key waste
measures, including;
-- 22% reduction in total pollutions so far this AMP, along with
an 8% increase in the proportion of pollutions self-reported
this year;
-- Our best ever year for serious pollutions, with only one event
compared to a sector average of 6.5 in 2021;
-- Our best year so far this AMP on sewer collapses with a year-on-year
improvement of 3%;
-- Sustained improvement on blockages performance, which is down
20% so far this AMP; and
-- HD has also improved sewer blockages by 17% so far this AMP.
We recognise that not all our waste measures have performed to
the level that both we and our customers expect. Following our
sector leading performance in AMP6, we have an incredibly
stretching target on external sewer flooding, which we have missed
this year due to a year-on-year deterioration in performance of
18%. This resulted from concentrated heavy rainfall in the winter
months, and a disappointing performance on some key drivers of
delivery. We remain committed to getting our performance on this
measure back on track, and we are confident that the steps we have
already taken, such as the insourcing of reactive works planning
and scheduling for our Waste Networks teams, will deliver
results.
As we look to AMP8 we are also focusing on the ODIs of the
future, many of which we are already succeeding in. We have started
early shadow reporting on some of these measures, to give us
valuable insight into where the opportunities lie for
outperformance in AMP8.
Capital programmes advancing at pace as we ramp up for AMP8
The achievement of fast-track status at PR19 coupled with our
early planning gave us a fast start to this AMP and we remain on
track with both our GBP2.9 billion core capital programme and our
GBP0.6 billion Green Recovery programme. We have delivered all of
our capital regulatory commitments to date and are on course to
deliver the remainder of our programme on time.
Despite tough market conditions we have nominal prices agreed
for 84% of our core capital programme ahead of our two biggest
years of delivery. Our embedded and effective target operating
model, which includes an experienced team of in-house designers,
has enabled us to value-engineer projects to ensure the best
possible outcomes for our customers. For example, on our Green
Recovery project to increase water supplies by up to 89Ml/d, we
have been able to re-design our original plans while delivering the
same outcomes, halving the number of sites where work is required,
increasing the use of nature-based treatment processes and
mitigating a significant amount of spend.
In total this year we have invested GBP737 million across the
Group, which is over GBP100 million higher than 2021/22, and we
expect to step up our investment again next year as some of our
Green Recovery schemes enter a key delivery phase.
Our delivery track record and the steps we've taken to
strengthen our Capital team will set us up for success in AMP8,
which we expect will be the largest investment period in the
sector's history. We are already laying the foundations:
-- Secured GBP200 million of additional annual supply chain capacity,
and commenced early engagement with our partners, readying them
for the exciting challenges that are on the horizon;
-- Established direct relationships with manufacturers of critical
components, giving us security on our pipeline for key programmes
of work; and
-- Optimised our advanced procurement strategy, adopting a manufacturing
mindset in line with leading practices.
Supporting our customers, communities, and colleagues
This year we have achieved eight out of nine customer
performance measures, delivered a 16% reduction in customer
complaints and made over six million contacts with key messages
across a range of media, including ways customers can spot leaks in
their own homes.
We recognise that our region is home to some of the UK's most
deprived postcodes, who are feeling more financial pressure in the
current high inflation environment. We have supported 237,000 of
our most vulnerable customers financially, including reducing their
water bill by up to 90%, and we remain on track to support 315,000
customers by the end of the AMP, with an expansion of our Big
Difference Scheme to offer more help to up to 50,000 customers in
arrears. This programme has been supported by a 19% year-on-year
reduction in the number of void properties across our region,
earning a GBP7 million ODI reward.
We want to play a role in supporting the communities we serve
beyond financial aid. In November we announced our new landmark
Societal Strategy scheme, which aims to help support 100,000 people
out of poverty by 2032 by supporting them into employment. We
announced earlier this month that we will be working in partnership
with Trailblazers to provide 20 mentors each year to support young
men currently in prison, to encourage and support them into work
after release and reduce the risk of re-offending.
Our Community Fund has been running for three years and we have
donated GBP7.6 million of our GBP10 million AMP7 commitment,
supporting 682 organisations across a range of projects including
the creation and enhancement of community spaces and nature
projects. We know that, like our customers, lots of organisations,
such as charities, are finding day-to-day running costs hard, so
this year we have offered core funding support to temporarily help
with rising bills. To read more about the individual community
projects and businesses we have helped you can find our 2022/23
Community Fund Annual Review on our website.
We know that our success as a business is only made possible
thanks to our dedicated workforce. We are proud to see that even
with the current sector pressures and macroeconomic climate, our
teams are the most engaged they have ever been, putting Severn
Trent in the top 5% for employee engagement across global
utilities. We strive to create a great place to work, where
everyone can feel included and listened to and we are proud to be
recognised in the 2023 Bloomberg Gender-Equality Index for the
fourth consecutive year, achieving our highest score ever. We
earned a top 25 spot in the Stonewall Workplace Equality Index
assessment of LGBT inclusive workplaces, and we are proud to have
achieved our best ever health and safety performance, with a lost
time incidents rate of 0.11.
A final thank you
As we close the chapter on year three of the AMP, I would like
to say a huge thank you to James Bowling, who after eight years of
brilliant service, will be retiring from his position as Chief
Financial Officer. James has been instrumental to the financial
resilience and success of Severn Trent and he leaves us in a very
strong position ahead of AMP8. On a personal level I will miss
working with James and I wish him the very best in his future. I am
delighted that we have been able to promote Helen Miles to replace
him, and I am really looking forward to working with Helen through
the final part of AMP7 and into AMP8. I am confident that together
we can lead the Company through the next phase of its exciting
journey.
Chief Financial Officer's Review
We have delivered strong financial performance this year in the
face of challenging external factors including:
-- Unprecedented wholesale energy prices;
-- Cost pressures on chemicals, other materials and licence fees; and
-- Additional operating costs during the exceptionally hot and
dry summer and the freeze thaw event in December.
The regulatory model set the inflationary uplift in this year's
tariffs from CPIH in November 2021. This lag meant our regulated
revenue for the year included an increase of only 4.6% while
inflation on key operating costs was significantly higher than
this.
Despite these challenges we have delivered Group PBIT of GBP
508.8 million (2021/22 GBP506.2 million).
A summary of our financial performance for the year is set out
below:
2023 2022 Change
------------------------------------------
GBPm GBPm GBPm %
Turnover 2,165.1 1,943.3 221.8 11.4
------------------------- ------------------------ ------------------- -------------------- --------------------
PBIT 508.8 506.2 2.6 0.5
Net finance costs (362.6) (269.4) (93.2) (34.6)
Gains/(losses) on
financial instruments,
share of results of
joint venture and
impairment
of loans receivable 21.7 37.3 (15.6) (41.8)
------------------------- ------------------------ ------------------- -------------------- --------------------
Profit before tax 167.9 274.1 (106.2) (38.7)
Tax (35.7) (361.3) 325.6 90.1
------------------------ ------------------- --------------------
Profit for the year 132.2 (87.2) 219.4 251.6
------------------------- ------------------------ ------------------- -------------------- --------------------
Turnover in Regulated Water and Waste Water increased year on
year by GBP191 million, which was in the middle of our expected
range. Business Services turnover increased by GBP34 million as a
result of growth in our Operating Services business and the benefit
of higher generation and energy prices in our Green Power
business.
Net labour and hired and contracted costs increased by GBP21.4
million (4.9%). Gross costs increased due to hired staff providing
leakage reduction support and other short-term labour requirements.
Increased activity on our capital programme was offset by higher
capitalised labour.
Higher energy prices reduced Group PBIT by around GBP43 million
year on year as the higher costs of energy consumed exceeded the
benefit from our energy revenues. The impact on totex in our
regulated business was around GBP23 million higher as this does not
include the benefit of revenue from energy generated in our Green
Power business. We expect totex and RoRE to be impacted by higher
energy costs for the remainder of the AMP but this impact will be
offset to deliver a broadly neutral Group return on equity across
the five-year period. Across the Group, we generate the equivalent
of around 53% of our energy requirements. This provides an
effective energy price hedge for our group return on equity because
our power costs mainly arise in parts of our regulated business in
which over or under spend is shared with customers, whereas
revenues are earned in the non-regulated business or areas where
performance variances are not shared.
We also saw a sharp increase in the cost of energy intensive
products. Chemical costs increased by GBP21.3 million, of which
GBP20.5 million arose in our Regulated Water and Waste Water
business.
Net finance costs rose as higher inflation in the period
increased the cost of our index-linked debt. Our effective interest
cost was 150 bps higher at 6.2% (2021/22: 4.7%); our effective cash
cost of interest (which excludes the inflation uplift on
index-linked debt) was unchanged at 3.0% (2021/22: 3.0%).
We continued to benefit from the super deduction, which gives a
130% tax allowance in the year for qualifying capital expenditure.
This, together with the higher finance costs, resulted in an
adjusted effective tax rate of nil% (unchanged from nil% in
2021/22) and, a s expected, no current tax payable relating to the
year.
In his 2023 Budget, the Chancellor introduced 100% first year
capital allowances for qualifying plant and machinery for a
three-year period from 1 April 2023. As a result, we expect our
adjusted effective tax rate to remain around nil while the
allowance is in place.
The tax charge of GBP 35.7 million reflects our full effective
tax rate this year of 21.3% (2021/22: 24.4% before exceptional
deferred tax). In the previous year, the increase in the
corporation tax rate to 25% from FY24 was reflected in our deferred
tax provision and in an exceptional deferred tax charge to the
income statement of GBP294.4 million.
Group profit after tax was GBP132.2 million (2021/22: a loss of
GBP87.2 million as a result of the exceptional deferred tax charge)
and o ur adjusted basic EPS was 58.2 pence (2021/22: 96.1 pence)
reflecting higher net finance costs from the impact of inflation on
the cost of our index-linked debt. Basic EPS was 52.7 pence
(2021/22: loss of 35.2 pence due to the exceptional deferred tax
from the change of corporation tax rate).
Our balance sheet remains strong. At 31 March 2023 our net debt
was GBP7,160.5 million (2022: GBP6,507.8 million) and o ur shadow
RCV gearing, taking into account amounts that will be included in
the RCV at the end of the AMP but which we have already incurred,
is 60.0% (2022: 59.2%). Our regulatory gearing is 60.7% (2022:
59.5%) , well below the sector average and close to Ofwat's
notional capital structure for AMP7.
Our net pension deficit on an IAS 19 basis is GBP279.4 million
(2022: GBP128.0 million). Gross liabilities decreased as the
discount rate, which is based on the yield observed on high quality
corporate bonds, increased and inflation expectations over the life
of the liabilities decreased. Hedging assets moved broadly in line
with the fall in liabilities, with other asset values affected by
the higher yield environment in the second half of the year. The
2022 triennial actuarial valuation was agreed in November 2022,
with an unchanged future funding plan.
Operational cash flow was GBP713.1 million (2021/22: GBP848.9
million). EBITDA increased by GBP18.3 million but pension
contributions increased by GBP38.6 million as we paid two years'
deficit reduction contributions in the year and changes in working
capital increased cash outflows by GBP100 million more than the
previous year. Cash capex was GBP686.6 million, up GBP92.3 million
due to the increasing capital programme. Net cash outflow before
changes in net debt was GBP440.4 million (2021/22: inflow of
GBP76.7 million).
This year we have published in our Annual Report our first
disclosure consistent with the EU Taxonomy. We are committed to
protecting and enhancing the environment and transparent
disclosures are an important part of demonstrating that commitment.
We have accelerated the enhancement of our sustainability
disclosures by making a voluntary disclosure under the EU Taxonomy
framework. We have completed an initial eligibility-only review and
are working towards a full alignment review. Our initial assessment
is that eligible activities make up 95% of our revenues, 95% of our
operating costs and 99% of our capital expenditure.
Severn Trent Water's RoRE for the year was 12.2%, 830 bps above
the base return of 3.9%. Outperformance came mainly from our
customer ODI rewards of GBP53 million, with around 80% of our
measures in reward, and financing, reflecting our continued low
cash interest cost and the impact of higher inflation in the year
compared to Ofwat's Final Determination assumption.
Although in the current year we have seen an adverse impact from
higher inflation on our operating and finance costs, i n the longer
term we expect to see the benefits through indexation of our RCV,
revenue growth and lower gearing, all of which underpin our
inflation-linked AMP7 dividend policy.
Our proposed final dividend of 64.09 pence (2021/22: 61.28
pence), is in line with our inflation-linked dividend policy and
payable on 14 July 2023.
Regulated Water and Waste Water
Turnover for our Regulated Water and Waste Water ('RWWW')
business was GBP1,995.4 million (2021/22: GBP1,804.4 million) and
PBIT was GBP468.1 million (2021/22: GBP476.3 million).
2023 2022 Increase/(decrease)
GBPm GBPm GBPm %
Turnover 1,995.4 1,804.4 191.0 10.6
------------------------------------- -------- -------- ----------- ---------
Net labour costs (158.2) (165.3) 7.1 4.3
Net hired and contracted costs (217.2) (190.0) (27.2) (14.3)
Power (204.6) (114.1) (90.5) (79.3)
Bad debts (24.5) (24.8) 0.3 1.2
Other costs (284.6) (250.7) (33.9) (13.5)
(889.1) (744.9) (144.2) (19.4)
------------------------------------- -------- -------- ----------- ---------
Infrastructure renewals expenditure (238.4) (198.2) (40.2) (20.3)
Depreciation (400.4) (385.0) (15.4) (4.0)
------------------------------------- -------- -------- ----------- ---------
PBIT 467.5 476.3 (8.8) (1.8)
------------------------------------- -------- -------- ----------- ---------
Turnover increased by GBP191.0 million with the main movements
being:
-- An increase of GBP78.0 million for the annual CPIH uplift in
tariffs, partially offset by reductions of GBP15.1 million from
the 'K' factor for the year;
-- A GBP66.9 million increase representing the recovery, under the
RFI mechanism, of lower than allowed revenue in 2020/21;
-- GBP35.0 million of in-year fast money allowance for the Green
Recovery programme;
-- GBP24.4 million additional energy generation revenue in our Bioresources
business driven by higher wholesale energy prices;
-- An increase of GBP18.7 million in diversions income largely due
to the increase in activity related to HS2 as guided. This represents
a recovery of costs incurred and is offset by an increase in
infrastructure renewals expenditure;
-- Lower revenue from the Voids and Gaps Incentives Scheme (GBP4.7
million lower); and
-- Lower revenues billed by other water companies on our behalf
and other small differences (GBP12.2 million).
Net labour costs of GBP158.2 million were 4.3% lower year on
year. Gross employee costs increased due to the annual pay award of
2.3% and an increase in FTE from the step up in the capital
programme. This was offset by higher capitalisation of employee
costs and an GBP8.3 million credit related to a change in defined
benefit scheme options developed with the Trustee. The new bridging
pension option allows members who retire early to bridge the gap
between their retirement date and the date when the state pension
becomes payable, by taking more of their occupational pension up
front, which has a positive effect on expected pension
liabilities.
Net hired and contracted costs increased by GBP27.2 million
(14.3%). The increase is driven by higher tankering and jetting
activity, more hired staff to support leakage reduction and improve
operational performance, third party technology consultants and
other contract management cost increases.
Our economic energy hedge effectively limits the impact of
higher energy prices on the Group's return on equity. Power costs
were GBP90.5 million (79.3%) higher than the previous period
although our weighted wholesale average price was about 30% less
than the average market wholesale energy price. We benefited from
self-generation and favourable energy export in Bioresources, as
well as internal hedges between our regulated business (a net
consumer of energy) and our non-regulated Green Power business (a
net generator).
Bad debt charges decreased by GBP0.3 million and represented
1.7% of household revenue. Our cash collection in the year was
lower as households felt the impact of cost of living increases.
However, this impact was not as high as we provided for at the
previous year end, leaving the overall charge broadly flat.
Other costs increased by GBP33.9 million, including GBP20.5
million higher chemical costs and higher Environment Agency
abstraction and discharge consent fees of GBP3.7 million. The
remaining increase was due to higher costs of materials and
consumables, fuel and insurance costs.
Infrastructure renewals expenditure was GBP40.2 million higher
in the period, reflecting the planned step up in the programme and
activity related to HS2 referred to above.
Depreciation of GBP400.4 million was GBP15.4 million higher year
on year due to new assets coming into service as part of our Water
Framework Directive programme as well as a full year of
depreciation on the advanced digestion and biogas-to-grid plants at
Finham and Stoke Bardolph.
Return on Regulatory Equity ('RoRE')
RoRE is a key performance indicator for the regulated business
and reflects our combined performance on totex, customer ODIs and
financing compared to the base return allowed in the Final
Determination.
Severn Trent Water's RoRE for the year ended 31 March 2023 and
for the three years ended on that date is set out in the following
table:
2022/23 AMP7 to date
% %
-------------------------------- ---- --------- -------------- ---
Base return 3.9 3.9
Enhanced RoRE reward(1) -- 0.2
ODI outperformance(2) 0.7 1.3
Wholesale totex performance -- --
Retail cost performance (0.1) (0.2)
Financing outperformance(3) 7.7 3.7
Return on Regulatory Equity(4) 12.2 8.9
-------------------------------------- --------- -------------- ---
.
1 Fast track reward taken over the first two years of AMP7.
2 ODI performance includes in-year ODI reward, PCC and forecast C-MeX and D-MeX outturn.
3 Includes 0.7% for the variance on tax from the benefit of
super deduction capital allowances.
4 Calculated in accordance with Ofwat guidance set out in RAG
4.11, which excludes Ofwat's AMP7 tax true-up mechanism.
We have delivered RoRE of 12.2% in the year, outperforming the
base return by 8.3% as a result of:
-- ODI performance of 0.7%, driven by strong performance across
the majority of measures, with c.80% meeting or exceeding regulatory
targets;
-- Our neutral totex position reflecting good cost control and efficient
spend over a challenging year; and
-- Financing performance of 7.7%, driven by our AMP7 financing strategy
that includes a relatively low level of index-linked debt, and
the tax benefit of super deduction capital allowances.
Business Services
2023 2022 Increase/(decrease)
GBPm GBPm GBPm %
------------------------------ ------ ------ ---------- ----------
Turnover
Operating Services and Other 98.5 88.1 10.4 11.8
Green Power 78.6 55.5 23.1 41.6
177.1 143.6 33.5 23.3
------------------------------ ------ ------ ---------- ----------
EBITDA
Operating Services and Other 28.1 22.5 5.6 24.9
Green Power 35.7 17.5 18.2 104.0
Property Development 2.0 13.2 (11.2) (84.8)
65.8 53.2 12.6 23.7
------------------------------ ------ ------ ---------- ----------
Business Services turnover was GBP177.1 million (up 23.3%) and
EBITDA was GBP65.8 million (up 23.7%).
In our Operating Services and Other businesses, turnover
increased by GBP10.4 million due to increased activity on the MoD
and Coal Authority contracts as well as sales growth in our water
hygiene business, Aqualytix. EBITDA was GBP5.6 million higher
mainly due to improved margins on these contracts.
In Green Power, turnover increased by GBP23.1 million, largely
due to significantly higher energy prices over the last year which
helped offset increased power consumption costs in RWWW, through
the Group's natural energy hedge. EBITDA was up GBP18.2 million due
to the higher revenue, partially offset by increased costs of food
waste, sileage and haulage as well as a GBP2.2 million charge for
the government energy generator levy in the final quarter of the
financial year. We do not expect to incur the levy in FY24 based on
latest forecast prices.
Profits from Property Development were GBP11.2 million lower
than the prior year mainly due to timing of significant disposals
and delays in the planning process. However, we remain on track for
our 15-year plan of GBP150 million profit by 2032, having generated
c.GBP52 million since setting the target in 2017.
Corporate and other
Corporate costs were GBP8.7 million (2021/22: GBP8.2 million)
including Directors' bonuses charged to Severn Trent Plc this year
rather than Severn Trent Water Limited. Our other businesses
generated PBIT of GBP0.7 million (2021/22: GBP1.3 million).
Net finance costs
Net finance costs for the year were GBP93.2 million (34.6%)
higher than the prior year at GBP362.6 million. During the year we
issued GBP1,351 million of new debt at rates consistently below the
iBoxx index and our effective cash cost of interest (excluding the
RPI uplift on index-linked debt and pensions-related charges) was
unchanged at 3.0% (2021/22: 3.0%).
Average net debt was up 6.8% at GBP6,720.6 million (2021/22:
GBP6,292.2 million), with higher inflation in the year increasing
the cost of our index-linked debt by GBP100.9 million. Our
effective interest cost was 6.2% (2021/22: 4.7%).
Capitalised interest of GBP56.6 million was GBP22.1 million
higher year on year, due to the higher effective interest cost and
increased capital work in progress compared to the previous
year.
Our earnings before interest, tax, depreciation and amortisation
('EBITDA') interest cover was 2.6 times (2021/22: 3.5 times) and
PBIT interest cover was 1.4 times (2021/22: 1.9 times). See note 16
for further details.
Gains/losses on financial instruments
We use financial derivatives solely to hedge risks associated
with our normal business activities including:
-- Exchange rate exposure on foreign currency borrowings;
-- Interest rate exposures on floating rate borrowings;
-- Exposures to increases in electricity prices; and
-- Changes in the regulatory model from RPI to CPIH.
We hold interest rate swaps with a net notional principal of
GBP448.4 million floating to fixed, which economically act to hedge
exchange rate risk on certain foreign currency borrowings. We also
hold cross currency swaps with a sterling principal of GBP98.3
million, that swap foreign currency fixed interest debt to sterling
floating interest rate.
We revalue the derivatives at each balance sheet date and take
the changes in value to the income statement, unless the derivative
is part of a cash flow hedge.
Where hedge accounting is not applied, if the risk being hedged
does not impact the income statement in the same period as the
change in value of the derivative, then an accounting mismatch
arises and there is a net charge or credit to the income statement.
During the year there was a gain of GBP35.7 million (2021/22:
GBP51.5 million) in relation to these instruments.
Note 6 to the financial statements gives an analysis of the
amounts charged to the income statement in relation to financial
instruments.
As part of our power cost management strategy, we have fixed the
wholesale price for more than 95% of our estimated wholesale energy
usage for 2023/24 through physical hedges with suppliers and
natural hedges from the export of self-generated energy.
Share of loss of joint venture
Water Plus's performance continues to improve and it achieved
break even in the year. Our share of Water Plus's result for the
year was therefore GBP - million (2021/22: loss of GBP2.2
million).
Taxation
We are committed to paying the right amount of tax at the right
time. We pay a range of taxes, including business rates, employer's
national insurance and environmental taxes such as the Climate
Change Levy as well as the corporation tax shown in our tax charge
in the income statement.
2023 2022
GBPm GBPm
----------------------------------- ------ ------
Tax incurred:
Corporation tax -- 1.2
Business rates and property taxes 84.4 83.4
Employer's National Insurance 35.3 30.5
Environmental taxes 6.6 6.1
Other taxes 6.0 5.9
------------------------------------ ------ ------
132.3 127.1
----------------------------------- ------ ------
Further details on the taxes and levies that we pay can be found
in our report "Explaining our Tax Contribution 2022/23", which will
be made available at
www.severntrent.com/sustainability-strategy/reports-and-publications/tax/
when our Annual Report and Accounts is published in June.
The corporation tax charge for the year recorded in the income
statement was GBP35.7 million (2021/22: GBP66.9 million before
exceptional taxes) and we made net corporation tax payments of
GBP4.0 million in the year (2021/22: GBP1.2 million). The
difference between the tax charged and the tax paid is summarised
below:
2023 2022
GBPm GBPm
--------------------------------------------------- ------- -------
Tax on profit on ordinary activities 35.7 66.9
Tax effect of timing differences (28.3) (50.8)
Impact of deferred tax provided at 25% (7.7) (15.9)
Overprovisions in previous years 0.3 (0.2)
Corporation tax payable for the year - -
(Receipts from)/payments to Water Plus re
consortium relief (6.1) 1.2
Payments to HMRC for consortium relief disclaimed 6.1 -
Payments in respect of prior years 4.0 -
--------------------------------------------------- ------- -------
Net tax paid in the year 4.0 1.2
---------------------------------------------------- ------- -------
No tax was paid relating to the year as the allowances available
from the super deduction resulted in a loss for tax purposes
(2021/22: GBP1.2 million paid to Water Plus).
Note 7 in the financial statements sets out the tax charges and
credits in the year, which are described below.
The current tax charge for the year was GBP0.2 million, which
arose from adjustments to tax provisions from previous years
(2021/22: credit of GBP4.8 million). The deferred tax charge was
GBP35.5 million ( 2021/22 : GBP71.7 million before the exceptional
charge arising from the change of rate) .
Our effective tax rate excluding the exceptional deferred tax
charge this year was 21.3% (2021/22: 24.4%), which is higher than
the UK rate of corporation tax in both years (19%), mainly due to
deferred tax on temporary differences arising during the year
charged at 25%, partly offset by the permanent difference that
arises mainly from the additional 30% deduction included in the
super deduction.
Our adjusted effective current tax rate was nil (2021/22: nil%)
(see note 16).
UK tax rules specify the rate of tax relief available on capital
expenditure. Typically this is greater in the early years than the
rate of depreciation used to write off the expenditure in our
accounts. In the current and previous years, this was enhanced by
the super deduction for certain capital expenditure, which gave a
100% tax deduction in the year of spend plus an additional
allowance of 30%.
The impact of this timing difference applied across our
significant and recurring capital programme tends to reduce our
adjusted effective current tax rate and corporation tax payments in
the year. Accounting standards require that we make a provision for
the tax that we would pay in future periods, if the depreciation
charge arising on expenditure for which tax relief has already been
received is not offset by further tax allowances in those periods.
However, the nature of our business, including a significant
rolling capital programme and the long lives of our assets, means
we do not expect these timing differences to reverse for the
foreseeable future,
and they may never do so. This is the most significant component of our deferred tax position.
Profit for the year and earnings per share
Total profit for the year was GBP132.2 million (2021/22 loss:
GBP87.2 million).
Basic earnings per share was 52.7 pence (2021/22: loss of 35.2
pence). Adjusted basic earnings per share was 58.2 pence (2021/22:
96.1 pence). For further details see note 9.
Cash flow
2023 2022
GBPm GBPm
Operational cashflow 713.1 848.9
Cash capex (686.6) (594.3)
Net interest paid (203.5) (185.0)
Purchase of subsidiary net of cash acquired (0.4) -
Net (payments)/receipts for swap terminations (11.2) 5.6
Net tax paid (4.0) (1.2)
Free cash flow (192.6) 74.0
Dividends (261.3) (254.5)
Issue of shares 15.3 257.2
Purchase of own shares (1.8) -
Change in net debt from cash flows (440.4) 76.7
Non-cash movements (212.3) (140.7)
------------------------------------------------
Change in net debt (652.7) (64.0)
Opening net debt (6,507.8) (6,443.8)
Closing net debt (7,160.5) (6,507.8)
------------------------------------------------ ---------- ----------
2023 2022
GBPm GBPm
------------------------------- ---------- ----------
Bank loans (713.0) (782.5)
Other loans (6,474.2) (5,823.5)
Lease liabilities (110.9) (117.4)
Net cash and cash equivalents 28.7 107.7
Cross currency swaps 33.6 28.3
Loans due from joint ventures 75.3 79.6
Net debt (7,160.5) (6,507.8)
-------------------------------- ---------- ----------
Operational cash flow was GBP713.1 million (2021/22: GBP848.9
million). PBIT was broadly flat year on year but higher
depreciation and amortisation were more than offset by increased
pension contributions and working capital movements.
Net cash capex increased to GBP686.6 million (2021/22: GBP594.3
million), reflecting our progress against our GBP2.9 billion core
capital programme.
Our net interest payments of GBP203.5 million (2021/22: GBP185.0
million) were higher than the previous year due to the impact of
higher net debt, with the effective cash cost of interest (which
excludes the non-cash indexation charge on index-linked debt) in
line with the previous year.
The benefits of the super deduction capital allowance and the
impact of higher interest costs meant that we had no taxable profit
in the year and therefore paid no corporation tax in relation to
the year. Our net tax payments of GBP4.4 million related to
previous years. In the previous year we paid Water Plus GBP1.2
million for consortium relief.
We received GBP13.5 million net from the exercise of options
under the employee Save As You Earn share scheme and purchase of
shares for other share schemes. In the prior year we received
GBP11.9 million from option exercises and raised net proceeds of
GBP245.3 million from the May 2021 equity placing. Our dividends
paid increased in line with our policy to increase by CPIH each
year during AMP7.
These cash flows, together with accounting adjustments to the
carrying value of debt, resulted in an increase in debt of GBP652.7
million (2021/22: GBP64.0 million).
At 31 March 2023 we held GBP28.7 million (2022: GBP107.7
million) in net cash and cash equivalents. Average debt maturity
was around 14 years (2022: 13 years). Including committed
facilities, our cash flow requirements are funded until November
2024.
Net debt at 31 March 2023 was GBP7,160.5 million (2022:
GBP6,507.8 million) and balance sheet gearing (net debt/net debt
plus equity) was 88.1% (2022: 83.7%). Regulatory gearing (net debt
of our regulated businesses, expressed as a percentage of estimated
RCV) was 60.7% at 31 March 2023 (2022: 59.5%). Shadow regulatory
gearing was 60.0% (2022: 59.2%).
The estimated fair value of debt at 31 March 2023 was GBP366.2
million lower than book value (2022: GBP1,075.8 million higher).
The change in the difference between book and fair value is largely
due to the impact of higher inflation expectations on the fair
value of our index-linked debt.
Our policy for the management of interest rates is that at least
40% of our borrowings should be at fixed interest rates, or hedged
through the use of interest rate swaps or forward rate agreements.
At 31 March 2023 interest rates for 67% (2022: 66%) of our gross
debt of GBP7,261.2 million were fixed; 5% were floating and 28%
were index linked. We continue to carefully monitor market
conditions and our interest rate exposure.
Our long-term credit ratings are:
Long-term ratings Severn Trent Plc Severn Trent Water Outlook
-------------------- ----------------- ------------------- --------
Moody's Baa2 Baa1 Stable
Standard and Poor's BBB BBB+ Stable
Fitch BBB BBB+ Stable
-------------------- ----------------- ------------------- --------
We invest cash in deposits with highly rated banks and liquidity
funds. We regularly review the list of counterparties and report
this to the Treasury Committee.
Pensions
We have three defined benefit pensions arrangements, two from
Severn Trent and one from Dee Valley Water. The Severn Trent
schemes ('the Schemes') are closed to future accrual.
The most recent formal actuarial valuation for the Severn Trent
Pension Scheme ('STPS'), which is by far the largest of the
schemes, was completed as at 31 March 2022. The future funding plan
agreed with the Trustee was unchanged from the 2019 valuation (save
for inflationary uplifts where applicable) and includes:
-- Annual deficit reduction payments to be made until the year ending
31 March 2027, with a forecast(1) payment of c. GBP40 million
in the year ending 31 March 2024, increasing thereafter in line
with November CPI;
-- Payments under an asset-backed funding arrangement of GBP8.2
million per annum to 31 March 2032, which will only continue
beyond 31 March 2025 if the Scheme's assets are less than the
Scheme's Technical Provisions; and
-- Inflation-linked payments under an asset-backed funding arrangement,
with a forecast(1) payment of c.GBP28 million in the year ending
31 March 2024, potentially continuing to 31 March 2031, although
these contributions will cease earlier should a subsequent valuation
of the STPS show that these contributions are no longer needed.
1 Index-linked payment forecasts based on the Oxford Economics
forecast CPI for the twelve month period to November 2023
In June 2021 we executed a bulk annuity buy-in for the Severn
Trent Mirror Image Pension Scheme, which represents around 4% of
the Group's defined benefit liabilities. Under the buy-in, the
liabilities of this scheme will be met by an insurance policy and
as a result the Group's risk is substantially reduced.
Hafren Dyfrdwy participates in the Dee Valley Water Limited
Section ('DVWS') of the Water Companies Pension Scheme. DVWS funds
are administered by trustees and held separately from the assets of
the Group. DVWS is closed to new entrants. The most recent formal
actuarial valuation of DVWS was completed as at 31 March 2020 and
no deficit reduction contributions are required. In March 2023, the
DVWS also entered into a bulk annuity buy-in insurance policy that
covers the majority of the scheme obligations.
On an IAS 19 basis, the net position (before deferred tax) of
all of the Group's defined benefit pension schemes was a deficit of
GBP279.4 million (2022: GBP128.0 million). Calculation of the
pension deficit for accounting purposes uses corporate bond yields
as the basis for the discount rate of our long-term liabilities,
irrespective of the nature of the scheme's assets or their expected
returns.
On an IAS 19 basis, the funding level decreased to 86% (31 March
2022: 95%).
The movements in the net deficit during the year were:
Fair value of scheme assets Defined benefit obligations Net deficit
GBPm GBPm GBPm
-------------------------------------------- ---------------------------- ---------------------------- ------------
At start of the period 2,659.4 (2,787.4) (128.0)
Amounts credited/(charged) to income
statement 74.3 (74.0) 0.3
Actuarial gains/(losses) taken to reserves (922.0) 669.8 (252.2)
Net contributions received and benefits
paid (26.4) 126.9 100.5
-------------------------------------------- ---------------------------- ---------------------------- ------------
At end of the period 1,785.3 (2,064.7) (279.4)
-------------------------------------------- ---------------------------- ---------------------------- ------------
The income statement includes:
-- Current service costs of GBP0.1 million on the DVWS, which remains
open to further accrual but is closed to new members;
-- A past service credit of GBP8.3 million following a change in
the STPS's rules to allow members to take a higher initial pension
on retirement in exchange for a lower pension from state pension
age;
-- Scheme administration costs of GBP4.3 million; and
-- Interest on scheme liabilities and expected return on the scheme
assets - together a net cost of GBP3.6 million.
Higher interest rate expectations increased the discount rate,
which is derived from yields on high quality corporate bonds, by
200bps. Inflation expectations decreased by around 30bps since the
previous year end. The impacts of these changes resulted in a net
decrease in the scheme liabilities of around GBP745 million.
Changes to demographic assumptions to align with the 2022
funding valuation increased scheme liabilities by around GBP30
million. This was partly offset by an update to the most recent CMI
data tables and also a weighting to allow for higher mortality
experienced in 2021.
The actual outturn in the year for inflation and other
assumptions increased scheme liabilities by GBP58.7 million.
Higher bond yields impacted the value of scheme assets, which
decreased in value by GBP922.0 million more than the return
included in the income statement in the year.
Contributions paid to the STPS in the year included:
-- The amounts due under the asset-backed funding arrangements (GBP26.9
million); and
-- A deficit reduction payment of GBP34.7 million that was deferred
from March 2022 to April 2022 and the payment due for the year
ended 31 March 2023 of GBP37.8 million.
There were also contributions of GBP0.2 million to the DVWS, a
payment of GBP0.4 million for MIPS running costs and payments of
benefits under the unfunded scheme amounting to GBP0.5 million.
Dividends
In line with our policy for AMP7 to increase the dividend by at
least CPIH each year, t he Board has proposed a final ordinary
dividend of 64.09 pence per share for 2022/23 (2021/22: 61.28 pence
per share). This gives a total ordinary dividend for the year of
106.82 pence (2021/22: 102.14 pence).
The final ordinary dividend is payable on 14 July 2023 to
shareholders on the register at 2 June 2023.
Principal risks and uncertainties
The Board has overall responsibility for determining the nature
and extent of the risks in which Severn Trent participates and for
ensuring that risks are managed effectively across the Group. The
Board considers the principal risks and uncertainties affecting the
Group's business activities to be those detailed below:
Health and Safety:
-- Due to the nature of our operations, we could endanger the health
and safety of our people, contractors and members of the public
Infrastructure Failure and Asset Resilience:
-- We do not provide a safe and secure supply of drinking water
to our customers.
-- We do not transport and treat waste water effectively, impacting
our ability to return clean water to the environment.
Customer Service and Experience:
-- We do not meet the needs of our customers or anticipate changing
societal expectations through the level of customer service we
provide.
Supply Chain and Capital Project Delivery:
-- Key suppliers cannot meet contractual obligations causing disruption
to capital delivery (cost and quality) and/or critical operational
services.
Cyber Security and Technology Resilience:
-- Our critical technology capabilities are not maintained due to
cyber threats or system failures, impacting the services we deliver
through our key infrastructure assets or core systems.
Political, Legal and Regulatory:
-- Changing societal expectations, resulting in stricter legal and
environmental obligations, commitments and/or enforcements, increase
the risk of non-compliance.
Financial Liabilities:
-- We fail to fund our Severn Trent defined benefit pension scheme
sustainably.
-- We are unable to ensure sufficient liquidity to meet our funding
requirements.
Climate Change, Environment and Biodiversity:
-- Severn Trent's climate change strategy does not enable us to
respond to the shifting natural climatic environment and maintain
our essential services.
-- We fail to influence positively natural capital in our region.
Outlook
Earnings: We anticipate strong earnings per share growth in
2023/24 as a result of a 15-20% reduction in interest charge. We
expect a further step up in 2024/25 as lower energy costs and
inflation-linked tariff increases flow through to operational
earnings.
Returns: We expect to deliver a strong average Return on
Regulatory Equity ('RoRE') for AMP7, driven by both operational and
financial outperformance.
We are confident we can continue to deliver sector-leading
operational performance, including end-of-AMP ODIs expected to
contribute GBP40-50 million on top of in-year net rewards for the
last year of the AMP.
Over the course of AMP7 we expect higher energy costs to impact
average RoRE by around 0.7 percentage points(1), but this will be
offset by higher Green Power income to give a broadly neutral
impact on the Group's Return on Equity.
RCV(2) : Group RCV has grown by 23% since the beginning of AMP7
and is expected to grow by 36% over the five-year period,
benefitting from our large investment programme, and including
recent inflation forecasts.
(1) Based on performance to date, hedged position for 2023/24
and latest energy forecasts for 2024/25
(2) RCV: Regulatory Capital Value. RCV is measured including
additions from Green Recovery and real options. Nominal RCV assumes
forecast CPIH of 2.5% for 2023/24, and 1.5% for 2024/25 and
forecast RPI of 4.2% for 2023/24 and 2.1% for 2024/25 as per Oxford
Economics April 2023 forecast
Technical Guidance 2023/24
Year-end guidance FY23 Year-on-
Year
Regulated Water and Waste Water
Turnover GBP2.15 billion to GBP2.20 billion. GBP2.00bn
Operating costs Higher year on year, reflecting an GBP889m
increase in power costs, pay inflation
and a step up in Green Recovery expenditure.
Infrastructure Marginally higher year on year due GBP238m
renewals expenditure to HS2 activity, which is broadly offset
('IRE') in turnover.
ODIs(1) Continued outperformance on increasingly GBP53m
stretching targets, delivering a net
reward of at least GBP50 million.
----------------------- ----------------------------------------------- ---------- ---------
Business Services
EBITDA (excl. Lower year on year due to the impact GBP64m
Property) of the lower energy prices on revenue
in Green Power.
Property profit GBP5 million to GBP10 million. GBP2m
Group
Interest charge 15-20% lower year on year based on GBP363m
latest inflation(2) and interest rate
forecasts.
Adjusted effective
current tax Nil due to accelerated capital allowances
rate(3) on our capital investment programme. 0.0%
Capital investment Continued step up in our investment GBP737m
programme delivering capital investment
between GBP850 million and GBP1 billion.
2023/24 dividend of 116.84 pence, in
line with our policy of annual growth
Dividend(4) by CPIH. 106.82p
----------------------- ----------------------------------------------- ---------- ---------
Footnotes to Technical Guidance
1. Customer Outcome Delivery Incentives are quoted pre-tax in
2017/18 prices. We assume a 25% rate of corporation tax to be in
place when ODIs are taken into revenue
2. Based on Oxford Economics April inflation forecast.
Index-linked debt comprising around a quarter of our total debt
3. Total effective tax rate is expected to be c.25%. This
includes both current and deferred tax charges
4. 2023/24 dividend growth rate based on November 2022 CPIH of 9.38%
Further Information
For further information, including the Group's full-year results
presentation, see the Severn Trent website ( www.severntrent.com
).
Investor Timetable
Ex-dividend date (Final) 1 June 2023
Dividend record date (Final) 2 June 2023
-----------------
DRIP election date (Final) 23 June 2023
-----------------
AGM 6 July 2023
-----------------
Final dividend payment date 14 July 2023
-----------------
Q1 trading statement 19 July 2023
-----------------
Capital Markets Day 12 October 2023
-----------------
Interim results announcement 22 November 2023
-----------------
For more information please visit:
https://www.severntrent.com/investors/financial-calendar-and-regulatory-news/
Consolidated income statement
For the year ended 31 March 2023
2023 2022
Note GBPm GBPm
Turnover 3 2,165.1 1,943.3
Other income - 5.3
Operating costs before charge for bad and doubtful debts (1,631.8) (1,417.8)
Charge for bad and doubtful debts (24.5) (24.6)
------------------------------------------------------------- ----- -------------------------- --------------------
Total operating costs (1,656.3) (1,442.4)
-------------------------------------------------------------
Profit before interest and tax 508.8 506.2
------------------------------------------------------------- ----- -------------------------- --------------------
Finance income 4 84.1 54.7
Finance costs 5 (446.7) (324.1)
Net finance costs (362.6) (269.4)
Reduction in expected credit loss on loan receivable - 0.2
Net gains on financial instruments 6 21.7 39.3
Share of net gain/(loss) of joint ventures accounted for
using the equity method 10 - (2.2)
Profit on ordinary activities before taxation 167.9 274.1
Current tax 7 (0.2) 4.8
Deferred tax 7 (35.5) (366.1)
Taxation on profit on ordinary activities 7 (35.7) (361.3)
----- -------------------------- --------------------
Profit/(loss) for the year 132.2 (87.2)
------------------------------------------------------------- ----- -------------------------- --------------------
Earnings/(loss) per share (pence)
Note 2023 2022
--------- ----- ----- -------
Basic 9 52.7 (35.2)
Diluted 9 52.5 (35.2)
--------- ----- ----- -------
Consolidated statement of comprehensive income
For the year ended 31 March 2023
2023 2022
Note GBPm GBPm
Profit/(loss) for the year 132.2 (87.2)
------------------------------------------------------------------- ----- -------- -------
Other comprehensive (loss)/income
Items that will not be reclassified to the income statement:
Net actuarial (losses)/gains 11 (252.2) 188.5
Deferred tax on net actuarial losses/gains 7 63.0 (47.1)
Deferred tax arising on rate change 7 -- 8.4
(189.2) 149.8
------------------------------------------------------------------- ----- -------- -------
Items that may be reclassified to the income statement:
(Loss)/gain on cash flow hedges (2.5) 54.6
Deferred tax on losses/gains on cash flow hedges 7 0.6 (13.0)
Amounts on cash flow hedges transferred to the income statement 6 4.9 6.8
Deferred tax on transfer to the income statement 7 (1.1) (1.7)
1.9 46.7
------------------------------------------------------------------- ----- -------- -------
Other comprehensive (loss)/income for the year (187.3) 196.5
------------------------------------------------------------------- ----- -------- -------
Total comprehensive (loss)/income for the year (55.1) 109.3
------------------------------------------------------------------- ----- -------- -------
Consolidated statement of changes in equity
For the year ended 31 March 2023
Equity attributable to owners of the company
-----------------------------------------------------------------------------
Share capital Share premium Other reserves Retained earnings Total
Note GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
At 1 April 2021 237.2 148.1 101.7 651.7 1,138.7
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Loss for the year -- -- -- (87.2) (87.2)
Net actuarial gains 11 -- -- -- 188.5 188.5
Deferred tax on net actuarial
gains -- -- -- (47.1) (47.1)
Deferred tax arising from rate
change -- -- -- 8.4 8.4
Gains on cash flow hedges -- -- 54.6 -- 54.6
Deferred tax on gains on cash
flow hedges -- -- (13.0) -- (13.0)
Amounts on cash flow hedges
transferred to the income
statement 6 -- -- 6.8 -- 6.8
Deferred tax on transfer to the
income statement -- -- (1.7) -- (1.7)
Total comprehensive income for
the year -- -- 46.7 62.6 109.3
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Proceeds from equity placing 10.2 235.1 -- -- 245.3
Share options and LTIPs
- value of employees' services 0.7 11.2 -- -- 11.9
- own shares purchased -- -- -- 8.3 8.3
Share buy back -- -- -- 4.9 4.9
Dividends paid 8 -- -- -- (254.5) (254.5)
At 1 April 2022 248.1 394.4 148.4 473.0 1,263.9
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Profit for the year -- -- -- 132.2 132.2
Net actuarial losses 11 -- -- -- (252.2) (252.2)
Deferred tax on net actuarial
losses -- -- -- 63.0 63.0
Loss on cash flow hedges -- -- (2.5) -- (2.5)
Deferred tax on losses on cash
flow hedges -- -- 0.6 -- 0.6
Amounts on cash flow hedges
transferred to the income
statement 6 -- -- 4.9 -- 4.9
Deferred tax on transfer to the
income statement -- -- (1.1) -- (1.1)
Total comprehensive loss for
the year -- -- 1.9 (57.0) (55.1)
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Share options and LTIPs
- proceeds from shares issued 1.0 14.3 -- -- 15.3
- value of employees' services -- -- -- 9.5 9.5
- own shares purchased -- -- -- (1.8) (1.8)
Deferred tax on share based
payments -- -- -- 0.1 0.1
Dividends paid 8 -- -- -- (261.3) (261.3)
At 31 March 2023 249.1 408.7 150.3 162.5 970.6
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Consolidated balance sheet
At 31 March 2023
31 March 31 March
2023 2022
Note GBPm GBPm
Non-current assets
Goodwill 92.7 91.4
Other intangible assets 185.9 179.6
Property, plant and equipment 10,716.9 10,208.4
Right-of-use assets 129.3 129.9
Investment in joint venture 10 16.5 16.5
Derivative financial instruments 82.3 31.2
Trade and other receivables 88.4 92.1
Retirement benefit surplus 11 5.7 17.5
-----
11,317.7 10,766.6
--------------------------------------- ----- ------------------- ----------------------
Current assets
Inventory 35.4 32.0
Trade and other receivables 750.9 606.4
Current tax receivable 9.9 6.2
Derivative financial instruments 0.5 27.6
Cash and cash equivalents 34.2 115.4
830.9 787.6
--------------------------------------- ----- ------------------- ----------------------
Current liabilities
Borrowings (317.4) (365.2)
Trade and other payables (720.4) (655.5)
Provisions for liabilities (52.4) (38.4)
(1,090.2) (1,059.1)
--------------------------------------- ----- ------------------- ----------------------
Net current liabilities (259.3) (271.5)
--------------------------------------- ----- ------------------- ----------------------
Total assets less current liabilities 11,058.4 10,495.1
Non-current liabilities
Borrowings (6,986.2) (6,365.9)
Derivative financial instruments (11.3) (43.3)
Trade and other payables (1,479.6) (1,334.0)
Deferred tax (1,293.5) (1,320.6)
Retirement benefit obligations 11 (285.1) (145.5)
Provisions for liabilities (32.1) (21.9)
(10,087.8) (9,231.2)
--------------------------------------- ----- ------------------- ----------------------
Net assets 970.6 1,263.9
--------------------------------------- ----- ------------------- ----------------------
Equity
Called up share capital 249.1 248.1
Share premium account 408.7 394.4
Other reserves 150.3 148.4
Retained earnings 162.5 473.0
Total equity 970.6 1,263.9
--------------------------------------- ----- ------------------- ----------------------
Consolidated cash flow statement
For the year ended 31 March 2023
2023 2022
Note GBPm GBPm
------------------------------------------------------------ ----- -------- --------
Cash generated from operations 12 753.3 891.7
Tax received 12 6.1 --
Tax paid 12 (10.1) (1.2)
Net cash generated from operating activities 749.3 890.5
------------------------------------------------------------ ----- -------- --------
Cash flows from investing activities
Purchase of subsidiaries net of cash acquired (0.4) --
Purchases of property, plant and equipment (699.7) (610.3)
Purchases of intangible assets (40.0) (36.3)
Proceeds on disposal of property, plant and equipment 12.9 9.5
Loans repaid by joint venture 5.5 --
Loans advanced to joint ventures -- (13.0)
Interest received 5.5 1.9
Net cash outflow from investing activities (716.2) (648.2)
------------------------------------------------------------ ----- -------- --------
Interest paid (205.3) (182.9)
Interest element of lease payments (3.7) (4.0)
Dividends paid to shareholders of the parent (261.3) (254.5)
Repayments of borrowings (982.4) (488.9)
Principal elements of lease payments (13.1) (12.1)
New loans raised 1,351.4 501.0
Issues of shares net of costs 15.3 257.2
Proceeds from swap terminations -- 5.6
Payments from swap terminations (11.2) --
Purchase of own shares (1.8) --
Net cash outflow from financing activities (112.1) (178.6)
------------------------------------------------------------ ----- -------- --------
Net movement in cash and cash equivalents (79.0) 63.7
Net cash and cash equivalents at the beginning of the year 107.7 44.0
Net cash and cash equivalents at the end of the year 28.7 107.7
------------------------------------------------------------ ----- -------- --------
Cash at bank and in hand 34.2 40.4
Bank overdrafts (5.5) (7.7)
Short term deposits -- 75.0
28.7 107.7
------------------------------------------------------------ ----- -------- --------
Notes to the financial statements
1. General information
Basis of preparation
The financial statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and United Kingdom adopted
International Financial Reporting Standards ('IFRS'). The
preparation of financial statements in conformity with IFRS
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of revenues and
expenses for the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results may ultimately differ from those
estimates.
Including undrawn committed credit facilities, the Group is
fully funded for its investment and cash flow needs until November
2024. After making enquiries, the directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future and hence the
financial statements have been prepared on the going concern
basis.
The financial statements have been prepared under the historical
cost convention as modified by the revaluation of certain financial
assets and liabilities (including derivative instruments) at fair
value.
The financial information set out in this announcement does not
constitute the Company's statutory accounts, within the meaning of
section 430 of the Companies Act 2006, for the years ended 31 March
2023 or 2022, but is derived from those accounts. While the
financial information included within this announcement has been
prepared in accordance with the recognition and measurement
criteria of IFRS, it does not comply with the disclosure
requirements of IFRS. Statutory accounts for 2022 have been
delivered to the Registrar of Companies and those for 2023 will be
delivered following the Company's annual general meeting. The
auditors have reported on those accounts; their reports were
unqualified and did not contain statements under section 498(2) or
(3) of the Companies Act 2006.
The auditors have consented to the publication of the
Preliminary Announcement as required by Listing Rule 9.7a having
completed their procedures under APB bulletin 2008/2.
2. Segmental analysis
a) Background
The Group is organised into two main business segments:
Regulated Water and Waste Water includes the activities of
Severn Trent Water Limited, except hydro-electric generation and
property sales, and Hafren Dyfrdwy Cyfyngedig.
Business Services includes the Group's Operating Services
businesses, the Green Power business including Severn Trent Water's
hydro-electric generation, the Property Development business and
our other non-regulated businesses including affinity products and
searches.
The Severn Trent Executive Committee ('STEC') is the Group's
chief operating decision maker. The reports provided to STEC
include segmental information prepared on the basis described
above.
Results from interests in our joint venture are not included in
the segmental reports reviewed by STEC.
Goodwill is allocated and monitored at the segment level.
Transactions between reportable segments are included within
segmental results, assets and liabilities in accordance with Group
accounting policies. These are eliminated on consolidation.
b) Segmental results
The following table shows the segmental turnover and PBIT:
2023 2022
------------------------------------------- --------------------------------------------
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
------------------------- ----------------------- ------------------ ------------------------ ------------------
External turnover 1,995.0 170.1 1,803.9 139.4
Inter-segment turnover 0.4 7.0 0.5 4.2
Total turnover 1,995.4 177.1 1,804.4 143.6
------------------------- ----------------------- ------------------ ------------------------ ------------------
Profit before interest
and tax 467.5 49.2 476.3 36.4
------------------------- ----------------------- ------------------ ------------------------ ------------------
The reportable segments' turnover is reconciled to Group
turnover as follows:
2023 2022
GBPm GBPm
--------------------------------- -------- --------
Regulated Water and Waste Water 1,995.4 1,804.4
Business Services 177.1 143.6
Corporate and other 1.1 1.1
Consolidation adjustments (8.5) (5.8)
2,165.1 1,943.3
--------------------------------- -------- --------
Segmental PBIT is reconciled to the Group's profit before tax as
follows:
2023 2022
GBPm GBPm
---------------------------------------------------------------------------------- -------- --------
Regulated Water and Waste Water 467.5 476.3
Business Services 49.2 36.4
Corporate and other (8.0) (6.9)
Consolidation adjustments 0.1 0.4
PBIT 508.8 506.2
Net finance costs (362.6) (269.4)
Reduction in expected credit loss on loan receivable -- 0.2
Net gains on financial instruments 21.7 39.3
Share of net gain/(loss) of joint ventures accounted for using the equity method -- (2.2)
Profit on ordinary activities before taxation 167.9 274.1
---------------------------------------------------------------------------------- -------- --------
The Group's treasury and tax affairs are managed centrally by
the Group Treasury and Tax departments. Finance costs are managed
on a group basis and hence interest income and costs are not
reported at the segmental level. Tax is not reported to STEC on a
segmental basis. The Group's interest in its joint venture is
reported as a corporate asset.
c) Segmental capital employed
The following table shows the segmental capital employed:
2023 2022
------------------------------------------- --------------------------------------------
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
------------------------- ----------------------- ------------------ ------------------------ ------------------
Operating assets 11,498.4 349.5 10,869.7 337.4
Goodwill 63.5 30.5 63.5 29.2
Segment assets 11,561.9 380.0 10,933.2 366.6
Segment operating
liabilities (2,507.4) (33.3) (2,158.8) (29.6)
Capital employed 9,054.5 346.7 8,774.4 337.0
------------------------- ----------------------- ------------------ ------------------------ ------------------
Operating assets comprise other intangible assets, property,
plant and equipment, right-of-use assets, retirement benefit
surpluses, inventory and trade and other receivables.
Operating liabilities comprise trade and other payables,
retirement benefit obligations and provisions.
3. Revenue from contracts with customers
Revenue recognised from contracts with customers is analysed by
business segment below:
Year ended 31 March 2023
Regulated Water and Corporate Consolidation
Waste Water Business Services and other adjustments Group
GBPm GBPm GBPm GBPm GBPm
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
Water and waste water
services 1,932.9 -- -- (0.4) 1,932.5
Operating services -- 84.7 -- -- 84.7
Renewable energy 57.2 78.6 -- (7.0) 128.8
Other sales 5.3 13.8 1.1 (1.1) 19.1
1,995.4 177.1 1.1 (8.5) 2,165.1
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
Year ended 31 March 2022
Regulated Water and Corporate Consolidation
Waste Water Business Services and other adjustments Group
GBPm GBPm GBPm GBPm GBPm
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
Water and waste water
services 1,767.5 -- -- (0.5) 1,767.0
Operating services -- 74.4 -- -- 74.4
Renewable energy 32.8 55.5 -- (4.2) 84.1
Other sales 4.1 13.7 1.1 (1.1) 17.8
1,804.4 143.6 1.1 (5.8) 1,943.3
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
Revenue from water and waste water services provided to
customers with meters is recognised when the service is provided
and is measured based on actual meter readings and estimated
consumption for the period between the last meter reading and the
year end. For customers who are not metered, the performance
obligation is to stand ready to provide water and waste water
services throughout the period. Such customers are charged on an
annual basis, coterminous with the financial year and revenue is
recognised on a straight line basis over the financial year.
Payments received from water and waste water customers in
advance of the service period represents a contract liability.
Changes in the Group's contract liabilities from payments received
in advance were as follows:
2023 2022
GBPm GBPm
-------------------------------- ---------- ----------
Contract liability at 1 April 144.8 132.5
Revenue recognised (1,394.9) (1,291.1)
Cash received in advance 1,396.6 1,303.4
-------------------------------- ---------- ----------
Contract liability at 31 March 146.5 144.8
-------------------------------- ---------- ----------
The Operating Services business includes a material 25-year
contract with multiple performance obligations. Under this contract
the Group bills the customer based on an inflation-linked
volumetric tariff. The performance obligations are:
-- operating and maintaining the customer's infrastructure assets;
-- upgrading the customer's infrastructure assets;
-- administrating the services received from statutory water and
sewerage undertakers; and
-- administrating billing services of the customer's commercial
and Non Base Dependant customers.
Revenue is allocated to each performance obligation based on the
stand-alone selling price of each performance obligation, which is
based on the forecast costs incurred and expected margin for each
obligation. Changes to projected margins are adjusted on a
cumulative basis in the period that they are identified.
Other than the provision of water and waste water services,
there is no direct correlation between the satisfaction of the
performance obligations and the timing of billing and customer
payments. The estimated transaction price for the contract is
derived from estimates of the customer's consumption at the
contract tariff rate, adjusted for inflation. This estimate is
updated on an annual basis. The estimated transaction price has
increased from 31 March 2022 as a result of increased inflation and
consumption. At 31 March 2023 the aggregate amount of the estimated
transaction price allocated to performance obligations that were
not satisfied was GBP372.5 million (2022: GBP396.3 million). This
amount is expected to be recognised as revenue as follows:
2023 2022
GBPm GBPm
---------------------------- ------ ------
In the next year 52.1 49.0
Between one and five years 212.3 197.4
After more than five years 108.1 149.9
---------------------------- ------ ------
372.5 396.3
---------------------------- ------ ------
The assumptions and other sources of estimation uncertainty in
relation to this contract do not present a significant risk of a
material adjustment to the carrying amounts of assets and
liabilities in the next financial year and are therefore not
included as a source of estimation uncertainty.
Revenue recognised in excess of amounts billed is recorded as a
contract asset and amounts billed in excess of revenue recognised
is recorded as a contract liability. Changes in contract assets in
the year were as follows:
2023 2022
GBPm GBPm
---------------------------- ------- -------
Contract asset at 1 April 39.9 38.2
Amounts billed (52.6) (49.9)
Revenue recognised 57.0 51.6
---------------------------- ------- -------
Contract asset at 31 March 44.3 39.9
---------------------------- ------- -------
4. Finance income
2023 2022
GBPm GBPm
Interest income earned on bank deposits 3.3 0.1
Other financial income 2.2 1.8
--------------------------------------------------- ----- -----
Total interest receivable 5.5 1.9
Interest income on defined benefit scheme assets 78.6 52.8
84.1 54.7
-------------------------------------------------- ----- -----
5. Finance costs
2023 2022
GBPm GBPm
Interest expense charged on:
Bank loans and overdrafts 30.9 14.7
Other loans 328.6 243.5
Lease liabilities 3.7 4.0
Total borrowing costs 363.2 262.2
Other financial expenses 1.3 2.4
Interest cost on defined benefit scheme liabilities 82.2 59.5
446.7 324.1
----------------------------------------------------- ------ ------
6. Net gains on financial instruments
2023 2022
GBPm GBPm
------ ------
Loss on swaps used as hedging instruments in fair value hedges (1.3) (1.0)
(Loss)/gain arising on debt in fair value hedges (0.3) 1.6
Exchange loss on other loans (7.4) (6.6)
Net loss on cash flow hedges transferred from equity (4.9) (6.8)
Hedge ineffectiveness on cash flow hedges (1.3) (0.6)
Gain arising on swaps where hedge accounting is not applied 35.7 51.5
Amortisation of fair value adjustment on debt 1.2 1.2
21.7 39.3
---------------------------------------------------------------- ------ ------
7. Tax
2023 2022
GBPm GBPm
------ ------
Current tax
Current year at 19% (2022: 19%) -- --
Prior years 0.2 (4.8)
Total current tax charge/(credit) 0.2 (4.8)
---------------------------------------------------- ------ ------
Deferred tax
Origination and reversal of temporary differences:
Current year 36.0 66.7
Prior years (0.5) 5.0
Exceptional charge on rate change -- 294.4
Total deferred tax charge 35.5 366.1
---------------------------------------------------- ------ ------
35.7 361.3
---------------------------------------------------- ------ ------
8. Dividends
Amounts recognised as distributions to owners of the Company in
the year:
2023 2022
---------------- ------ ---------------- --------
Pence per share GBPm Pence per share GBPm
---------------------------------------------------------- ---------------- ------ ---------------- --------
Final dividend for the year ended 31 March 2022 (2021) 61.28 153.9 60.95 152.2
Interim dividend for the year ended 31 March 2023 (2022) 42.73 107.4 40.86 102.3
---------------------------------------------------------- ---------------- ------ ---------------- --------
Total dividends paid 104.01 261.3 101.81 254.5
---------------------------------------------------------- ---------------- ------ ---------------- --------
Proposed final dividend for the year ended 31 March 2023 64.09 163.1
---------------------------------------------------------- ---------------- ------ ---------------- --------
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements.
9. Earnings/(loss) per share
a) Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year, excluding those
held in the Severn Trent Employee Share Ownership Trust which are
treated as cancelled.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares. These represent share options
granted to employees where the exercise price is less than the
average market price of the Company's shares during the period.
Potential ordinary shares are not treated as dilutive if their
conversion does not decrease earnings per share or increase loss
per share.
Basic and diluted earnings per share is calculated on the basis
of profit attributable to the owners of the Company.
The calculation of basic and diluted earnings per share is based
on the following:
i) Earnings for the purpose of basic and diluted earnings per share
2023 2022
GBPm GBPm
Profit/(loss) for the period 132.2 (87.2)
------------------------------- ------ -------
ii) Number of shares
2023 2022
m m
------------------------------------------------------------------------------------------ ------ ------
Weighted average number of ordinary shares for the purpose of basic earnings per share 250.8 247.9
Effect of dilutive potential ordinary shares:
- share options and LTIPs 1.1 -
Weighted average number of ordinary shares for the purpose of diluted earnings per share 251.9 247.9
------------------------------------------------------------------------------------------- ------ ------
Unvested share options and LTIPs have not been treated as
dilutive potential ordinary shares in 2022 because their conversion
would decrease the loss per share.
b) Adjusted earnings per share
2023 2022
pence pence
Adjusted basic earnings per share 58.2 96.1
Adjusted diluted earnings per share 58.0 95.6
-------------------------------------- ------ ------
Adjusted earnings per share figures are presented for continuing
operations. These exclude the effects of net gains/losses on
financial instruments, current tax on net gains/losses on financial
instruments, and deferred tax in both 2023 and 2022. The Directors
consider that the adjusted figures provide a useful additional
indicator of performance. The denominators used in the calculations
of adjusted basic and adjusted diluted earnings per share are the
same as those used in the unadjusted figures set out above except
that the number of ordinary shares for the purpose of the adjusted
diluted earnings per share for the period ended 31 March 2022 is
249.3 million as this includes 1.4 million dilutive potential
ordinary shares from share options and LTIPs.
The adjustments to earnings that are made in calculating
adjusted earnings per share are as follows:
2023 2022
GBPm GBPm
-------
Earnings for the purpose of basic and diluted earnings per share 132.2 (87.2)
Adjustments for:
- net gains on financial instruments (21.7) (39.3)
- current tax on net gains on financial instruments -- (1.4)
- deferred tax 35.5 366.1
----------------------------------------------------------------------------
Earnings for the purpose of adjusted basic and diluted earnings per share 146.0 238.2
---------------------------------------------------------------------------- ------- -------
The comparative earnings for the purpose of adjusted basic and
diluted earnings per share excluded an amount relating to
amortisation of acquired intangibles. We have restated this
comparative measure to include the effect of amortisation of
acquired intangibles so that it is calculated on a consistent basis
with the current year.
10. Interest in joint venture
Our principal joint venture undertaking at 31 March 2023 is
Water Plus Group Limited, which is the largest business retailer in
the non-household retail water market in England and Scotland.
Movements in the investment were as follows:
2023 2022
GBPm GBPm
---------------------------------------------------------- ----- ------
Carrying value of joint venture investment at 1 April 16.5 -
Reclassification on subscription for equity - 18.7
Group's share of result after tax and comprehensive loss - (2.2)
---------------------------------------------------------- ----- ------
Carrying value of joint venture investment at 31 March 16.5 16.5
---------------------------------------------------------- ----- ------
During the current year, Water Plus broke even (2022: loss of
GBP4.4m).
On 23 April 2021, the Group extinguished the GBP32.5 million
Revolving Credit Facility ('RCF') previously extended to Water
Plus, and replaced this with a subscription for GBP32.5 million of
equity shares in Water Plus Group Limited at par. The carrying
value of the loan receivable was reclassified to investment in
joint venture.
11. Retirement benefit schemes
The Group operates three defined benefit schemes in the UK, two
from Severn Trent and one from Dee Valley Water. The Severn Trent
schemes are closed to future accrual. The Group also has an
unfunded obligation to provide benefits to certain former employees
whose earnings were in excess of the pensions cap that operated
when the benefits were accrued. The most recent actuarial
valuations of the Severn Trent schemes were at 31 March 2022. The
Group participates in the Dee Valley Water plc Section of the Water
Companies Pension Scheme, which is a defined benefit sectionalised
scheme. The most recent actuarial valuation of this scheme was at
31 March 2020.
On 29 June 2021, the Group completed the bulk annuity buy-in of
the Severn Trent Mirror Image Pension Scheme ('STMIPS'). As a
result of the buy-in, whilst the legal obligation to pay the
employee benefits directly as they fall due remains with the Group,
the right to reimbursement of such amounts to the Group has been
obtained under the insurance policy. In March 2023, the Group also
completed a bulk annuity buy-in for the Dee Valley Water Scheme
('DVWS').
The assumptions used in calculating the defined benefit
obligations as at 31 March 2023 have been updated to reflect market
conditions prevailing at the balance sheet date as follows:
2023 2022
% %
------------------------------------------------------- ----------------- ------------ ---------
Price inflation - RPI 3.3 3.6
Price inflation - CPI Pre 2030: 2.3 2.6
Post 2030: 3.2 3.5
Discount rate 4.8 2.8
Pension increases in payment 3.3 3.6
Pension increases in deferment 3.3 3.6
-------------------------------------------------------------------------- ------------ ---------
Remaining life expectancy for members currently aged 60 (years)
- men 25.8 26.5
- women 28.6 28.5
Remaining life expectancy at age 60 for members currently aged 40 (years)
- men 26.9 27.6
- women 29.8 29.7
-------------------------------------------------------------------------------- ------ ---------
The calculation of the scheme obligations is sensitive to the
actuarial assumptions and in particular to the assumptions relating
to the discount rate, price inflation (capped, where relevant) and
mortality. The following table summarises the estimated impact on
the Group's obligations from changes to key actuarial assumptions
whilst holding all other assumptions constant.
Assumption Change in assumption Impact on scheme liabilities
Discount rate Increase/decrease by Decrease/increase by GBP26
0.1% pa million
Price inflation Increase/decrease by Increase/decrease by GBP21
0.1% pa million
Mortality Increase in life expectancy Increase by GBP72 million
by 1 year
---------------- ---------------------------- -----------------------------
In reality, interrelationships exist between the assumptions,
particularly between the discount rate and price inflation. The
above analysis does not take into account the effect of these
interrelationships. Also, in practice any movements in obligations
arising from assumption changes are likely to be accompanied by
movements in asset values - and so the impact on the accounting
deficit may be lower than the impact on the obligations shown
above.
The defined benefit assets have been updated to reflect their
market value as at 31 March 2023. Actuarial gains and losses on the
scheme assets and defined benefit obligations have been reported in
the statement of comprehensive income. Service cost and the cost of
administrating the scheme are recognised in operating costs;
interest cost is recognised in net finance costs.
Movements in the net deficit recognised in the balance sheet
were as follows:
Defined
Fair value benefit
of plan assets obligations Net deficit
GBPm GBPm GBPm
----------------------------------------------------------------------- ---------------- ------------- ------------
At 31 March 2022 2,659.4 (2,787.4) (128.0)
Current service cost - (0.1) (0.1)
Past service credit - 8.3 8.3
Scheme administration costs (4.3) - (4.3)
Interest income/(cost) 78.6 (82.2) (3.6)
Actuarial (losses)/gains recognised in the statement of comprehensive
income (922.0) 669.8 252.2
Contributions from the sponsoring companies 100.5 - 100.5
Employees' contributions and benefits paid (126.9) 126.9 -
----------------------------------------------------------------------- ---------------- ------------- ------------
At 31 March 2023 1,785.3 (2,064.7) (279.4)
----------------------------------------------------------------------- ---------------- ------------- ------------
The net deficit is presented on the balance sheet as
follows:
2023 2022
GBPm GBPm
-------------------------------- -------- --------
Retirement benefit surplus 5.7 17.5
Retirement benefit obligations (285.1) (145.5)
-------------------------------- -------- --------
(279.4) (128.0)
-------------------------------- -------- --------
12. Cash flow
a) Reconciliation of operating profit to operating cash
flows
2023 2022
GBPm GBPm
Profit before interest and tax 508.8 506.2
Depreciation of property, plant and equipment 379.7 361.5
Depreciation of right-of-use assets 3.9 3.8
Amortisation of intangible assets 33.7 36.3
Pension service (credit)/cost (8.2) 0.2
Defined benefit pension scheme administration costs 4.3 3.8
Defined benefit pension scheme contributions (100.5) (61.9)
Share based payment charge 9.5 8.3
Profit on sale of property, plant and equipment and intangible assets (2.2) (5.4)
Release from deferred credits (16.4) (17.5)
Contributions and grants received 40.2 42.8
Provisions charged to the income statement 7.1 14.8
Utilisation of provisions for liabilities (17.3) (12.3)
Operating cash flows before movements in working capital 842.6 880.6
Increase in inventory (3.4) (1.2)
Increase in amounts receivable (146.2) (87.6)
Increase in amounts payable 60.3 99.9
Cash generated from operations 753.3 891.7
Tax received 6.1 --
Tax paid (10.1) (1.2)
Net cash generated from operating activities 749.3 890.5
------------------------------------------------------------------------ -------- -------
b) Non-cash transactions
Non-cash additions to right-of-use assets during the year were
GBP3.0 million (2022: GBP4.2 million). Assets transferred from
developers at no cost were recognised at their fair value of
GBP105.0 million (2022: GBP69.0 million) and provisions of GBP34.2
million (2022: GBP15.3 million) for works in response to legally
enforceable undertakings to regulators were recognised as additions
to property, plant and equipment. Under the LTIP 226,429 (2022:
230,003) shares were issued to employees for no cash
consideration.
c) Reconciliation of movement in cash and cash equivalents to
movement in net debt
Net cash and Cross Loans due
cash Lease currency from joint
equivalents Bank loans Other loans liabilities swaps venture Net debt
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------
At 1 April
2022 107.7 (782.5) (5,823.5) (117.4) 28.3 79.6 (6,507.8)
---------------
Cash flow (79.0) 83.7 (452.7) 13.1 -- (5.5) (440.4)
Fair value
adjustments -- -- 0.9 -- -- -- 0.9
Inflation
uplift on
index-linked
debt -- (13.5) (193.9) -- -- -- (207.4)
Foreign
exchange -- -- (7.4) -- -- -- (7.4)
Other non-cash
movements -- (0.7) 2.4 (6.6) 5.3 1.2 1.6
------------ -------------- -------------- -------------- ----------
At 31 March
2023 28.7 (713.0) (6,474.2) (110.9) 33.6 75.3 (7,160.5)
--------------- -------------- ----------- ------------ -------------- -------------- -------------- ----------
13. Post balance sheet events
Dividends
Following the year end the Board of Directors has proposed a
final dividend of 64.09 pence per share.
14. Contingent liabilities
a) Bonds and guarantees
Group undertakings have entered into bonds and guarantees in the
normal course of business. No liability (2022: nil) is expected to
arise in respect of either bonds or guarantees.
b) Claims under the Environmental Information Regulations 2004 regarding property searches
Since 2016, the Group has received letters of claim from a
number of groups of personal search companies (PSCs) which allege
that the information held by Severn Trent Water Limited (STW) used
to produce the CON29DW residential and also the commercial water
and drainage search reports sold by Severn Trent Property Solutions
Limited (STPS), is disclosable under the Environmental Information
Regulations. In April 2020, a group of over 100 PSCs commenced
litigation against all water and sewerage undertakers in England
and Wales, including STW and STPS. The claimants are seeking
damages, on the basis that STW and STPS charged for information
which should have been made available either free, or for a limited
charge, under the Environmental Information Regulations. STW and
STPS are defending this claim. This is an industry-wide issue and
the litigation is in progress. A timetable for the claim has
recently been set by the court leading up to a stage 1 trial on the
EIR legal issues only (not the other issues or amount of damages)
which is scheduled to be held in November 2023.
c) Ongoing combined sewer overflow investigations
Ofwat and the Environment Agency are each conducting their own
investigations into the waste water industry, to investigate
compliance with the conditions of environmental permits. Ofwat has
launched specific enforcement investigations against six sewerage
companies, but Severn Trent is not included in those cases. The
Environment Agency's investigation of all English sewerage
companies is continuing and it is not yet clear what the outcome of
those investigations will be. We have responded quickly and
comprehensively to all questions from the regulators and have had
open conversations with them on the issues under investigation.
15. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
included in this note. Trading transactions between the Group and
its joint venture Water Plus are disclosed below.
2023 2022
GBPm GBPm
--------------------- ------ ------
Sale of services 259.5 259.8
Net interest income 3.9 2.5
---------------------- ------ ------
263.4 262.3
--------------------- ------ ------
Outstanding balances between the Group and the joint venture as
at 31 March were as follows:
2023 2022
GBPm GBPm
------------------------------------------------------ ----- ------
Amounts due to related parties - (0.2)
Trade and other receivables due from related parties 0.2 -
Loans receivable from joint ventures 75.3 79.6
------------------------------------------------------- ----- ------
75.5 79.4
------------------------------------------------------ ----- ------
The retirement benefit schemes operated by the Group are
considered to be related parties. Details of transactions and
balances with the retirement benefit schemes are disclosed in note
11.
Remuneration of key management personnel
Key management personnel comprise the members of STEC during the
year, and non-executive directors of the Company.
The remuneration of the directors is included within the amounts
disclosed below.
2023 2022
GBPm GBPm
----
Short term employee benefits 4.6 5.7
Short term non-executive director benefits 0.9 0.7
Share based payments 5.4 6.6
------------------------------------------- ---- ----
10.9 13.0
------------------------------------------- ---- ----
16. Alternative performance measures (APMs)
Financial measures or metrics used in this report that are not
defined by IFRS are alternative performance measures. The Group
uses such measures for performance analysis because they provide
additional useful information on the performance and position of
the Group. Since the Group defines its own alternative performance
measures, these might not be directly comparable to other
companies' alternative performance measures. These measures are not
intended to be a substitute for, or superior to, IFRS
measurements.
a) Exceptional items
Exceptional items are income or expenditure which individually
or, in aggregate if of a similar type, should, in the opinion of
the directors, be disclosed by virtue of their size or nature if
the financial statements are to give a true and fair view. In this
context, materiality is assessed at the segment level. There were
no exceptional items in the years ended 31 March 2023 or 2022.
b) Adjusted earnings per share
Adjusted earnings per share figures exclude net gains/losses on
financial instruments, current tax on net gains/losses on financial
instruments and deferred tax. The Directors consider that the
adjusted figures provide a useful additional indicator of
performance and remove non-performance related distortions. S ee
note 9.
c) Net debt
Net debt comprises borrowings including remeasurements for
changes in fair value of amounts in fair value hedging
relationships, cross currency swaps that are used to fix the
sterling liability of foreign currency borrowings (whether hedge
accounted or not), net cash and cash equivalents, and loans to
joint ventures. See note 12.
d) Effective interest cost
The effective interest cost is calculated as net finance costs,
excluding net finance costs from pensions, plus capitalised finance
costs divided by the monthly average net debt during the year.
2023 2022
GBPm GBPm
-------- --------
Net finance costs 362.6 269.4
Net finance costs from pensions (3.6) (6.7)
Capitalised finance costs 56.6 34.5
415.6 297.2
--------------------------------- -------- --------
Average net debt 6,720.6 6,292.2
Effective interest cost 6.2% 4.7%
--------------------------------- -------- --------
This APM is used as it shows the average interest rate that is
attributable to the net debt of the business.
e) Effective cash cost of interest
The effective cash cost of interest is calculated on the same
basis as the effective interest cost except that it excludes
finance costs that are not paid in cash but are accreted to the
carrying value of the debt (principally RPI adjustments on
index-linked debt).
2023 2022
GBPm GBPm
--------------------------------- -------- --------
Net finance costs 362.6 269.4
Net finance costs from pensions (3.6) (6.7)
Indexation adjustments (215.7) (106.5)
Capitalised finance costs 56.6 34.5
---------------------------------
199.9 190.7
--------------------------------- -------- --------
Average net debt 6,720.6 6,292.2
--------------------------------- -------- --------
Effective cash cost of interest 3.0% 3.0%
--------------------------------- -------- --------
This is used as it shows the average finance cost that is paid
in cash.
f) PBIT interest cover
The ratio of PBIT to net finance costs excluding net finance
costs from pensions.
2023 2022
GBPm GBPm
------ ------
PBIT 508.8 506.2
------------------------------------------------------------- ------ ------
Net finance costs 362.6 269.4
Net finance costs from pensions (3.6) (6.7)
Net finance costs excluding net finance costs from pensions 359.0 262.7
------------------------------------------------------------- ------ ------
Ratio Ratio
PBIT interest cover ratio 1.4 1.9
------------------------------------------------------------- ------ ------
This is used to show how the PBIT of the business covers the
financing costs associated only with net debt on a consistent
basis. In previous years we have reported adjusted PBIT interest
cover.
g) EBITDA and EBITDA interest cover
The ratio of profit from continuing operations before interest,
tax, depreciation and amortisation to net finance costs excluding
net finance costs from pensions.
2023 2022
GBPm GBPm
--------------------------------------------------------- ------ ------
PBIT 508.8 506.2
--------------------------------------------------------- ------ ------
Depreciation (including right-of-use assets) 383.6 365.3
Amortisation 33.7 36.3
EBITDA 926.1 907.8
--------------------------------------------------------- ------ ------
Net finance costs 362.6 269.4
Net finance costs from pensions (3.6) (6.7)
Net finance costs excluding finance costs from pensions 359.0 262.7
--------------------------------------------------------- ------ ------
EBITDA interest cover ratio 2.6 3.5
--------------------------------------------------------- ------ ------
This is used to show how the EBITDA of the business covers the
financing costs associated only with net debt on a consistent
basis.
h) Adjusted effective current tax rate
The current tax charge for the year on continuing operations,
excluding prior year charges, and current tax on financial
instruments, divided by profit from continuing operations before
tax, net losses/gains on financial instruments, and share of net
(profit)/loss of joint ventures accounted for using the equity
method.
2023 2022
Current tax thereon Current tax thereon
GBPm GBPm GBPm GBPm
--------------------------------------------- ------- -------------------- ------- --------------------
Profit before tax 167.9 -- 274.1 --
--------------------------------------------- ------- ------- --------------------
Adjustments
Share of net (profit)/loss of joint venture -- -- 2.2 --
Net gains on financial instruments (21.7) -- (39.3) --
146.2 -- 237.0 --
--------------------------------------------- ------- -------------------- ------- --------------------
Adjusted effective current tax rate 0.0% 0.0%
--------------------------------------------- ------- -------------------- ------- --------------------
This APM is used to be remove distortions in the tax charge and
create a metric consistent with the calculation of adjusted
earnings per share in note 9. Share of net (profit)/loss of joint
ventures is excluded from the calculation because the (profit)/loss
is included after tax and so the tax on joint venture profits is
not included in the current tax charge.
i) Operational cash flow
Cash generated from operations less contributions and grants
received.
2023 2022
GBPm GBPm
------------------------------------ -------- -------
Cash generated from operations 753.3 891.7
Contributions and grants received (40.2) (42.8)
------------------------------------ -------- -------
Operational cashflow 713.1 848.9
------------------------------------ -------- -------
This APM is used to show operational cash excluding the effect
of contributions and grants received as part of capital
programmes.
j) Cash capex
Cash paid to acquire property, plant and equipment and
intangible fixed assets less contributions and grants received and
proceeds on disposal of property, plant and equipment and
intangible fixed assets.
2023 2022
GBPm GBPm
------------------------------------------------------- ------- -------
Purchase of property, plant and equipment 699.7 610.3
Purchase of intangible assets 40.0 36.3
Contributions and grants received (40.2) (42.8)
Proceeds on disposal of property, plant and equipment (12.9) (9.5)
Cash capex 686.6 594.3
------------------------------------------------------- ------- -------
This APM is used to show the cash impact of the Group's capital
programmes.
k) Capital investment
Additions to property, plant and equipment and intangible fixed
assets less contributions and grants received, assets contributed
at no cost, and capitalised finance costs.
2023 2022
GBPm GBPm
------------------------------------------- ------- ------
Additions to property, plant and equipment 898.9 714. 3
Additions to intangible assets 40.0 36.3
Contributions and grants received (40.2) (42.8)
Assets contributed at no cost (105.0) (69.0)
Capitalised finance costs (56.6) (34.5)
------------------------------------------- ------- ------
Capital investment 737.1 604.3
------------------------------------------- ------- ------
Includes GBP34.2 million (2022: GBP15.3 million) of provisions
for future capital expenditure arising from regulatory obligations
(See note 12).
Glossary
Asset Management Plan ('AMP')
Price limit periods are sometimes known as AMP (Asset Management
Plan) periods. The period from 1 April 2020 to 31 March 2025 is
known as AMP7 because it is the seventh cycle since the water
industry was privatised in 1989.
C-MeX ('Customer Measure of Experience')
The Customer Measure of Experience (C-MeX) replaced the SIM as
the incentive for companies to improve the experience of
residential customers from 1 April 2020 onwards.
Customer ODI ('Outcome Delivery Incentive')
A framework made up of outcomes, measures, targets and
incentives which provides companies with rewards for achieving
stretching performance targets and compensates customers if
performance is below performance targets. This was first introduced
at the 2014 price review (PR14) by the regulator, Ofwat.
Final Determination ('FD')
The outcome of the price review process that sets price,
investment and services packages that customers receive.
Ofwat
The water industry's economic regulator in England &
Wales.
PR19
The price review (PR) is a financial review process led by Ofwat
where wholesale price controls for water and sewage companies are
set every five years. PR19 (Price Review 2019) set wholesale price
controls for water and sewerage companies for 2020 to 2025.
Price limits
The price limits are set to enable water companies to deliver
the services required of them over the AMP period. These include
allowing for capital maintenance of assets, ensuring security of
supply and meeting drinking water and environmental quality
requirements.
Regulatory Capital Value ('RCV')
The regulatory capital value is used to measure the capital base
of a company when setting price limits. The regulatory capital
value represents the initial market value of a company, including
debt, plus new capital expenditure.
RoRE
Return on Regulatory Equity (RoRE) measures the returns (after
tax and interest) that companies have earned by reference to the
notional regulated equity, where regulated equity is calculated
from the RCV and notional net debt.
Totex
Totex (shortened form of total expenditure) includes operating
expenditure (opex), infrastructure renewals expenditure (IRE) and
capital expenditure (capex).
RFI (Revenue Forecasting Incentive)
A mechanism to reduce the impact of deviations on customer bills
arising from revenue forecasting deviations by
adjusting companies' allowed revenues for each year to take
account of differences between actual and projected revenues, and
incentivising companies to avoid revenue forecasting errors through
applying a penalty to variations that fall outside a set
uncertainty band (or 'revenue flexibility threshold').
Cautionary statement regarding forward-looking statements
This document contains statements that are, or may be deemed to
be, 'forward-looking statements' with respect to Severn Trent's
financial condition, results of operations and business and certain
of Severn Trent's plans and objectives with respect to these
items.
Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
'anticipates', 'aims', 'due', 'could', 'may', 'will', 'would',
'should', 'expects', 'believes', 'intends', 'plans', 'projects',
'potential', 'reasonably possible', 'targets', 'goal', 'estimates'
or words with a similar meaning, and, in each case, their negative
or other variations or comparable terminology. Any forward-looking
statements in this document are based on Severn Trent's current
expectations and, by their very nature, forward-looking statements
are inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance and no assurances can be given that the forward-looking
statements in this document will be realised. There are a number of
factors, many of which are beyond Severn Trent's control, that
could cause actual results, performance and developments to differ
materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to: the
Principal Risks disclosed in our Annual Report and Accounts (as
summarised in this document); changes in the economies and markets
in which the Group operates; changes in the regulatory and
competition frameworks in which the Group operates; the impact of
legal or other proceedings against or which affect the Group; and
changes in interest and exchange rates.
All written or verbal forward-looking statements, made in this
document or made subsequently, which are attributable to Severn
Trent or any other member of the Group or persons acting on their
behalf are expressly qualified in their entirety by the factors
referred to above. No assurances can be given that the
forward-looking statements in this document will be realised. This
document speaks as at the date of publication. Save as required by
applicable laws and regulations, Severn Trent does not intend to
update any forward-looking statements and does not undertake any
obligation to do so. Past performance of securities of Severn Trent
Plc cannot be relied upon as a guide to the future performance of
securities of Severn Trent Plc.
Nothing in this document should be regarded as a profits
forecast.
This document is not an offer to sell, exchange or transfer any
securities of Severn Trent Plc or any of its subsidiaries and is
not soliciting an offer to purchase, exchange or transfer such
securities in any jurisdiction. Securities may not be offered, sold
or transferred in the United States absent registration or an
applicable exemption from the registration requirements of the US
Securities Act of 1933 (as amended).
This information is provided by RNS, the news service of the
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END
FR SEFESDEDSELI
(END) Dow Jones Newswires
May 24, 2023 02:00 ET (06:00 GMT)
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